John T. Preston and C Change Investments, LLC v. Emjo Investments, Ltd. and H.J. Von Der Goltz

• Court: Court of Appeals of Texas
• Decided: June 12, 2015
• Docket: 01-15-00390-CV
• Status: Published

Opinion

ACCEPTED 01-15-00390-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 6/12/2015 9:25:40 PM CHRISTOPHER PRINE CLERK

No. 01-15-00390-CV _______________________________________________________________ FILED IN 1st COURT OF APPEALS IN THE FIRST COURT OF APPEALS HOUSTON, TEXAS HOUSTON, TEXAS 6/12/2015 9:25:40 PM _______________________________________________________________ CHRISTOPHER A. PRINE Clerk JOHN T. PRESTON and C CHANGE INVESTMENTS, LLC, Appellants, v. EMJO INVESTMENTS, LTD. and H.J. VON DER GOLTZ, Appellees. _______________________________________________________________

On Appeal from the 215th District Court of Harris County, Texas, Hon. Elaine H. Palmer, presiding Trial Court Cause No. 2011-44058 ____________________________________________________________________

BRIEF OF APPELLANT JOHN T. PRESTON ____________________________________________________________________

Jane Langdell Robinson Texas Bar No. 24062970 Monica Uddin Texas Bar No. 24075195 Jamie A. Aycock Texas Bar No. 24050241 AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI & MENSING 1221 McKinney Street, Ste. 3460 Houston, Texas 77010 Telephone: (713) 655-1101 Facsimile: (713) 655-0062 jrobinson@azalaw.com muddin@azalaw.com

Counsel for Appellant Oral Argument Requested No. 01-14-00703-CV

JOHN T. PRESTON and C CHANGE INVESTMENTS, LLC, Appellant, v. EMJO INVESTMENTS, LTD. and H.J. VON DER GOLTZ, Appellees.

IDENTITY OF PARTIES AND COUNSEL

Appellants: John T. Preston and C Change Investments, LLC

Trial counsel for Sean Gorman, Texas Bar No. 08218100 appellants: sgorman@azalaw.com Jamie A. Aycock, Texas Bar No. 24050241 jamieaycock@azalaw.com AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI & MENSING 1221 McKinney St., Ste. 3460, Houston, Texas 77010 Telephone: (713) 655-1101; Facsimile: (713) 655-0062

Appellate counsel Jane Langdell Robinson, Texas Bar No. 24062970 for appellants: jrobinson@azalaw.com Monica Uddin, Texas Bar No. 24075195 muddin@azalaw.com AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI & MENSING 1221 McKinney St., Ste. 3460, Houston, Texas 77010 Telephone: (713) 655-1101; Facsimile: (713) 655-0062

2 Appellees: Emjo Investments, Ltd. H.J. von der Goltz

Trial counsel for F. Eric Fryar, Texas Bar No. 07495770 appellees: eric@fryarlawfirm.com Matthew Buschi, Texas Bar No. 24064982 mbuschi@fryarlawfirm.com Christina Richardson, Texas Bar No. 24070495 crichardson@fryarlawfirm.com Fryar Law Firm, P.C. 1001 Texas Ave., 14th Floor, Houston, Texas 77002 Telephone: (281) 715-6396; Facsimile: (281) 715-6397

Trial and appellate Kelley M. Keller, Texas Bar No. 11198240 counsel for kkeller@ellison-keller.com appellees: Tracey N. Ellison, Texas Bar No. 15054720 tellison@ellison-keller.com ELLISON KELLER 5120 Woodway Dr., Ste. 6019, Houston, Texas 77056 Telephone: 713-266-8200; Fax: 713-266-8201

3 TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL .........................................................2 TABLE OF CONTENTS ........................................................................................4 INDEX OF AUTHORITIES ...................................................................................7 INDEX OF RECORD REFERENCES ................................................................10 STATEMENT OF THE CASE .............................................................................11 STATEMENT ON ORAL ARGUMENT ............................................................12 ISSUE PRESENTED .............................................................................................12 I. INTRODUCTION ..................................................................................13 II. STATEMENT OF FACTS ....................................................................14 A. The lawsuit arises out of a failed coal gasification startup. .....................14 B. The bankruptcy court dismisses all but two causes of action. .................16 C. Only two claims remain against Preston. .................................................18 D. Appellees do not allege a single act taken in Texas by Preston, much less any act in Texas that is connected to their surviving misrepresentation claims........................................................................................................18 E. Preston does no individual business and maintains no presence in Texas. .......................................................................................................23 1. Preston does not do business in Texas in his individual capacity. ....23 2. Preston does not maintain any presence in Texas..............................25 F. After two years and jurisdictional discovery, Appellees fail to allege a single act by Preston in Texas that gives rise to their surviving claims, and fail to show systematic and continuous Texas contacts that render Preston “at home” in Texas. .....................................................................25 III. SUMMARY OF THE ARGUMENT ....................................................30 IV. STANDARD OF REVIEW ...................................................................33 A. De novo review applies. ...........................................................................33 B. Jurisdiction over nonresidents requires allegations or proof of purposeful availment. .................................................................................................34

4 1. The plaintiff bears the initial burden to plead allegations showing jurisdiction over the defendant. ........................................................34 2. The long-arm statute is limited by due process considerations. ........34 3. When the plaintiff fails to meet its initial burden of alleging sufficient purposeful minimum contacts, the fact that the defendant is a nonresident defeats personal jurisdiction. ........................................35 V. ARGUMENT ..........................................................................................38 A. Appellees failed to meet their initial burden of pleading facts to show that Preston is subject to personal jurisdiction in Texas. ................................38 B. Because Appellees do not allege that any of Preston’s alleged contacts with Texas give rise the surviving claims and no evidence suggests any link, there is no specific jurisdiction as a matter of law...........................40 1. Specific jurisdiction requires that the alleged jurisdictional contacts give rise to the plaintiff’s alleged injury...........................................42 2. There are no allegations in the intervenors’ petition that could give rise to specific jurisdiction over Preston...........................................44 3. There are no allegations or evidence in Appellees’ special appearance briefing that could give rise to specific jurisdiction over Preston. .............................................................................................45 4. Appellees’ claim that Preston “could reasonably foresee that NC12 and its shareholders and investors would suffer direct economic injury” because of his alleged misrepresentations is not a basis for specific jurisdiction as a matter of law. ............................................53 C. Because Preston’s alleged contacts with Texas are not substantial, continuous, or systematic, there is no general jurisdiction as a matter of law. ...........................................................................................................54 1. General jurisdiction requires the defendant to have substantial, continuous, and systematic contacts with Texas. .............................54 2. The sporadic contacts with Texas in a representative capacity that Appellees allege are nothing like the substantial, continuous, and systematic contacts required to establish general jurisdiction..........56

5 3. Preston lacks any substantial, continuous, or systematic contact that would render him at “at home” in Texas. .........................................68 VI. CONCLUSION AND PRAYER ...........................................................70

6 INDEX OF AUTHORITIES

Cases Access Telecom, Inc. v. MCI Telecom. Corp., 197 F.3d 694 (5th Cir. 1999) ...............................................................................69

All Star Enter., Inc. v. Buchanan, 298 S.W.3d 404 (Tex. App.—Houston [14th Dist.] 2009, no pet)............... 36, 59

Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801 (Tex. 2002) ..................................................................................57

Ashdon, Inc. v. Gary Brown & Assocs., Inc., 260 S.W.3d 101 (Tex. App.—Houston [1st Dist.] 2008, no pet.) .......................69

BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789 (Tex. 2002) ............................................................... 33, 43, 46, 54

Frank A. Smith Sales, Inc. v. Atl. Aero, Inc., 31 S.W.3d 742 (Tex. App.—Corpus Christi 2000, no pet.) ................................39

Garza v. Alviar, 395 S.W.2d 821(Tex. 1965) .................................................................................68

Glencoe Capital Partners II, L.P. v. Gernsbacher, 269 S.W.3d 157 (Tex. App.—Fort Worth 2008, no pet.) ....................................43

Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 180 L. Ed. 2d 796 (2011) ............................................. 34, 42, 55

Guardian Royal Exch. Assur., Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223 (Tex. 1991) .......................................... 51, 55, 62, 64, 65

Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104 S. Ct. 1868 (1984) ............................. 51, 52, 62, 64, 65, 69, 70

Hoffmann v. Dandurand, 180 S.W.3d 340 (Tex. App.—Dallas 2005, no pet.) .................................... 58, 59

7 Howell v. Hilton Hotels Corp., 84 S.W.3d 708 (Tex. App.—Houston [1st Dist.] 2002, pet. denied) ..................67

International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945) ................................................35

Johnston v. Multidata Sys. Intern. Corp., 523 F.3d 602 (5th Cir. 2008) ...............................................................................70

Kelly v. Gen. Interior Const., Inc., 301 S.W.3d 653 (Tex. 2010) ........................................................................ passim

Kulko v. Cal. Super. Ct., 436 U.S. 84, 98 S. Ct. 1690 (1978) ......................................................... 62, 64, 65

Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777 (Tex. 2005) ................................................................... 35, 36, 54

Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569 (Tex. 2007) ............................................................. 34, 35, 37, 42

Nat'l Indus. Sand Ass’n v. Gibson, 897 S.W.2d 769 (Tex. 1995) ................................................................................44

Perkins v. Benguet Consol. Mining Co., 42 U.S. 437, 72 S. Ct. 413 (1952) ................................................................ 69, 70

PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163 (Tex. 2007) ........................................................................ passim

Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333 (Tex. 2009) ......................................................................... 35, 43

Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266 (5th Cir. 2006) ...............................................................................43

Serv. Corp. Intern. v. Guerra, 348 S.W.3d 221 (Tex. 2011) ................................................................................68

8 Shaffer v. Heitner, 433 U.S. 186, 97 S. Ct. 2569, 53 L. Ed. 2d 683 (1977) ................................ 45, 57

Siskind v. Villa Found. for Educ., Inc., 642 S.W.2d 434 (Tex. 1982) ................................................................... 40, 44, 58

Stuart v. Spademan, 772 F.2d 1185 (5th Cir. 1985) .............................................................................58

Tryco Enter., Inc. v. Robinson, 390 S.W.3d 497 (Tex. App.—Houston [1st Dist.] 2012, pet. dism’d) ................60

Vosko v. Chase Manhattan Bank, N.A., 909 S.W.2d 95 (Tex. App.—Houston [14th Dist.] 1995, writ denied) ........ 40, 59

Washington DC Party Shuttle, LLC v. IGuide Tours, 406 S.W.3d 723 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) ....... 38, 58

Waterman Steamship Corp. v. Ruiz, 355 S.W.3d 387 (Tex. App.—Houston [1st Dist.] 2011, pet. denied) ... 39, 43, 69

Wright v. Sage Eng’g, Inc., 137 S.W.3d 238 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) ................58

Statutes TEX. CIV. PRAC. & REM. CODE § 17.042 ..................................................................35

Rules

TEX. R. CIV. P. 45 .....................................................................................................41

TEX. R. CIV. P. 120a .......................................................................................... 41, 67

Other

4 Wright & Miller, FEDERAL PRACTICE & PROCEDURE § 1067.5 ............................55

9 INDEX OF RECORD REFERENCES

CR Clerk’s Record filed May 21, 2015

Citation to documents included in the Appendix are noted by “Tab #.”

10 STATEMENT OF THE CASE

Nature of Case: This is a case alleging “common law and statutory securities fraud” by investors in a failed technology startup.

Course of Proceedings: The intervenors, including Appellees, intervened in an original petition against Preston and other defendants. Preston specially appeared and asserted that he was not subject to personal jurisdiction in Texas because he is a nonresident, and does not have sufficient minimum contacts with Texas for the exercise of personal jurisdiction.

Because the claims involved a corporation, NC12, Inc., that subsequently declared bankruptcy, defendants removed the case to bankruptcy court. The bankruptcy court dismissed or abated all the claims in the original petition and all the claims in the intervenors’ petition but two: fraud and conspiracy to commit fraud with respect to alleged misrepresentations regarding the value of NC12 shares. The bankruptcy court remanded these remaining two claims to the district court.

Trial Court Disposition: Of the intervenors, only Appellees opposed Preston’s special appearance. Preston filed his special appearance on September 28, 2011. The court denied the special appearance on November 17, 2014. Preston appeals from that order.

11 STATEMENT ON ORAL ARGUMENT

If upheld, the trial court’s ruling will significantly broaden the reach of

Texas long-arm jurisdiction over foreign defendants. The trial court’s ruling

departed considerably from existing precedent by asserting jurisdiction over a

nonresident not alleged to have conducted any activity in Texas giving rise to the

claims in the lawsuit, and whose only alleged contacts with Texas consists of

periodic business trips on behalf of other entities over the last 25 years. This is an

important issue and Appellant believes oral argument could assist the panel in

considering it. Appellant therefore requests oral argument.

ISSUE PRESENTED

Sole issue: The trial court erred by denying Preston’s special appearance because Appellees failed to plead sufficient allegations to establish personal jurisdiction and because Preston is not subject to specific or general jurisdiction in Texas.

12 I. INTRODUCTION

This lawsuit was brought by disgruntled investors in a failed technology

startup in an attempt to recover their investments from the now-bankrupt

company’s directors and officers. The investors’ claims related almost exclusively

to harms to the company, and when the bankruptcy court dismissed these claims as

belonging to the bankruptcy trustee, the investors were left with a detailed petition

that has little to do with the surviving claims, and nothing to do with any action

taking place in Texas.

It is difficult to see how Texas courts have any interest in this case, much

less personal jurisdiction over Preston. There is no allegation that Preston took any

action in Texas connected in any way to the surviving claims. Preston is a

Massachusetts resident who has never conducted business in Texas in his personal

capacity, and none of the intervenors (the only plaintiffs remaining in this lawsuit)

are Texas residents either. The only Texas contacts Appellees allege concern

Preston’s mere status as a board member in Nevada corporations with offices in

Texas, and Preston’s periodic business trips to Texas on behalf of a variety of other

entities.

There are no facts that could give rise to specific jurisdiction because there

are no allegations that any of the surviving claims arise from or relate to any action

by Preston in Texas. There is no basis for general jurisdiction because almost all

13 of Preston’s alleged contacts with Texas took place in his representative capacity

and still come nowhere close to the continuous and systematic contacts with Texas

that would render Preston at home here.

The mere fact that a startup with some Texas operations went out of business

does not warrant the exercise of personal jurisdiction over a Massachusetts resident

in a fraud suit brought by nonresident investors who do not allege he did anything

in Texas that gives rise to their claims. The trial court’s order overruling Preston’s

special appearance runs contrary to both Texas and federal law limiting the

exercise of personal jurisdiction over nonresidents. It should be reversed.

II. STATEMENT OF FACTS1

A. The lawsuit arises out of a failed coal gasification startup.

This suit arises out of a developmental technology intended to produce

synthetic natural gas and other fuels from coal, also known as coal gasification.

CR 114–16 (Tab 2).2 A Nevada corporation, Texas Syngas, Inc. (“TSI”), acquired

the technology and began seeking investors in 2007. CR 116 (Tab 2). In 2009

another Nevada corporation, NC12, Inc. (“NC12”), acquired the technology from

TSI. CR 122 ¶ 63 (Tab 2). Despite extensive efforts and the partial development

1 Sections II.A and II.B are the same in this brief and C Change’s appellant’s brief. 2 Certain of the plaintiffs’ and intervenors’ allegations are recited in this statement of facts for the Court’s background, but Preston does not concede any of the plaintiffs’ or intervenors’ allegations.

14 of a test reactor in Massachusetts, NC12 did not succeed. CR 118–19, 127–29

(Tab 2); CR 138; CR 208 (Tab 3).

As often happens when businesses fail, litigation ensued. The original

plaintiffs, primarily NC12 shareholders, sued several of NC12’s directors and

officers on July 26, 2011, including directors Michael Sydow, Christoph Henkel,

and John Preston. CR 6. NC12 declared bankruptcy in October 2011. CR 208

(Tab 3).

In November 2011, several NC12 investors, including Appellees, intervened

in the lawsuit. CR 102–08 (Tab 2). The intervenors had invested variously in

convertible notes and shares of TSI and NC12. CR 104–08 (Tab 2). When NC12

acquired the gasification technology and attracted more investment, the

intervenors’ TSI shares and notes converted into NC12 shares. Accordingly, all of

the intervenors3 are now shareholders in NC12. Id.

Both the original plaintiffs’ and the intervenors’ petitions attacked the

defendants’ management of TSI and NC12. See CR 28–37; CR 129–33 (Tab 2).

The original plaintiffs alleged breach of fiduciary duty and conversion claims. CR

35–37. The intervenors alleged four causes of action: (1) breach of fiduciary duty

against Sydow, Henkel, and Preston; (2) shareholder oppression by Sydow, 3 One possible exception is appellee H.J. von der Goltz. It is unclear whether von der Goltz is an NC12 shareholder or simply a creditor. CR 105 ¶ 5 (Tab 2) (“all Intervenors are currently common shareholders of NC12, Inc.”); CR 108 ¶ 23 (Tab 2) (stating only that von der Goltz holds an NC12 promissory note).

15 Henkel, and Preston; (3) “Knowing Participation/Civil Conspiracy” against all 10

defendants; and (4) “Securities Fraud—Common Law Fraud and Statutory4 Fraud”

against Sydow and Preston. CR 109–10, 129–33 (Tab 2).

B. The bankruptcy court dismisses all but two causes of action.

The defendants removed the case to the bankruptcy court on December 15,

2011 on the grounds that the plaintiffs’ and intervenors’ claims alleging

mismanagement of TSI / NC12 belonged to the bankruptcy estate. CR 198–205.

The intervenors moved to remand the case to state court. CR 206–07 (Tab 3).

On August 31, 2012, Bankruptcy Judge Marvin Isgur granted in part and

denied in part the motions to remand, significantly limiting the claims that remain

in this case. CR 207, 237 (Tab 3). Judge Isgur dismissed all of the original

plaintiffs’ and intervenors’ claims relating to harms to TSI5 and NC12, holding that

these claims belonged to the bankruptcy estate. See CR 198–205. Judge Isgur

reasoned that any claims based on the defendants’ alleged asset-stripping, self-

dealing, dilution of corporate value, and misappropriation of corporate assets

4 Although the title of the cause of action refers to “Statutory Fraud,” the intervenors do not reference any statute. See CR 132–33 (Tab 2). 5 The bankruptcy court order treats NC12 as TSI’s successor and thus refers to them collectively as NC12. CR 211 (“NC12 began as a Texas limited liability company named Texas Syngas, LLC.”), CR 212 (“Texas Syngas was reorganized as a new Nevada corporation, Texas Syngas, Inc., in May 2006.”), CR 214 (“Also in 2009, Texas Syngas became NC12.”) (Tab 3).

16 stemmed from harm to NC12 and, accordingly, may only be asserted by the

bankruptcy trustee on behalf of the bankruptcy estate. CR 237 (Tab 3).

The bankruptcy court dismissed or abated all of the original plaintiffs’

claims. CR 237, 225–27, 234–35 (Tab 3). As a result, none of the original

plaintiffs’ claims were remanded to state court and those claims are not at issue

here. CR 237 (Tab 3).

With respect to the intervenors’ claims, the bankruptcy court held that the

intervenors’ shareholder oppression and breach of fiduciary duty claims belonged

to the estate and therefore dismissed those claims. CR 221–27, 237 (Tab 3). The

court also dismissed the intervenors’ conspiracy claim to the extent it related to the

dismissed causes of action. CR 235–37 (Tab 3). This left only causes of action for

fraud and conspiracy to commit fraud. CR 237 (Tab 3). In remanding the fraud

and conspiracy claims, the court instructed:

Because the Intervenors are shareholders, their fraud claim is based on the alleged difference between the price they paid in reliance on the alleged misrepresentations and the actual value of NC12’s shares at the time of their investment. The Intervenors may not recover damages for the difference between the price they paid for the shares and what the shares would have been worth if not for the alleged post-purchase misconduct in the operation of the corporation.

CR 228 (Tab 3) (emphasis added).

17 C. Only two claims remain against Preston.

The only remaining causes of action against Preston are “Securities Fraud—

Common Law Fraud and Statutory6 Fraud” asserted against Preston and Sydow,

and “Knowing Participation/Civil Conspiracy,”7 asserted against all 10 defendants.

CR 237 (Tab 3); CR 132–33 ¶¶ 89–90 (Tab 2). Significantly, these claims survive

only to the extent they deal with the alleged misrepresentation of NC12’s value at

the time of the intervenors’ investment (hereinafter, the “surviving claims” or

“misrepresentation claims”). CR 228 (Tab 3). The last alleged investment by any

intervenor occurred in August 2010. CR 104–08, 105 ¶ 8 (Tab 2).

D. Appellees do not allege a single act taken in Texas by Preston, much less any act in Texas that is connected to their surviving misrepresentation claims.

The only basis for jurisdiction over Preston in the intervenors’ petition are

the generic allegations that “Preston has engaged in business in Texas” and “the

tortious conduct alleged herein occurred in or was directed at the State of Texas.”

CR 110 ¶ 33, 114 ¶ 44 (Tab 2).

The intervenors explicitly plead that Preston is a Massachusetts resident who

is employed in Cambridge, Massachusetts. CR 110 ¶ 33 (Tab 2). Yet in their

6 Although the title of the cause of action refers to “Statutory Fraud,” the intervenors do not reference any statute. See CR 132–33 (Tab 2). 7 Judge Isgur’s Order also mentions “Intervenors’ aiding and abetting claims” relating to fraud. CR 237 (Tab 3). Since the intervenors did not plead an aiding and abetting claim (see CR 129– 33 (Tab 2)), it is treated here as part of the conspiracy claim.

18 petition, the intervenors fail to allege any act performed by Preston in Texas, much

less an act involving the intervenors’ surviving misrepresentation claims. This is

perhaps unsurprising, as none of the intervenors are Texas residents who might

have relied on misrepresentations in Texas. See CR 105–08 (Tab 2) (showing

intervenors reside in Luxembourg, Guatemala, the British Virgin Islands, Panama,

Germany, New York, the Bahamas, Montana, Tennessee, the Cayman Islands, and

Florida, but not Texas).

The few allegations in the intervenors’ petition that relate to Preston say

nothing to indicate a Texas connection, as shown below:

 In fall 2007, Preston “approached the shareholders of Atomic Ordered Materials (AOM), another company in which Preston was involved” and “brought Sydow and Collins to an AOM shareholders’ meeting,” where Sydow presented the [TSI] technology and “solicited investments in that company.” CR 116 ¶ 51 (Tab 2).

The intervenors do not allege that any of Preston’s representations to AOM8 or its

shareholders were made in Texas.

 After the AOM meeting, Preston “approached” intervenor von der Goltz, who had been in attendance. CR 117 ¶ 52 (Tab 2). Preston “informed von der Goltz that [Preston] had negotiated a $100 million pre-money investment valuation for [TSI] and was trying to raise $12 million to build a demonstration reactor . . . .” Id.

8 The intervenors do not allege any other facts regarding AOM whatsoever, much less allege that AOM is a Texas entity or has offices in Texas.

19  “Preston represented that the value of the technology was in excess of $100 million but suggested that von der Goltz meet with Collins and Sydow to negotiate a discounted valuation to put together an initial investor group for the $12 million needed. Preston represented that he was assisting [TSI], but never disclosed that he owned or controlled any equity interest in [TSI].” Id.

The intervenors do not allege that Preston’s representations to von der Goltz were

made or relied on in Texas. Nor is there any basis to make such an inference. Von

der Goltz is a Florida resident. CR 108 ¶ 23 (Tab 2).

 “In November 2007, von der Goltz met with Collins and Sydow in Houston. Collins and Sydow agreed to accept new investors based on a pre-money valuation of $78 million and a post-money valuation of $90 million.” CR 117 ¶ 52 (Tab 2).

 Von der Goltz “brought the opportunity to friends, family, and business associates, who ultimately invested $11.75 million . . . . Among this group were the Shareholder Intervenors. Sydow and Preston represented to the Shareholder Intervenors, both directly and through Mr. von der Goltz, that the value of the technology exceeded $100 million and that the money being raised would be used primarily for building the demonstration reactor.” CR 117 ¶ 53 (Tab 2).

The intervenors do not allege that Preston attended the November 2007 Houston,

Texas meeting or even that any misrepresentation was made to von der Goltz at

this meeting. There are no allegations, or basis for any inference, that any Preston

representation was made or relied on in Texas—whether directly or “through von

der Goltz.” Neither Preston nor any intervenor, including the Shareholder

Intervenors, are residents of Texas. CR 105–08 (Tab 2). None of the intervenors’

20 detailed allegations include any suggestion that any of the alleged representations

or “promises” were made in Texas:

 Preston made various representations in 2008 to “[TSI] shareholders” that the value of the company was now $300 million as a result of a gas utility contract; representations regarding new financing, and representations regarding the company’s purchase of Fall River, Massachusetts property. CR 118 ¶ 55 (Tab 2).

 Preston and Sydow “had no intention of using shareholder money as represented to the shareholders,” squandered shareholder money, and engaged in self-dealing. CR 119 ¶ 58 (Tab 2).

 “Despite his numerous promises and despite being compensated to do so Preston failed to raise additional funds for [TSI] in 2009, and by mid-year [TSI] desperately needed funding.” CR 120 ¶ 60 (Tab 2).

Moreover, these alleged representations, as the intervenors themselves plead, were

addressed to TSI’s shareholders and were thus made after their investment in TSI.

These allegations are thus relevant only to the intervenors’ dismissed claims

concerning the management of TSI, not their surviving misrepresentation claims.

See CR 223–28 (Tab 3).

 “Preston and Sydow again turned to Mr. von der Goltz for assistance.” CR 120 ¶ 60 (Tab 2). Von der Goltz raised $6.1 million in investment from the Note Holder Intervenors. Id. “Preston and Sydow, both directly and through their statements to von der Golz, represented to the Note Holder Intervenors that [TSI] was worth $300 million as of 2009, based on the value of the technology and the [gas utility] and Turkish contracts. However, Preston and Sydow failed to disclose that the [gas utility] contract had been canceled.” CR 121 ¶ 61 (Tab 2).

21  “Preston and Sydow also represented [to the Note Holder Intervenors] that the money would be used primarily to build the test reactor; however, their later conduct and misuse of the funds demonstrate that they had no intention of using the money for that purpose.” Id.

The intervenors do not allege that any Preston representation to any Note Holder

Intervenor or to von der Goltz (or to anyone) was made or relied on in Texas. And

any representations regarding the ultimate use of the solicited investment funds are

beyond the scope of the surviving claims. CR 223–28 (Tab 3).

Similarly, every subsequent reference to Preston in the remaining 14 pages

of the intervenors’ petition concerns political infighting on the TSI / NC12 board

of directors, alleged mismanagement and asset-stripping of the entity, and alleged

self-dealing. CR 121–29 (Tab 2). These allegations only relate to the fiduciary

duty, shareholder oppression, and shareholder fraud claims that have been

dismissed from this matter. The remaining references to Preston do not support

any surviving claim against him. See CR 223–28 (Tab 3). And still, none of the

remaining allegations state or suggest any action taken by Preston in Texas.

In sum, not a single allegation in the intervenors’ petition—the only petition

containing any live claims—connects Preston to Texas.

22 E. Preston does no individual business and maintains no presence in Texas.

Preston filed a special appearance on September 28, 2011 objecting to the

court’s exercise of personal jurisdiction over him.9 CR 74 (Tab 1).

1. Preston does not do business in Texas in his individual capacity.

Preston is a resident of Massachusetts and is employed in Massachusetts.

CR 86–87 ¶¶ 3, 8 (Tab 1); CR 110 ¶ 33 (Tab 2). He has not been a resident of

Texas for the last 60 years.10 In the last 60 years, Preston has not travelled to or

visited Texas in his individual capacity. CR 86 ¶ 4 (Tab 1).

In the last 30 years, Preston has visited Texas exclusively on behalf of

entities for whom he served as a director, principal, or managing partner, including

a Delaware nonprofit, Molten Metal Technologies, Inc. (“MMT”), Quantum

Catalytics, LLC (“Quantum”), C Change Investments, LLC (“C Change”), NC12,

and Transformative Energy & Materials Capital, Inc. (“TEM Capital”), or on

behalf of the Massachusetts Institute of Technology (“MIT”), where he was a

faculty member and Director of Technology and Licensing, and retains an

appointment. See CR 87 ¶¶ 5–6 (Tab 1); CR 330–31, 356 at 63:18–23 (Tab 4); CR

672–73 ¶¶ 3–8 (Tab 6); CR 118 ¶ 53 (Tab 2). Preston served as a director of two

9 Preston’s special appearance was filed before the intervenors filed their petition. CR 74 (Tab 1); CR 102 (Tab 2). 10 Preston, who was 61 years old at the time of his affidavit executed in 2011, resided in Texas for less than one year when he was an infant. See CR 86 ¶ 4 (Tab 1); CR 672 (Tab 6) (showing date of birth).

23 Texas entities, one from 2004–2006 and the other from 2012–2014 and has

otherwise never been a director, officer, or employee of a Texas person or

company. CR 330, 388 (Tab 4); CR 87 ¶ 8 (Tab 1).

While Preston was an officer of TSI and NC12, both Nevada corporations

with a Texas office, Preston participated in board meetings from Massachusetts,

Switzerland, or Germany, but never Texas.11 See CR 86–87 ¶¶ 2, 7 (Tab 1); CR

325, 328 (Tab 4).

Preston has never done business in Texas in his individual capacity. CR 86

¶ 4 (Tab 1). Preston has never maintained an office in Texas, or employed any

person who either resides or regularly travels to Texas in connection with his or

her business. CR 87 ¶¶ 8, 9 (Tab 1). Preston has never engaged in routine sales or

other profit-making activities in Texas. Id. ¶ 8. Preston owns no private Texas

businesses. Id. In his individual capacity, Preston has never entered into any

contracts in Texas or with Texas residents, contracts calling for performance in

Texas, or contracts with mandatory venue provision in Texas, other than contracts

with his defense counsel. Id.

Because Preston does not do business in Texas, he does not maintain a

registered agent in Texas and is not required to do so. Id. As he does not work or

11 There are no allegations that Preston made any misrepresentation, or any action in furtherance of any conspiracy to make any misrepresentation, while participating in any board meetings.

24 own property in Texas, Preston has never personally incurred or paid any taxes in

Texas, nor filed a personal tax return in Texas. CR 87 ¶ 9 (Tab 1).

2. Preston does not maintain any presence in Texas.

As Preston’s Texas ties consist exclusively of his status as director of

predominantly foreign entities and business trips to Texas in his representative

capacity, Preston has no presence in Texas. He has never maintained an office or

any other facility, telephone listing, post office box, or mailing address in Texas.

CR 87 ¶ 9 (Tab 1). Preston has never rented, owned, or possessed any real

property or personal property in Texas. Id. He does not hold a mortgage or other

lien on any real or personal property in Texas. Id. He does not have any

investments or assets in Texas. Id. Preston has never taken out a loan in Texas or

guaranteed any debt owed to a Texas resident. Id.

F. After two years and jurisdictional discovery, Appellees fail to allege a single act by Preston in Texas that gives rise to their surviving claims, and fail to show systematic and continuous Texas contacts that render Preston “at home” in Texas.

The intervenors had two years and the opportunity to conduct jurisdictional

discovery between the bankruptcy court’s remand order and the hearing on

Preston’s special appearance. CR 102 (Tab 2); CR 206 (Tab 3); CR 613. Yet they

never amended their petition to add any allegations connecting any aspect of their

surviving claims to Texas. This is because no such connection exists.

25 To evade this problem, Appellees concocted a tornado of smoke and

innuendo in response to Preston’s special appearance. They doggedly conflate the

two distinct types of personal jurisdiction (specific and general), jumble allegations

about dismissed claims in discussing surviving claims, confuse individual with

representative actions by Preston, and mix diverse assertions of Preston’s

tangential links to Texas: business trips for other entities, decade-old business calls

with original plaintiff and former TSI director Collins, a personal check, and a

convoluted story about a 2012 Texas corporation that is allegedly an alter-ego of

Preston’s, allegedly created to pursue claims against Collins in a different lawsuit.

These attenuated links to Texas have nothing to do with any of the surviving

claims, and fall far short of establishing the continuous contact with Texas that is

otherwise required to support general personal jurisdiction.

Appellees alleged the following forum contacts by Preston:

(a) Director of foreign entities. Preston served as a director of three foreign entities which registered to do business in Texas. CR 287 (“MMT”), CR 281 (Texas Syngas, Inc. (“TSI”)), CR 284 (NC12) (Tab 4).

There are no allegations that Preston did anything in Texas in connection with these entities that gives rise to any of the intervenors’ claims.

(b) Business trips to Texas. In the past 25 years, Preston has allegedly made the following brief business trips to Texas:

26 o 1990s: Five board meetings in Texas for a Delaware nonprofit and three board meetings for MMT. CR 87 ¶ 5 (Tab 1).

o 1990s: Approximately three business trips for MMT.12 CR 408 ¶ 4, CR 409 ¶ 12, CR 260 (Tab 4).

o 2004: Three trips on behalf of Quantum. CR 409 ¶¶ 6–8 (Tab 4); CR 673 ¶ 8 (Tab 6).

o 2008–11: Five one-day trips on behalf of C Change.13 CR 319 at 25:3–28:21, 335–38, 343–48 (Tab 4); CR 672–73 ¶¶ 5–6 (Tab 6).

o 2009–10: One trip on behalf of C Change or MIT. CR 262, 323 at 49:13-24 (Tab 4).

o 2010: One trip on behalf of NC12 to testify in Sydow’s divorce proceeding. CR 352–70, 339–42 (Tab 4).

o 2011: One two-day trip on behalf of TEM Capital for a foreclosure sale and to inspect a cement plant. CR 349– 50 (Tab 4); CR 673 ¶ 7 (Tab 6).14

There is no allegation that any of these trips relate to the claims in this lawsuit.

(c) 2004: Phone calls and mail. Collins claims that in 2004, Preston telephoned him and shipped him “records regarding

12 It is not clear from the record whether these trips are distinct from those on which Preston attended MMT board meetings. CR 87 ¶ 5 (Tab 1). 13 Preston initially mistakenly identified these trips as on behalf TEM Capital, and submitted a correction in a subsequent declaration. See CR 87 ¶ 5; CR 330–31 (Tab 4); CR 672 ¶ 5 (Tab 6). Former C Change director Russell Read testified C Change “effectively merged” into TEM Capital in 2011. CR 320 at 31:5–10 (Tab 4). 14 In their special appearance briefing, Appellees refer to, but attach no evidence regarding, allegations made by nonparty EMC Cement, BV in an unrelated 2014 lawsuit suggesting that Preston made two other visits to Texas in August 2010 and January 2011 with C Change or TEM Capital. See CR 263–64 (Tab 4) (failing to attach EMC complaint).

27 MMT and its patented technology” following Preston’s 2004 business trips to meet with Collins. CR 409 ¶ 9 (Tab 4). These trips and communications concerned catalytic energy processing (“CEP”) technology patents belonging to Quantum. Id. ¶¶ 5–8; CR 673 ¶ 8 (Tab 6). There are no allegations linking these communications to the claims in the lawsuit.

(d) 2006: Alleged address at TSI office for foreign entity Metal Catalyst Ventures. Preston was listed as a director of Nevada corporation Metal Catalyst Ventures, Inc. in June 2006. CR 315 (Tab 4). Preston’s “address” was the same as TSI’s. See id.; CR 281 (Tab 4). Preston did not prepare the document. CR 315 (Tab 4); CR 673 ¶ 9 (Tab 6).

The intervenors allege no other facts regarding Metal Catalyst Ventures, and there are no allegations linking Metal Catalyst Ventures to the surviving claims.

(e) 2008: Personal check to foreign entity BOS, Inc. In 2008, Preston allegedly wrote a personal check to BOS, Inc., a Turks and Caicos corporation with, allegedly, an office and bank account in Texas. CR 387 (Tab 4); CR 25 ¶ 2. In 2010, BOS, Inc. wired Preston back the same sum. CR 384 (Tab 4).

There are no allegations linking these payments to the claims in the lawsuit.

(f) 2012: Alleged purchase of claims in unrelated Kaiser Litigation via alleged alter ego JK Claims. JK Claims was formed by Quantum to purchase the plaintiffs’ claims in Cause No. 2007-38533, Jeffrey B. Kaiser v. Texas Syngas LLC, Michael A. Collins, Michael D. Sydow and M. Sameer Ahmed, in the 152nd District Court of Harris County, Texas (the “Kaiser Litigation”).15 CR 432, 495 at 57:2–3, 498 at 66:19–

15 Kaiser brought suit on behalf of himself and “all similarly situated” members of Texas Syngas LLC. CR 432 (Tab 5). Quantum, a member of Texas Syngas LLC, had intervened in the Kaiser Litigation. CR 452 (Tab 5).

28 67:20 (Tab 5). After Kaiser filed for bankruptcy, JK Claims purchased the Kaiser Litigation claims from the bankruptcy estate with the approval of the bankruptcy trustee. CR 534–41, 545–47 (Tab 5).

In a supplemental response to the special appearance, Appellees assert that JK Claims is Preston’s alter ego and that JK Claims’ contacts with Texas should be imputed to Preston. CR 414 (Tab 5). Appellees’ own evidence shows that Quantum, not Preston, is the sole owner of JK Claims. CR 495 at 57:2–3, 498 at 66:19–67:20 (Tab 5). See also CR 673 ¶ 10. Yet Appellees never allege that Quantum is an alter ego of Preston.

There are no allegations linking these actions to the claims in the lawsuit. Most significantly, all alleged JK Claims actions took place after this lawsuit was filed and are therefore outside of the relevant jurisdictional period, as discussed below.

Almost none of these tenuous forum contacts are pleaded in the intervenors’

petition. See section II.D, supra. None have anything to do with any alleged

misrepresentation to TSI or NC12 investors, and none demonstrate continuous and

systematic contacts that would establish that Preston is “at home” in the state of

Texas.

After briefing and argument, however, the trial court denied Preston’s

special appearance. CR 674–75 (Tab 7). Preston timely appealed to this Court.

CR 678–80; CR 681–83.

29 III. SUMMARY OF THE ARGUMENT

There is no basis for asserting personal jurisdiction over Preston. Appellees,

neither of whom reside in Texas, bring claims of fraud and conspiracy to commit

fraud in relation to representations about TSI / NC12’s value. Appellees do not

allege that any representations were made or relied on in Texas. The petition does

not contain a single allegation that places Preston in Texas or describes any act that

Preston is alleged to have done in Texas, much less any act in Texas that gives rise

to the claims in this case. Appellees have never amended their petition to include

such allegations because no such facts exist.

Appellees failed to meet their burden to plead sufficient allegations to

establish personal jurisdiction over Preston. It is the plaintiff’s initial burden to

plead sufficient allegations to allege personal jurisdiction over a defendant.

Because Appellees have failed to do so, Preston needed only to establish that he

does not reside in Texas to negate personal jurisdiction. There is no dispute:

Preston resides in Massachusetts and is not a Texas resident. The trial court erred

in overruling Preston’s special appearance on this basis alone.

Appellees’ special appearance evidence supports neither specific nor

general jurisdiction. Texas courts can exercise personal jurisdiction over a

nonresident only if the plaintiff’s claims arise out of the defendant’s contacts with

the forum (specific jurisdiction) or if the defendant has continuous and systematic

30 contacts with the forum (general jurisdiction). Though it is not clear from their

briefing below, Appellees appear to argue that there is both specific and general

jurisdiction over Preston. See CR 270 (Tab 4). Appellees are wrong on both

counts.

There is no specific jurisdiction because Appellees fail to link any

alleged action by Preston giving rise to their claims to Texas. Appellees

contend there is specific jurisdiction over Preston because “[t]he acts and events

complained of in this litigation all arise directly from Preston’s activities as a

director of and fund raiser for TSI and NC12 – both Texas companies” and

because “[i]n raiding funds for TSI and NC12, through fraudulent

misrepresentations and then denuding the companies of their assets, Preston . . .

could reasonably foresee that NC12 and its shareholders and investors would suffer

direct economic injury.” CR 269–70 (Tab 4).

The mere fact that Preston was a director of a corporation with a Texas

office while allegedly making misrepresentations to nonresident investors outside

of Texas is insufficient to establish that any alleged misrepresentation relates to

Preston’s contacts with Texas. The “reasonable foreseeability” test has been

rejected by the Texas Supreme Court. And Appellees’ “denuding” claims are not

germane: the bankruptcy court dismissed all claims relating to harms to TSI and

NC12. The only surviving claims regard alleged misrepresentations made by

31 Preston in connection with the value of TSI / NC12 at the time of the intervenors’

investment, and conspiracy to commit those misrepresentations. For jurisdictional

purposes, the relevant location for fraudulent misrepresentation is the place where

the misrepresentation was made.

There are no allegations that Preston committed any acts giving rise to these

claims in Texas, either in the petition or in Appellees’ voluminous briefing below.

As a matter of black-letter law, there is no specific jurisdiction over Preston.

There is no general jurisdiction because all of Preston’s forum contacts

were in his representational capacity and still do not amount to continuous

and systematic contacts with Texas. Preston is a Massachusetts resident who

lives and works in Massachusetts. Other than periodically traveling to Texas on

business trips on behalf of foreign entities, Preston has no Texas ties at all.

Preston’s contacts with Texas on behalf of corporations do not subject him to

general jurisdiction absent a showing either that these contacts themselves were

tortious or that the corporations were his alter ego. While Appellees claim one

corporation, JK Claims, is Preston’s alter ego, JK Claims’ alleged contacts with

Texas began in June 2012—one year after the Appellees filed their suit—and are

thus outside of the relevant period to determine jurisdictional contacts. There is no

evidence of any purposeful contacts with Texas so substantial that it would render

32 Preston “at home” in the state of Texas. There is no general jurisdiction over

Preston as a matter of law.

For all of these reasons, the trial court erred in overruling Preston’s special

appearance.

IV. STANDARD OF REVIEW16

A. De novo review applies.

Whether a court can exercise personal jurisdiction over a nonresident

defendant is a question of law reviewed de novo by this Court. Kelly v. Gen.

Interior Const., Inc., 301 S.W.3d 653, 657 (Tex. 2010) (Tab 8). When, as here, a

trial court does not issue findings of fact and conclusion of law with its special

appearance ruling, this Court implies all the facts necessary to support the

judgment as long as those facts are supported by the evidence. Id.; CR 678–80;

CR 684–86. The appellant can challenge the sufficiency of the evidence to support

the implied facts. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794

(Tex. 2002) (Tab 9).

16 Section IV is the same in both this brief and C Change’s appellant’s brief, excluding Section IV.B.4 of C Change’s brief.

33 B. Jurisdiction over nonresidents requires allegations or proof of purposeful availment.

1. The plaintiff bears the initial burden to plead allegations showing jurisdiction over the defendant.

In suits involving a challenge to personal jurisdiction, the Texas Supreme

Court has “consistently held that the plaintiff bears the initial burden to plead

sufficient allegations to bring the nonresident defendant within the reach of

Texas’s long-arm statute.” Kelly, 301 S.W.3d at 658 (Tab 8). “When the pleading

is wholly devoid of jurisdictional facts, the plaintiff should amend the pleading to

include the necessary factual allegations.” Id. at 659.

2. The long-arm statute is limited by due process considerations.

The exercise of personal jurisdiction “exposes defendants to the State’s

coercive power” and therefore it must comply with the Fourteenth Amendment’s

due process clause. Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct.

2846, 2850, 180 L. Ed. 2d 796 (2011). “A nonresident defendant is subject to the

personal jurisdiction of Texas courts if (1) the Texas long-arm statute authorizes

the exercise of jurisdiction, and (2) the exercise of jurisdiction does not violate

federal and state constitutional due process guarantees.” Kelly, 301 S.W.3d at 657

(Tab 8). The critical inquiry is whether the exercise of jurisdiction comports with

due process because the Texas long-arm statute reaches “as far as the federal

constitutional requirements of due process will allow.” Id. (quoting Moki Mac

34 River Expeditions v. Drugg, 221 S.W.3d 569, 575 (Tex. 2007); TEX. CIV. PRAC. &

REM. CODE § 17.042. Because the due process requirement arises out of federal

constitutional law, the Texas Supreme Court relies on precedent from the United

States Supreme Court and other federal courts in evaluating the exercise of

personal jurisdiction. PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d

163, 166 (Tex. 2007) (Tab 10).

The exercise of personal jurisdiction over a nonresident defendant is

consistent with due process when the defendant “has established minimum

contacts with the forum state, and the exercise of jurisdiction comports with

traditional notions of fair play and substantial justice.” Kelly, 301 S.W.3d at 657

(Tab 8) (quoting Moki Mac, 221 S.W.3d at 575 and International Shoe Co. v.

Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 (1945).

3. When the plaintiff fails to meet its initial burden of alleging sufficient purposeful minimum contacts, the fact that the defendant is a nonresident defeats personal jurisdiction.

A defendant establishes minimum contacts with a state “when it

purposefully avails itself of the privilege of conducting activities within the forum

state, thus invoking the benefits and protections of its laws.” Kelly, 301 S.W.3d at

657–58 (Tab 8) (quoting Retamco Operating, Inc. v. Republic Drilling Co., 278

S.W.3d 333, 338 (Tex. 2009). There are “three parts to a ‘purposeful availment’

inquiry.” Moki Mac, 221 S.W.3d at 575 (quoting Michiana Easy Livin’ Country,

35 Inc. v. Holten, 168 S.W.3d 777, 784–85 (Tex. 2005)). First, only the defendant’s

contacts with the forum are relevant, “not the unilateral activity of another party or

a third person.” Id. Second, the contacts relied on “must be purposeful rather than

random, fortuitous, or attenuated.” Id. And third, the “defendant must seek some

benefit, advantage, or profit by ‘availing’ itself of the jurisdiction.” Id. (quoting

Michiana, 168 S.W.3d at 785).

It is not enough, however, merely to take any purposeful action in Texas.

The defendant’s actions must satisfy the requirements of either general or specific

jurisdiction. All Star Enter., Inc. v. Buchanan, 298 S.W.3d 404, 412 (Tex. App.—

Houston [14th Dist.] 2009, no pet.) (“There are two types of personal jurisdiction:

specific and general.”); PHC-Minden, 235 S.W.3d at 166 (United States Supreme

Court has “adopted the terms ‘specific’ and ‘general’ to describe the differing

types of personal jurisdiction”) (Tab 10). Specific jurisdiction is “based on

contacts arising from the dispute at issue,” while general jurisdiction is “predicated

on a party’s ‘continuous and systematic’ contacts with the forum.” PHC-Minden,

235 S.W.3d at 165 (Tab 10).

The plaintiff has the initial burden of pleading that a nonresident defendant

made purposeful minimum contacts with the state. Kelly, 301 S.W.3d at 658 (Tab

8). For the minimum contacts analysis, the plaintiff must allege that its claims

arose out of or are substantially related to the defendant’s contacts with Texas, or

36 that the defendant has continuous and systematic contacts with the state. Id.; Moki

Mac, 221 S.W.3d at 585; PHC-Minden, 235 S.W.3d at 165 (Tab 10).

Only if the plaintiffs meet the initial burden—by making specific allegations

sufficient to establish general or specific jurisdiction—must the defendant respond

by negating all grounds of jurisdiction. Kelly, 301 S.W.3d at 658 (Tab 8).

“Because the plaintiff defines the scope and nature of the lawsuit, the defendant’s

corresponding burden to negate jurisdiction is tied to the allegations in the

plaintiff’s pleading.” Id.

When the plaintiffs do not meet their burden of alleging purposeful

minimum contacts, the defendant need only submit an affidavit stating that it is not

a Texas resident to defeat personal jurisdiction. Id. at 658–59 (“If the plaintiff fails

to plead facts bringing the defendant within reach of the long-arm statute (i.e., for a

tort claim, that the defendant committed tortious acts in Texas), the defendant need

only prove that it does not live in Texas to negate jurisdiction.”).

Even where the plaintiffs do allege purposeful minimum contacts, the

defendant can negate jurisdiction either factually or legally. Id. at 659. Factually,

it can present evidence that it has no contacts with Texas, thus disproving the

plaintiff’s allegations. Id. The plaintiff “risks dismissal of its lawsuit if it cannot

present the trial court with evidence establishing personal jurisdiction.” Id.

Legally, “the defendant can show that even if the plaintiff’s alleged facts are true,

37 the evidence is legally insufficient to establish jurisdiction.” Id. In other words,

the defendant prevails if it shows the claims do not arise from the contacts or that

its contacts with the state are not continuous and systematic. Id.; PHC-Minden,

V. ARGUMENT

Sole issue: The trial court erred by denying Preston’s special appearance because Appellees failed to plead sufficient allegations to establish personal jurisdiction and because Preston is not subject to specific or general jurisdiction in Texas. A. Appellees failed to meet their initial burden of pleading facts to show that Preston is subject to personal jurisdiction in Texas.

Though it was not addressed in the intervenors’ petition and not clear from

their briefing, Appellees have claimed that Preston is subject both to specific and

general personal jurisdiction in Texas court. CR 269–70 (Tab 4). The allegations

in the petition and evidence offered in Appellees’ responses to Preston’s special

appearance,17 however, were insufficient to establish either.

In their petition, the intervenors failed to allege that Preston committed any

act in Texas, much less any act that gave rise to their claims. As discussed in detail

above, while the intervenors pleaded generally that Preston misrepresented the

value of TSI/NC12 to potential investors and “all Defendants conspired to commit

17 Appellees also argued that even though Preston supported his special appearance with a sworn affidavit attesting to every material fact, the special appearance was not verified. CR 264–65 (Tab 4). This argument has been explicitly rejected by this court. Washington DC Party Shuttle, LLC v. iGuide Tours, LLC, 406 S.W.3d 723, 731 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (en banc).

38 fraud,” not a single allegation connects any misrepresentation or act in furtherance

of any conspiracy to Texas. See CR 132 ¶ 89 (Tab 2); section II.D, supra. None

of the intervenors are even Texas residents. CR 105–08 (Tab 2).

Instead, the only pleaded basis for personal jurisdiction over Preston are the

generic allegations that “Preston has engaged in business in Texas” and “[p]ersonal

jurisdiction over all defendants is proper in the state of Texas because NC12 is

headquartered in Houston, Texas and the tortious conduct alleged herein occurred

in or was directed at the State of Texas.” CR 110 ¶ 33, 114 ¶ 44 (Tab 2). This

type of generalization is insufficient to meet the pleading burden. Waterman

Steamship Corp. v. Ruiz, 355 S.W.3d 387, 398, 403–04 (Tex. App.—Houston [1st

Dist.] 2011, pet. denied). See also Frank A. Smith Sales, Inc. v. Atl. Aero, Inc., 31

S.W.3d 742, 747 (Tex. App.—Corpus Christi 2000, no pet.) (The “third-party

petition stated only that [the defendant] had committed acts of negligence, without

specifying what those negligent acts were, or where they occurred. Therefore, [the]

petition fell well short of pleading sufficient allegations to show jurisdiction in

Texas.”). The intervenors failed to plead any facts showing that Preston in fact

engaged in business, or committed any tort, in Texas. Indeed, the petition fails to

allege a single action taken by Preston in Texas. See, e.g., CR 114–33 (Tab 2).

Because the intervenors failed to plead facts showing that Preston made

misrepresentations or conspired to make misrepresentations in Texas, or any facts

39 showing that Preston had any continuous and systematic contacts with this state,

Preston needed only prove that he is not a Texas resident to defeat personal

jurisdiction. See Kelly v. Gen. Interior Const., Inc., 301 S.W.3d 653, 658–59 (Tex.

2010) (Tab 8) (“If the plaintiff fails to plead facts bringing the defendant within

reach of the long-arm statute (i.e., for a tort claim, that the defendant committed

tortious acts in Texas), the defendant need only prove that it does not live in Texas

to negate jurisdiction.”); Vosko v. Chase Manhattan Bank, N.A., 909 S.W.2d 95, 99

(Tex. App.—Houston [14th Dist.] 1995, writ denied) (citing Siskind v. Villa

Found. for Educ., Inc., 642 S.W.2d 434, 437–38 (Tex. 1982)) (When “the plaintiff

does not allege that the defendant performed a specific act in Texas, the

defendant's evidence that he is a nonresident is enough to carry his burden of

proof.”).

Preston’s unrefuted affidavit establishes he is a Massachusetts resident and

not a Texas resident. CR 87 ¶ 5 (Tab 1). The intervenors affirmatively plead that

Preston is a Massachusetts resident. CR 110 ¶ 33 (Tab 2). The trial court erred by

denying Preston’s special appearance on this basis alone.

B. Because Appellees do not allege that any of Preston’s alleged contacts with Texas give rise the surviving claims and no evidence suggests any link, there is no specific jurisdiction as a matter of law.

Although nearly two years passed between the bankruptcy court’s order

dismissing all other causes of action and Appellees’ two briefs in opposition to

40 Preston’s special appearance, Appellees never amended their petition to include

any jurisdictional facts relating to the claims remanded by the bankruptcy court.

CR 237 (Tab 3); CR 257 (Tab 4); CR 413 (Tab 5). See also Kelly, 301 S.W.3d at

659 n.6 (Tab 8) (If “the plaintiff’s evidence does not fall within the scope of the

factual allegations in the pleading, then the plaintiff should amend the pleading for

consistency.”). Appellees tried to overcome their failure to plead jurisdictional

facts by including more detail in their response and supplemental response

opposing Preston’s special appearance, but the evidence considered by trial court

in addition to the petition must comply with the requirements of Rule 120a, and

even then, it “merely supports or undermines the allegations in the pleadings.” Id.

at 658 n.4; TEX. R. CIV. P. 120a, 45(a) (defining pleadings as petitions and

answers).

Regardless, there is no allegation, much less any evidence, that Preston’s

alleged misrepresentations of TSI / NC12’s value to investors, or any act in

furtherance of his alleged conspiracy to commit these misrepresentations, were

made in Texas. The intervenors do not make any such allegation in their petition

or in their response or supplemental response to Preston’s special appearance.

Rather, Appellees assert that there is specific jurisdiction over Preston

because: “[t]he acts and events complained of in this litigation [] arise directly

from Preston’s activities as a director of and fundraiser for TSI and NC12 – both

41 Texas companies” and because “[i]n raiding funds for TSI and NC12, through

fraudulent misrepresentations and then denuding the companies of their assets,

Preston . . . could reasonably foresee that NC12 and its shareholders and investors

would suffer direct economic injury.” CR 269–70 (Tab 4).

Appellees mistake the law. Preston’s mere status as a director of even a

“Texas corporation” would be insufficient to support Texas jurisdiction for

misrepresentation claims that were not made or relied on in Texas. The

“reasonable foreseeability” analysis for personal jurisdiction has been explicitly

rejected by the Texas Supreme Court. All claims relating to the “denuding” of

corporate assets have been dismissed by the bankruptcy court. There is no

allegation, much less any evidence, that any of Preston’s contacts with Texas give

rise to the surviving claims. There is no specific jurisdiction as a matter of law.

1. Specific jurisdiction requires that the alleged jurisdictional contacts give rise to the plaintiff’s alleged injury.

Specific jurisdiction exists when the defendant purposefully avails himself

of conducting activities in the forum and “the cause of action arises from or is

related to those contacts or activities.” Kelly, 301 S.W.3d at 658 (Tab 8). See also

Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 576 (Tex. 2007) (“liability

must have arisen from or related to those contacts.”). Specific jurisdiction depends

on an “activity or an occurrence that takes place in the forum State and is therefore

subject to the State’s regulation.” Goodyear Dunlop Tires Operations, S.A. v.

42 Brown, 131 S. Ct. 2846, 2851, 180 L. Ed. 2d 796 (2011) (citation omitted). In a

specific jurisdiction analysis, the court thus focuses on “the relationship among the

defendant, the forum[,] and the litigation.” Kelly, 301 S.W.3d at 658 (Tab 8)

(quoting Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338

(Tex. 2009)) (alteration in original).

Jurisdiction for each claim must stand on its own merits. Id. at 660.

(performing claim-by-claim analysis to determine whether each claim arose out of

alleged forum contacts); Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266,

274–75 (5th Cir. 2006) (specific jurisdiction is a claim-specific inquiry). This is

especially significant here, as all of the original plaintiffs’ claims, and the

intervenors’ shareholder oppression, fiduciary duty, and related conspiracy claims,

have been dismissed. CR 237 (Tab 3).

For a tort claim, the plaintiff must plead that the defendant committed a

tortious act in Texas. Waterman Steamship, 355 S.W.3d at 403. For

misrepresentation claims, the relevant location for jurisdiction is the place where

the misrepresentation was made. BMC Software Belgium, N.V. v. Marchand, 83

S.W.3d 789, 796–97 (Tex. 2002) (Tab 9); Kelly, 301 S.W.3d at 660 (Tab 8);

Glencoe Capital Partners II, L.P. v. Gernsbacher, 269 S.W.3d 157, 167 (Tex.

App.—Fort Worth 2008, no pet.). “[D]ue process will not permit the plaintiff to

use insignificant acts in the forum to assert jurisdiction over all co-conspirators.”

43 Nat’l Indus. Sand Ass’n v. Gibson, 897 S.W.2d 769, 773 (Tex. 1995) (quoting

Siskind v. Villa Found. for Educ., Inc., 642 S.W.2d 434, 438 (Tex. 1982)). Nor can

the acts of co-conspirators be imputed to a nonresident defendant for the purposes

of personal jurisdiction. See id.

2. There are no allegations in the intervenors’ petition that could give rise to specific jurisdiction over Preston.

As discussed at length above, there is no allegation in the intervenors’

petition that Preston’s alleged misrepresentations of NC12’s value to investors, or

any act in furtherance of his alleged conspiracy to commit these

misrepresentations, occurred in Texas.

Appellees do not attempt to remedy this problem in their special appearance

briefing or the evidence attached thereto. Rather, Appellees compile a list of

Preston’s alleged business trips and director positions on behalf of a variety of

entities over the last 25 years. See, e.g., CR 260–64, 269 (Tab 4). Appellees make

no attempt to link any of Preston’s alleged forum contacts to Preston’s alleged

misrepresentations of the value of TSI / NC12 to potential investors, or to any

conspiracy to commit such a misrepresentation.

44 3. There are no allegations or evidence in Appellees’ special appearance briefing that could give rise to specific jurisdiction over Preston.

Appellees refer to the same set of alleged forum contacts to support both

specific and general jurisdiction over Preston. CR 260–64, 269 (Tab 4). See

section II.F, supra. Each is examined in turn below.

a) Service as a director of foreign entities.

Appellees assert generally that their claims against Preston “arise directly

from Preston’s activities as a director of and fundraiser for TSI and NC12 – both

Texas companies.”18 CR 269–79 (Tab 4). The United States Supreme Court has

held that service as a director of a corporation, by itself, does not create personal

jurisdiction over that director—even when the corporation is organized in the

forum state. Shaffer v. Heitner, 433 U.S. 186, 215–16, 97 S. Ct. 2569, 53 L. Ed. 2d

683 (1977) (in shareholder derivative suit against Delaware corporation’s directors

and officers alleging that defendants “misus[ed] their power,” Delaware court did

not have personal jurisdiction over defendants because plaintiffs did not allege any

acts by the defendants in Delaware, and service as a director did not show that

defendants purposefully availed themselves of conducting activities in Delaware).

18 Appellees also refer generally to Preston’s status as director of Nevada corporation MMT as supporting personal jurisdiction. CR 260–61, 269–70 (Tab 4). There is no allegation and no basis whatsoever to link Preston’s service as director of Nevada corporation MMT in the 1990s to any claim in this matter. See id.; CR 287–89 (Tab 4); CR 132 ¶ 89 (Tab 2).

45 There is even less of a basis to claim that Preston’s service as a director of a

Nevada corporation with an office in Texas created personal jurisdiction over him.

This is because the real locus of Appellees’ harm is the place where the

misrepresentations were made. BMC Software, 83 S.W.3d at 796–97 (Tab 9)

(“Here, Marchand alleges that his fraud and negligent misrepresentation claims

arise from the alleged Watson–Ordelheide conversation in Texas. But they do not.

The nature of the claims demonstrate that they can only arise from BMCB’s

contact with Marchand, which all occurred outside of Texas. … BMCB made no

representations to Marchand in Texas, and he did not rely to his detriment on the

conversation in Texas.”) (citation omitted). See also Kelly, 301 S.W.3d at 660

(Tab 8) (in order to establish specific jurisdiction for fraud, the plaintiff must

allege that the fraudulent acts occurred in Texas).

BMC Software involved an alleged fraudulent misrepresentation made in

Europe. 83 S.W.3d at 796–97 (Tab 9). The plaintiff claimed that jurisdiction was

proper in Texas because the defendant’s officers met in Texas and, during that

meeting, planned to defraud the plaintiff. Id. at 796. The Texas Supreme Court

disagreed, however, noting that even if the defendant’s officers discussed the plan

to defraud the plaintiff in Texas, it was the misrepresentations themselves—made

in Europe—that gave rise to the cause of action. Id. at 796–97.

46 Here, Appellees have neither pleaded nor offered evidence to show that any

of the alleged misrepresentations giving rise to their claims took place in Texas.

See sections II.D, II.F, supra. Further, there is no allegation or evidence that

Preston ever even did business out of the TSI or NC12 Texas office. Preston

participated in board meetings from Massachusetts, Switzerland, or Germany,

never Texas. See CR 86–87 ¶¶ 2, 7 (Tab 1); CR 325, 328 (Tab 4). Appellees do

not allege that Preston made any representation or undertook any action supporting

any conspiracy while participating in these board meetings.

Preston is not subject to specific jurisdiction on the bare fact of his status as

director for corporations with Texas offices.

b) Business trips to Texas.

Appellees spill much ink describing the business trips Preston took in a

representative capacity over the last 25 years. CR 260–64 (Tab 4). For the most

part, these trips fall well before or well after the relevant window for investment

into TSI or NC12, making it impossible that they give rise to the Appellees’

remaining claims. Most significant, however, is Appellees’ conspicuous failure to

allege any connection between a single one of these business trips and the alleged

misrepresentations or conspiracy.

Board meetings and business trips in the 1990s. Appellees never allege that

Preston’s 1990s-era Texas business trips give rise to their claims. CR 87 ¶ 5 (Tab

47 1); CR 260 (Tab 4). Nor could they. Appellees themselves state that MMT’s

business in Texas concerned a waste recycling project using MMT’s catalytic

extraction processing (“CEP”) technology, not potential investors in TSI or NC12.

CR 260–61, 408–09 (Tab 4). TSI would not be formed until 2006, or do business

in Texas until 2008. CR 281 (Tab 4). Preston’s MMT business trips do not form a

basis for specific jurisdiction.

Business trips with Quantum in 2004. Appellees never claim that Preston’s

alleged three business trips to Texas in 2004 to meet with Collins19 give rise to

their claims that Preston allegedly misrepresented the value of NC12 to potential

investors. CR 408–09, 261 (Tab 4). Indeed, TSI still would not exist for another

two years or do business for another four. CR 281 (Tab 4). Preston’s Quantum

business trips do not form a basis for specific jurisdiction.

Business trips with C Change between 2008–2011. Appellees never allege

that any of Preston’s business trips with C Change related in any way to

misrepresentations to investors about the value of TSI / NC12. CR 262–64, 319 at

25:3–28:21, 323 at 49:13-24, 335–38, 343–48 (Tab 4); CR 672–73 ¶¶ 5–6 (Tab 6).

Appellees do not claim that Preston’s 2008 meeting in Houston with Collins

and Sydow related to any alleged misrepresentations to investors. CR 262, 269,

19 Collins is not an intervenor, but an original plaintiff and former TSI/NC12 director whose fiduciary duty and conversion claims against Preston were dismissed and abated by the bankruptcy court. CR 234–37 (Tab 3).

48 319 at 25:3–28:21, 339–42 (Tab 4). With respect to the meeting in 2009 or early

2010, Preston’s C Change colleague Russell Read testified that he and Preston20

travelled to Texas during that period for one meeting with Russian technology

partners for the formation of a joint venture MIT was exploring with the Russian

government. CR 323 at 49:13–50:4 (Tab 4). Preston gave evidence of four other

approximately one-day trips for C Change between 2009–2011.21 There is no

evidence, nor even any allegation, that any of these trips related in any way to the

Appellees’ surviving claims.

Business trip to testify regarding NC12 in divorce proceeding. Preston

traveled to Texas in October 2010 to testify in Sydow’s divorce proceeding. CR

339–42 (Tab 4). Preston testified exclusively about NC12 assets and financial

operation. See CR 352–70 (Tab 4). But there can be no connection between any

alleged post-August 2010 contacts with Texas and misrepresentations to potential

investors in NC12, including this testimony, because August 2010 is the last

alleged investment giving rise to the surviving claims, and there is no allegation or

20 Preston does not recall this trip. CR 673 ¶ 6 (Tab 6). Read discusses the matter in context with his work with Preston at C Change. CR 323 at 49:13-24 (Tab 4). While it is not clear from the record whether this alleged trip occurred on behalf of MIT or C Change, either way, there is no evidence that it related in any way to Appellees’ surviving claims. 21 Preston’s flight records establish these trips occurred April 2–3, 2009 (Houston) (CR 335–38), May 3–4, 2009 (Houston) (CR 343–44), December 30–31, 2010 (Dallas) (CR 347–48), and March 16–17, 2011 (Austin) (CR 345–46) (Tab 4). See also CR 672–73 ¶¶ 5–6 (Tab 6). As the intervenors affirmatively plead, the last intervenor’s investment was in August 2010. CR 104– 08 (Tab 2). Preston thus could not have made any relevant misrepresentations nor furthered the alleged conspiracy to misrepresent NC12’s value to the intervenors on the latter two trips.

49 evidence that this or any post-August 2010 Preston contact relates in any way to

any conspiracy claim. CR 104–08 (Tab 2). Indeed, Appellees never allege any

link between this trip to Texas and any surviving claim. CR 269 (Tab 4).

Preston’s October 6, 2010 trip to Texas to give testimony in Sydow’s divorce

proceeding does not give rise to specific jurisdiction.

Business trip with TEM Capital. Appellees never allege that Preston’s May

2–4, 2011 business trip to Texas to attend a foreclosure sale and cement plant

inspection for TEM Capital relates in any way to their surviving claims. See CR

673 ¶ 7 (Tab 6); 263–64, 269, 349–50 (Tab 4); CR 414, 427 (Tab 5); CR 673 ¶ 7

(Tab 6). Again, the last relevant investment occurred nearly a year before, and no

evidence suggests this trip was related to any conspiracy to defraud NC12’s

investors regarding the value of NC12’s shares. CR 104–08 (Tab 2).

In sum, not a single one of Preston’s business trips give rise to the

Appellees’ surviving claims. Thus, not a single one supports specific jurisdiction.

c) 2004: Phone calls and mail to Collins.

As discussed above, Preston’s 2004 business trips to Texas to meet with

Collins did not relate to the surviving claims. As Collin himself states, Preston’s

subsequent telephone calls and shipment of records related to the same purposes as

his business trips: the commercial development of the CEP technology, not plans

50 to mislead investors of TSI two years later about the value of TSI. CR 409 ¶ 9

(Tab 4). These alleged contacts do not provide a basis for specific jurisdiction.

d) 2006: Metal Catalyst Ventures’ designation of address as TSI address.

A 2006 Nevada state record shows someone named Linda Kulik listed

Preston as a director of Nevada corporation Metal Catalyst Ventures, Inc. CR 315

(Tab 4). Kulik listed TSI’s Houston address as Preston’s address. See id.; CR 281

(Tab 4). Appellees allege no other facts regarding Metal Catalyst Ventures, not

even in their briefing. See CR 262 (Tab 4). Appellees never allege any link

between Metal Catalyst Ventures to the claims in the lawsuit, nor do they provide

any evidence that Preston actually resided at or did business at TSI’s address. See

section II.D, II.F, supra.

Preston submitted an unrefuted affidavit stating that he never served as a

director of Metal Catalyst Ventures and never listed the TSI address as his own.

CR 673 ¶ 9. (Tab 6). Preston has never maintained an office in Texas. CR 87 ¶ 8

(Tab 1). This is not a purposeful minimum contact supporting jurisdiction over

Preston because it is not a contact by Preston. See Guardian Royal Exch. Assur.,

Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 227 (Tex. 1991) (“the

contact must have resulted from the nonresident defendant's purposeful conduct

and not the unilateral activity of the plaintiff or others”). See also Helicopteros

Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 417, 104 S. Ct. 1868, 1873

51 (1984) (the “unilateral activity of another party or a third person is not an

appropriate consideration when determining whether a defendant has sufficient

contacts with a forum State to justify an assertion of jurisdiction.”). This alleged

“contact” provides no basis for specific jurisdiction over Preston.

e) 2008: Personal check.

In 2008, Preston allegedly wrote a personal check to BOS, Inc., a Turks and

Caicos corporation with an alleged bank account in Texas. CR 387 (Tab 4); CR 25

¶ 2. Two years later, BOS, Inc. wired Preston back the same sum. CR 384 (Tab

4). There is no indication that Preston purposefully availed himself of any Texas-

related benefits by writing a personal check to a foreign entity, or that this

transaction has any relationship to the litigation. See Helicopteros, 466 U.S. at

416–17 (“Common sense and everyday experience suggest that, absent unusual

circumstances, the bank on which a check is drawn is generally of little

consequence to the payee and is a matter left to the discretion of the drawer.”)

(footnote omitted). The BOS, Inc. payments are not a minimum contact with

Texas and do not give rise to specific jurisdiction.

f) 2012: Alleged alter-ego JK Claims’ purchase of litigation claims in the Kaiser Litigation.

Appellees’ fantastical story of Preston secretly purchasing the claims in the

Kaiser Litigation through alleged alter-ego JK Claims still does not relate in any

way to any potential misrepresentation to investors of NC12—the last of which

52 invested two years prior—or give any conceivable support to a conspiracy to

defraud potential investors in NC12. CR 414–24 (Tab 5).

The Kaiser Litigation concerned disputes between the members of Texas

Syngas LLC, not misrepresentations to potential investors in TSI or NC12 of TSI

or NC12’s value. CR 432–40 (Tab 5). The first action intervenors allege relating

to JK Claims, an application to reserve its name, occurred in June 2012, two years

after the last investor invested in NC12. CR 527, 414–24 (Tab 5). Even if taken as

true—which they should not be—the intervenors’ conspiracy theories regarding JK

Claims have nothing to do with the claims at issue in this matter and do not form a

In sum, none of Preston’s alleged contacts with Texas relate to the claims in

this case. Appellees’ allegations and evidence do not support the exercise of

specific jurisdiction. Kelly, 301 S.W.3d at 659 (Tab 8).

4. Appellees’ claim that Preston “could reasonably foresee that NC12 and its shareholders and investors would suffer direct economic injury” because of his alleged misrepresentations is not a basis for specific jurisdiction as a matter of law.

Appellees claim that Preston is subject to specific jurisdiction because “[i]n

raiding funds for TSI and NC12, through fraudulent misrepresentations and then

denuding the companies of their assets, Preston . . . could reasonably foresee that

NC12 and its shareholders and investors would suffer direct economic injury.” CR

269 (Tab 4). This argument echoes the intervenors’ general allegation in the

53 petition that there is personal jurisdiction because tortious conduct “was directed at

the State of Texas.” CR 114 ¶ 44 (Tab 2).

The Texas Supreme Court has unequivocally rejected the notion that

jurisdiction can arise purely because actions caused harm to Texas residents or

because a tort is “directed” at Texas residents. Michiana Easy Livin’ Country, Inc.

v. Holten, 168 S.W.3d 777, 788–92 (Tex. 2005) (surveying case law and

constitutional considerations). And in this case, because there are no claims

belonging to the original plaintiffs, and no intervenor is a Texas resident (including

Appellees), the only conceivable Texas harm Appellees allege is harm to NC12, a

Nevada corporation—but the bankruptcy court dismissed those claims.

There is thus no basis in the pleadings, the evidence, or the law for specific

jurisdiction over Preston.

C. Because Preston’s alleged contacts with Texas are not substantial, continuous, or systematic, there is no general jurisdiction as a matter of law.

1. General jurisdiction requires the defendant to have substantial, continuous, and systematic contacts with Texas.

General jurisdiction exists “when a defendant’s contacts in a forum are

continuous and systematic so that the forum may exercise personal jurisdiction

over the defendant even if the cause of action did not arise from or relate to

activities conducted within the forum state.” BMC Software Belgium, N.V. v.

Marchand, 83 S.W.3d 789, 796 (Tex. 2002) (Tab 9). For general jurisdiction, the

54 plaintiff must show the nonresident defendant engaged in “substantial activities” in

Texas. Guardian Royal Exch. Assur., Ltd. v. English China Clays, PLC, 815

S.W.2d 223, 230 (Tex. 1991).

A general jurisdiction inquiry “involves a ‘more demanding minimum

contacts analysis’” than a specific jurisdiction inquiry, with a “substantially higher

threshold.” PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 168

(Tex. 2007) (Tab 10). “Usually, ‘the defendant must be engaged in longstanding

business in the forum state, such as marketing or shipping products, or performing

services or maintaining one or more offices there; activities that are less extensive

than that will not qualify for general in personam jurisdiction.’” Id. (quoting 4

Wright & Miller, FEDERAL PRACTICE & PROCEDURE § 1067.5).

The defendant’s activities must be so extensive that it is essentially at home

in the state, and therefore should be subject to suit there for any claim—regardless

of where the claim occurred—as a resident would be. Goodyear Dunlop Tires

Operations, S.A. v. Brown, 131 S. Ct. 2846, 2853–54, 180 L. Ed. 2d 796 (2011)

(“For an individual, the paradigm forum for the exercise of general jurisdiction is

the individual’s domicile; for a corporation, it is an equivalent place, one in which

the corporation is fairly regarded as at home.”). As general jurisdiction is “dispute-

blind,” the alleged actions underlying the lawsuit “should not be the focus in

assessing continuous and systematic contacts—contacts on which jurisdiction over

55 any claim,” not just the one at issue, may be based. PHC-Minden, 235 S.W.3d at

169 (Tab 10). The relevant period for consideration of forum contacts for general

jurisdiction ends at the time the suit is filed. Id.

Because it is so easy to let case-specific facts improperly weight a general

jurisdiction analysis, the Texas Supreme Court has suggested a test that “properly

frames the issue”: would the nonresident’s contacts with Texas “support

jurisdiction even for a hypothetical cause of action arising from its sale of a

product in Germany that injured a German citizen?” Id. (citation omitted). In

other words: are Preston’s Texas activities in Texas so pervasive that he should be

sued in Texas in a case where none of the operative facts relate to Texas? The

answer here is no.

2. The sporadic contacts with Texas in a representative capacity that Appellees allege are nothing like the substantial, continuous, and systematic contacts required to establish general jurisdiction.

Appellees refer to the same set of alleged forum contacts to support both

specific and general jurisdiction over Preston. CR 260–64, 269 (Tab 4); section

II.F, supra. The vast majority of alleged contacts cannot be considered contacts

for purposes of establishing general jurisdiction over Preston, either because they

do not demonstrate that Preston availed himself of the privilege of conducting

activities in Texas (service as a director of a foreign entity) or they were made in a

representative capacity (business travel). Each is examined again in turn below in

56 the context of general jurisdiction. See Am. Type Culture Collection, Inc. v.

Coleman, 83 S.W.3d 801, 809 (Tex. 2002) (for general jurisdiction, all alleged

forum contacts in the relevant time period must be “carefully investigated,

compiled, sorted, and analyzed for proof of a pattern of continuing and systematic

activity.”). The quality, not quantity, of the contacts is relevant, and the relevant

period ends at the date of filing of the suit—here, July 26, 2011. Id.; CR 6.

a) Director of foreign entities.

The mere fact of service as a director of corporations which reside in Texas,

without more, is insufficient as a matter of law to create general jurisdiction over

Preston in Texas. Shaffer v. Heitner, 433 U.S. 186, 215–16, 97 S. Ct. 2569, 53 L.

Ed. 2d 683 (1977) (fact that defendants were directors and officers of Delaware

corporation did not demonstrate that they had purposefully availed themselves of

the privilege of conducting activities in Delaware in a way that would justify

bringing them before a Delaware tribunal).

Preston participated in TSI and NC12 board meetings from Massachusetts,

Switzerland, or Germany, never Texas. See CR 86–87 ¶¶ 2, 7 (Tab 1); CR 325,

328 (Tab 4). Indeed, Appellees allege no acts taken by Preston in Texas in

connection with his service as a director for TSI and NC12, or any other entity.

Even if they had, as discussed in detail below, any such acts would not be

sufficient to subject him to general jurisdiction in Texas as an individual because

57 he did not do them in his individual capacity. Wright v. Sage Eng’g, Inc., 137

S.W.3d 238, 250 (Tex. App.—Houston [1st Dist.] 2004, pet. denied).22

Preston’s contacts with Texas in his representative capacity do not qualify as

contacts for general jurisdiction because there is no allegation that these contacts

involved tortious activities or that the entities were Preston’s alter ego. Under

Texas law, corporations are presumed to be separate entities from their directors,

officers, and shareholders. See Washington DC Party Shuttle, LLC v. IGuide

Tours, 406 S.W.3d 723, 738–39 (Tex. App.—Houston [14th Dist.] 2013, pet.

denied). An individual's transaction of business within the state solely as a

corporate officer does not create personal jurisdiction over that individual though

the state may have personam jurisdiction over the corporation. Stuart v.

Spademan, 772 F.2d 1185, 1197 (5th Cir. 1985). An individual’s representative

contacts are not their own absent other evidence that the contact was independently

tortious, or proof sufficient to pierce the corporate veil. Siskind v. Villa Found. for

Educ., Inc., 642 S.W.2d 434, 438 (Tex. 1982); Hoffmann v. Dandurand, 180

S.W.3d 340, 347 (Tex. App.—Dallas 2005, no pet.).

22 This rule is sometimes referred to as the fiduciary shield doctrine. Id. Appellees cite Wright for the proposition that Preston’s acts as a director can create personal jurisdiction if it is those acts which give rise to the lawsuit. CR 270 (Tab 4). However, that is only true in the case of specific jurisdiction, not general jurisdiction, as the Wright court explicitly noted. 137 S.W.3d at 250. As already discussed above, Appellees do not allege any acts by Preston in Texas—in his capacity as a director or otherwise—that relate to the claims in this case.

58 This Court has held that general jurisdiction over an individual may not be

based on jurisdiction over an entity with which an individual is associated unless

the entity is his or her alter ego. Vosko v. Chase Manhattan Bank, N.A., 909

S.W.2d 95, 99 (Tex. App.—Houston [14th Dist.] 1995, writ denied). See also

Hoffmann, 180 S.W.3d at 347. The alter ego doctrine applies only when there is

such unity between the corporation and the individual that the separateness of the

corporation has ceased. Vosko, 909 S.W.2d at 99. Courts consider evidence such

as (1) the payment of alleged corporate debts with personal checks or other

comingling of personal and corporate funds; (2) representations that the individual

will financially back the corporation; (3) diversion of company profits to the

individual for personal use; (4) inadequate capitalization; (5) other failures to keep

corporate and personal assets separate. Hoffmann, 180 S.W.3d at 347.

Because personal jurisdiction involves due-process considerations that may

not be overridden by statutes or case law, jurisdictional veil-piercing and

substantive veil-piercing involve different elements of proof. All Star Enter., 298

S.W.3d at 422; PHC-Minden, 235 S.W.3d at 174 (Tab 10). For jurisdictional

purposes, the factors considered must relate to the actor’s forum contacts. See

PHC Minden, 235 S.W.3d at 174 (Tab 10) (observing that common veil-piercing

factors such undercapitalization and common names between entities do “not

59 affect whether each has sufficient contacts with the forum for jurisdictional

purposes.”).

Notably, while Appellees occasionally suggest Preston “controls” certain

entities, with the exception of JK Claims (discussed below), Appellees never allege

nor present any evidence that the various entities Preston represented in his

contacts with Texas were Preston’s alter ego. Mere status as an officer, director or

majority shareholder of an entity alone is insufficient to support a finding of alter

ego. Tryco Enter., Inc. v. Robinson, 390 S.W.3d 497, 525 (Tex. App.—Houston

[1st Dist.] 2012, pet. dism’d). Yet nearly all of Preston’s alleged Texas contacts

relate to business trips to Texas on behalf of entities for whom Preston was a

director or manager:

Business trips with a nonprofit and MMT in the 1990s. Appellees never

allege the nonprofit or MMT were alter-egos of Preston’s, or that Preston

committed any torts on his trips that would give rise to jurisdiction over Preston in

his personal capacity. CR 288–89 (Tab 4); CR 87 ¶ 5 (Tab 1). Preston’s 1990s-era

Texas trips or Texas-related projects on behalf of the nonprofit and MMT do not

constitute contacts supporting general jurisdiction over Preston as a matter of law.

60 Business trips with C Change between 2008–2011.23 With C Change,

Preston allegedly visited Texas in November 2008 with Read to attend a meeting

with Collins and Sydow; in “2009 or early 2010” with Read regarding a joint

venture with MIT and Russian technology partners; and four other times between

2009–2011 for one-day business trips. CR 319 at 25:3–28:21, 323 at 49:13-24,

335–48 (Tab 4); CR 672–73 ¶¶ 5–6 (Tab 6). Appellees do not dispute that Preston

took these trips in his representative capacity on behalf of C Change. CR 262–64

(Tab 4). Nor do Appellees allege that C Change is an alter ego of Preston’s, or that

Preston committed fraud or any other tort in the course of his contacts with Texas

through C Change. Preston’s Texas trips on behalf of C Change between do not

constitute contacts supporting general jurisdiction as a matter of law.

Business trip in 2010 to testify regarding NC12 in divorce proceeding. It is

undisputed that Preston traveled to Texas on October 6, 2010 to testify about

NC12’s assets and operations in Sydow’s divorce proceeding. CR 331–70 (Tab 4).

While Appellees complain that the hearing transcript does not say “corporate

representative,” it is indisputable that Preston’s testimony exclusively concerned

NC12 assets and NC12’s financial operation. See CR 357 (discussing purpose of

Preston’s testimony as whether Sydow or NC12 owned a particular asset, or

23 Preston’s alleged 2004 contacts with Collins are discussed together in the next subsection. See section V.C.2(c), infra.

61 whether Sydow was receiving money from NC12). The transcript contains no

questions whatsoever regarding Preston’s personal relationship with Sydow—or

indeed, anything other than NC12 financial operations and NC12 assets. CR 331–

70 (Tab 4).

Even if Preston had testified in his personal capacity, it would not be

evidence of purposeful availment of the benefits of acting in Texas. Preston did

not file for divorce in Texas, Sydow did. See Guardian Royal Exch. Assur., Ltd. v.

English China Clays, P.L.C., 815 S.W.2d 223, 227 (Tex. 1991) (“the contact must

have resulted from the nonresident defendant's purposeful conduct and not the

unilateral activity of the plaintiff or others”). See also Helicopteros Nacionales de

Colombia, S.A. v. Hall, 466 U.S. 408, 417–18, 104 S. Ct. 1868, 1873 (1984) (the

“unilateral activity of another party or a third person is not an appropriate

consideration when determining whether a defendant has sufficient contacts with a

forum State to justify an assertion of jurisdiction.”); Kulko v. Cal. Super. Ct., 436

U.S. 84, 93, 98 S. Ct. 1690, 1697 (1978) (holding it arbitrary to subject one parent

to suit in any state where other parent chooses to spend time while having custody

of child).

One isolated trip to give testimony in a divorce proceeding is no evidence of

any continuous and systematic relationship with Texas. Preston’s October 6, 2010

business trip does not support general jurisdiction.

62 Business trip with TEM Capital. Again, there is no dispute that Preston

made his May 2–4, 2011 trip to Texas to attend a foreclosure sale and inspect a

cement plant in connection with that sale as a representative of TEM Capital. CR

673 ¶ 7 (Tab 6); CR 349–51 (Tab 4). And again, there is simply no allegation,

much less any evidence, that TEM Capital is an alter ego of Preston’s or that

Preston did anything tortious on his trip that would support individual jurisdiction

over him.

In sum, not a single one of Preston’s business trips support general

jurisdiction over Preston individually.

c) 2004: Business trips, phone calls, and shipment of records with Quantum.

While Collins disputes whether Preston acted as a representative of

Quantum during their 2004 interactions,24 there is no dispute that these 2004

contacts pertained to the development of MMT’s patented CEP technology. CR

408–09 ¶¶ 3–9 (Tab 4); CR 673 ¶¶ 6–8 (Tab 6). The intervenors affirmatively

assert that Quantum, not Preston, acquired MMT’s CEP technology in 1999 and

that Quantum, not Preston, licensed the CEP patents CR 115–16 ¶¶ 48, 50 (Tab 2).

24 Preston’s sworn declaration states that all his interactions with Collins during this time period were as a representative of Quantum. CR 673 ¶ 8 (Tab 6). Collins claims he believed Preston to be operating in his personal capacity, rather than as a representative of Quantum during these 2004 meetings and communications. CR 408–09 ¶¶ 3–9, 11 (Tab 4).

63 While intervenors allege Quantum is “controlled” by Preston, there are no

allegations or evidence that Quantum is Preston’s alter ago. See, e.g., CR 115 ¶ 48

(Tab 2); CR 673 ¶ 10 (Tab 6) (Preston is one of 21 shareholders of Quantum).

There are no allegations or evidence, for example, that Preston comingled his

funds with Quantum, or personally diverted Quantum’s assets, or used Quantum’s

corporate form for his personal benefit. Despite Collins’ claims about his beliefs,

there is no evidence Preston was acting in anything other than his representative

capacity in his dealings with Collins in 2004, and there are no allegations that

Preston committed any tortious acts in the course of these 2004 dealings.

Moreover, none of the alleged 2004 contacts indicate Preston purposefully

availed himself of the privileges of acting within Texas. Even if Preston were

acting in his individual capacity, nothing indicates that Collins’ state of residence

was anything but incidental. Collins, not Preston, chose to reside in Texas. See

Guardian Royal Exch., 815 S.W.2d at 227; Helicopteros, 466 U.S. at 417–18;

Kulko, 436 U.S. at 93.

Even if these limited 2004 contacts—three trips, some telephone calls, and

one shipment of technical records—were included in a general jurisdiction

analysis, they hardly support the continuous and systematic contacts necessary to

give rise to general jurisdiction. See Helicopteros, 466 U.S. at 417–18.

64 d) 2006: Metal Catalyst Ventures’ designation of business address at TSI address

The fact that an unrelated individual listed TSI’s Texas office address as

Preston’s address on a Nevada document regarding a Nevada corporation is not

minimum contact with Texas, much less one that would support general

jurisdiction. CR 315, 281 (Tab 4); CR 673 ¶ 9 (Tab 6). See Guardian Royal

Exch., 815 S.W.2d at 227; Helicopteros, 466 U.S. at 417–18; Kulko, 436 U.S. at

93.

e) 2008: Personal check

Appellees present no evidence regarding the context surrounding the

personal check Preston allegedly wrote to BOS, Inc., a Turks and Caicos

corporation. CR 387 (Tab 4); CR 25 ¶ 2. Certainly, they present no explanation as

to why Preston would know the foreign entity had a Texas bank account, or how

Preston could be said to have purposefully availed himself of benefits of doing

business in Texas by writing a check to such an entity. Guardian Royal Exch., 815

S.W.2d at 227; Helicopteros, 466 U.S. at 417–18; Kulko, 436 U.S. at 93. This is

not the type of purposeful, continuous, and systemic contact with Texas that gives

rise to general jurisdiction.

65 f) 2012: Alleged alter-ego JK Claims’ purchase of litigation claims in the Kaiser Litigation

As a matter of law, Preston’s alleged Texas contacts in connection with JK

Claims occur too late to qualify for a general jurisdiction analysis in this case.

PHC-Minden, 235 S.W.3d at 169 (“the relevant period ends at the time suit is

filed.”) (Tab 10). Not only do Appellees fail to establish that JK Claims is an alter

ego of Preston’s, most significantly, they ignore the damning fact that the earliest

of JK Claims’ alleged activities, its application for name reservation with the Texas

Secretary of State, dates back to June 2012. CR 417, 527 (Tab 6). This is over a

year after the original plaintiffs filed suit, and nearly a year after Appellees

themselves filed their suit in intervention. CR 6; CR 102 (Tab 2).

Appellees’ convoluted alter-ego story amounts to nothing more than an

allegation that JK Claims kept poor records. Appellees fail entirely to establish JK

Claims as an alter ego of Preston’s. Preston’s declaration and Sydow’s deposition

testimony are unrefuted and establish that Quantum is the sole owner of JK

Claims. CR 432, 495 at 57:2–3, 498 at 66:19–67:20 (Tab 5); CR 673 ¶ 10 (Tab 6).

Appellees do not allege that Quantum is an alter ego of Preston. Rather, Appellees

simply assert that JK Claims is Preston’s alter ego on the bases that: half of the

funds for the Kaiser claims purchase came “from Boston” and half from Sydow;

certain JK Claims corporate documents are unsigned; and certain JK Claims

66 corporate documents do not reflect the ownership of shares in JK Claims (though

others do). CR 415–24, 529–31 (Tab 5).

There is no evidence that Preston personally supplied any funds for JK

Claims. Rather, Sydow testified the funds came from Quantum. CR 495 at 57:2–

3, 498 at 66:19–67:20 (Tab 5). And failure to comply with corporate formalities is

not a factor in considering whether alter ego exists. Howell v. Hilton Hotels Corp.,

84 S.W.3d 708, 714 (Tex. App.—Houston [1st Dist.] 2002, pet. denied).

There is no evidence that Preston comingled his personal debts or assets

with JK Claims or any of the others indicia of an alter ego entity. There is no

evidence that Preston personally funded the acquisition of the Kaiser litigation and

no evidence that the bankruptcy trustee would have objected if he had.25 There is

no evidence that Preston (or JK Claims or Quantum) did anything improper with

respect to JK Claims’ formation, or its acquisition or management of the Kaiser

claims. TEX. R. CIV. P. 120a(3) (requiring the trial court to consider the pleadings

and the evidence, not speculation and inference).

25 Appellees rely heavily on documents produced in the Kaiser litigation showing discussions between JK Claims’ counsel and the bankruptcy trustee’s counsel, Gretchen McCord, in connection with the sale. CR 421–24 (Tab 5) (referencing “Ex. I,” at CR 548–80). While one half of the source of the funding is unclear, the other half is explicitly from Sydow. CR 564 (Tab 5). If the trustee objected to a defendant in the Kaiser litigation funding JK Claims’ acquisition of the Kaiser claims, the trustee would have objected to Sydow, who was also a defendant in the Kaiser litigation. CR 432 (Tab 5).

67 Therefore, even if the alleged JK Claims activity were not too late to support

jurisdiction of a matter of law, there would still be insufficient evidence to support

any finding that JK Claims was Preston’s alter ego. Serv. Corp. Intern. v. Guerra,

348 S.W.3d 221, 228 (Tex. 2011) (evidence is legally insufficient if there is there

is a complete absence of evidence of a vital fact, or the evidence offered to prove a

vital fact is no more than a mere scintilla); Garza v. Alviar, 395 S.W.2d 821, 823

(Tex. 1965) (evidence is factually insufficient if it is so weak that the finding

should be set aside).

3. Preston lacks any substantial, continuous, or systematic contact that would render him at “at home” in Texas.

Standing against these tenuous Texas contacts are the following facts:

Preston has not lived in Texas since his infancy; has never done business in Texas

in his individual capacity; has never maintained an office in Texas; has never

engaged in any routine sales or other profit-making activities in Texas; does not

rent, own, or possess any real or personal property in Texas; has never taken out a

loan in Texas or guaranteed a debt owed to a Texas resident; does not maintain a

telephone, post office box, or other address in Texas; does not employ any persons

who live in or regularly travel to Texas for work; and has never incurred or paid

taxes in Texas. CR 86–89 ¶¶ 2–14, 74–85 (Tab 1). An out-of-state defendant who

merely does business with Texas businesses or customers will not be subject to

general jurisdiction if he does not have a lasting physical presence in the state.

68 Access Telecom, Inc. v. MCI Telecom. Corp., 197 F.3d 694, 717 (5th Cir. 1999).

Preston indisputably does not.

The Texas and United States Supreme Courts have made clear that brief,

sporadic trips to a forum state are insufficient to create general jurisdiction,

particularly when they are made in a representative capacity. PHC-Minden, 235

S.W.3d at 170 (Tab 9); Ashdon, Inc. v. Gary Brown & Assocs., Inc., 260 S.W.3d

101, 113 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (Florida business owner’s

20+ sales meetings in Texas over 13-year period insufficient to establish general

jurisdiction); Waterman Steamship, 355 S.W.3d at 406 (18 port calls over a seven-

year period “is better characterized as sporadic rather than ‘continuous and

systematic’ contacts”).

In Helicopteros, the United States Supreme Court overturned the Texas

Supreme Court, holding that because Helicol lacked any place of business in

Texas, lacked a license to do business in Texas, took only sporadic trips to Texas

through its CEO and employees, purchased products in Texas, and accepted checks

drawn on Texas bank accounts, Helicol’s Texas contacts were insufficient for

general personal jurisdiction. Helicopteros, 466 U.S. at 416–19.

By contrast, in Perkins v. Benguet Consol. Mining Co., the nonresident

defendant’s mining properties were located in the Philippines, but its operations

were stopped by the Japanese occupation of the islands. 42 U.S. 437, 446–49, 72

69 S. Ct. 413, 419–20 (1952). During the occupation, the president and general

manager returned to his home in Ohio and operated his business from there. See

id. The United States Supreme Court determined that the company’s Ohio contacts

supported a finding of general jurisdiction because the company’s president and

general manager maintained an Ohio office, maintained company files in Ohio,

corresponded from Ohio, drew and distributed salary checks from his Ohio office,

used two Ohio bank accounts for company funds, had an Ohio bank act as transfer

agent for the company’s stock, held directors’ meetings in Ohio, and supervised

company Philippines property from Ohio. Id.

Preston’s brief, sporadic, and representative contacts with Texas do not

approach the level of forum contacts in Helicopteros, much less those in Perkins.

Preston’s forum contacts are not so substantial that Preston “should have

reasonably expected to be sued in Texas on any matter, however remote” from

those contacts. Johnston v. Multidata Sys. Intern. Corp., 523 F.3d 602, 613 (5th

Cir. 2008). There is no basis for general jurisdiction over Preston as a matter of

law.

VI. CONCLUSION AND PRAYER

Appellees, disgruntled out-of-state investors in TSI and NC12, have not

demonstrated why Texas courts should entertain their claims seeking to recover

their lost investment against a Massachusetts resident who is not alleged to have

70 done anything in Texas connected to their claims. Appellees failed to meet their

initial pleading burden, and there is no basis for the exercise of specific or general

jurisdiction. Therefore, Preston requests that this Court reverse the trial court’s

order overruling his special appearance, render a judgment granting his special

appearance, and order that he be dismissed from the lawsuit.

Respectfully submitted,

AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI & MENSING, P.C.

By: /s/ Jane Langdell Robinson Jane Langdell Robinson Texas Bar No. 24062970 Monica Uddin Texas Bar No. 24075195 Jamie A. Aycock Texas Bar No. 24050241 1221 McKinney Street, Suite 3460 Houston, Texas 77010 Telephone: 713-655-1101 Fax: 713-655-0062

ATTORNEYS FOR APPELLANT JOHN T. PRESTON

71 CERTIFICATE OF COMPLIANCE I certify that this brief complies with the typeface and word-count requirements set forth in the Rules of Appellate Procedure. This brief has been prepared, using Microsoft Word, in 14-point Times New Roman font for the text and 12-point Times New Roman font for any footnotes. This brief contains 14,507 words, as determined by the word count feature of the word processing program used to prepare this document, excluding those portions exempted by TEX. R. APP. P. 9.4(i)(1).

/s/ Jane Langdell Robinson Jane Langdell Robinson

72 CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of this document was served on all counsel of record in this case, identified below, on June 12, 2015, by the electronic filing manager and/or via email:

Kelley M. Keller F. Eric Fryar State Bar No. 11198240 State Bar No. 07495770 kkeller@ellison-keller.com eric@fryarlawfirm.com Tracey N. Ellison Matthew Buschi State Bar No. 15054720 State Bar No. 24064982 ELLISON KELLER mbuschi@fryarlawfirm.com 5120 Woodway Dr., Suite 6019 Christina Richardson Houston, Texas 77056 FRYAR LAW FIRM, P.C. Telephone: 713-266-8200 State Bar No. 24070495 Fax: 713-266-8201 912 Prairie, Suite 100 Attorneys for Appellees Emjo Houston, Texas 77002-3145 Investments, Ltd. and Fax: 281-605-1888 H.J. von der Goltz Attorneys for all Intervenors/ Plaintiffs

Asher Griffin Chris Sileo Sean Flammer SCOTT, DOUGLASS & MCCONNICO, LLP 600 Congress Ave., Ste 1500 Austin, Texas 78701-2589 Fax: 512-474-0731 Attorneys for Appellees Chalsys, MET, and Lo

4834-5746-0004, v. 7

73 Filed 11 September 28 P2:44 Chris Daniel - District Clerk Harris County ED101J016518693 By: jeanetta spencer CAUSE NO. 2011-44058

MICHAEL COLLINS. ELLEN COLLINS. § IN THE DISTRICT COURT OF BOS, TNC.. ENVEN, INC., § METAL CATALYST VENTURES, INC., § FALL RNER REALTY. LTD. , § M. SAMEER AHMED, AND § TSBC SOUTH TEXAS INVESTORS. L.P., ~ § Plaintiffs, § § v. § HARRIS COUNTY, TEXAS ~ MICHAEL SYDOW, JOHN T. PRESTON. § CHRISTOPH HENKEL. C. CHANGE § INVESTMENTS. LLC, SONIA LO. CHALSYS ~ CAPITAL PARTNERS, L.L.P., § BRILLIANT NOVELTY , LL.C.. § and MELIORA ENERGY § TECHNOLOGTES, S.A.R.L., § § Defendants. § 2 15™ JUDICIAL DISTRICT

DEFENDANT JOHN T. PRESTO 'S AMENDED SPECIAL APPEARANCE AND, SUBJECT THERETO, ORIGINAL ANSWER

Pursuant to Texas Rule of Civil Procedure 120a. Defendant John T. Preston (''Preston")

files this Amended Special Appearance, and Subject Thereto, Original Answer. objecting to this

Court's personal jurisdiction over him, and in support states as foll ows:

PRESTON'S SPECIAL APPEARANCE

1. Plaintiffs have sued eight defendants in Texas even though there is no basis for

personal jurisdiction over all of them. Specifically. Preston does not belong in this la wsuit

because he has not had contact with the state of Texas in his individual capacity in the past 60

years. nor has he ever done husiness in Texas in his indi vidual capacity. Preston· s limi ted

contacts with Texas have been made on behalf of companies for which he is a director. T he

contacts of these companies cannot be imputed to Preston to subject him to personal jurisdiction

74 in Texas. Thus, Preston does not have the requisite minimum contacts required by Texas and

fe deral law to exercise personal jurisdiction over him. Similarly, because Preston has had no

contact with Texas in the past 60 years, subjecting him to the jurisdiction of a Texas court would

not comport with notions of fair play and justice. There fore. Preston respectfull y requests that

this Court fmd that asserting jurisdiction over him in Texas is improper and dismiss all claims

againsl him.

Argument and Authorities

I. Texas law requires that the exercise of personal jurisdiction be consistent with t'ederaJ due process.

2. A Texas court may only exercise pet sonaljudsdiction over a defendant if it would

be consistent with Cederal constitutional requirements of due process. Guardian Royal Exch.

Assurance. Ltd. v. English China Clays, P.L. C. , 8 15 S.W.2d 223, 226 (Tex. 199 1). The Texas

long-aJm statute authorizes the exercise of j urisdiction over nonresidents who are "doing

business" in Texas, but this statute can only reach as far as the federal constitutional

requirements of due process will a llow. TEX. CIV. PRAC. & REM. CODE§ 1 7.042 ~ Guardian

Royal. 815 S .W.2d at 226 . Thus, Texas courts must look to due process requirements to

determine if personaljul'isdiction is proper. Guardian Royal, 8 15 S. W.2d at 226.

3. Personal jurisdiction is consistent with due process if 1) the defendant has

purposely established ·'minimum contacts, with Texas: and 2) the exercise of personal

jurisdiction comports with " fair play and substantial justice." Nat '[Indus. SOJzd Ass 'n v. Gibson.

897 S.W.2d 769, 772 (Tex. 1995); Guardian Royal, 815 S.W.2d at 226.

48 12-3575·8602. v. I 75 II. Preston does not have the requisite minimum contact., with Texas to give rise to personal jurisdiction.

4. The essential goal of the minimum contacts test is to protect the defendant.

Schlobohm v. Schapiro. 784 S.W.2d 355, 357 (Tex. 1990). Thus. the defendant's minimum

contacts must constitute a "substantial connection" between lhe defendant and Texas. Guardian

Royal, 8 15 S .W.2d at 23 1. A defendant is not subject to ju1·isdiction if his Texas contacts are

random. fortuitous or attenuated. Am. Type Culture Collection. Inc. v. Colenum . 83 S.W.3d 801.

806 (Tex. 2002). Instead. to be subject to personal jurisdiction the defcnd

sufficient minimum contacts with Texas such thm he could reasonably anticipate lhat his

activities would subject him to the jurisdiction of a Texas com·L Nat'/ Indus. Sand Ass'n. 897

S.W .2d at 772.

5. Moreover. an indi vidual defendant's contacts with Texas on behalf of a

corporation or company cannot be the basis for personal juiisdiction over the person. absent a

showing that the company is the alter ego of the individual defe ndant. Stuart v. Spademan, 772

F.2d 1185, 11 97 (5th Cir. 1985) (applying Texas law in a diver ity action a nd refusing to impute

the company 's jurisdictional contacts with Texas to the individual defendant who was president

of the company); Leon Ltd. v. Albuquerque Commons P 'ship , 862 S.W.2d 693. 708 (Tex. App.-

El Paso 1993. no writ) (holding there was no personal j mi sdiction over individual defendant after

fi nding that the corporation was not his alter ego. and thus. jurisdiction over him could not be

predicated upon jmisdiction over the corporation).

6. If a defendant has had purposeful minimum contacts with Texas. then he can be

subject to specific or general jurisdiction. Guardian Royal. 8 15 S.W.2d at 227-28. Specific

j urisdiction arises when: l) the defendant '·purposefully avails" himself of conducting activities

in Texas; and 2) the cause of action "mises from or is related to those contacts or activilies."

4812-3575·8602. v. I 76 Kelly v. Gen. Interior Constr.. Inc.. 301 S.W.3d 653, 658 (Tex. 2010). General jurisdiction

arises if the defendant's contacts with Texas are so "continuous and systematic" that the

defendant can fair) y be said to be present in Texas. /d. at 227.

A. Because PJaintiffs do not alle ge that Preston has bad any contacts with Texas. Preston ne gates all bases for personal jurisdiction by establishing that he is a nonresident of Texas.

7. The plaintiff has the initial burden of pleading sufficient allegations to bti ng the

nomesident defendant within the pi'Ovisions of the Texas long-ann statute. C-Loc Retention Sys.,

Inc. v. Hendrix. 993 S.W .2d 473.476 (Tex. App.- Houston [1 4th Dist.]l 999, no pet.); Frank A.

Srnith Sales, /11c. v. Atlantic Aero. Inc.• 3 1 S.W.3d 742. 747 (Tex. App.-Corpus Clu-isti 2000. no

pet.) (holding that because the petition staled only that defendant had committed acts of

negligence, without specifying where the acts occurred or alleging that they were committed in

Texas. the petition ·•fell well short of pleading sufficient allegations to show j urisdiction in

Texas..).

8. At his special appearance. the defendant bears the blU'den of negating all bases of

personal jurisdict ion. C-Loc Retention Sys., Inc., 993 S.W.2d at 476 (citing Nat'/ Indus. Sand

Ass 'n, 897 S.W .2d at 772). But if the pla intiff does not plead that the defendant committed any

act in Texas, the defend::Ult can negate all base of personal jurisdiction by presenting evidence

that he is a nonresident. C-Loc Retention Sys .. Inc.. 993 S.W.2d at 476; Hotel Partners v. KPMG

Peat Mearwick, 847 S.W.2d 630, 634 (Tex. App.- Dallas 1993, w1·it denied).

9. In their First Amended Petition (''Petition"), Plainti ffs do not plead that Pl'eston

committed any acts in Texas nor do they make any specific allegations that Preston engaged in

business in Texas. Instead. in the Statement of Facts. Plaintiffs state that Preston "wrote a check

to BOS" and that BOS later re tumed this amount to Preston. See First Am. Pe t. ~~ 25. Plaintiff

4812-3575·8602. v. I 77 BOS. Inc. is a Turks and Caicos corporation. See First Am. Pet.

allege that Preston transacted with a foreign corporation and do not allege that this activity

occurred in Texas. Thu s, this act cannot constitute "doing business" in Texas. TEx. C IV. PRAC.

& REM. CODE§ 17.042.

10. Plaintiffs also allege that Preston ··engineered the trans fer of assets and liabilities"

from Texas Syngas. Inc. ("TSI") lo NC12. Inc . See First Am. Pet. ~[ 28. TSI is a Nevada

corporation . See Fitst Am. Pet. ~[21. NC12, lnc . is al so a Nevada corporation. Exh. A, Preston

Aff. at 2. Thus, Plaintiffs only allege that Preston t1·ansl'en ed assets hetween two Nevada

corporations - an act tl1at also does not involve Texas. much less constitute "doing business" in

11. Plaintiffs allege that Pteston removed Plaintiff Michael Collins as a director of

NC1 2, Inc. and that he. along with other defendants, "systematically strip[ped] NC 12 of its assets

and transfer[ed] the assets" to a company in Luxembourg. See First A m. Pet.

present no evidence or allegations that these acts occmTed in Texas or that Preston ~ommiHed

any of these acts in Texas.

12. Moreover. Plaintiffs summari ly state in the " Part ies" and "Jmisdiction" sections

of the Petition that the Preston and the other defendant have engaged in or done business in

Texas. without providing any basis for this statement or alleging any acts that constitute business

in Texas. See Fil'st Am. Pet.

13. To meet their burden of pleading a sufficient basis for personal jurisdiction.

Plaintiffs must allege Preston conunitted a specific act in Texas. See Siskind v. Villa Found. for

Educ., Inc .. 642 S.W.2d 434 (Tex. 1982) (finding no personal jmisdiction over nonresident

defendants bec~use there were no al legations of specific acts in Texas). Thus, Plaintjffs' pet.ltion

4812-3575-8602. V. I 78 falls ''well short of pleading sufficient allegat ions to show jurisdiction in Texas." Frank A. Smith

Sales, Inc., 31 S.W.3d at 747.

14. Because Plaintiffs have not pled that Preston commiued an y act in Texas, P1·eston

can negate all hases of personal jurisdiction by presenting evidence that he is a nonresident of

Texas. C-Loc Retention Sys., Inc. , 993 S.W.2d at 476 ~ Temperature Sys., Inc. v. Bill Pepper.

Inc., 854 S.W .2d 669.673 (Tex. App. -Dallas 1993, writ dism' d by agr.) (holding that proof that

a defendant is a nomesident is sufficient to meet the defendant' s burden of negating jurisd iction

when a plaintiff pleads onl y conclusory jmisdictional allegations in the peti tion).

15. Preston is indeed a nonresident of Texas~ he is a resident of Massachusetts. Exh.

A. Presion Aff. at 3. Thus, Preston has negated all bases for personal jurisdiclion and has

sat isfied his burden regarding his special appearance. Temperature Sys., Inc., 854 S.W.2d at

673. Th is Court should therefot•e grant Preston's special appearance and dismiss all clai ms

against him.

B. Preston has not purposely availed himself of conducting activities in Texas to give rise to specific jurisdiction.

16. Even if Plaintiffs had alleged that Preston committed acts in Texas, he is no t

subject to specific jurisdiction because he has not purposefully avaj led himself of conducting

activities in Texas. Specific jurisd iction ari ses when: 1) the defendant " purposefull y avail s'·

himself of conducting activities in Texas ~ and 2) the cause of action •·arises from or is related to

those contacts or activities." Kelly. 301 S.W .3d at 658.

17. Preston has never done business in Texas in his individual capac ity. Exh. A,

Preston AlT. at 4. He has not travelled to or visited Texas in hi s individual capacity in the past 60

years. ld.

4812-3575-8602. v. I 79 18. Preston has only had limited contacts with Texas. and aJl of these contacts were

made in his representative capacity and on behalf of a company for which he was a board

member, director or a principaL /d. at 5. 6. Specifically, Preston visited Texas approximately 8

times 20 years ago. as a representative board me mber for two different compan ies. /d. at 5. In

the 1ate 1980's. Preston attended no more than 5 board meet ings in Texas as a representative and

boa1·d member of a nonprofit organization. /d. at 5. In the early 1990's. Preston attended no

mo t·e than 3 board meetings in Texas as a representative of a Delaware company of which he

was a boatd member. /d. at 5.

19. In the past 5 years, Preston has visited Texas a very limited number of times. and

again only as a representative and on behalf of a company for which he was a director or

principal. Jcl. at 6. Preston visited Texas approximately 3 times in the past 5 years on behalf of

TEM Capital. a company for which he is managing partner. /d. at 6. These visits consisted of

touring facilities in which TEM Capital invests. ld. at 6. Preston 's only other acti vity in Texas

has been to appear as a witness in Michael Sydow 's divorce proceedings in 2010. ld. at 6. He

appeared as a rept·esentative or NC 12, Inc. and testified regarding an asset (a building) owned by

NC 12, Inc. /d. at 6.

20. Preston's contacts with Texas on behalf of these companies cannot be the basis

for personal jurisdiction over him absent a showing that these companies are his alter egos.

Stuart, 772 F.2d at 1197; Leon Ltd., 862 S.W.2d at 708. PlainWTs do not, and cannot, aJlege that

any of the companies that Preston has travelled to Texas on behalf of are his alter egos. Thus.

none of the visits or contacts with Texas that Preston has had with Texas in the past 60 years can

be athibuted lo him for jw·isdictionaJ purposes.

4812-3575-8602. V. I 80 2 1. Other than these limited contacts with Texas on behalf of these companies,

Preston has had no o ther contacts with Texas. Preston has never maintained an office in Texas,

and has never employed any person or company located in Texas. /d. at 8. Preston has never

been engaged in routine sales or other pro fit making activities in Texas. /d. Preston does not

maintain a registered agent on whom service of process can be made in Texas. ld. Other than

engaging defense counsel in the present action. Preston has never entered inlo any contracls in

Texas: with any Texas residents, any contracts calling fm per[ormllllce in Texas, or a11y contracts

that contain a mandatory venue provision in Texas. /d.

22. Preston does not rent. own, or possess any real or personal property in Texas. nor

does he hold a mortgage or other lien on any real or personal property in Texas. /d. at 9.

Preston does not have any investments in Texas, and he has never taken out a loan in Texas or

guaranteed any debt owed to a Texas resident. /d.

23. Preston docs not maintain a telephone listing. post office box. or registered

address in Texas . Id. at 10. Preston does not employ any persons who reside in Texas, or who

regularly travel to Texas in connection with their individual business. /d. at ll. Preston has

never incuned or paid any taxes in Texas. /d. at 12.

24. Except for this lawsuit. Preston has never been a party to litjgation in any state or

federal court in Texas. !d. at 13. Preston has never committed a tort in whole or in part in

Texas. ld. at 14.

25. Because Preston has had no contacts with Texas in the past 60 years that can he

attributed to him personally, Preston c~umot plausibly be found to have •·purposefully availed"

himself of conducting activities in Texas. Moreover. because Preston has not had contact with

Texas in his individual capacity, Pl aintiffs' alleged causes of action could not "arise from or be

4812-3575-8602. v. I 81 related to.. ~my contacts Preston had with Texas. Thus. Preston cannot be subject to specific

j urisdiction in Texas.

C. Preston has not had any contacts with Texas to give rise to general jurisdiction.

26. Because Preston has had no contact with Texas in the past 60 years. he similarl y

does not have ·'continuous and systematic" contacts with Texas that would subject hjm to general

j w·isdiction. Grwrdicm Royal. 815 S.W.2d at 227. To assert general j w·isdiction over a

defendant. usually the defendant must be engaged in longstanding business in Texas. such as

regularly marketing or shipping products to Texas or maintaining one or more offices here.

PHC-Minden. L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163. 168 (Tex. 2007). Less extensive

activities will not qualify for general jurisdiction. /d. As stated in paragraphs 17 - 24 above.

Preston has had no contact wilh Texas in the past 60 years ; thus, there is no basis for general

jurisdiction.

27. Moreover. Preston has not. had sufficient minimum contacts with Texas such that

he could reasonably anticipate being subject to the jmi scliction of a Texas court. Nat 'l lndus.

Sand Ass 'rl. 897 S.W.2d at 772. Due to a complete lack of contact with Texas in the past 60

years. Preston is not subject to either specific or general personal jmisdiction, and hi s special

appearance should be granted. Nat '! Indus. Sand Ass'n, 897 S.W.2d at 776 (conditionally

granting wlit of mandamus and holding that trial court. abused its discretion in denying a

defendant's special appearance where the defendant lacked the minimum contacts necessary for

the nial com1 to exercise either specific or general personal ju1isdiction).

III. Exercising jurisdiction over Preston would not comport with fair play a11d justice.

28. Because of Preston's lack of contact with Texas. exercising personal jurisdiction

over him would not comport " with traditional noti ons of fajr play and substant ial justice."

4812-3575·8602. v. I 82 Guardian Royal. 8 15 S.W.2d at 228. Only after a court determines that a nomesident defendant

has purposefully established minimum contacts with the forum state - and Preston has not -

then the Court evaluates these contacts in light of other factors to determine whether the

assertion of personal jurisdiction comports with fair play and justice. /d. These factors include:

I ) the burden on the defendant. 2) the interests of the forum state in adjudicating the dispute. 3)

the plaintiffs interest in obtaining convenient and effective relief. 4) the interstate j udicial

system's interest in obtaining the most effic ient resolution of controversies, and 5) the shared

interest of the several States in fm1hering fundam ental substantive social policies. /d.

29. In addition to Preston not having minimum contacts with Texas. these 5 factors

also dictate against the exercise of jmisdiction over Preston. As lO the first factor. the burden to

Preston in defendin g this case is substantial. Preston would be l'equired to travel to Texas to

attend cout1 proceedings and stay there. perhaps for extended periods of time. Exh. A, Preston

Aff. at 15. The costs and time associated with such travel

30. As to fac tors 2 and 3. Texas has little interest in providing a forum to litigate any

alleged injuries that occurred outside of Texas (First Am. Pet. ~[

evidence in this litigation related to Preston is likely outside the subpoena power of a Texas

court, which would greatly compromise Plaintiffs' ability to obtain convenient and effective

relief. Lonza AG v. Blum, 70 S.W.3d 1&4. 193 (Tex.. App.- S

(holding that the exel'cise of long-arm jurisdict ion would not comport with fair play and justice

after noting that evidence existed outside the subpoena power of the court ). Al so, any interests

of factors 4 and 5 do not outweigh the mandate from factors I, 2, and 3 to not exercise

j urisdiction over Pres ton.

48 12-3575· 8602. v. I 83 3 1. Thus, this Court would offend traditional notions of fair play and substantial

justice if it asserted jurisdiction over Preston, and further, would deprive Preston of due process.

As such, Plaintiffs' claims against Preston should be dismissed. Guardian Royal, 815 S.W.2d at

233 (finding that it would offend traditional notions of fair play and justice to subject a

nomesident defendant to personal jurisdiction in Texas because it would be burdensome for the

defendant to submit to a foreign judicial system when the alleged acts occmTed outside of

Texas).

SUBJECT TO SPECIAL APPEARANCE, PRESTON'S ORIGINAL ANSWER

Defendant John T. Preston, subject to and without waiver of his special appearance, files

this Original Answer to Plaintiffs' First Amende-d Oliginal Petition and shows the Court as

follows:

General Denial

Preston denies generally every a11egation contained in Plaintiffs' petition and demands

strict proof of the allegations in accordance with the Texas Rule of Civil Procedure and the

Texas Constitution. Preston reserves the right to plead further and with greater patticularity as

this case progresses.

THEREFORE, Defendant John T. Preston respectfully requests that the Court dismiss

Plaintiffs' claims against him, assess all costs against Plaintiffs. and grant him such other and

fm1her relief as is just and proper.

481:!-3575-8602. V. J 84 Respectfully submitted,

Is/ Arnir Alavi Amir Alavi State Bar No. 00793239 Ashley Frankson State Bar No. 24059776 AHMAD, ZAVITSANOS, ANAIPAKOS, ALAVI & MENSJNGP.C 3460 One Houston Center 1221 McKinney Street Houston, Texas 77010 Telephone: (713) 655-1101 Telecopier: (713) 655-0062

ATTORNEYS FOR DEFENDANTS MICHAEL SYDOW, JOHN T. PRESTON, C CHANGE INVESTMENTS, LLC and BRILLIANT NOVELTY, LLC

CERTIFICATE OF SERVICE

I hereby certify that on this 28th day of September, 2011, I sent by facsimile transmission, by first class mail, postage prepaid, or by email, a true and correct copy of the above and foregoing document to counsel as follows:

Randall 0 . SetTels Clyde J. ''Jay" Jackson, ill 800 Commerce Street Houston , Texas 77002 Facsimile: 713-225-0827

Brent C. Pen y 800 Commerce Street Houston, Texas 77002 Facsimile: 713-237-0415

Asher Griffin ChJ.is Sileo Scott, Douglass & McConnico, L.L.P. 600 Congress Avenue, Suite 1500 Austin, Texas 78701-2589 Facsimile: 512-474-0731

Is/ Amir Alavi Amir Alavi

4812-3575-8602, v. 1 85 CAUSE NO. 2011-44058

MlCilAEL COLLINS, ELLEN COLLiNS, § fN THE DISTRICT COURT OF BOS, INC., ENVEN, INC., § METAL C/\TALYSTVENTUR ES, INC., § FAT.L RIVER REALTY, LTD., § M. SAMEER AHMED, AND § TSBC SOUTH TEXAS INVESTORS, L.P.. § § Plaintiffs, § .. . . ;~ ~.!! v. § § IlARRIS COUNTY, TEXAS ~0 A N t) .... ':/ Qi 'E M f: MICHAEL SYDOW, JOHN T. PRESTON, § ~cS ~ ~ CHRISTOPH HENKEL, C. CHANGE § -[...:~~~ INVESTMENTS, LLC, SONlA LO, CHALSYS § ~ ·~ ~~~ CAPITAL PARTNERS, L.L.P., § -oo..., l; BI:ULLlANT NOVELTY, L.L.C., § Cll .~ ·c - '0 0 ·~ and MEL! ORA ENERGY U)- § ~ ...... . ii:5~~~ TECHNOLOUIES, S.A.R.L., § § Defendants. § 715T11 .I UO IClAL DISTRICT

AFFIDAVIT OF .JOHN T. PRESTON

STATE OF MASSACHUSETTS § § COUNTY OF MIDDLESEX §

BEFORE ME, the undersigned ofticial, on tlus day personally appeared John T. Pre.ston, who is personally known to me, and who fi rst being sworn by me, according to Jaw, upon his oath deposed and stated the following:

1. My name is John T. Preston. 1 am over the age of2 J. 1 have never been convicted of a felony or crime involving moral turpitude. I am of sow1d mind and am fu lly compelem to make this affidavit.

2. I am a Director of NC12, Inc, a Nevada corporation. l have personal knowledge of all of the facts stated herein, and they are all true and correct now, and for all applicable time rrames involving the Plaintills' allegations in thi s c.:ase.

3. I am a resident of Massachusetts. I am not a Texa~ resident.

4. I have never done business in Texas in my individual capacity. ln the past sixty years, I have not travell ed to or visited Texas in my indivi dual capacity. As a11 infant, I lived in Texas for less than one year.

EXHIBIT A 86 5. 1 visited Texas a limited number of times approximately twenty years ago, and each of these visits was made in my representative capacity and on behalf of a company for which I was a board member. Specifically, in the 1990's, J attended no more than tive board meetings in Texas us a representative and hoard member of a nonprofit organization. Also in the 1990's, I attended no more Lhan three board meetings in Texas as a representative of a Delaware con.lpany of which T was a board member. These visits were not made by me in my individual c ~ac ity, hut a~ a reprc.-;entative and board member of these companies.

G. In the past approxirnately five years, I have visited Texas a very limited number of times, and again on ly as a representative and on behalf of a company for whi ch I was a director or plincipal. 1 visi ted Texas appl'oxl matcly three rimes in the past five years on behalf of TEM Capital. a oompany for which J om managing partner. These visits consisted of touring facilit ies in which TEM Capital invests. My only other activity in Texas has been to appear as a witness in Michud Sydow's divorce proceedings in 2010. I appeared as a representative of NC12, lnc. and testi fied regarding an asset (a building) owned by NC12, Inc.

7. Any buard meetings J have attended related to NC12, Inc. have occurred in Massachusetts.

8. J am employed outside of Texas. have never maintained an o t1icc in Texas, and have never been employed by a•lY person or company located in Texas. 1 have never been engaged in routine sales or other profit making activities in Texas, '-!nd Tdo no£ own any private Texas business. I am not required to nor do I maintain a registered agent on whom scrvioe of process can be made in Texas. Other than engaging defense counsel in the present action, I have never entered into any contracts individually in Texas: with any Texas residents, any contracts call ing for pcrformuncc in Texas, or any contracts with a mandatory venue provision in Texas.

9. I do not rent, own, or possess any real or personal prop~rty in Texas, nor do I hold a mortgage or other lien on any real or personal property in Texas. J do nut have any investments or assets in Texas, and I have never taken out a loan in Texas or guaranteed any debt owed to a Texas resident.

I0. I do not maintain '-In indi vidual telephone listing, post office box, or registered address in Texas.

II . I do not employ nny persons who reside in Texas, or who •·cgularly travel to Texas in cormection with their individm1l business.

4!Wl 7!.41 09S4, v. l

87 12_. .I ·_b<)ve .never personally incurr~d or pCli:d any ta;xt.'S. in Te~as. or filed a persomu tax1~turn in T.eX'as.

13. :Except tot. this lawsuit, 1 baye nevet been ·a party to 1itigat\on in oi1y state or fedetal court hi T(}xas.

14. .I havez ne~er ootnmitte{} a tort in whole or in part in Tex..a.s.

.15, If tbts lilWSlJit Wel1e allowed to qotltinue. in r~xa.s, I WO:tlld be. fot=ced to t!flvel ro Texas and ·stay there_, perhB:ps fot exit';!ntlw peri-ods <.tftitn:e. The .cqsts and time a~ociated with $UCh traveJ are.

Fvrther, a.ffhrnt sayeth :oot.

SwQrn tQ and .S}lb~cri,ped hefor.e lt\e this&_ day 9f September, 201 L

4829·l54l-0954, v. ~ 88 Filed 11 November 11 A 11 :27 Chris Daniel - District Clerk Harris County ED101J016589121 By: Kyndria Perkins Cause o. 20 l l-44058

MICHAEL COLLJNS, ET AL ., § IN THE DISTRICT COURT PLAINTIFFS, § § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW, ET AL , § DEFENDANTS. § 2 15th JUDICIAL DISTRICT

AKILA FINANCE, S.A.; BOSQUES DEL MOLINO, § IN THE DISTRICT COURT S.A.; CENTRANS ENERGY SERVICES, INC .; § CHESTER MESTER HOLDINGS, LTD.; DELTEC § BANK & TRUST, LTD.; EMJO INVESTMENTS, § LTD.; WTLLIAM END; EVANS & PETREE 401K § PLAN; FIRST BAY INTERTRADE, GM PARTNERS, § MARAIR CORP.; W .L. NICHOL, IV; § PANORAMA INVESTMENT, LTD.; PCO l § VERMOEGENS VERW. ; ALEJANDRO SANTO § DOMINGO; SINCHI INVESTMENT; VENTURI § GLOBAL INVESTMENTS, LTD , and H.J. VON DER § GOLTZ, § TNTERVENORSIPLAINTIFFS, § § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; JOHN PRESTON; CHRISTOPH § HENKEL; C CHANGE INVESTMENTS, L.L.C.; § CHALSYS CAPITAL PARTNERS, L.L.P.; SONIA § LO;. BRILLIANT NOVELTY, L.L.C.; OSCURA, INC .; ss MELIORA ENERGY TECHNOLOGIES, S.a.r.l; and § FALL RIVER REALTY, LTD. , § DEF ENDANTS. § 2 15th JUDICIAL DISTRICT

ORIGINAL PETITION IN INTERVENTION

TO THE HONORABLE DISTRICT COURT:

COME NOW Intervenors Akila Finance, S.A., Bosques del .M olino, S.A., Centrans

Energy Services, Inc., Chester Mester Holdings, Ltd., Deltec Bank & Trust, Ltd., Emjo

Investments, Ltd., William End, Evans and Petree 40 I K Plan, First Bay Intertrade, GM Partners,

Marair Corporation, W.L. Nichol, IV, Panorama Investment, Ltd., PC 0 1 Yennoegens Yerw.,

ORIGl'NAl. P l-7JTT'ION I N TNTI:.IWF.NTION l of 3 ~

102 Alejandro Santo Domingo, Sinchj lnvestment, Venturi Global Investments, Ltd., and H.J. von

der Goltz, and file this Original Petition in Intervention to intervene as parties plajntiff in this

action. and in support thereof, would show the Court the following

l. Nature of Thjs Action

I. This is a fraud and shareholder oppression action. Intervenors are minority shareholders

ofNC 12, Inc .• a Nevada corporation headquartered in Houston, Texas. Intervenors assert claims

and seek remedies based solely on their indi vidual ri ghts. J't now appears that the entire corporate

enterprise of NC 12 was a massive fraudulent scheme perpetrated by John Preston, Michael

Sydow, and others who conspired with them. The story begins with a multi-million dollar

research facility and a technology portfolio created with investor dollars by a110ther Preston

company in the 1990s. When that company failed and went bankrupt, its investors lost

everythjng. Preston purchased the assets out of the bankruptcy for a fraction of their value and

sold some of the acquired intellectual property later to NC 12' s corporate predecessor- a

company founded by Sydow and Michael Collins and later controlled by Sydow and Preston.

2. Between late 2007 and early 20 10, Intervenors invested more than $11 mi lli on in NC12

and its corporate predecessor, Texas Syngas. This money was squandered and misappropriated

by Sydow and Preston. When the NC 12 Board of Directors attempted to stop the

mismanagement and theft. Defendants proceeded to elimina te all independent oversight on the

board of directors by removi ng Mr. H.J. von der Goltz and Dr. Aydin Mudeni soglu as directors.

Defendants then divested the corporation of its principal assets: the research faci lity worth

millions of dollars and the patented technology worth hundreds of millions of dollars. These

assets were sold for a fraction of their true worth to ent1ties in which Defendants had personal

interests. NC12 became a defunct shell and is now in bankruptcy.

?. of .H

103 3. Thus, the story ends much as it began. The shareholders are left with nothjng but a

bankrupt and empty shell. Preston and Sydow abused their control over the corporation,

misappropriated the bulk of the vaJue in the company for their own benefit. and Sydow, Preston,

and their co-conspirators wind up with ownership of the technology and physical facilities. The

shareholders, however, have notrung to show for their millions of dollars other tha n ownership of

diluted stock in a worthless., bankrupt shell. Intervenors seek equitable relief from the Court as a

result of Defendants' oppressive conduct, who consthute the controlling shareholders, the

indi vi duals who seized control of the NC12 Board of Directors on August 13, 2010, and those

acting with them. Intervenors al so seek monetary damages resulting from fraud and breaches of

fiduciary duties owed directly to the shareholders by the directors and controlling shareholders

and by those Defendants who aided , abetted, and conspired widl them.

II. Discovery Control Plan 4. Intervenors intend that discove1y be conducted under Level 3.

Ill. Parties

5. The Intervenors compnse two groups of investors 111 NC12. The "Shareholder

Intervenors'' invested $5,250,000 in cash from late 2007 until early 2008. These Intervenors were

issued prefen-ed shares in Texas Syngas, Inc., a Nevada corporation and the corporate

predecessor of NC 12. The "Note Holder Intervenors" invested $6,104,000 milli on from late

2009 until mid-201 0. These Intervenors were issued promissory notes that were automatically

converti ble into common shares if at least a. $5 million additional investment was obtained from

an investor by September 30,20 10. In late 2009, Texas Syng.a.s, Inc. was liquidated, and all of its

assets and liabilities were assumed by NC12, Inc. The Texas Syngas, Inc. preferred shares were

exchanged for common stock in NC 12. The Convertible Notes were assumed by NC 12. On

O RIGI}.I\1. P t::l'n'ION IN TNTJ:.RVEN I !ON

104 September 28, 20 10, the Note Holder Intervenors were informed that their promissory notes had

converted into common shares. Therefore, all Intervenors are currently common shareholders of

NC 12, lnc.

A. Shareholder Intervenors

6. Intervenor Akita Finance, S.A. is a Luxembourg corporation with its principal place of

business located in Luxembourg. Akila Finance, S.A invested $2,500,000 on or about December

19, 2007, and received preferred shares in Texas Syngas, Inc., which were exchanged for

common shares in NC12. Inte1venor Aki la Finance, S.A. futther invested $500,000 on April 30,

2010, for which equity was supposed to be issued; however, no shares were issued, and NC J2

treated Akita Finance, S.A as a note holder.

7 Intervenor Centrans Energy Services, Inc. is a Grand Cayman corporation with its

princi pal place of business located in Guatemala. Centrans Energy Service, Inc. invested $1

mill ion on or about January 3, 2008, and received prefen·ed shares in Texas Syngas, Inc., which

were exchanged for common shares in NC 12.

8 Intervenor Emjo Investments., Ltd. is a British Virgin Islands corporation, whose

principal place of business is located in Panama. Emjo Investments, Ltd. invested $500,000 in

.January 2008 and $400,000 in July 2008 and received preferred shares in Texas Syngas, Inc.,

whi ch were exchanged for common shares in NC12. Emjo Investments, Ltd. also invested

$200,000 in Texas Syngas, Inc. on September 15, 2009, and received a Convertibl e Note, w hich

was assumed by NC 12 and converted into NC I2 comm on shares on September 28, 2010. Emjo

Investments, Ltd. also invested an additional $ 160,000 in May 20 10 and $ 100,000 in August

2010, for which demand notes were issued. Additionally, the following NC 12 shareholders have

assigned Emjo Investm ents, Ltd. their shares, claims, and causes of action: Dr. Aydin

O RtGINAl. P1:7JTT'f0N lN lm-T:.RVF..NT!ON

105 Muderrisoglu, who invested $ 100,000 in Texas Syngas, Inc. and received preferred shares of

Texas Syngas, Inc., whi ch were exchanged for shares ofNC12 common stock; Ilona Graefin von

Krockow, who invested $250,000 and received preferred shares of Texas Syngas, Inc., which

were exchanged for shares ofNC I 2 comm011 stock; Dr. Lawrence Cohn , who invested $100,000

in Te..xas Syngas, Inc. on or about November 11, 2009, and received a Convertible Note, which

was assumed by NC 12 and converted into NCI2 common shares on September 28, 20 10; and

Vendome Enterpri ses, Ltd., a British Virgin Islands corporation., which invested $250,000 and

recei ved preferred shares in Texas Syngas, Inc. that were exchanged for common shares in

NC 12.

9. Intervenor PC 0 1 Vermoegens Verw. is a German corporation with its principal place of

business located in Thumby, Germany. PC 0 1 Vermoegens Verw. invested $100,000 on or about

December 12, 2007, and received prefened shares in Texas Syngas, lnc., which were exchanged

for common shares in NC12.

10. Intervenor Alejandro Santo D omingo is a natural person residing in New York, New

York. Mr Santo Domingo invested $250,000 on or about September 24, 2008, and received

preferred shares in Texas Syngas, Inc., which were exchanged tbr common shares in NC'l2.

B. Note Holder lntea·venors

11 . Intervenor Basques del Molino, S. A. is a corporation with its principal pl ace of business

located in Guatemala. Basques del Moli no, S.A. invested $ 1,000,000 in NC12, Inc. on March 31,

20'10, and received a Convertible Note, which was converted into NC 12 common sha res on

September 28, 2010.

12. Intervenor Chester Mester Holdings, Ltd. is a British Virgin IsiMd s corporation with its

principal place of business located in the British Virgin Islands. Chester Mester Holdi ngs, Ltd.

0Rl(:J'NAL PI!'J'n'fON IN TNTERVF.N 1!ON 5 of .H

106 invested $500,000 in NC 12, Inc. on June 29, 2010, a nd received a Convertible Note, which was

converted into NC 12 common shares on September 28, 20 10.

13 . Intervenor Deltec Bank & Trust. Ltd., is a Bahamian bank and trust corporation with its

principal place of business located i11 the Bahamas. Deltec Bank & Trust, Ltd. invested $500,000

in Texas Syngas, Inc. and received a Convertibl e Note, which was assumed by NC J2 and

converted into NC12 common sha.res on September 28, 2010.

14. Intervenor William End is a natural person residing in Montana. Mr. End invested

$504,000 in NC12, Inc. on Januaty 20, 2010, and recei ved a Converti ble Note, which was

converted into NC I2 common shares on September 28, 2010.

15. Intervenor Evans & Petree 401K Plan (Evans & Petree 401K Pl an FBO Woods

Weathersby and Evans & Petree 40 1K Plan FBO W.L. Nichol IV) is a Tennessee trust with its

principal pl ace of business located in Tennessee, the beneficiaries of which are natural persons

residing in Tennessee. Evans & Petree 401K Plan invested a total of$300,000 in NC 12, Inc. on

December 24, 2009, and received three Convertible Notes, which were converted into NC12

common shares on September 28, 20 I 0

16. Intervenor First Bay Intertrade is a British Virgin Islands corporation with its principal

place of business located in the British Virgin Islands. First Bay Intertrade invested $200,000 in

NC 12, Inc. on June 29, 20 10, and received a Convertible Note, which was converted into NC 12

common shares on September 28, 2010

17. Intervenor GM Pattners is a Tennessee general partnership with its p1i ncipal pl ace of

business located in Memphis, Tennessee. GM Partners invested $60,000 in NC12, Inc. on

December 24. 2009, a.nd received a Convertible Note, which was converted into NC 12 common

shares on September 28,20 10

0R tG!NAL Pt-71'n'ION IN TNTI:.RVEN t !ON (.of .H

107 18. Intervenor Marair Corporation is a Panamanian corporation with its pJincipal place of

business located in Guatemala. Marair Corporation invested $200,000 in Texas Syngas, Inc. on

November 16, 2009, and received a Convertible Note, which was assum ed by NC 'I 2 and

cmwerted into NC12 common shares on September 28,2010.

19. Intervenor W .L. Nichol, IV is a natural person residjng in Memphis, Tennessee. Mr.

Nichol invested $50,000 in NC 12, Inc. on Decernber 24, 2009, and received a Convertible Note,

which was converted into NC 12 common shares on Set)tember28, 20 10

20. Intervenor Panorama Investment, Ltd. is a Cayman Islands corporation wi th its principal

place of business located in the Cayman Islands. Panorama Investment, Ltd. invested $300,000

in NC 12, Inc. on December 30, 2009, and received a Convertible Note, which was converted into

NC 12 common shares on September 28, 20 10

21. Intervenor Sinchi Investment is a Panamanian company with its principal pl ace of

business located in Panama . Sinchl Investment invested $1,000,000 in Texas Syngas, Inc. on or

about September 15, 2009, and received a Convertible Note, which was assumed by NC 12 and

converted into NC 12 common shares on September 28, 2010.

22. Intervenor Venturi Global Investments. Ltd. is a Bahamian international business

company with its principal place of business located in the Bahamas. Venturi Global

Investments, Ltd. invested $300,000 in NC 12, Inc. on December 30, 2009, and received a

Convertible Note, which was converted into NC 12 common shares on September 28, 20 I 0.

23. Intervenor H.J. von der Goltz is a natural person residing in Fl orida. Mr. von der Goltz

invested $ 130,000 in March 20 10, for which he received a prom issory note from NC 12.

24. Sharehol der Intervenors Aki la Finance, S.A. and Emjo Investments, Ltd. are also Note

Holder Intervenors, as all eged above.

ORlGfNAL Pt-:1Tl'ION IN TNT!:.RVEN'I!ON ·· of .H

108 C. Plaintiffs in Original Action

25. Plaintiffs Michael Collins and Ellen Collins reside in The Woodlands, Texas.

26. PJajntiff BOS, Inc. is a Turks & Caicos corporation having its principal place of business

in Harris County, Texas.

27. PJajntiti En Yen, Inc. is a Nevada corporation having its principal place of business in

Harris County, Texas.

28. Plaintiff Metal Catalyst Ventures, lnc. is a Nevada corporation having its principal place

ofbusiness in Hanis County, Texas.

29. Plaintiff Fall River Realty, Ltd. is a foreign corporation with its principal place of

business in Fall River, Massachusetts. Plaintiffs in the Original Action allege that Plaintiff Fall

River is an entity in which Michael Collins is the largest shareholder. Intervenors have named as

a defendant Fall River Realty, Ltd., an e11tity JnterveJ1ors believe is owned and controlled by

M ichael Sydow. It is not kJ1own presently whether these two entities are the same. All references

to " Fall River Realty" in this Petition in Intervention hereafter refer only to the entity named as a.

defendant by Intervenors.

30. Plaintiff Sameer Ahmed is an individual residing in Edinburg, Te.'

31. Plaintiff TSBC South Texas Investors, L.L.P. is a Texas limited liability patinership

having its principal place of business in Edinburg Texas.

D. The Contt·oUing Shareholder Defendants

32. Defendant Michael Sydow, an individual and a resident of the state of Texas, may be

served with process at his place of employment: 1980 Post Oak Blvd., Suite 2 l 00, Houston,

Texas 77056. Sydow is a. Houston attorney and businessman. Sydow was at all relevant times the

CEO, secretary, and director of Texas Syngas, Inc., and tJ1en the president, CEO, and director of

ORlGl'NAI. P l-7l'n'fON TN T't'm:.RVf.NTlON

109 NC 12, and represented that he exercised control 69% of the common stock of NC 12 as of

August 13, 20 10. Upon information and belief, Sydow is an offi cer and director of Defendant

Fall River Realty, Ltd.; is a director of Defendant Meliora Energy Technologies, S.a r.l; and is an

officer and di rector of Defendant Oscura, Inc. Sydow is named as a defendant in the 01iginal

Action and has entered an appearance. All service will be through hi s counsel of record.

33. Defendant John Preston, an individual and a resident of the state of Massachusetts, may

be served with process by serving the Texas Secretary of State, 10 19 Brazos St , Austin, Texas,

7870 I , as Defendant' s agent for service of process because Defendant Preston has engaged in

business in Texas but has not designated or mruntained a resident agent for service of process in

Texas. Tex. Civ. Prac. & Rem . Code § I 7.044(b). Service may be forwarded to hi s place of

employment: C Change Investments. LL.C., One Main Street, 14tll Floor, Cambridge,

Massachusetts, 02 142. Preston is an internati onally known business leader and stock promoter.

Preston was at various relevant times a director of Texas Syngas, Inc. and of NC12 as of August

13, 2010. Upon information and belief, Preston was aJso at all relevant times a manager of

Defendant Brilliant Novelty, L.L.C.: a managing partner of Defendant C Change Investments.

L.L.C., and a director of Defendant Meli ora Technologies, S.a. r.t. Preston is named as a

defendant in the Otiginal Action and has entered an appearance. All service will be through his

counsel of record.

34. Defendant Christoph Henkel, an individual and citizen of Germany, may be served with

process by serving the Texas Secretaty of State, 1019 Brazos St. , Austin, Texas 7870 1, as

Defendant's agent for service of process because Defendant Henkel has engaged in business in

Texas, but has not designated or mainta.ined a resident agent tor service of process in Texas. Tex.

Civ. Prac. & Rem Code§ 17,044(b). Service may be forwarded to his residence at 2-4 Lambton

O RtGI}. AL Pl:71"11'f0~ TN TNii·.RVEN i !ON

110 Place, London W 11 2SH, Great Britain. At vatious relevant times, H enkel served on the board of

di rectors of Texas Syngas, Inc. and later on the board of directors of NC 12. Upon information

and belief. Henkel is or has been a director of Defendant Meliora Technologies. S.a.r.l . Henkel is

named as a defendant in the Original Action and has entered an appearance. All service will be

through his counsel of record.

E. The Co nspiracy Defendants

35. Defendant C Change lnvesnnents, L L. C. is a Delaware limited liability company with its

principal place of business in the state of Massachusetts. and may be served with process by

serving the Texas Secretary of State, 1019 Brazos St., Austin, Texas, 7870 1, as Defendant ' s

agent for service of process because Defendant C Change has engaged in busi ness in Texas but

has not designated or maintained a resident agent for service of process in Texas Tex. Civ. Prac

& Rem . Code§ 17.044(b). Service may be forwarded to its registered agent Corporation Service

Company, 271 1 Centervill e Road, Suite 400, Wilmington, Delaware, 19808. Upon information

and belief, C Change is controlled by Defendant Preston and is an equity owner of Defendant

Meliora Technologies., S.a. r.l. C Change is named as a defendant in the Original Action and has

entered an appearance. All service will be through its counsel of record.

36. Defendant Chalsys Capital Partners, L.L.P. is a limited liability partnership organized

under the laws of the United Kingdom with its principal office in London, England. Chalsys

Capital Partners, L.L.P. may be served with process by serving the Texas Secretary of State,

1019 Brazos St., Austin, Texas, 78701 , as Defendant's agent for service of process because

Defendant Chalsys has engaged in business in Texas but has not designated or maintained a

resident agent for service of process in Texas. Tex. Civ. Prac. & Rem. Code§ 17.044(b). Service

may be forv.•arded to its principal offi ce located at 1 Regent St., London, SW I 4NS, Uni ted

ORIGINAL Pi-71-n'fO~ TN TNii:.R\•l:.N i !ON

111 Kingdom. Upon infom1ation and bel ief, Defendant Chalsys is an equity owner of Defendant

Meliora Technologies, S.a.r.l . Chalsys is named as a defendant in the Original Action and ha!)

entered an a ppearance. All service will be through its counsel of record.

37. Defendant Sonia Lo is an individual resi ding in California. She may be served with

process by serving the Texas Secretary of State, 1019 Brazos St., Austin, Texas, 7870 1, as

Defendant' s agent for service of process be<:ause Defendant has engaged in business in Texas but

has not designated or maintained a resident agent for service of process in Texas Tex Civ. Prac

& Rem. Code§ 17.044(b). Service may be forwarded to her place of business, Chalsys Capital

Partners, LLP, 1 Regent St., London, SW I 4NS, United Kjngdom. Upon informati on and b eliet~

Defendant Lo controls Defendant Chalsys and is a director of Defendant Meliora Technologies,

S.A.r.l. Lo is named as a defendant in the Original Action and has entered an appearance. All

serv ice will be through her counsel of record.

38. Defendant Brilliant Novelty, L.L.C. is a Massachusetts limited liability company with its

principal place of business in Cambridge, Massachusetts. Brilliant Novelty may be served wi th

process by serving the Texas Secretary of State, 10 19 Brazos St ., Austin, Texas 78701 , as

Defendant's agent tbr service of process because Defendant has engaged in business in Texas but

has not designated or maintained a resident agent for service of process in Texas. Tex. Civ. Prac.

& Rem. Code § 17.044(b). Service may be forwarded to its principal office, 75 Cambridge

Pkwy. Ste 100, Cambridge, Massachusetts 02142. Brilliant Novelty is named as a defendant in

the Original Action and has entered an appearance. All service will be through its counsel of

record.

39. Defendant. Meliora Energy Technologies, S.a.r.l, (MET) is a private limited ljability

company organized under the laws of the Grand Duchy of Luxembourg, with its principal place

ORlGJ'NAL Pl:::.Tn'fON TN TNTJ:.RVf.l\1 !0"

112 of business in Luxembourg. Defendant !VIET may be served with process by serving the Te.xas

Secretary of State, 1019 Brazos St. , Austi n, Texas 7870 1, as Defendant's agent for service of

process because Defendant has engaged in business in Texas but has not designated or

maintained a resident agent for service of process in Texas. Tex. Civ. Prac. & Rem . Code

§ 17.044(b). Service may be forwarded to its principal offi ce, L ~2540 Luxembourg, 15, rue

Edward Steichen. R.C.S. Luxembourg B 155.708. Defendant MET may also be served through

its offi cer and director, Mi chael Sydow, 1980 Post Oak Blvd., Suite 2 100, Houston, Texas,

77056 and its di rector John Preston. Upon infonnation and belief, Defendant MET is controlled

by Sydow, Lo, and Preston and is owned 50% by Defendant C Change and SO% by Defendant

Chaisys. MET is named as a defendant in the Original Action and has entered an appearance. All

service will be tJuough its counsel of record.

40. Defen dant Oscura, Inc. is a Delaware corporation whose principal office is located in

Houston, Texas. Defendant Oscura may be served at its principal offi ce, 4400 Post Oak Parkway,

Ste. 2360, Houston, Texas, 77027. Defendant Oscura may also be served through its oflicer and

director, Michael Sydow, 1980 Post Oak Blvd, Suite 2 100, Houston, Texas, 77056.

4 1. Defendant Fall River Realty, Ltd. is a Turks & Caicos Islands corporation whose

principal office is located in the Turks & Caicos Islands. Fall River Realty may be served with

process through its officer and director, Michael Sydow, 1980 Post Oak Blvd., Suite 2100,

Houston, Te..xas, 77056.

IV. Original Action and Basis for Intervention

42. On July 27, 20 11 , Michael Collins and other original plaintiffs tiled the Original Action,

suing Michael Sydow and the other original defendants named herein. The Original Action

asserts claims arising out of the Defendants' control and misconduct relating to NC 12 and its

0 Rt

113 predecessors and relating to the share ownership of the original plaintiffs in NC 12 and its

predecessors. Intervenors file this Petition in Intervention pursuant to Rules 40 and 60 of the

Texas Rules of Civil Procedure. Intervenors have shareholders and investors in the same

corporations and assert interests in the same relief sought by the original plaintiffs. The claims

asserted by Intervenors arise out of the same transactions and occurrences as the Original Action

and present common questions of Jaw and fact.

V. Subject Matte1· Jw·isdiction

43. The court has jurisdiction over the lawsuit because the matter in controversy is within this

court's general jurisdiction and the amount in controversy exceeds thi s couti's minimum

jurisdictional limits.

VI. Personal Jurisdiction and Venue

44. Personal jurisdiction over all defendants is proper in the state of Texas because NC12 is

headquartered in Houston, Texas, and the tortious conduct alleged herein occurred in or was

directed at the State of Texas.

45. Venue is proper in Harris County because a substantial part of the transactions, acts, and

omissions giving rise to the claims occurred in Harris County. See Tex. Civ. Prac. & Rem . Code

§ 15.002(a)(L). Venue is also proper in Harris County because the principal office of Defendant

NC12 is in Harris County. See id. at§ 15.002(a)(3).

VTT. Facts

A. Formation of Texas Syngas

46. This case involves revolutionary new energy technology developed by Texas inventor

and businessman Michael Collins for producing synthetic natural gas and other fuels from coal

ORIGINAL PP.TI'I'JON t~ TNTf!.RVF.NTlON

114 Collins worked for almost a decade in South Africa during the 1970s and became familiar with

Sasol' s Lurgi fluidized bed gasification process-a technology that dates back to World War ll.

47, In 1989, Molten Metal Technology, lnc. was founded in Massachusetts. Defendant John

Preston, a fonner Director of Technology Development at the Massachusetts Institute of

Technology, was instrume ntal in founding that company. Preston widely promoted its stock and

served as one of its directors throughout its existence. Molten Metal Technology developed

Cata lyti c Extracti on Processing technology, which used high-temperatures and molten metals to

dispose of hazardous waste. In large part due to Preston 's effort s, Molten Metal Technology

raised millions of investment dollars., and in 1992, the company built and completed 86,000

square foot facility in Fall River, Massachusetts, at a cost of approximately $25 million.

48. Molten Metals Technology impl oded in 1997 under an avalanche of investor lawsuits,

many ofwhich named Preston individuall y. The company was put into bankruptcy in 1998 and

was ultimately liquidated . In 1999, Quantum Catalytics, L.L. C., an entity controlled by Preston,

purchased the patents, technology, and intellectual property portfolio of Molten Metals

Technology out of bankruptcy Molten Metals Technology's $25 million facility in Fall River

was also purchased out of the bankruptcy by the Meissner Trust, an entity owned by Preston and

Paul Lohnes.

49. In the late 1990s, Collins began researching new technological approaches to the process

of creating synthetic fuels. In 2001, Collin s approached Preston to gain access to the catalytic

technology developed by Molten Metal Technology. Collins developed improvements on the

molten metal catalytic processes to be used in converting carbon-based feedstock into synthetic

natural gas and other fu els. CoJJ ins ultimately created a totally new process involving high

temperatures and high pressures to create clean-burning syntJ1eti c fu els from coal, petroleum

ORIGINAL Pl:-~l"n'fON TN TNTI:.RVl:.t--.1 !0"

115 coke, and biomass. An independent consulting engineer later described the new technology as

"substantially difl'erent in theory of operation and design from more common entrained flow

systems (such as the Chevron-Texaco process, Shell gasifier, etc.) or the fi xed bed (Lurgi)

systems.'' Collins, along with retired Univer sity of Maryland professor Robert Bach, tbnnally

patented the process in 2009.

50. In 2004, Collins met Houston lawyer Michael Sydow, who persuaded Collins that he had

the legal and business e--xpertise Collin s needed to exploit the new technoloov)' commercially. In

October 2004, Collins, Preston , and Sydow agreed to create Texas Syngas, L.L. C., a Texas

limi ted liability company to be headquartered in Houston, Texas. The business was reorgani zed

as a new Nevada corporation, Texas Syngas, Inc., in May 2006. Preston, through Quantum

Ca.talytics, licensed the Molten Metals Technology, Inc. patents and intellectual property to

Texas Syngas, Inc. in exchange for 10% of the shares. Sydow became the chief executive officer

and received 5% of the shares. Collins contributed his intellectual property and e-xperti se to the

company and received approximately 75% of the shares. Preston, Collins, and Sydow served as

d1e Texas Syngas, Inc. board of directors.

B. Investment by the Shareholder Intervenors

5 1. In the fall of 2007, Preston and Sydow began serious efforts to raise capital for Te,-xas

Syngas. Preston approached the shareholders of Atomic Ordered Materials (AOM), another

company in which Preston was involved and in which a number of the Intervenors had invested.

Preston brought Sydow and Collins to an AOM shareholders' meeting, where Sydow made a

presentation on the Texas Syngas technology and soli cited investments in the company. This

green ener!,'Y startup company, with what seemed to be a technology ripe for success in a time

116 when the world was embracing environmental conservation and carbon reduction, offered a

compelling investment opportunity.

52. After d1is meeting Preston approached Mr H.J . von der Goltz, who had been present at

the meeting. Preston informed Mr. von der Goltz that he had negotiated a $100 million pre-

money investment valuation for Texas Syngas and was trying to rai se $ 12 million to build a

demonstration reactor to prove and implement the technology. Preston represented that the value

of the technology was in excess of $100 mill ion, but he suggested that von der Goltz meet with

Collins and Sydow to negotiate a discounted valuation to put together an initial investor group

for the $12 million needed. Preston represented that he was assisting Texas Syngas in raising

money, but never disclosed that he owned or controll ed any equity interest in the company. In

November 2007, von der Goltz met with Collins and Sydow in Houston . Collins and Sydow

agreed to accept new investors based on a pre-money valuation of $78 mitlion and a post-money

valuation of$90 million.

53. Mr. von der Goltz brought the opportunity to friends, family, ami business associates,

who ultimately invested $ 11 75 million in excha11ge for which they received preferred shares in

Texas Syngas, representing approximately 13% of the company. Among thi s group were the

Shareho lder Intervenors. Sydow and Preston represented to the Shareholder Intervenors, both

directly a.nd through Mr. von der Goltz, that the value of the technology exceeded $100 million

and that d1e money being raised would be used primari ly for building the demonstration reactor

The Shareholder Tntetvenors relied on these representations in making their investments and,

more importantly, trusted in Preston's integrity and technical expertise, as Preston had pre-

existing relationships with Mr. von der Goltz and with many of the Shareholder Intervenors and

117 who held himself out as having special expertise in val uing new technologies, based largely on

his fanner position on the faculty a.nd as Director of Licensing at MIT.

C. Growth ofT ex as Syngas

54. After the Shareholder lntervenors' funds were received, it was agreed that one of these

new shareholders, Gennan businessman Christoph Henkel, would serve on the board of directors

as the representative of the new investors, along with existing di rectors Collins. Preston, and

Sydow. Furthermore, Sydow agreed to become a full-time officer of Texas Syngas at an annual

salary of $360,000 and agreed to stop practicing law and to devote himself fu ll time to building

Texas Syngas. Colli ns was to focus his efforts on selecting a suitable faci lity and building the

demonstration reactor.

55. In early 2008, Texas Syngas negoti ated a deal with Central Louisiana El ectric Company

(CLECO), a New Orleans gas utility company, for a 10-reactor plant to begin operations in the

fall of 2012. Based on these developments, Preston now represented to Texas Syngas

shareholders that the company was worth $300 milli on, and in the sum mer of 2008, Preston

claimed that he had secured financing through hi s venture capital group C Change Investments.

C Change made a written $30 million commitment to Texas Syngas at a $100 million valuation.

The committed money from C Change was repeatedly delayed and ultjmately never materialized.

56. In September 2008, Preston and Sydow represented to the shareholders that Texas

Syngas had purchased the Fall Ri ver facili ty where the test reactor would be built. The Fall River

faci lity had originally been built by Molten Metal Technoloov)' and had been purchased out of

bankruptcy by the Meissner Realty Tmst, a Preston-controlled entity . Texas Syngas paid the

Meissner Realty Trust, a n entity owned by Preston and Paul Lohnes, $3 .5 mill ion cash. The deed

re<:or

OR!G I'NAL Pl!'l'n'fON TN l 'l>ITERVEN l !ON ;·· nr'...~

118 was never actually transferred to Texas Syngas. In September 2008, the property was put in the

name of FaJJ River Realty, Ltd., an entity in whi ch Sydow owned an individual interest, and for

which Sydow served as the managing director Defendants never disclosed to the shareholders

that Texas Syngas (and later NC12) did not own the building. Title to the building remained in

FaJI River Realty, Ltd., which then proceeded to charge Texas Syngas a monthly rent of $28,000

for use of the facility it should have owned.

57. ln February 2009, MPR, an independent engineering firm, concluded its review of the

Texas Syngas technology. MPR confirmed the viability of the reactor' s science and theoretical

basis, its design, and the gasification process chemistry. On or about May 14, 2009, Collins and

Robert Bach formally assigned the patented technology to Texas Syngas in the records of the

United States Patent and Trademark Office.

D. Fraud on Texas Syngas and Its Shareholders

58. On infonnation and belief, Preston and Sydow had no intentjon of using shareholder

money as represented to the shareholders. Preston is a classic stock promoter and has rai sed (and

spent) millions upon millions of shareholder dollars, but has never actually built a commercially

successful company. Sydow is a lawyer skilled at hiding assets ami corporate manipulation.

During the t}me that Preston and Sydow controlled the board of directors, they made sure that the

bulk of the money actually went to them or to several of their related entities, rather than to build

the demonstration reactor. In addition to the fraudulent acquisition of the Fall River facility, on

infom1ation and belief, C Change was apparently paid a $40,000 per month consuJtjng fee.

Additionally, Sydow and Preston had the company pay tens of thousands of dollars evety month

to lawyers and consultants and as well as other expenses that did not benefit the shareholders or

119 the corporation, but actually provided benefit for Sydow and his law fim1 and was apparently

used by Preston to solicit investors for C Change .

59. Ow-ing 2009, Sydow moved the Texas Syngas corporate headquarters in Houston from

4900 Woodway to more luxwious accommodations on Post Oak Boulevard. Sydow never

devoted his full attention to Texas Syngas as promised, but relocated his law practice to the

Texas Syngas office space, spent most of his time on his own law practice, and used Texas

Syngas employees to do work for hi s firm . Two of Sydow's children worked full time as lawyers

in Sydow's law firm at Texas Syngas' expense. Texas Syngas was not compensated for use of its

space, suppli es, resources, or personnel. Texas Syngas also paid for the maintenance, storage,

and cleaning for Sydow' s airplane. When Texas Syngas was finally ready to construct the test

reactor, Sydow and Preston had largely squandered the money raised for that purpose

E. Investment by tbe Note Holder Intervenors

60 Despite his numerous promises and despite being compensated to do so, Preston faj led to

rai se additim1al funds for Texas Syngas in 2009, and by mid-year Texas Syngas desperately

needed funding. In 2009, Preston and Sydow again turned to N[r. von der Goltz for assistance.

Mr. von der Goltz was able, through mid-2010, to raise a total of$6,104,000 in additional funds

from friends, family, and business assodates. These investors, the Note Holder Intervenors, were

issued convertible promissmy notes, which provided for automatic conversion into common

shares at a 20% discount of the new investor' s valuation if Texas Syngas obtained qualified

financing from a single investor of at least $5 million on or before September 30, 20 10. If no

qualified financing occurred, the notes would become due and payable within five days after a

demand was made on or after the September 30, 20 10, maturity date.

0Rt(il};Al. PE'l-n'fO~ TN TNiERVl:.l\'l !Oh

120 6 1. Preston and Sydow, both di rectly and through their statements to von der Goltz,

represented to the Note Holder Intervenors that Texas Syngas was worth $300 million as of

2009, based on the value of the technology and the CLECO and Turkish contracts. However,

Preston and Sydow fai led to di sclose that the CLECO contract had been cancelled. Preston and

Sydow also represented that the money would be used prima1ily to build the test reactor;

however, their later conduct and misuse of the funds demonstrate that they had no intention of

using the money for that purpose.

F. Formation of NC12

62. During 2009, Sydow, Henkel, and Preston became increasingly at odds with Collins, who

still owned o r controll ed over 60% of the shares. By the end of 2009, Preston, Sydow, and

Henkel att.empted to wrest control of the company from Colli ns through a scheme to dilute his

interest C Change had received an investment of $15 million from Corinna von Schoenau,

which was intended for investment in Texas Syngas; however, Preston withheld $10 million of

these funds and proposed that C Change would invest $5 milli on at a pre-money valuati on of $10

million and post-money valuation of $ 15 milli on in exchange for a 33% interest in the company .

Collins, as the majmity shareholder, blocked thi s effort, and tension among the board members

reached a boiling poi nt- to tJ1e poi nt where moving the business forward seemed impossible.

Collins and Sydow approached Mr. von der Goltz to mediate a settlement to save the company .

Ultimately. Preston, Sydow, and Collins agreed that Texas Syngas would be reorganized and that

a new three-person board of directors compri sed of Sydow and two new directors acceptable to

Collins would govern the t1ew corporation. Collins was very hesitant to relinquish hi s position as

a director, but agreed to a new board on the conditions that the new board members retained their

positions for two years and that no funds would be accepted from C Change. (Preston ultimately

O Rt~ TN TmP.RVl:.N 1!ON

121 took von Schoenau 's $ 15 million intended for Texas Syngas and invested it in a different Preston

scheme).

63. In late 2009, as part of the reorganizati on, Sydow li quidated Texas Syngas before a new

board was named. Sydow transfen-ed Texas Syngas' assets to a new Nevada corporation, NC 12,

Inc. The preferred shares of the Shareholder Intervenors in Texas Syngas were convet1ed to

common shares in NC12 and the convertible promissory notes held by the Note Holder

Intervenors were assumed by NC 12. With Collins' agreemetlt, Sydow remajned as CEO of

NC 12 and was joined on the board of directors by Mr. H.J. von der Goltz and Dr. Aydin

Muderrisoglu. Von der Goltz was elected to serve as n on~executi ve chairman of the board of

directors. Von der Goltz hoped the reorganization would relieve tension between Sydow and

Collins, allowing Collins to focus on building the reactor at the Fall River, Massachusetts,

facility that supposedly had been purchased by Texas Syngas, and allowi ng Sydow to focus on

managi ng the company from the Houston headquat1ers and negotiating contracts with potential

customers.

64. Sydow apparently believed that he would be able to manipul ate the new board members

and assume greater control. When the new board members made clear their independence and

intent to act in the best interest of the corporation and its shareholders, Sydow enl isted Preston

and immediately began to undercut the authority of the new board members and to withhold

infom1ation from them until they could be removed. Sydow maintained sole signatory authority

over all NC 12 bank accounts and refused requests by von der Goltz that certain expenditures

require two signatures.

65. Mr. von der Goltz took seriously his new role as a chairman of the board of directors. 1'-Ie

met personally with all the Houston and Fall Ri ver employees in January 20 10 and sought to

ORlGJNAl. Pt-7Jn'fON TN TNTI:.RVEN'Y'lON

122 clean up NC 12's finances, streamline operations based on his vast operational experience, and

above all, see that the demonstration reactor wa.s built. Collins, in the meantime, had moved full-

time to Massachusetts and made meaningful progress on constructing the reactor and purchasing

necessary equipment with the funds rai sed by von der Goltz. Sydow retained control of the

corporation's money and continued his rni sappropriation and profligate spending, which

included approxi mately $46,000 that he spent during a nine-day trip to London in mid-2010, a

$20,000 per month lease payment that Sydow charged NC 12 for Sydow's private aircraft. and

other wasteful personal e-xpenses and benefits, whi ch w-ere never divulged to the board of

directors . While Sydow saw that all of the expenses incurred for hjs benefit were paid

immediately, he refused to pay for the actual expenses incurred for building the reactor in Fall

River, resulting in numerous disputes with vendors, work stoppages, and delays.

66. Sydow continuall y blamed Collins for NCI2' s financial problems and shortages offunds.

Sydow vehemently opposed any review or financial controls over his own handling of corporate

funds and never supplied financial statements to the board of directors. With board approval, von

der Goltz engaged Elder, Gaffey & Paine, P.C. (EGP), a Boston-based accounting firm, to 1 1 review both Fall RiveT S and Houston' s book s and fiscal procedures. EGP s investigation

showed that adequate oversight measures were in place at Fall River and that all expenditures

were supported by approved purchase orders sent to the Houston office for payment and tiling.

67. Sydow stonewalled and delayed providing EGP the accounting records and QuickBooks

files relating to operations in Houston for almost eight weeks in mid-201 0. After tin ally

obtaining records from the Houston office, EGP discovered numerous excessive expenditures for

travel, professional fees, outside consultants, and the undisclosed lease payments for Sydow·s

airplane-all expenses neither known to nor appr-oved by NC12's board of di rectors EGP ' s

0R t

123 report issued in August 2010 recom mended that a forensic accountant review records from the

Houston office to sort out the discrepancies.

68. In response to the discovery of financial mismanagement and misappropriatjon, von der

Goltz wrote to Sydow on August 3, 2010, stating that he had ''never been associated wi th a

company with so many nebulous and secret transactions." Von der Goltz demanded that Sydow

provide a correct and complete accounti ng of Sydow's handling of the company's funds. and

subsequentJy set a board of di rectors' meeting for August 20 to address these issues, to retain a

forensic accountant to audit Sydow's books, to vote on closing the Houston office, and to

remove Sydow as CEO.

69. Also during 201 0, Preston brought in Sonia Lo and her investment holding company,

Chalsys Capital Part11ers, L L.P., as potential investors. In fact, Lo and Chal sys were Preston 's

new partners for the next stage of the fraud in which the research faci lity and the technology

would wind up in another Presto n~controlled entity once the NC 12 investors had lost all their

money. In early 2010, Preston and Sydow pushed for a deal in which Chalsys would obtain a

security interest in NC 12's technology in exchange for a $ 10 mill ion loan Von der Goltz and

Muderrisoglu revised the terms of the proposed deal with Chalsys, and after numerous

discussions, the NC 12 Board directed Sydow to negotiate the tina! transaction so that Chalsys

would pay NC1 2 royalties on the exclusive use of its technology in Europe. While Sydow

repeatedly represented to von der Goltz and Muderrisoglu that Lo and Chalsys had no connection

to Preston and C Change, it later became clear that Lo and Chalsys had conspi red with Sydow

and Preston from the beginning to divest NC12 of its technology assets and to put them into a

corporate entity in Luxembourg in which Sydow and Preston and their co-conspirators (but not

NC 12 or its shareholders) would have an interest.

0RtGI'NAL Pt:~l'n'fON TN TNTI:.RVEN t !ON

124 G. Ouster of von der Goltz and Moderrisoglu

70. In response to the NC 12's board of directors' demand for an audit of Sydow' s books and

an investigation of Sydow's mismanagement and misappropriatjon, Sydow moved quickly to

obtain complete control of the corporation. Sydow secretly created a ''Wtitten Consent of

Shareholders" purp011edly executed by 69% of the ·'voting power" of the corporation. Sydow has

never shown this document to any of the affected parties, but if the document exists, it is

believed that the majority of the 69% that Sydow clajmed to control was actually Collins' shares,

over whi ch Sydow claimed to hold the voting power- although Sydow acted without Collins'

consent and against Collins' interests-and contrary to the prior agreements governing the

corporate reorganization. Sydow also enlisted Preston and Henkel, who agreed to support the

ouster of von der Goltz and Muderrisoglu, and agreed individuaJ ly to serve as replacement

di rectors and to vote in favor of Sydow' s takeover of the company, w hich resulted in the theft of

its assets.

71 . Based on his claim to control 69% of the shareholder votes, Sydow secretly and

unilaterally removed von der Goltz and Muderrisoglu from the board of directors and replaced

them with Preston and Henkel. Then, Sydow, Preston, and Henkel, as a board, voted to fire

Collins and bar him from compMy property. The new board also revoked all access that von der

Goltz and Muderrisoglu had to corporate bMk accounts Md records . As president and CEO,

Sydow specificall y ordered corporate counsel Tim Maguire not to permit von der Goltz or

Muderrisoglu or any other minority shareholder to have access to the corporate minutes, bank

accounts, or other records- and later ordered him to retum aJI corporate records to Sydow and to

destroy all copies. Sydow also attempted to force NC 12' s financial advisor, EGP, which was to

125 take over the accounting for NC12, to destroy all financial records it received during the

investigation of mismanagement and mi sappropriation in the Houston office.

72. Preston sent employees of one of his other companies to raid the Fall River facility on the

evening of August 12, 2010, w here they copied electronic records containing NC12 intellectual

property and took technical drawings and other paper records out of the facility . Early the next

moming, on August 13, 20 10, Sydow and Preston appeared at the Fall River facility

accompanied by police offi cers. Sydow announced that he had been empowered by a written

resolution signed by 69% of the shareholders to take over the board of di rectors, to fire Collins

and hi s son, and to remove them from all corporate offi ces. Collins and his son (also an NC J2

employee) were locked out of their company-provided apartment and barred from the company

premises. Sydow went so far as to have Collins' son arrested when he appeared and entered onto

company property to report to work that moming.

H. Loss of Contrncts in Turkey

73. Outing the tim e that von der Goltz and Muderri soglu were on the NC 12 Board of

Directors, they both worked extremely hard on an initiative to obtain contracts with TKI, the

Turkish national coal company. Muderrisoglu is a prominent Turki sh businessman wi th

extensive contacts in the Turkish government,. and von der Goltz' s great-uncle was a German

Field Marshall who commanded Turkish troops in World War I and was an extremely important

and well-loved fi gure in Turkish hi story. With the efforts and assistance of von der Goltz and

Muderrisoglu, who both made two trips to Turkey, NC 12 obtained a commitment from TKl to

buy 40 reactors to be install ed in Turkey. A delegation from TKT visited the Fall River facility in

2010 to inspect the progress being made on the demonstration reactor and confitmed the first

0R tGI}. AL P ETITfO~ TN TNiF.RVEI\1 !0/1.

126 contract to build the first reactor. As a result of the Sydow~Preston~Henkel takeover, and the

failure to compl ete the Fall River reactor, NC 12 lost the Turkish contracts.

I. Loss of Valua ble Technology

74. On August 26, 20 l 0, in a last attempt to find a solution to the problems caused by the

Sydow-Preston-Henkel takeover, von der Goltz fl ew with hi s personal counsel to Houston to

attempt to negotiate an agreement between Sydow and Collins that would resolve the di sputes

and allow for the corporation's survival. Initially, Sydow and Coll ins reached an agreement for

the buyout of Collins' stock on terms favorable to NC 12 and which would allow NC12 to finish

tJ1e reactor and exploit t11e technology. Preston and Henkel vetoed the settlement Whether

Sydow was ever acting in good faith regardi ng the settlement or not, Preston undoubtedl y was

putting into play the same stratet,ry from which he had benefitted at Molten Metals and other

companies- raise money, bilk the company and its shareholders, run the company into the

ground, buy the assets for pennies on the dollar, and start over with another company.

75. Immediately after the takeover, Sydow, Preston, and Henkel agreed to the deal with

Chalsys and Sonia Lo that von der Goltz and Mude rri soglu had opposed, except on tem1s much

less favorable to NC 12 than originally proposed. Sometime prior to the takeover, Sydow,

Preston, Henkel, and Lo had created Meliora Energy Technologies, S.a rJ (MET), a Luxembourg

corporation controlled by the four of them and owned by C Change, Chalsys, and Henkel. The

new NC 12 board, Sydow, Preston, and Henkel, represented to the NC 12 sharehol ders that MET

had provided NC 12 with a $ 1.5 million bridge loan and a commitment for an additjonal

investment of $5 million in equity in exchange for the license to use the technology in Europe,

Asia and Africa- a license that was exclusive and did not provide for MET to pay any royalties

toNC l2.

ORiGINAl. PI.!TITIO~ TN TNiF.RVEI\1 !Oh

127 76. On September l, 2010, Sydow, Preston, and Henkel assigned all ofNCl2' s technology to

a company called Oscura, Inc. Upon inf01mation and belief, Sydow created and controlled

Oscura, Inc., as that company has the same Houston address as NC12 and Sydow' s law practice

Oscura then assigned the patents to Defendant MET via a security agreement. Additionally,

tvt:ET began paying Sydow a monthly fee of$15,000.

77. The supposed MET financing for $5 million a.Jso resulted in the automatic conversion of

the l>romissory notes into common shares. The NC12 boal'd of di rectors, consisting of Preston,

Henkel, and Sydow, infom1ed the Note Holder lnterve11ors on September 28, 20'10, that they

were now common shareholders with 39.4% ownership, whjle MET owned 30.3% for its $5

million investment, and the " old" shareholder group would be diluted to 30.3%-

100%

78. MET never made the $5 million investment; rather, it is bel ieved that the Defendants

transferred NC 12 's most valuabl e asset, the patented technology worth potentially hundreds of

millions of dollars, to MET and that NC12 received no more than $500,000- whi ch was

exhausted paying NC12 personnel and otlter expenses, which largely benefited Sydow and

Preston. ln December 20 10, all employees were terminated and all business operations ofNC12

ceased. Because the MET financing never took place and because Sydow, Preston, and Henkel

transferred all of the assets out of NC 12, both the Shareholder Intervenors and the Note Holder

Intervenors now own stock in a defunct and worthless shelL

J. Loss of Fall River Property and Reactor

79. NC 12's other valuable assets were the buildi ng, the partially completed reactor, and the

extensive equipment that had been purchased for the reactor- all located in Fall River,

Massachusetts. While von der Goltz and Muderrisoglu were on the NC12 board of directors and

ORIGINAL Pt'"rn'fON TN TNii:.RVEN i !ON

128 Collins worked full time in Fall River on building the reactor, NC 12 paid approximately $2

million of the money invested by the Note Holders to vendors for work on the reactor, and

substantial progress had been made on its construction. Prior to the ouster of von der Goltz and

Muderrisoglu, NC12 had reached an agreement with its vendor, Hub Technologies, for the

completion and installation of the reactor in Fall River by September 30, 2010. A shareholder

meeting had been scheduled for the end of October 2010 so that the shareholders could inspect

the progress tJ1at had been made At the tjme of the Sydow-Preston takeover, a payment schedule

was in place with NC 12's vendors, and an outstanding balance of on ly about $300,000 remained.

Immediately after Sydow, Preston, and Henkel took over control of NC 12 and fired Collins, all

progress on the reactor halted, and the new board refused to pay the outstanding bills. The

vendor subsequently repossessed the reactor and sold it for scrap.

80. On or about May 20, 2011, Fall Ri ver Real ty, Ltd. sold the building and transferred the

deed to Brilliant Novelty, L.L.C. for $2.6 million. Upon information and belief, NC 12 never

received any proceeds from this sale. Paul Lohnes and John Preston signed the deed as managers

of Brilliallt Novelty, L.L.C.

K. Bankruptcy and Destruction of the Company

81. On October 14, 20 1 l, Sydow filed a Voluntary Petition placing NC 12 into Chapter 11

bankruptcy in the United States Bankruptcy Court for the Southern District of Texas. The

bankruptcy petitjon states that NC 12 has no assets.

VHI. Causes of Action

A. Contl'olling Shareholder Defendants' Breach of F iduciary Duty to Shareholders

82. Intervenors incorporate by reference and re-assert each and every allegation above, as

though full y set forth herein

ORlGJ'NAL Pt-7JTT'ION IN lm-T:.RVF..NTiON

129 83 . Directors' power to act on the corporati on's behalf is governed by the directors' tiduciary

relationship with the corporation and its shareholders, which imparts upon the directors the

duties of care and loyalty. Shoen v. SAC Holding Corp. , 137 P 3d 1171 , 1178 (Nev. 2006) (citing

Foster v. Arata, 325 P.2d 759, 765 (Nev . 1958)); see Nev . Rev. Stat. § 78.138. The Controlling

Shareholder Defendants violated and breached their fiduciary duties to the shareholde rs of care,

loyalty, reasonable inquiry, oversight, and good fai th. Horwitz v. Southwest Forest indus., 604

F.Supp. 11 30, 11 34 (D. Nev. 1985). These breaches involved intentional misconduct and fraud

Nev. Rev. Stat. § 78 .138(7). These acts include:

a. Sydow's theft and mi sappropriation of corporate assets, including but not limited

to use of corporate funds to pay for his private plane, use of corporate resources

for hi s law practice without compensation to the company. the use of corporate

funds for personal expenses, and bogu s fees for lawyers, co11Sultants, and services

that did not benefi t NC12;

b. Failure to transfer title of the Fall River property to the corporation and instead

transferring it to an entity in which Sydow and Preston held an individual interest,

and charging the corporati on rent for use of its own property;

c. Transfer of the technolot,'Y of the corporation- its most valuable asset, worth

hundreds of millions of dollars-for grossly inadequate consideration to an entity

in w hich Sydow, Preston, and other Defendants had individual interests.

84. Each of the Controlling Shareholder Defendants authorized, or by abdication of duty,

permitted and allowed these bad acts to occur. These acti ons were not a good faith exercise of

prudent business judgment to promote and protect NC l2's corporate interests. See Nev. Rev.

Stat. § 78 138; i n re Western World Funding. Inc.• 52 B.R. 743, 764 (Bkrtcy. D. Nev. 1985 )

ORtG!'NAL PI:'.'Tn'fON TN T"l>rH:.RVEN l !ON

130 ("An officer who or director who participates, ratifies, aids or approves of the breach of duty of a

co-fiduciary, or fails to repudi ate the wrongdoing, may be jointly liable for the violation.").

85. Intervenors arc entitled to their actual damages for this breach of fiduciary duty and

funher equitable rel ief including buy-out, disgorgement, and constructive trust. White NC12 may

also have claims arising out of the same conduct, Intervenors do not seek to assert any claims

owned by NC l2 or to asseit any remedy on behalf of NC12. Intervenors asseit only their

individual claims for violati ons of fiduciary duties owed directl y to them as shareholders and

seek only those damages for injuries suffered by lntetvenors di rectly as shareholders. Because

the Controlling Shareholder Defendants acted knowingly, intentionally, mal iciously, and with

reckless disregard of Intervenors' rights, Intervenors are further entitled to exemplary damages.

B. Shareholder Oppression

86. The Controlling Shareholder Defendants are subject to legal duti es to Intervenors,

including fiduciary duties, duties not to oppress, and duties of good faith and fair dealing.

Defendants committed a continuing pattern of oppressive acts that have the purpose and effect of

substantially defeating Intervenors' objectively reasonable expectations of share ownership, of

systematically violating their rights and interests as shareholders, and of denying them the

economic value of share ownership and return on thei r investment.

87. Examples of but a few of these oppressive acts include, but are not limited to: instituting

a plan to gain unfettered control of the company with the intent of stealing its assets.. stripping

the company of its most valuable assets for their own personal gain, and the secretive and

questionable removal of directors von der Goltz and :rv·Iuderrisoglu, who were reputable,

independent of Preston and Sydow, and trusted by the shareholders. Sydow thwarted these

di reclors' investigative efforts into the company's accountjng practices. Sydow, Preston, and

ORtGI'l\AL PETI1'fON TN T'l>ITI:.RVl::.N I !ON

131 Henkel illegally exerci sed dominion and control over the corporation by removing these

directors in direct violation of a previous agreement among a super-majority of the shares.

Sydow also misappropriated corporate assets fo r personal expenses, and engaged in numerous

undi sclosed self-dealing tran saction s at the expense of NC12 shareholders. Defendants' conduct

rendered Intervenors' share ownership worthl ess, meaningless, and financially punitive.

Defendants' burdensome, harsh, and wrongful conduct visibly departs from standard s of fair

dealing and constjtutes shareholder oppression

88. Jntervenors are e11titled to equitable relief to remedy the oppressive conduct, including

but not limited to, having the Court order a buy-out at a fair price, together with actual and

exemplary damages, disgorgement, restitution, and other equitable relief. Furthermore,

Defendants' conduct was committed willfully and maliciously and Intervenors are entitled to

punitive damages. Intervenors are without adequate remedy at law.

C. Knowing Participation/Civil Conspiracy

89. As alleged herein, all Defendants conspired to commit fraud and breaches of their

fid udary duties. and thus are jointly and severally liable for all actual damages and equitabl e

rel ief. Furthermore, all Defendants acted knowingly, intentionall y, maliciously, and with reckless

disregard of Intervenors' rights and the company' s ri ghts, and Intervenors are entitled to

exemplary damages.

D. Securities Fraud-Common Law Fraud and Statutory Fraud

90. Sydow and Preston committed common law and statutory fraud on each of the

Interv enors in connection with the sale and purchase of the shares and conve11ible notes. As

alleged herein, Sydow and Preston solicited the Intervenors' investments and directly or

indirectly communi cated false representations of fact to the Intervenors- including that the

ORlf: l'NAl. Pl.::'l n'ION TN T'!>ITERVENT!ON

132 company was worth $ 100 million or later $300 million, that the corporation would use the

investment money primarily to build the reactor (when Sydow and Preston intended to utilize the

money primarily for other purposes or to misappropriate it and to delay the construction of the

reactor), and that the CLECO deal was in place when in fact it had been cancelled. Addi tionally,

Sydow and Preston fajled to disclose facts that they were under a duty to disclose to new

investors-including the cancellation of the CLECO deal. Sydow and Preston made the

misrepresentations, false promi ses, and omissions with knowledge of the falsity, with the intent

to deceive, and with the intent that the Interven ors rel y on those misrepresentations. The

Intervenors did in fact reasonably rely on the fraudulent representations and non-disclosures of

Preston and Sydow by investing in Texas Syngas and NC12. Intervenors suffered actual damages

proximately caused by Preston and Sydow' s fraud . Furthermore, Preston and Sydow acted

willfully, intentionall y, and maliciously and are liable for exempl ary damages.

IX. Jury Demand

9 1. Intervenors wish to exercise their right to trial by jury .

X. P1·ayer

92. For these reasons, Intervenors request that the Defendants be cited to appear and answer

and that Intervenors have judgment agajnst the Defend ants for the following:

a. Actual and exemplary damages as allowed by law;

b. Equitable reli ef including buy-out or return of investment;

c. Prejudgment and post-judgment interest as allowed by law;

d. Attorney fees and expenses;

e. Costs of suit;

ORIGINAl. P P.TITJON I~ TNTF!.RVF.NTION

133 f All other relief, general and special, legal and equitable, to which Intervenors may

be entitled.

FRYAR LAW Fl.RNI, P.C.

F. Eric Fcyar Texas Bar No. 07495770 Email: eric@fryarlawfirm.com Matthew Buschi Texas Bar No. 24064982 Email: mbuschi@fryarlawfirm.com Christina Richardson Texas Bar No. 24070495 1001 Texas Ave. , 14th Floor Houston, Texas 77002-3194 Tel. (281) 715-6396 Fax (281) 715-6397 ATTORNEYS FOR INTERVENORS

0RfGJNA.L PETITION IN lNTf.'RVl'{NTfON

134 CERTIFICATE OF SERVICE

I certify that a copy of the foregoing instrument was served on all parties and counsel of record pursuant to the Texas Rules of Civil Procedure as indicated below: []Telephonic document transfer on 11 November 2011 before 5:00p.m . []Email or eservice by agreement on 11 November 201 1. [X] First Class United States Mail, CMRRR, on 11 November 2011.

Randall 0 . Sorrels Brent C. Perry Clyde J. "Jay'' Jackson, ill Law Offices of Brent C. Perry Abraham Watkins, Nichols, Sorrels, Matthews 800 Commerce Street & Friend Houston, Texas 77002 800 Commerce Street Fax: 713-237-0415 Houston, Texas 77002-1776 Attorney for Original Plaintiffs Fax: 713-225-0827 Attorneys.for Original Plainti:ffs

Asher Griffin Amir Alavi Chris Sileo Ashley Frankson Sean Flammer Ahmad, Zavitsanos, Anaipakos, Alavi & Scott, Douglass & McConnico, LLP Mensing P.C. 600 Congress Ave., Ste 1500 3460 One Houston Center Austin, Texas 78701-2589 1221 McKinney Street Fax: 512-474-0731 H ouston, Texas 770 lO Attorneys for Defendants Clwlsys, At/ET, and Fax: 713-658-0062 Lo Attorneys for Defendants Sydow, Preston, Henkel, C Change, and Brilliant Novelty

OR!GlNALPf.TJTJON IN INTH.RVF.NTION

135 ~~-~~ ];' l ' IN THE UNITED STATES BANKRUPTCY COURT /Jf:?hfif-D h ~ FOR THE SOUTHERN DISTRICT OF TEXAS 81 ' rlct an;~/ .U HOUSTON DMSION 77,.,., 4UG J C!erlr !Jr J 20;; INRE; § !'~......, .' '·u,;~·~ .. § CASE NO: 11-38794 ~~ ... ~~ .,._,."' ".'~ ;.. .._. ()·· .... -.. ~

NC12, INC. § CHAPTER 7 ~r>'·il"- _ . - --....___

Debtor(s). § § JUDGEISGUR . -·--,------ § § MICHAEL COLLINS, et al § § Plaintiff(s), § § vs. § ADVERSARY NO. 11-3634 § SYDOW, eta/ § § Defendant(s). §

MEMORANDUM OPINION

The Plaintiffs and Intervenors assert claims against fonner officers and directors of

NC12, the debtor in the underlying bankruptcy case. NC12 was a technology company engaged

in developing catalytic gasification processes. Plaintiffs and Intervenors allege that the

Defendants stripped NC 12 of assets, misappropriated corporate assets, engaged in self-dealing,

and improperly removed other directors from NC12's board. The Plaintiffs sue for breach of

fiduciary duty, and Plaintiff Michael Collins sues for conversion. The Intervenors sue for breach

of fiduciary duty, shareholder oppression, statutory and common law securities fraud, and

conspiracy.

The Court grants, in part, and denies, in part, the Intervenors' motion to remand. The

Court remands the Intervenors' securities fraud claims, including the aiding and abetting and

conspiracy to commit fraud claims, as they are the Intervenors' property; the Court declines to

1 I 3l

206 exercise subject matter jurisdiction over the claims. The remainder of the Intervenors' claims are

the estate's property, and the Court dismisses them for lack of standing.

The Court denies, in part, and abates, in part, the Plaintiffs' motion to remand. Plaintiff

Michael Collins' conversion claim is arguable property of the estate. lf the claim belongs to

Collins, the Court may lack subject matter jurisdiction or the claim's potential effects on the

estate may be so remote that the Court should discretionarily abstain. If the claim is property of

the estate, Collins lacks standing to assert the claim. Until the issue is decided, the Court cannot

remand the claim; Collins' pursuit of the conversion claim in state court would violate the

automatic stay. The remainder of the Plaintiffs' claims are property of the estate, and the Court

dismisse~ them for lack of standing.

Background

This proceeding involves numerous Plaintiffs, Defendants, and Intervenors. The

Plaintiffs are Michael Collins, individually and on behalf of NC12, Inc. and Fall River Realty,

Ltd.; Ellen Collins, on behalf of BOS, Inc., EnVen, Inc. and Metal Catalyst Ventures, Inc.; BOS,

Inc., as a shareholder ofNC12; EnVen, lnc., as a shareholder ofNC12; Metal Catalyst Ventures,

lnc., as a shareholder of NC12; M. Sameer Ahmed, individually and on behalf of NC12 and

TSBC South Texas Investors, L. P., as a shareholder ofNCI2.

The Defendants are Michael Sydow; John T. Preston; Christoph Henkel; C Change

Investments, L.L.C.; Sonia Lo; Chalsys Capital Partners L.L.P.; Oscura, Inc.; Brilliant Novelty,

L.L.C.; and Meliora Energy Technologies. S.A.R.L. The Plaintiffs sued the Defendants in Harris

County District Court on July 26, 2011. ECF No. l-1.

The Plaintiffs assert claims for breach of fiduciary duty, alleging that Sydow, Preston,

and Henkel breached their fiduciary duty to the Plaintiffs as shareholders of NCl2 by

2 / 31

207 misappropriating corporate funds. They seek ''their proportionate share of economic injuries" as

shareholders ofNC12. The Plaintiffs sue the other Defendants for aiding and abetting breach of

fiduciary duty. The Plaintiffs sue Sydow, Preston, C Change Investments, and Brilliant Novelty

for conversion of Collins' interest in Fall River Realty.

The Intervenors filed a petition in intervention on November 11, 2011 . The Intervenors

are Akila Finance, S.A.; Bosques del Molino, S.A.; Centrans Energy Services, Inc.; Chester

Mester Holdings, Ltd.; Deltec Bank & Trust, Ltd.; Emjo Investments, Ltd.; William End; Evans

and Petree 401K Plan; First Bay Intertrade; GM Partners; Marair Corporation; W.L. Nichol, IV;

Panorama Investment, Ltd.; PC 01 Vermoegens Verw.; Alejandro Santo Domingo; Sinchi

investment; Venturi Global Investments, Ltd.; and H.J. von der Goltz. ECF No. 1-3.

The Intervenors sue Sydow, Preston, and Henkel for breach of fiduciary duty to

shareholders and for shareholder oppression. They also sue all Defendants for knowing

participation/civil conspiracy to commit fraud and breach of fiduc iary duties. The intervenors

sue Sydow and Preston for common law fraud and statutory fraud.

NC12 filed for chapter 11 bankruptcy on October 14, 201 I. On December 22, 2011, the

Court granted the United States Trustee's motion to appoint an examiner in the case. ECF No.

28. Walter Bissex was appointed examiner. ECF No. 30. Bissex filed a status report on

February JS, 2012. ECF No. 41.

The Defendants removed this proceeding on December 15, 2011. The Intervenors filed a

motion to remand or abstain on January 17, 2012, arguing that they asserted only direct claims

against the Defendants. ECF No. 6. The Plaintiffs joined in the motion to remand on the same

day. ECF No. 7.

3/31

208 At a hearing on February 2, 2012, the Court required parties to file briefs on whether the

estate owned the claims asserted in this proceeding. The Intervenors and Defendants Sydow,

Preston, Henkel, C Change Investments, LLC, and Brilliant Novelty, LLC (collectively, "Sydow

Defendants") filed briefs on March 2, 2012. ECF Nos. 12 & 14. The Sydow Defendants also

filed a response to the motion to remand on the same day, arguing that the claims were property

of the estate. ECF No. 13. The Sydow Defendants also argue that the existence of a joint

directors and officers insurance policy with a maximum coverage limit of $1 ,000,000.00 for

defense costs provides another basis for "related to" jurisdiction. ECF No. 13, at 21 -22.

Additionally, the Intervenors' requested relief of a forced buy-out, they argue. would affect the

bankruptcy estate by affecting ownership of the debtor and rearranging bankruptcy priorities.

ECF No. 13, at 23. Finally, mandatory abstention does not apply, they argue, because remand

would violate tbe automatic stay. ECF No. 13, at 23.

Defendants Sonia Lo; Chalsys Capital Partners, LLP, and Meliora Energy Technologies,

S.A.R.L. (collectively, " Lo Defendants") filed a joinder with the Sydow Defendants' briefing on

March S, 2012. ECF No. IS. The Lo Defendants filed a joinder with the Sydow Defendants'

response to the motion to remand on March 7, 2012. ECF No. 17. The Intervenors filed a reply

to the Sydow Defendants' brief on March 9, 2012. ECF No. 18.

In NC12's main bankruptcy case, the United States Trustee filed a motion to convert tbe

case to a chapter 7 case on February 28, 2012. No. 11-38794, ECF No. 43. The intervenors

joined in the motion on March 22, 2012. No. 11-38794. ECF No. 51 . NC12 filed a response on

March 22. 2012, opposing the conversion to chapter 7. No. 11-38794, ECF No. 52. The Court

held a hearing on the motion to convert on March 26,2012 and March 27,2012. After hearing

testimony from Bissex, Sameer Ahmed, Sydow, and Preston, the Court concluded that NC12

4 / 31

209 was not operating in a meaningful way and had limited assets of an unknown value. The Court

granted the motion to convert, and Janet S. Casciato-Northrup was appointed chapter 7 Trustee.

The Court set a hearing on the ownership of the claims in this advers1lry proceeding for

May 15, 2012. Prior to the hearing, the Trustee and the Intervenors filed briefs. ECF Nos. 25 &

26. At the May 15, 2012 hearing, lhe Court heard arguments as to the ownership of the claims.

The lntenrenors filed an additional brief on May 25, 2012. ECF No. 27.

The Trostee filed a separate adversary proceeding against Michael Collins, Ellen Collins,

and BOS, lnc. on June 5, 2012, seeking a detennination ofthe extent and validity of the estate's

interest in real property in Fall River, Massachusetts and a determination that the property was

subject to either a resulting or a constructive trust. The Trustee also sued Michael Collins for

breach of fiduciary duty. Adv. No. 12·3266, ECF No. 1.

The Trustee filed another adversary proceeding against Michael Collins on August 13,

2012. Adv. No. 12-3376, ECF No. I. In Adv. No. 12-3376, the Trustee sues for a declaratory

judgment that Collins does not own any interest in U.S. Patent Application No. 12/363,398 and

the underlying technology; breach of fiduciary duty; and unjust enrichment.

On August 21, 2012, the Court ordered the parties to this adversary proceeding to file a

copy of NC12's Philadelphia Indemnity Insurance Company policy and to stipulate whether the

copy was true and correct. ECF No. 28. The Trustee filed a copy of the policy on August 27,

2012, with a stipulation signed by the Trustee, the Plaintiffs, the Intervenors, Sydow, Preston.

Henkel, and the other Defendants. ECF No. 30. The Trustee, the Plaintiffs, the Intervenors,

Sydow, Preston, and Henkel stipulate that the copy of the policy is a true and correct copy. ECF

No. 30, at 1. The other Defendants have no basis either to dispute the authenticity of the policy

or to stipulate that the copy is true and correct. ECF No. 30, at 2.

5 I 31

210 The Plaintiffs' and Intervenors' Allegations

The Plaintiffs and Intervenors allege that the Defendants, who were directors and officers

of NC 12, engaged in self-dealing and mismanagement with the ultimate result of stripping NC 12

of its most valuable assets. For context, the Court summarizes the allegations made by the

Plaintiffs and Intervenors. By summarizing the allegations, the Court does not fmd that the

allegations are meritorious. Nevertheless, the Court must assume that the allegations are true for

the purpose of ruling on the pending motions.

NC12 was involved in the development of catalytic gasification technology. ECF No. 1-

2, at 6. The technology was developed by Plaintiff Michael Collins for producing synthetic

natural gas and other fuels from coal. ECF No. 1-3, at 14. Collins' technology involved using

high temperatures and high pressures to create clean-burning synthetic fuel~ from coal,

petroleum coke, and biomass. ECF No. 1-3, at 15-16. Collins. along with retired University of

Maryland professor Robert Bach, patented the process in 2009. ECF No. 1-3, at 16.

NC12 began as a Texas limited liability company named Texas Syngas, LLC. ECF No.

1-2, at 7-8. Texas Syngas was fonned jn October 2004 to exploit the technology portfolio of a

defunct company called Molten Metal Technology, Inc., which had been founded and promoted

by Defendant John Preston. ECF No. 1-2, at 7; ECF No. 1-3, at 15. Quantum Catalytic&, Inc.,

another entity controlled by Preston, purchased Molten Metal Technology's portfolio in l999.

ECF No. 1-2, at 7; ECF No. 1-3, at 15. In May 2006, Quantum Catalytics licensed its

technology to Texas Syngas in return for 10% of the available shares. ECF No. 1-2. at 8.

Collins agreed to contribute his intellectual property to Texas Syngas in exchange for 754,500

shares {approximately 75%) of Texas Syngas. ECF No. 1-2, at 8; ECF No. 1-3, at 16. Collins

6 I 31

211 kept I 00,000 shares personally and transferred the other shares to EnVen, Inc. and Metal

Catalyst Ventures, Inc., Nevada companies owned by his wife, Ellen Collins. ECF No. 1-2. at 8.

Texas Syngas was reorganized as a new Nevada CQrporation, Texas Syngas. Inc.• in May

2006. ECF No. 1-3, at 16.

Texas Syngas began raising significant capital in 2007. ECF No. l -2. at 9; ECF No. 1-3,

at 16. Through Preston and his contact Johan von der Goltz, Texas Syngas raised at least $12

million from European investors. ECF No. 1-2, at 9. Von der Goltz's friends, family, and

business associates invested $11.75 million in exchange for approximately 13% ofthe comp110y.

ECF No. 1-3, at I 7. These investors included some of the Intervenors ("Shareholder

Intervenors''). ECFNo. 1-3, at 17.

Sydow and Preston represented to the Shareholder Intervenors that the value of the

technology exceeded $100 million and that the funds would be used for building a demonstration

reactor. ECF No. 1-3, at 17.

The funds were also intended to be used to acquire a research and development facility in

Fall River, Massachusetts. EFC No. 1-2, at9. The facility was formerly owned by Molten Metal

Technology and was acquired by the Meissner Trust, an entity owned by Preston and Paul

Lohnes. ECF No. 1-3, at 1S. Texas Syngas structured the acquisition of the facility by Fall

River Realty, Ltd. ECF No. 1-2, at 9. Preston and Lohnes retained an ownership interest in Fall

River Realty. ECF No. 1-2, at 9-10. Preston and Lohnes, through a complex transaction,

transferred to Collins an interest in Fa11 River Realty in exchange for $3.5 million and Texas

Syngas shares. ECF No. 1-2, at 10.

Preston and Sydow told the shareholders that Texas Syngas had purchased the Fall River

facility, but the property was never actually transferred to Texas Syngas. ECF No. 1-3, at 18-19.

7 I 31

212 Sydow became the Chief Executive Officer of Texas Syngas with an annual salary of

$360,000. ECF No. 1-2, at 9. Sydow, a lawyer, agreed to stop practicing law and devote his full

efforts to building Texas Syngas. ECF No. 1-2. at 9. Sydow worked from office space in

Houston, paying salaries to officers and employees and pursuing execution of Texas Syngas's

business plan. ECF No. 1-2, at 9.

Collins began working at the Fall River facility to build a full scale gasification system

prior to commercial development, retaining the necessary consultants and employees. ECF No.

1-2. at 10. Collins and Bach assigned the patented gasification technology to Texas Syngas on

May 14, 2009. ECF No. 1-3, at 19.

Texas Syngas negotiated a deal with the Central Louisiana Electric Company (CLECO)

in early 2008, for a tO-reactor plant to begin operations in the fall of20l2. ECF No. 1·3. at 18.

In the summer of 2008, Preston claimed that he had secured .$30 million in financing through

C Change, but the money never materialized. ECF No. 1-3, at 18.

By 2009, Texas Syngas needed additional funding. Von der Goltz raised a total of

$6,104,000.00 from friends, family, and business associates. ECF No. 1-3, at 20. These

investors, who included the remainder of the Intervenors ("Note Holder Intervenors"), were

issued convertible promissory notes, which provided for automatic conversion into common

shares at a 20% discount if the oompany obtajned qualified financing from a single investor of at

least $5 million on or before September 30, 20 I 0. ECF No. 1·3, at 20. Preston and Sydow

represented to the Note Holder Intervenors that the company was worth $300 million as of2009,

based on the value of the technology and the CLECO contract and prospective contracts with the

Turkish national coal company. ECF No. 1-3, at 21, 26. The prospective Turkish contracts were

8/31

213 to be obtained through the efforts of von der Goltz and Dr. Aydin Muderrisoglu. ECF No. 1-3, at

26.

However, the CLECO contract had already been canceled. Preston and Sydow did not

disclose the cancellation of the contract. ECF No. 1-3, at 21. Preston and Sydow represented

that the money would be used primarily to build the test reactor. ECF No. 1-3, at 21 .

The Intervenors allege that Preston and Sydow had no intention of using shareholder

money as represented to the shareholders. ECF No. 1-3, at 19. While they controlled the board

of directors, they "made sure that the bulk of the money actually went to them or to several of

their related entities, rather than to build the demonstration reactor." ECF No. 1-3, at 19.

C Change, Preston's company, was "apparently" paid a $40,000 per month consulting fee. ECF

No. 1-3, at 19. Sydow and Preston had the company pay tens of thousands of dollars every

month to lawyers and consultants and for other expenses that did not benefit the shareholders or

the corporation, but instead benefited Sydow and Preston. ECF No. 1-3, at 19-20.

Although Sydow had agreed to devote all ofhis time to Texas Syngas when he was hired

as CEO, he continued practicing law, spending most of his time on his own law practice and

using Texas Syngas employees to do work for his firm. ECF No. 1-3, at 20.

Also in 2009, Texas Syngas became NC12. ECF No. 1-2, at 11. Sydow and Preston

managed the transfer of assets and liabilities to the new entity. ECF No. 1~2. at 11. TSl was

dissolved. ECF No. 1-2, at 11. Sydow remained as CEO and was joined on the board of

directors by von der Goltz and Muderrisoglu. ECF No. 1-3, at 22.

In March 2009, C Change Investments, Preston's investment company, acquired a small

interest in NC12. Through 2009, Preston and Sydow developed the prospects for a Louisiana

9 I 31

214 production facility, and Collins oversaw research and development of the reactor in Fall River.

ECF No. 1-2, at 11.

Collins began having problems with contractors at the Fall River facility by late .2009.

ECF No. 1-2, at 11. One contractor placed a stop on all work until NC12 paid over $1.2 million

in past due invoices.

Von der Goltz began investigating the funding issues, contacting an accountant to review

NC J2's financial records. ECF No. 1-2, at 12. The accountant did a limited review of the Fall

River accounting process and then requested a set of books for NC12. ECF No. 1-2, at 12. After

obtaining the Quickbooks file, the accountant raised concerns about NC12's use of funds,

including large amounts ofprofesstonal fees and expenses. ECF No. 1-2, at 12. The accountant

recommended a forensic audit and noted that very linle of the money raised had been spent on

developing the reactor at the Fall River facility. ECF No. l -2, at 12. Instead, much of the money

had been spent on travel, offices, professional fees, outside consultants, and undisclosed lease

payments for an airplane. ECF No. 1-2, at 12; ECF No. 1-3, at 23 .

Collins and von der Goltz were aligned. After von der Goltz delivered the audit request

to Sydow, Sydow obtained an injunction in Montgomery County against Collins. ECF No. 1-2,

at 12. Sydow removed Collins from all company operations in August 2010 and closed off

access to company records. ECF No. 1-2, at 12. Sydow and Preston removed Collins, von der

Goltz, and Muderrisog1u as directors and named Christoph Henkel as a director. ECF No. 1-2, at

12; ECF No. 1-3, at 25. Sydow, Preston, and Henkel, as a board, voted to ftre Collins and bar

him from company property. ECF No. 1-3, at 25. The board also revoked all access to company

bank accounts and records for von der Goltz and Muderrisoglu. ECF No. 1-3, at 25. As a result

of Preston, Sydow, and Henkel's takeover, NC121ost the Turkish contracts.

10 I 31

215 About $300,000 remained to be paid to vendors for the cost of the reactor. After Sydow.

Preston, and Henkel fired Collins, all progress on the reactor halted, and the board refused to pay

the outstanding bills. A vendor repossessed the reactor and sold it for scrap. ECF No. 1-3, at 29.

Preston, Sydow, and Henkel, along with their companies, worked with Sonia Lo and

Chalsys Capital Partners, LLP, to strip NC12 of its assets and transfer the assets to Meliora

Energy Technologies, S.A.R.L., a Luxembourg limited liability company established on

September 14, 2010 and controlled by Sydow, Preston, Henkel and Lo and owned by C Change,

Chalsys, and Henkel. ECF No. 1-2, at 12-13; ECF No. 1·3, at 27. Sydow, Preston, and Henkel

represented to shareholders that Meliora would provide a $1.5 million bridge loan to NC12,

along with a commitment of an additional $5 million investment, in exchange for the license to

use NCI2's technology in Europe, Asia, and Africa. ECF No. 1-3, at 27.

However, Sydow, Preston, and Henkel assigned all ofNC12's technology to Oscura, Inc. ,

a company believed to have been created and controlled by Sydow, on September I, 2010. ECF

No. 1·3, at 28. Oscura assigned the patents to Meliora via a security agreement. ECF No. 1·3, at

28. Meliora began paying Sydow a monthly fee of$15,000. ECF No. 1-3, at 28.

Meliora 's supposed $5 million financing resulted in the automatic conversion of the

promissory notes into common shares. The conversion diluted the "old" shareholder group's

ownership from 100% to 30.3%. ECF No. 1-3, at 28. However, Meliora never made the $5

million investment. ECF No. 1·3, at 28. According to the Intervenors, it is believed that NC12

received no more than $500,000 for its patented technology. ECF No. 1-3, at 28.

In December 2010, all employees of NC12 were terminated and all business operations

ceased. ECF No. 1-3, at 28.

11 /31

216 In May 2011, Fall River Realty sold the Fall River facility to Brilliant Novelty, LLC for

$2.6 million. Lohnes and Preston are members and managers of Brilliant Novelty, and Brilliant

Novelty obtained a $2.6 million mortgage on the property. ECF No. 1-2, at 13. Sydow fi led a

certificate of vote stating that the Fall River Realty shareholders had approved the transaction.

However, Collins, the majority shareholder in Fall River Realty, was never consulted about the

sale. ECF No. 1-2, at 13.

On October 14, 201 1, Sydow caused a voluntary chapter 11 petition to be filed on behalf

ofNC12. The petition states that NC12 has no assets. ECF No. 1-3, at 29.

Ana lysis

If a cause of action belongs to the estate, then the Trustee has exclusive standing to assert

the claim. Schertz-Cibolo-Universal City, Jndep. Sch. Dist. (In re Educators Grp. Health Trust),

25 F.3d 1281, 1284 (5th Cir. 1994). If, on the other hand, a cause of action belongs to the

Plaintiffs and Intervenors, the Court must consider whether it has subject matter jurisdiction over

the claims. lf the Court lacks subject matter jurisdiction over claims because the claims do not

relate to NC12's bankruptcy, then the Court must remand the claims.

lf the Plaintiffs and lntervenors lack standing to bring claims, the Court must dismiss the

claims for Jack of subject matter jurisdiction. See Highland Capital Mgmr. LP v. Chesapeoke

Energy Corp. (In re Seven Seas Petroleum), 522 F.3d 575, 583 (5th Cir. 2008) ("If the claims

belong to the estate, then it was not error for the bankruptcy court to deny remand (because it has

jurisdiction over all property of the estate) and dismiss the claims (because the trustee has

exclusive standing to assert claims belonging to the estate).")~ Cobb v. Cent. States, 461 f .3d

632, 63 5 (5th Cir. 2006) ("[T]he issue of standing is one of subject matter jurisdiction.").

12 /31

217 Whether a particular cause of action belongs to the estate depends on whether under

applicable state Jaw the debtor could have raised the claim as of the commencement of the case.

Educators Grp., 25 F.3d at 1284. If a cause of action alleges only indirect hann to a creditor

(i.e., an injury that derives from hann to the debtor), and the debtor could have raised a claim for

its direct injury under the applicable law,then the cause of action belongs to the estate. ld

NC12 is incorporated under Nevada Jaw. Nevada law therefore governs the internal

affairs of NCJ2. Tex. Bus. Org. Code § 1.102 ("[T]he law of the state (in which an entity is

fonned] . . . governs the fonnation and internal affairs of the entity.''); Klaxon Co. v. Stentor

Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941) (holding that a federal court sining in diversity

applies the conflict of laws rules of the forum state); Hollis v. Hill, 232 F.3d 460, 465 (5th Cir.

2000) (applying Texas choice of law rules and concluding that Nevada law governs internal

affairs of corporation incorporated in Nevada); Reed v. Linehan (In re Soporex, Inc.), 463 B.R.

344, 396 (Bankr. N.D. Tex. 2011) (applying Texas choice of law rules, which provide that

internal affairs of a foreign corporation a governed by the law of the state of incorporation).

Although the Court first considers whether NC12 could have raised claims outside of

bankruptcy, the Coun also looks at the underlying injury for which relief is sought.

(S)ome claims that are usually brought by creditors outside of bankruptcy (and thus in a sense may be said to "belong to" the creditors and not the debtor) are nonetheless vested exclusively in the trustee in bankruptcy. This is so not merely because the claims are common to a number of creditors, but because they ultimately seek to recover assets of the estate that are not under the debtor' s control-by reason of a fraudulent transfer, for instance, or because of the existence of separate corporate entities that are a sham.

Seven Seas, 522 F.3d at 589.

13/31

218 The Trustee's exclusive standing protects the Bankruptcy Code's djstribution scheme.

''Since one of the goals of the Bankruptcy Code is to preserve property of the bankruptcy estate

and ensure that similarly situated creditors receive equal distributions, if a cause of action

belongs to the debtor, only the trustee or debtor in possession may pursue it." In re Cabrini Med

Ctr., 2012 WL 2254386., at *6 (Bankr. S.O.N .Y. June 15, 2012) (citing S.I. Acquisition, Inc. v.

Eastway Delivery Serv., Inc. (In re S.I. Acquisition, Inc.), 817 F.2d 1142. 1152 (5th Cir. 1987))

(citations omitted).

If claims are not owned by the bankruptcy estate, the Court must consider whether it bas

subject matter jurisdiction over the claims. The Bankruptcy Court's subject matter jurisdiction

is limited to bankruptcy cases and proceedings that arise under the Bankruptcy Code, arise in a

bankruptcy case, or are related to a bankruptcy case. 28 U.S.C. § 1334. The Court therefore has

subject matter jurisdiction only over claims that arise under the Bankruptcy Code, arises in the

NCI2 bankruptcy case, or are related to NC12's bankruptcy case.

A proceeding arises under the Bankruptcy Code when a plaintiff asserts a right created by

the Bankruptcy Code. Wilborn v. Wells Fargo Bank (In re Wilborn), 609 F.3d 748, 752 (5th Cir.

2010). When a plaintiff asserts a claim that could not exist outside of bankruptcy, tbe proceeding

arises in a bankruptcy case. Id

An action is related to a bankruptcy case if the outcome could conceivably affect the

bankruptcy estate. Edge Petroleum Operating Co. v. GPR Holdings, LLC (In re TXNB Internal

Case), 483 f .3d 292, 298 (5th Cir. 2007). "Certainty is unnecessary; an action is 'related to'

bankruptcy if the outcome could alter, positively or negatively, the debtor's rights, liabilities,

options, or freedom of action or could influence the administration of the bankruptcy estate." /d.

14/31

219 If the Court has only "related-to" jurisdiction over a claim, the claim may be subject to

mandatory abstention. Mandatory abstention applies when a proceeding: (i) is based upon a state

law claim or state law cause of action; (ii) is related to a bankruptcy case but not arising under

the Bankruptcy Code or arising in the bankruptcy case; (iii) could not have been commenced in a

federal court other than through bankruptcy jurisdictjon; and (iv) was commenced and can be

timely adjudicated in a state court. 28 U.S.C. § 1334(c)(2).

Even if the requirements for mandatory abstention are not met, the Court may

discretionarily abstain from hearing a proceeding "in the interest of justice, or in the interest of

comity with State courts or respect for State law." 28 U.S.C. § l334(c)(l). "Nothing ...

prevents a court from permissively abstaining under§ 1334(c)(l) where some, but not all, of the

requirements for mandatory abstention are met. The decision to abstain or not to abstain is

committed to the discretion of the district court[.]" Gober v. Terra + Corp. (In re Gober), 100 F.3d 1195, 1207 (5th Cir. 1996). ln exercising its "broad discretion" to decide whether to abstain

under§ 1334(c)(l), a court may consider the following non-exclusive factors:

(1) the effect or lack thereof on the efficient administration of the estate;

(2) the extent to which state law issues predominate over bankruptcy issues;

(3) the difficult or unseuled nature of applicable law;

(4) the presence of related proceeding commenced m state court or other oonbankruptcy proceeding;

(5) the jurisdictional basis, ifany, other than§ 1334;

(6) the degree of relatedness or remoteness of proceeding to main bankruptcy case;

(7) the substance rather than the fonn of an asserted core proceeding;

(8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court;

lS I 31

220 (9) the burden of the bankruptcy docket;

(10) the likelihood that commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties;

( 11) the existence of a right to a jury trial;

(12) the presence in the proceeding of non-debtor parties;

( 13) comity; and

(14) the possibility of prejudice to other parties in the action.

Shipley Garcia Enters .. LLC v. Cureton, 2012 WL 3249544, at •12 (S.D. Telt. Aug. 7, 2012)

(quoting Ramirez v. Rodriguez (In re Ramirez), 413 B.R. 621. 631·32 (Bankr. S.D. Tex. 2009)).

Intervenors' Shareholder Oppression Claim

To detennine whether the shareholder oppression claim is property of the estate, the

Court looks at whether, under state law, the claim could have been asserted by NC12 and

whether, under the test set forth in Educators Group and Seven Seas, the Intervenors assert an

injury that is not merely derivative of injury to NC12.

NC12 could have asserted any claims that, under Nevada state law, enforced the

corporation's rights. This is true both for rights nonnally enforced directly by the corporation or

nonnally enforced through a shareholder derivative action. See San Mateo Plaintiffs v. At Home

Corp. (In re At Home Corp.), 154 F. App'x 666, 668 (9th Cir. 2005) ("A bankruptcy court may

enjoin a derivative claim brought by shareholders because the claim is the property of the

bankrupt estate."); Jn re AgriBioTech, 319 B.R. 216, 223 (D. Nev. 2004) (holding that, pre·

bankruptcy, a breach of fiduciary duty claim had belonged to the corporation, because the claim

was enforceable directly by the corporation or through a derivative action) (citing Pepper v.

Litton, 308 U.S. 295, 306-07 (1939)); Sobchak v. Am. Nat '/ Bank & Trust Co. of Chicago (In re

16 I 31

221 Ionosphere Clubs, Inc.), 17 F. 3d 600, 604 (2d Cir. 1994) (holding that claims that were classified

as derivative under Delaware law, the governing law, belonged exclusively to the bankruptcy

estate). Therefore, the Court ftrst examines Nevada Jaw.

Under Nevada law, allegations of generalized injury to the corporation give rise to a

derivative claim, not a direct claim. See Cohen v. Mirage Resorts, Inc., 62 P.3d 720, 734 (Nev.

2003) ("This is hann to the corporation, shared by all stockholders and not related to an

individual stockholder. To the ext.ent these allegations were intended to state a cause of action,

the district court was correct in dismissing the allegations as derivative claims barred by lack of

standing."). The Court therefore looks at the nature of the injury alleged to detennine whether

the action was derivative under Nevada law-and thus, assuming it was a valid claim, could

have been asserted by NC12.

The parties have extensively argued the issue of whether Nevada Jaw recognizes a claim

for shareholder oppression and whether such a claim would be a direct claim. Two federal

cases-one from the Fifth Circuit and one from the District ofNevada-predict that the Nevada

Supreme Court would recognize a claim for shareholder oppression. Hollis, 232 F.3d at 468

(holding that there was ''strong indication that the Nevada Supreme Court would find fiduciary

obligations between shareholders in a corporation such as FFUSA operated by shareholder·

djrectors''); Simon v. Mann, 373 F.2d 1196, 1199- 1200 (D. Nev. 2005) (holding that shareholders

of a closely-held corporation could assert a direct suit against majority shareholders). In 2011,

however, the Nevada Supreme Court stated in dicta that "Nevada does not recognize a cause of

action for abuse of control, and in the case to which appellants cite, claims for abuse of control

are essentially claims for breach of the fiduciary duty of loyalty." In re Amerco Deriv. Lirlg.,

252 P.3d 681,700 n. ll (Nev. 2011).

17/31

222 It is unclear whether the "abuse of control" cause of action referred to in Amerco is the

same cause of action that the courts in Hollis and Simon predicted the Nevada Supreme Court

would recognize. Because this area of Nevada law is uncertain, the Court does not make an

Ullllecessary pronouncement of whether there is a shareholder oppression claim under Nevada

law and, if so, whether such a claim is available to shareholders of NC12. The Court merely

conclude.s that under Cohen, the specific injuries pleaded by the Intervenors in this case should

be classified as derivative, not direct.

The EdrJcators Group and Seven Seas test produces the· same result. If the nature of the

alleged injury is purely derivative of injury to NC12, the claims are property of the estate even if

they could nonnally be asserted by creditors outside of bankruptcy. Seven Seas, 522 F.Jd at 589;

see Schimmelpenninck v. Byrne (In re Schimme/penninck), 183 F.3d 347, 355 (Stb Cir. 1999)

(holding that even though alter ego and veil-piercing claims are typically brought by a creditor,

corporations can bring such claims on their own behalf and in bankruptcy, the claims may be

asserted only by the estate) (ching S./. Acquisition, 817 F.2d at 1152).

The Intervenors' shareholder oppression claim in this case is property of the estate. ln

their statement of the shareholder oppression cause of action, the Intervenors assert that the

Defendants oppressed them as shareholders by:

• Taking control of the corporation, stripping it of its assets for their own personal gain, misappropriating corporate assets, and self-dealing;

• Secretly and questionably removing von der Goltz and Muderrisoglu, who were reputable, independent of Preston and Sydow, and trusted by the shareholders, in direct violation of a previous agreement among a super-majority of the shares; and

• Thwarting investigative efforts into the company's accounting practices.

18 I 31

223 ECF No. 1·3, at 31-32. The Intervenors seek the following remedies:

• A court-ordered buy-out of their shares at a fair price;

• Actual and exemplary damages;

• Disgorgement;

• Restitution;

• Other equitable relief; and

• Punitive damages.

ECF No. 1-3, at 32.

Even if Nevada Jaw allows a claim for shareholder oppression, any claim based on the

Defendants' alleged stripping of corporate assets is property of the estate. Any injury suffered

by the alleged misappropriation, asset-stripping, and self-dealing was derivative of the harm to

NC 12. The Intervenors may seek damages for the violation of their shareholder rights, but only

for damages not derivative of damages to the corporation; they may not seek damages for

dilution of corporate value due to the alleged stripping or misappropriation of corporate assets.

Any claim for damages due to stripping or misappropriation of corporate assets belongs to the

estate and may be asserted only by the Trustee.

The alleged violation of the shareholders' rights by the removal of von der Goltz and

Mudenisoglu and the alleged thwarting of shareholders' rights to investigate accounting

practices do not give rise to direct claims. Although it is possible that a loss of shareholder

influence or the violation of shareholders' investigative rights could result in a direct injury to

shareholders, the Intervenors have not stated such circumstances here. The Intervenors do not

allege any particularized injury arising from the removal of von der Goltz and Mudenisoglu

independent of the hann caused to the corporation-e.g., through the alleged loss of the Turkish

19 / 31

224 contracts. Because all injuries allegedly caused by the removal of von der Goltz and

Muderrisoglu were incurred by the corporation, and any injury to the shareholders was derivative

of the injury to NC12, the claim belongs to the estate.

Similarly, the alleged injury from the thwarting of investigative efforts was the inability

to discover and remedy banns to the corporation caused by the misappropriation of assets and

self--dealing. This injury is derivative of the injury to the corporation and therefore belongs to

the estate.

The shareholder oppression claim is property of the estate. Therefore, it is dismissed for

lack of standing.

Plaintiffs' and Intervenors' Breach of Fiduciary Duty Claims

The Plaintiffs and Intervenors allege that the Defendants breached their fiduciary duties

to NC12 by self-dealing and mismanagement. The Plaintiffs refer to their general allegations of

mismanagement and assert that the Plaintiffs are, "as shareholders of NCl2, . . . entitled to

recover from [the Defendants] their proportionate share of economic injuries in an amount in

excess of the jurisdictional minimum of this court." ECF No. 1-2, at 14 (emphasis added).

The Intervenors refer to their general allegations of mismanagement and also allege three

specific breaches of fiduciary duty:

• Sydow's theft and misappropnatlon of corporate assets, including but not limited to use of corporate funds to pay for hjs private plane, use of corporate resources for his law practice without compensation to the company, the use of corporate funds for personal expenses, and bogus fees for lawyers, consultants, and services that did not benefit NCI2;

• Failure to transfer title of the Fall River property to the corporation and instead transferring it to an entity in which Sydow and Preston held an individual interest, and charging tbe corporation rent for use of its own property;

20 I 3 I

225 • Transfer of the technology of the corporation-its most valuable asset, worth hundreds of millions of dollars- for grossly inadequate consideration to an entity in which Sydow, Preston, and other Defendants had individual interests.

ECF No. 1-3, at 30.

Neither the Plaintiffs' general allegations of mismanagement nor the Intervenors' specific

alleged breaches of fiduciary duty involve any alleged injury directly to the shareholders. All of

the Plaintiffs' and Intervenors' allegations pertain to injuries to NC12 . The generalized

allegations of mismanagement and self-dealing, which refer back to the Plaintiffs' and

Intervenors' overall narrative ofNC12's collapse, all relate to injuries to the corporation. There

is no indication of any hann to shareholders other than the hann to the corporation.

Similarly, the specific alleged breaches of fiduciary duty do not state any injury to

shareholders other than through the corporation. The alleged then and misappropriation of

corporate assets is an alleged injury to NC12, not the shareholders. Similarly, the alleged failure

to transfer title of the Fall River property to NCI2 is an alleged injury directly to NC12. Finally,

the alleged transfer of NCI2's technology is an alleged hann to NC12; the only hann to the

shareholders is derivative of the alleged hann to NC 12.

The essence of Plaintiffs' and (ntervenors' breach of fiduciary duty claims is that the

Defendants stripped NC 12 of assets to the detriment of NC 12's creditors and shareholders. The

claims are fundamentally derivative, predicated on injury to NC12, not on injury to individual

Plaintiffs or Intervenors. The Plaintiffs' complaint states that the shareholders' injury as a result

of the economic hann to NC12 is ''proportionate." Such proportionate injuries must be

recovered through the estate.

21 I 31

226 The breach of fiduciary duty claim is property of the estate. Only the Trustee has

standing to assert the claim, and therefore the Court dismisses the claim for lack of subject

matter jurisdiction.

The Plaintiffs' claim for aiding and abetting breach of fiduciary duty is dependent on the

underlying breach of fiduciary duty claim. Because the breach of fiduciary duty claim is

property of the estate, the aiding and abetting claim is also property of the estate. Deep Marine

Holdings, Inc. v. FLI Deep Marine LLC (In re Deep Marine Holdings, Inc.), 2011 WL 2420274,

at •t 0 (Bankr. S.D. Tex. June 13, 20 11) (''The aiding and abetting claims are derivative claims to

the extent that the actions that were aided and abetted resulted in derivative injuries[.]").

Intervenors' Statutory and Common Law Fraud Claim

The Intervenors allege that the Defendants made false representations upon which the

Intervenors relied when they invested in NCI2. ECF No. 1-3, at 21, 32-33. The Intervenors

allege that the Defendants solicited investments by fal sely representing that the company was

worth $I 00 mill ion and, later, $300 million, that the corporations would use the investment

money to build the reactor, and that the CLECO deal was in place when it had been cancelled.

ECF No. 1-3. at 32-33. The Intervenors allege that they ..suffered actual damages proximately

caused by Preston and Sydow's fraud ."

The Trustee concedes that the securities fraud claims, as pleaded, are direct claims owned

by the Intervenors. The Court agrees.

The Fifth Circuit held in Seven Seas that a conspiracy to defraud claim based on

allegations thnt defendants employed material misrepresentations to induce potential investors to

acquire unsecured notes was "a direct injury to the bondholders that was independent of any

injury to Seven Seas." 522 F.3d at 586. The Fifth Circuit further noted that it "doubt[ed] that,

22/31

227 under applicable state law, Seven Seas could have raised either claim as of the conunencement of

the bankruptcy case." /d. The bondholders' fraud claims were therefore property of the

bondholders, not the bankruptcy estate.

The Intervenors' fraud claims are similar; the only material distinction is that the Seven

Seas claims were brought by bondholders and the Intervenors are shareholders of NC12.

Because the lntevenors are shareholders, their fraud claim is based on the alleged diffe.rence

between the price they paid in reliance on the alleged misrepresentations and the actual value of

NC12's shares at the time of their investment. The Intervenors may not recover damages for the

difference between the price they paid for the shares and what the shares would have been worth

if not for the atleged post-purchase misconduct in the operation of the corporation. However,

they may recover damages for the amount they allegedly overpaid as a result of Sydow and

Preston's alleged misrepresentations.' With these Limitations, the Intervenors' claims for harm

due to fraudulently induced investment are independent of any harm directly to NC12; indeed,

NC12 benefited from the Intervenors' investments by having their cash.

Because the Intervenors' fraud claims allege an injury to the Intervenors that is not

merely derivative of the alleged harm to NC12, the Intervenors own the claims resulting from

fraud or misrepresentations that occurred at the time that they made their investment.

The Court discrctionarily abstains from hearing the Intervenors' fraud claim because it is

only remotely related to the NC12 bankruptcy case.

The Defendants argue that the claim is related to the bankruptcy case because the

Intervenors' p-otential recovery may draw from NC12's directors and officers' Liability policy.

1 The Intervenors do not state, and this Court does not decide, which jurisdiction's law govern¥ their fraud claims. The Court's ruling regarding the recoverable damages relates $Oiely to the Issue of which injuries give rise to claims belonging to the Intervenors. The Court does not rule on the ap·propriate measure of damages for the Intervenors' frilud claims.

23/31

228 NC12's insurance policy with Philadelphia Indemnity Insurance Company covers both the

corporation and its directors and officers against losses due to claims against the directors and

officers or against NC12 relating to alleged malfeasance by directors and officers. ECF No. 30,

at 31. The policy's proceeds are capped at $1,000,000.00, with an additional $1,000,000.00

available for defense fees. ECF No. 30, at 15, 56. Because the proceeds are capped at

$1,000,000.00, the Defendants argue, any recovery by the Intervenors will reduce the amount

available to NCI2 for its own claims against directors and officers.

Insurance proceeds that are applied to a claim against directors and officers are not

property of the estate, and actions to collect such proceeds are not barred by the automatic stay.

See Unsecured Creditors Disbursement Commilfee v. Antill Pipeline Con.str. Co. (In re Equinox

Oil Co.), 300 F.3d 614, 618 (5th Cir. 2002) (" An insurance policy owned by the debtor is

generally considered property of the estate. But, whether the proceeds of a particular insurance

policy is property of the estate depends on the nature of the policy.") (citing In re Edgeworth,

993 F.2d 51, 55 n. I3 (5th Cir. 1993)). "The overriding question when determining whether

proceeds are property of the estate is whether the debtor would have a right to receive and keep

those proceeds when the insurer paid on a claim. When a payment by the insurer cannot inure to

the debtor's pecuniary benefit, then that payment should neither enhance nor decrease the

bankruptcy estate." Edgeworth, 993 F.2d at 55.

The Philadelphia Indemnity policy applies to claims against the directors and officers or

against NC12. ECF No. 30, at 31. The policy provides liability coverage for the directors and

officers and NCl2 and indemnity coverage for NCI2 for claims against the directors and

officers. Although NC12 could be the beneficiary of the indemnity coverage, any payment to the

directors and officers for liability coverage would offset a potential indemnification claim. See

24 I 31

229 Louisiana World Exposition. Inc. v. Federal Ins. Co. (Ln re Louisiana World Exposition, Inc.),

832 F.2d 1391, 1400 (5th Cir. 1987) (holding that proceeds were not property of the estate,

despite cap on the total of liability and indemnity coverage, where ''any payment under the

liability coverage reduces the amount of the potential indemnification claim to the same extent

that policy amounts available for indemnification are thus reduced. There is not the potential for

increasing the estate's exposure by payment of liability proceeds due.").

NCI2 would not have a right to receive and keep the proceeds of claims against the

liability coverage for losses caused to third parties (such as the Intervenors) by the directors and

officers. See Edgeworth, 993 F.2d at 56 (''[U]nder the typical liability policy, the debtor will not

have a cognizable interest in the proceeds of the policy. Those proceeds will normally be

payable only for the benefit of those harmed by the debtor under the tenns of the insurance

contract.'').

The estate could have a right to receive proceeds on account of its own claims against the

directors and officers. However, the estate has only a contractual right to recover if certain

conditions are met; the proceeds do not become property of the estate until the contractual

conditions are met. MOXlve/1 v. Meglioga (Jn re mard1FIRST, Inc.), 288 B.R. 526, 530 (Ban.kr.

N.D. 111. 2002) ("The Debtors had and the Trustee has contractua1 rights governed by the terms

of the insurance policies. Unless and until the terms are met, which they may never be, the

proceeds are not property of the estate.'').

The directors and officers' liability proceeds are not the kind of proceeds that Edgeworth

holds may be included as property of the estate. 993 F.2d at 56 ("E~amples of insurance policies

whose proceeds are property of the estate include casualty, collision, life, and fire insurance

policies in which the debtor is a beneficiary. Proceeds of such insurance policies, if made

25 I 31

230 payable to the debtor rather than a third party such as a creditor, are property of the estate and

may inure to all bankruptcy creditors."). The policies listed in Edgeworth are those for which the

debtor is the designated beneficiary and the party to whom proceeds would be paid. This is not

the case with the NC12's directors and officers' liability coverage. 'The estate may be entitled to

proceeds from the policy, but so may other parties. If the estate recovers from the directors and

officers' liability coverage, its recovery will be on the same tenns as other injured parties'

recovery. The estate's owners.hip of the policy does not affect the outcome. The estate does not

have a greater interest in the proceeds than any other person suing on an indemnified claim, See

Boles v. Turner (In re Enivid, Inc.), 364 B.R. 139, 157 (Bankr. D. Mass. 2007) (denying

liquidating trustee's motion for an injunction to prevent shareholders from entering into a

settlement of fraud claims against directors and officers where the settlement was payable from

the directors and officers' liability policies and might affect trustee's ability to recover); Reliance

Acceptance Grp.. Inc. v. Levin (In re Relianct Acceptance Grp.• lnc.), 235 B.R. 548, 561 (D.

Del. 1999) ("The difficulty the Debtors have is in identifying a right to the relief: tbat is, they

have been unable to identify a legal principle tbat stands for the proposition that the Estate's

claims for relief should take precedence over the Sbarebol~ers• claims.").

Because the estate does not own the proceeds, the Court must consider whether the

potential diminution of the proceeds is sufficient to establish related-to jurisdiction.

The burden is on the Defendants, as the removing pames. to establish federal jurisdiction.

DaimlerChrysler Corp. v. Cuno, 541 U .S. 332, 342 n.3 (2006) ("[T]he party asserting federal

jurisdiction when it is challenged bas the burden of establishing it."). Even if the Jntervenors

prevrul and collect against the insurance proceeds, their claim will affect the estate only if (i)

there are not sufficient funds remaining under the insurance policy to satisfy the estate's claims;

26 / 31

231 and (ii) the estate successfully asserts claims against directors and officers;1 and (ill) the directors

or officers have insufficient assets to satisfy the claims.

The Court recognizes the possibility that (i) the Intervenor's claim could exhaust the

insurance policy; and (ii) the estate could prevail against the Defendants; and (iii) the Defendants

could have inadequate other resources to pay a judgment. Should these events occur, the

outcome of the shareholder oppression claim could affect the amount of proceeds available to the

estate for its own claims against officers and directors. This remote effect is, at most, on the

outer fringes of the Court's related-to jurisdiction. SeeFeld v. Zale Corp. (In re Zale Corp.), 62

F.3d 746, 752 (5th Cir. 1995) (noting that a bankruptcy court's related-to jurisdiction "cannot be

limitless'' and stating that an action "is related to bankruptcy if the outcome could alter the

debtor's rights, liabilities, options. or freedom of action (either positively or negatively) and ...

in any way impacts upon the handling and administration of the bankruptcy estate.") (quoting

Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 569 (5th Cir. 1995)). However, a related

proceeding's effect on the bankruptcy estate may be contingent. See TXNB Internal Case, 483

F.3d at 298 (holding that court had related-to jurisdjction over a dispute between two non-debtor

parties when, depending on the outcome, either the defendant or the debtors owed money to the

plaintiff).

The Court cannot conclude that the outcome of the fraud claims could have no

"conceivable effect" on the estate. See Randall & Blake. lnc. v. Evans (In re Canion), I 96 F.3d

579, 587 (5th Cir. 1999) ([nhe law is well established in this Circuit, as in others, that, when

tt:sting 'related to' jurisdiction, an effect is not required to a certainty. Rather, jurisdiction will

attach on a finding of any conceivable effect."). Contingent or tangential effects may be

2 The Trustee has sued Michael Collins in a separate adversary proceeding. Jt is unclear whether the claim against

Collins would be covered by the Philadelphia Indemnity policy.

27 / 31

232 sufficient in the Fifth Circuit to establish related-to jurisdiction. /d. at 587 n.30 ("[E]ven a

proceeding which portends a mere contingent to tangential effect on a debtor's estate meets the

broad jurisdictional test[.]") (quoting National Union Fire Ins. Co. v. Titan Energy, Inc. (In re

Titan Energy, inc.), 837 F.2d 325, 330 (8th Cir. 1988)).

The Court does not apply mandatory abstention, because there is no evidence before the

Court as to whether the fraud claims could be timely adjudicated before the state court. See

Carriage Credit Corp. v. Flanagan (In re Draper), 2010 WL 4736168, at *3 (Bankr. S.D. Tex.

Nov. 15, 2010) C'A party moving for mandatory abstention must provide the court with more

than a 'naked assertion' that the action can be timely adjudicated in state court.") (quoting

Mugica v. Helena Chern. Co. (ln re Mugica), 362 B.R. 782, 793 (Bankr. S.D. Tex. 2007)).

Nevertheless, the Court discretionarily abstains from hearing the fraud claims. See

Shipley Garcia Enters., 2012 WL 3249544, at *12 (listing non-exclusive factors a court may

consider in exercising its "broad discretion'' to abstain under 28 U.S.C. § 1334(c)(l )). The fraud

claims, at most, remotely relate to the bankruptcy proceedings, and the efficient administration of

the estate will not be affected by the remand. The estate is not a party to the litigation. It is true

that the depletion of the insurance proceeds may affect the estate; however, the Court does not

have the authority to prevent this effect. There is no jurisdictional basis other than bankruptcy

related-to jurisdiction, and the claim involves solely state law issues. Moreover, this Court's

constitutional authority to enter a final judgment with respect to the fraud claim is doubtful under

Stern v. Marshall, 131 S.Ct. 2594, 2620 (20 11 ). The Court therefore remands the Intervenors'

fraud claims.

28 I 3J

233 Collins' Conversion Cl11im

Michael Collins' conversion claim against Sydow, Preston, C Change Investments, and

Brilliant Novelty may be either direct or derivative, depending on whether Collins has an interest

in Fall River Realty. Collins alleges that he suffered damages from the sale of the real property

as an owner of Fall River Realty. Collins seeks actual and exemplary damages.

The Trustee concedes that Collins' conversion claim, as currently pleaded, is a direct

claim. ECF No. 25, at 9. If Collins is an owner of Fall River Realty, this conclusion is correct.

However, the Trustee contends in Adv. No. 12-3266 that lOO% of Fall River Realty is

owned by the estate. In that adv.ersary proceeding, the Trustee seeks declaratory judgment

against Michael Collins, Ellen Collins, and BOS, Inc. stating that no Defendant owns an interest

in Fall River Realty or the Fall River property. The Trustee also seeks a judgment that the Fall

River property is subject to a resulting trust in favor of the Trustee for the benefit of the

bankruptcy case.

Jf the estate is the owner of I 00% of Fall River Realty, any claim for conversion of an

interest in Fall River Realty belongs to the estate.

Property that is "arguable property" of the estate is protected by the automatic stay from

unilateral action by creditors. Brown v. Chesnut (In re Chesnut), 356 F. App' x 732, 734 (5th Cir.

2009) (citing Brown v. Chesnut (In re Chesnut), 422 F.3d 298, 303-04 (Stb Cir. 2005)). Because

the TnJstee's compJajnt asserts a plausible claim, as between the estate and Collins, to ownership

of Fall River Realty, Fall River Relllly is arguable property of the estate. Claims for conversion

of interests in Fall River Realty are therefore also arguable property of the estate.

The Court will not presently remand the conversion claim, because Collins' pursuit of the

conversion claim in state court would violate the automatic stay. At the same time, if the claim

29 I 31

234 is actually owned by Collins, the Court may lack subject matter jurisdiction or the claim may be

so remotely related to the NC12 bankruptcy that the Court should discretionarily abstain. The

Court therefore abates consideration of the conversion claim or its remand pending the resolution

of Adv. No. 12-3266.

Intervenors' Conspiracy Claims

The Intervenors' claim for conspiracy to commit fraud and breach of fiduc iary duty is

dependent on the underlying claims. Because the underlying breach of fiduciary duty claim is

property of the estate, the conspiracy to commit breach of fiduciary duty claim is also property of

the estate. See Deep Marine Holdings, 2011 WL 2420274, at •to (holding that aiding and abening claims were property of the estate where the underlying conduct gave rise to a claim that

was property of the estate). The Court dismisses the conspiracy to commit breach of fiduciary

duty claim for lack of st.anding.

Because the remanded fraud claim is the Intervenors' property, the Intervenors own the

claim for conspiracy to defraud. See Seven Seas, 522 F.3d at 585 (holding that conspiracy to

defraud claim was owned by bondholders, not estate); Deep Marine Holdings, 2011 WL

2420274, at •t 0 (holding that aiding and abetting claims were not property the estate where

underlying conduct did not give rise to a claim that was property of the estate). The Court lacks

subject matter jurisdiction over the Intervenors' conspiracy to commit fraud claim. Therefore the

Court remands the conspiracy to commit fraud claim.

Conclusion

The Court dismisses the following claims for lack of standing:

• Plaintiffs' and Intervenors' claims for breach of fiduciary duty;

• Intervenors' claim for shareholder oppression; and

30 / 31

235 • Intervenors' claim for conspiracy to commit breach of fiduciary duty.

The Court remands the following claims:

• Intervenors' claims for common law and statutory securities fraud and conspiracy to commit fraud; and

• Intervenors' aiding and abetting claim related to the common law and statutory securities fraud .

Plaintiff Michael Collins' conversion claim and the remand of the conversion claim are

abated pending resolution of Adv. No. 12·3266.

SIGNED August 28, 2012.

a~--- Marvin ls;!;ic= UNITED STATES BANKRUPTCY JUDGE

31/31

236 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

INRE: § § CASE NO: 11-38794 NC12,1NC. § CHAPTER 7 § Debtor(s). § JUDGEISGUR § § MICHAEL COLLINS, et aJ § § PlalntlfT(s), § § vs. § ADVERSARY NO. 11-3634 § SYDOW, eta/ § § Defendant(s). §

ORDER

The Court djsmisses the following claims:

• Plaintiffs' and Intervenors' claims for breach of fiduciary duty;

• Intervenors' claim for conspiracy to commit breach of fiduciary duty.

The dismissals are without prejudice to the Trustee's ability to assert the dismissed claims on behalf of the Estate.

The Court remands the following claims to 215th Judicial District Court of Harris County, Texas:

• Intervenors' claims for common law and statutory securities fraud and conspiracy to commit fraud; and

• Intervenors' aiding and abetting claim related to the common law and statutory securities fraud.

Michael Collins' conversion claim and the remand of the conversion claim are abated pending resolution of Adv. No. 12-3266.

SIGNED August 28,2012.

Marvin lsgur UNITED STATES BANKRUPTCY JUDGE

Ill ~?PY 1 CERTIFY u,P~:~of~ ~Oar.. 237 7/31201 4 12:01.33 AM Chris Daniel - District Clerk Harris County Envelope No. 1717873 By· GAYLE FULLER

Cause No. 2011-44058

MICHAEL COLLINS; ET AL., § IN TilE DISTRICT COURT P LAINTIFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; ET AL., § DEFENDANTS. § 215th JUDICIAL DISTRICT

AKILA FINANCE, S.A.; ET AL., § IN THE DISTRICT COURT INTERVENORS/PLAINTIFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; ET AL., § D EFENDANTS. § 2 15th JUDICIAL DISTRICT

INTERVENORS' RESPONSE TO THE SPECIAL APPEARANCES OF JOHN D. PRESTON, BRILLIANT NOVELTY, L.L.C., AND C CHANGE INVESTMENTS. LLC

I. INTRODUCTION Intervenors sued John Preston ("Preston") alleging, among other things, that Preston

fraudulently induced investments in Texas Syngas, Inc. ("TSl'') and NC12, Inc. ("NC12") while

systematically misappropriating the invested funds and company assets for his personal gain.

Preston's service as a director of and purported fund.raiser for TSI and NC12 unquestionably

involved Texas and constituted doing business in this state - although incorporated in Nevada,

TSI and NC12 have at all times called Houston, Texas home. The impact in Texas of Preston's

fraudulent scheme, in which he was aided by his companies C Change Investments, LLC ("'C

Changej and Brilliant Novelty, L.L.C. ("Brilliant Novelty"), is evident - NC12 is now the

debtor in a chapter 7 bankruptcy pending in a federal bankruptcy court in Houston.

Preston, C Change, and Brilliant Novelty (collectively, the " Preston Defendants") have

purposefully established sufficient minimum contacts with Texas, through their contacts with

TSI and/or NC12 as well as other Texas residents, sufficient to pennit the exercise of personal

257 jurisdiction over them in this Court. Moreover, the Preston Defendants• Special Appearances are

unverified, and so fail to comply with TEx. R. C1v. P. 120a. Accordingly, the Preston

Defendants' Special Appearance should be denied.

II. BACKGROUND

A. The Parties.

NC12, Inc. ("NC12") was incorporated in Nevada in April 2008. Nevada Secretary of

State records reflect that the original directors of NC12 were Preston, Michael D. Sydow

(''Sydow") and Michael Collins ("Collins"). (See Exhibit A-l 1) . Sydow is also identified as the

president ofNC12. (/d). The address given for Sydow and CoUins in the initial list of officers and

directors is 4900 Woodway, Suite 900, Houston, Texas n056. (/d). Sydow, Preston, and Collins

are identified as the NC12 directors again in NC12's May 2009 filing with the Nevada Secretary of

State. (Id ).

In 2009, NC12 acquired the assets of Texas Syngas. Inc. ("TSI''). TSJ was incorporated

under the laws of the S1ate of Nevada in May 2006 and registered to do business in the State of

Texas in June 2008. (See Exhibit A-2). TSI identified Preston, Sydow, Collins, and Christoph

Henkel ("Henkel") as its directors in its Application for Registration filed with the Texas Secretary

of State. (/d). TSI identified its principal office as 4900 Woodway. Suite 900, Houston, Texas

77056. (!d).

NC12 registered to do business in Texas on August 28, 2009. (See Exhibit A-3). The

company's principal office address is identified as 4400 Post Oak Parkway, Suite 2360, Houston,

Texas 77027. (/d). The company directors identified in the Texas registration in 2009 were

Sydow, Preston, and Collins. (/d). Both Sydow and Collins are Texas residents.

The Affidavit of Kelley M. Keller, dated July 2, 2014, is attached hereto as Exhibit A and incorporated herein by reference. 2

258 NC12 filed for bankruptcy protection on October 14, 2011, under chapter 11. On February

28, 2012, the United States Trustee filed a motion to convert the case to chapter 7. On March 22,

201 2, NCI2 filed a response opposing the oonversion to chapter 7. The Bankruptcy Court granted

the motion to convert on March 27, 2012.

C Change and Brilliant Novelty are Preston's companies and participated in certain of the

fraudulent acts of Preston.2 (See Pet. in lnterv. ~ 33).

B. The Lawsuit.

This action was filed in 2011 as a fraud and shareb.older oppression action by shareholders

ofNC12. Intervenors joined the litigation, asserting claims based solely on their individual rights

as investors in NC12. The Intervenors assert that Sydow and Preston, along with others

conspiring with them, engaged in a fraudulent scheme to raise millions in investment dollars on

behalf of TSI and then NC12 for the development of revolutionary new energy technology that

Collins had developed for producing synthetic natural gas and other fuels from coal, while

denuding the company of its assets- i1S valuable tecb.nology, research and development facility,

and cash. Intervenors were left holding only their cLaims in the bankruptcy proceedings, after

Sydow and Preston enjoyed years of cash rolling in to TSI and NC12 which they used to their

personal benefit.

C. Preston's Contacts with Texas.

By Preston•s own admission, his contacts with Texas are long-standing, reaching back at

least 20 years. However, Preston has misrepresented the extent and nature of his contacts with

Texas in his attempt to avoid the exercise of personal jurisdiction over him by this Court.

2 Brilliant Novelty has not denied the allegation that Preston was at all relevant times a manager of Brilliant Novelty, and C Change has not denied the allegation that Preston was a manag.ing partner of C Change and controlled that company. 3

259 Whether inadvertently or intentionally, Preston has failed to disclose purposeful continuous and

on-going contacts with and activity in Texas.

In his affidavit filed in support of his Special Appearance, Preston identifies his "only [ ] activity in Texas" as (I) a "limited number'' of visits approximately 20 years ago; (2) a "very

limited number'~ of visits to Texas in the past five years on behalf ofTEM Capital; and (3) a visit

to Texas in 2010 to testify in the divorce proceedings of Michael D. Sydow ("Sydow•/. (See

Preston Aff. at,, 5-63).

The evidence) however, reflects much more than the "limited" activity that Preston has

selectively disclosed. The following is a chronology of Preston's contacts with Texas- including

those to which he admits and those which he has neglected to disclose.

• Preston claims that he visited Texas ''a limited number of timesn approximately 20 years ago, allegedly in a representative capacity on behalf of a company for which he was a board member. (Preston Aff. at~ 5).

o Preston does not identify that company in his Affidavit, but states, "specifically., that he made up to eight visits to Texas - five for board meetings of a nonprofit organization and ..no more than three'' for board meetings of a Delaware corporation. (Preston Aff. at ~ 5).

• Preston failed to disclose meetings he attended in Texas in the late 1990s on behalf of Molten Metal Technology, Inc. (''MMT"), a Delaware corporation, registered to do business in Texas. 5 Preston was a board member of MMT, and the company's chief executive officer. (See Exhibit A-4) .

o Preston visited Texas on numerous occasions to negotiate a contract between MMT and Hoescht Celanese to develop and operate a waste recycling facility for Hoescht Celanese. (See Exhibit B at, 1 2~.

l Affidavit of John T. Preston, submitted as Exhibit A to Preston•s Amended Special Appearance, filed September 28. 20 I I. Affidavit of John T. Preston, submitted as Exhibit A to Preston•s Amended Special Appearance. ftled September 28. 2011. MMTs Texas existence was forfeited in 1999. (See Ex. A-4). 6 The Affidavit of Michael Collins, dated Juty 2. 2014. is attached hereto as Exhibit B and incorporated herein by reference. 4

260 o MMT had developed certain technology called Catalytic Extraction Processing (''.Qgf''). CEP is a process for breaking down hazardous and radioactive waste and recycling them into marketable products. (See Ex. B at~ 3).

o MMT filed for bankruptcy protection in 1997. Preston and/or his company, Quantum cataiyti~ LLC ("Quantum,.), acquired MMT•s patents from the MMT bankruptcy estate. (See Ex. A-S at VI 15-17; ExhibitA-15 at pp. 4-5).

• (n 2004, Preston flew to Houston, Texas to meet with Collins near Collins's home in The Woodlands. (Ex. B at 1 6). Owing that meeting, Preston touted the patented technology that he had acquired from MMT and encouraged Comns•s participation in the commercial development of that technology. (/d.).

o Preston flew to Texas to meet with Collins again a few months after that first meeting in The Woodlands. (Ex. Bat 1{7). During that second meeting, Preston and Comns travelled to Bay City, Texas to meet with Hoescht Celanese to continue discussions regarding the development an-d operation of a CEP facility for Hoescht Celanese that had begun with MMT. (/d).

o Preston returned to Texas again about two months later, when Preston and Collins met with Hoescht Celanese in Baytown, Texas. (Ex. Bat 1 7).

o During these three meetings in Texas, Preston and Collins discussed the commercial opportunities possible utilizing the MMT technology and the technology that Collins had developed. (Ex. B at~ 8).

o Preston continued to talk with Collins by telephone over the COW'Se of the ensuing months. Preston initiated a number of those caJls, either to Collins at his home in The Woodlands, Texas, or to Houston offices where Collins would occasionally work, including the law offices of Sydow, McDonald, Kaiser & Ahmed, on Bagby Street in Houston, Texas. Preston also shipped records to Collins at the Bagby Street office for Collins's review and use in connection with the work he was undertaking with Preston. (Jd ).

o At all times during Collins's discussions and business relationship with Preston, Collins was a resident of The Woodlands, Texas. (Ex. B at ~ 12). In his discussions with Preston, Collins learned that Preston had been to Texas on multiple occasions prior to their introduction. Preston advised Collins that he had previously travelled to Texas on numerous occasions for meetings with Hoescht Celanese and with Flour Daniel in Clear Lake, Texas. Preston also told Collins that he had made numerous visits to the Houston Area Research Center, or HARC, on Research Forrest Drive in The Woodland~ Texas to study new technologies in the late 1990s. As a result, Preston was very familiar with The Woodlands. (/d.).

• [n July 2004, Collins fonned Texas Syngas LLC ("Syngas LLC") for the purpose of e)(pJoiting his technology. Collins was the original sole member of Syngas LLC. (Ex.

261 B at ~ 2). Preston joined Syngas LLC as a member after his discussions with Collins. (Ex. B at 11 10, 11; Exhibit A-6 at ~ 3'). Although Preston ultimately executed the Syngas LLC Operating Agreement on behalf of Quantum, the investment was clearly Preston's. (See id; Ex. Bat~ 11).

• On June 19, 2006, Metal Catalyst Ventures, Inc. (''Metal C-atalys~') filed Articles of Incorporation with the Nevada Secretary of State. (Exhibit A-7). The Metal Catalyst Articles of Incorporation identify only one director -Preston- and lists his address as 4900 Woodway, Suite 900, Houston, Texas 77056.

• On November 10, 2008, Preston traveled to Houston, Texas to meet with Collins to discuss a financing proposal by Preston's company C Change. (See Ex. B at, 13; Exhibit A-8 at 25:8-26:4, 30:4-15; Exhibit A-9 at p. 13).

• On November 10, 2008, Preston wrote a personal check in the amount of$1,100,000, payable to BOS, Inc. ("BOS"). (See Exhibit A-13 at 01158).

o BOS is identified in its banldng records as officing at 4900 Woodway Dr., Suite 900, Houston, Texas 77056 - the same address as NCl2ffSI. (See Ex. A· l3 at 00448, 00501). That same banking record reflects a wire transfer from BOS's Texas bank account to Preston in the amount of$1,100,000 on January 15, 2009. (Jd at 00448, 01142).

o TSI apparently _paid for the incorporation of BOS. (See Ex. A-13 at 0050 1-502).

• On April2, 2009 and May 3, 2009. Preston traveled to Houston, Texas. (See Ex. A-9 at p. 13; Exhibit A-10).

o Preston contends that his travel to Texas on those occasions was uas a representative on behalf of TEM Capital." (See Ex. A-9 at p. 12). However, according to Russell Read ("Read.,), Preston's former partner in C Change and TEM Capital, TEM Capital was not formed until 201 1. (See Ex. A-8 at 33 :2-12). Accordingly, Preston•s travel to Texas in April and May of2009 would not have been as a representative and on behalf ofTEM Capital.

• Preston traveled to Texas with Read in "either 2009 or early 201 ou allegedly "for meetings with Russian technology partners for the fonnation of a joint venture M.J.T. was entering into with the Russian government. ~· (See Ex. A-8 at 49: 13-50:4).

7 ?reston submitted an Affidavit dated December 6, 2013, in Cause No. 2007-38533, Kaiser v. Collins, pending in the 152 Judicial District Court, Harris County, Texas, in support of Plaintiff's Opposition to Collins's Motion for Summary Judgment. In that Affidavit, Preston discusses his decision to invest in "Te:x.as Syngas and to beoome a member in the Texas Limited Liability Company into which it ultimately was formed!' 6

262 o Preston did not disclose this visit to Texas in his Affidavit filed in support of his Special Appearance or in the discovery responses he served in this action. (See Ex. A·9 at pp. 12-13).8

• In the summer of 2009, Preston' s C Change was looking at another company with operations in Texas, EMC Cement BV eEMe').

o In its Original Complaint recently filed in the United States District Court for the Western District of Texas, Waco Division, under Civil Action No. 6:14-cv-149 (the '~EMC Litigation, ), against Preston9 and others, EMC alleges that in August 2010, Preston visited a cement plant in Jewett, Texas operated by Texas EMC Products, EMC's exclusive licensee for the use of EMC's patents in the state of Texas. (See Exhibit A-11 at 1 36}. • Preston did not disclose a visit to Texas in August 2010 in his Affidavit filed in support of his Special Appearance or in the discovery responses he served in this action. (See Ex. A-9 at pp. 12-13).

• On October 6, 2010, Preston appeared as a witness on behalf of Sydow in the divorce proceedings flled by Sydow in the 308mJudicial District Court. Harris County, Texas. (Exhibit A-12).

o Although Preston contends that his testimony in the Sydow divorce proceedings was "as the corporate representative for NC12," 10 there is nothing in the record of those proceedings indicating that Preston appeared as a "corporate representative." Rather, it appears he simply traveled to Texas to support his colleague and co-conspirator Michael Sydow.

• EMC alleges that Preston visited Texas again in January 2011 to discuss a potential investment by C ChangeffEM Capital in EMC's line of business and technology. (Ex. A-ll at~ 48).

o Preston did not disclose a visit to Texas in January 2011 . (See Ex. A-9 at pp. 12- 13).

• EMC alleges that Preston appeared at a foreclosure sale in Texas on May 3,.2011 , on behalf of the defendants in the EMC Litigation during which the EMC Defendants are alleged to have acquired the cement plant in Jewett, Texas, that Preston had visited a year earlier. (Ex. A-11 at 53).

Preston was asked to identify ''all" travel to Texas since 2000. (Ex. A-9 at p. 14). 9 Preston asserts in his Affidavit filed in support of his Special Appearance that "[e]xcept for this lawsuit, [he has] never been a party to litigation in any state or federal court in Texas." The lawsuit filed by EMC on May 5, 2014, now changes that fact. to See Ex. A-9 at p.l3. 7

263 o Preston did not disclose tbjs visit to Texas in May 2011 in response to the Intervenors• interrogatories. (See Ex. A-9 at pp. 12-13). However, Preston produced flight records that confinn a flight to Dallas/Fort Worth on May 2, 2011, with a return flight to Boston, Massachusetts on May 4, 2011 . (Su Ex. A- 10 at Preston 000025-26).

o Preston claims that his visit to Texas in May 2011 was for the purpose of testifying "as the corporate representative for NC12, Inc. regarding an asset owned by the company in Michael Sydow•s divorce proceedings." (Ex. A-9 at p. 13). However, as noted, above, Preston came to Houston (not Dallas/Fort Worth as the flight records for May 2011 reflect) to testify for Sydow in October 2010. Accordingly, Preston's travel records for May 2011 , likely reflect this visit to attend the foreclosure sale reJated to the EMC Cement property.

• EMC alleges that Preston visited Jewett, Texas again within days of the May 3, 2011 , foreclosure sale to inspect the cement plant. (Ex. A-11 at, 53).

• On August 22, 2012, JK Claims Investment Corporation (..JK Claims") filed a Certificate of Formation with the Texas Secretary of State as a domestic for-profit cotporation. (Exhibit A-14). Preston is identified in the Texas Secretary of State records as the sole director ofJK Claims. 11 (Id.).

o JK Claims purchased from the bankruptcy estate of Jeffery Kajser ("Kaiser') the claims asserted by Kaiser in Cause No. 2007-38533. Kaiser v. Collins, pending in the 152 Judicial District Court, Harris County, Texas (the ''Kaiser Litigation").

o Preston is now pursuing relief in a Texas state court, under the guise of JK Claims and Quantum, through an amended petition in the Kaiser Litigation reframing the complaint to one complaining about alleged misrepresentations by Collins regarding his educational background and professional licensing to induce the plaintiffs' investment in Syngas LLC.

Ill. ARGUMENT AND AUTHORITIES

A. Tbe Preston Defendants• Special Appearances Fail to Comply with Rule 120a.

A defendant desiring to challenge the exercise of personal jurisdiction over him in a

Texas court must file a sworn motion challenging jurisdiction. TEX. R. Ctv. P. 120a Although

11 Note that Preston asserted in response to Interrogatories served in this matter tbat 14Texas Syngas LLC is the only company with its principal place of business in Texas or incorporated in Texas for which Preston was a director, officer, or employee.•• (Ex. A-9 at p. 12). According to the records of the Texas Secretary of State, Preston's statement is incorrect. 8

264 the Preston Defendants' have each submitted an affidavit in support of their special appearance,

the special appearances themselves are not verified and so fail to comply with Rule 120a.

B. State and Federal Due Process Considerations and "Minimum Contacts."

Courts sitting in Texas may assert personal jurisdiction over a nonresident if the Texas

Long-Ann statute authorizes jurisdiction and the exercise of jurisdiction ..is consistent with the

state and federal due process standards." Am. Type Culture Co/lee/ion. Inc. v. Coleman, 83

S.W.3d 801, 806 (rex. 2002). The Texas Long-Ann statute authorizes the exercise of

jurisdiction over "those who do business in Texas, which includes contracting with a Texas

resident where either party is to perform the contract in whole or in part in Texas." Jones v.

Petty-Ray Geophysical Geosource, Inc., 954 F.2d 1061, 1067 (5th Cir. 1992) (emphasis added);

see TEx. Crv. PRAC. & REM. CODE ANN. at§ 17.042.

Texas courts have generally held that the "broad language of the [Texas] long-ann statute

permits an expansive reach, limited only by the federal constitutional requirements of due

process." Daimler-Benz Akliengesellschaft v. Olson, 21 S.W.3d 707, 714 (Tex. App.-Austin

2000, pet. dism'd w.o.j.). Accordingly, the court may consider solely ''whether it is consistent

with federal due process for Texas courts to assert personal jurisdiction over'' the foreign

defendant. Daimler-Benz, 21 S.W.3d at 714.

Federal due process considerations ask whether the nonresident defendant bas

"purposefully established minimum contacts with the forum state" such that the exercise of

personal jurisdiction over the nonresident "comports with traditional notions of fair play and

substantial justice." Daimler-Benz, 21 S.WJd at 714.

265 Jurisdiction will be proper "where the contacts proximately result from actions by the

defendant himself that create a 'substantial connection' with the forum State., Burger King

Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).

"The ultimate test of minimum contacts is whether the defendant purposefully availed

itself of the privilege of conducting activities in Texas, thereby invoking the benefits and

protection of Texas laws:• Daimler-Benz, 2 1 S.W.3d at 714. When a defendant has deliberately

engaged in "significant'' activities with a state. "or has created 'continuing obligations' between

himself and residents of the forum," he has availed himself of the privilege of conducting

business in that state. Burger King. 471 U.S. at 475-76 (emphasis added). " [B]ecause his

activities are shielded by 'the benefits and protections' of the forum's laws it is presumptively

not unreasonable to require him to submit to the burdens of Litigation in that forum as well., /d.

Accordingly, a finding of "minimum contacts•• requires a "substantial connect between

the nonresident defendant and the forum state, brought about "by action or conduct of the

nonresident defendant purposefully directed toward the forum state:• Guardian Royal Exchange

Assur., Ltd v. English China Clays, P.L.C., 815 S.W.2d 223,226 (Tex. 199l);see also Carllidge

v. Hernandez, 9 S.W.3d 341, 347 (Tex. App. -Houston (14th Dist.] 1999, no pet.) ("The

exercise of personal jurisdiction is proper when the contacts proximately result from actions of

the nonresident defendant which create a substantial connection with the forum state.").

Requiring that the non-resident's actions be (

''will not be haled into a jurisdiction based solely upon 'random,• 'fortuitous' or 'attenuated'

contacts or the 'unilateral activity of another party or a third person.',. Guardian Royal, 815

S.W.2d at 226 (quoting Burger King. 471 U.S. at 475).

266 Implicit in the requirement of a pwposeful action and a ·~substantial connection, is the

concept of''foreseeability., Guardian Royal, 815 S.W.2d at 227. "Indeed, so long as it creates a

substantial coMection with the forum State, even a single act can support jurisdiction.,

Carrlidge, 9 S.W.3d at 348; see also Wes/ernGeco L.L.C. v. Ion Geophysical Corp., 776 F. Supp.

2d 342, 355 (S.D. Tex.. 2011) (same).

The Supreme Court in Burger King instructs that personal jurisdiction does not tum on

"'mechanical' tests, or "'conceptualistic . . . theories of the place of contracting or of

performance., Burger King, 471 U.S. at 479. Instead, the court "must review the quality and

nature of the defendant' s activities in the forum in their totality to decide whether the defendant

purposefully availed itself of the privileges offered by the forum state." Microseismic, Inc. v.

TRAC Charitable Remainder Trust, No. H-12-0118, 2012 U.S. Dist. LEXIS 101108, •19-20

(S.D. Tex.. July 20, 2012).

Fair play and substantial justice factors include: "(1) the burden on the defendant, (2) the

interests of the forum state in adjudicating the dispute, (3) the plaintifrs interest in obtaining

convenient and effective relief, (4) the interstate judicial system's interest in obtaining the most

efficient resolution of controversies, and (5) the shared interest of the several States in furthering

fundamental substantive social policies." Villagomez v. Rockwood Specialties, Inc., 210 S.W.3d

720, 742 (Tex. App.-Corpus Christi-Edinburg 2006, pet. denied).

C. General and Specific Jurisdiction.

A defendant's contacts with a forum can support the exercise of either specific or general

jurisdiction. J.D. Fields & Co., Inc. v. W.H Streil, Inc., 21 S.W.3d 599, 602 (Tex. App.-

Houston (1st Dist.] 2000, no pet.).

267 Under a specific jurisdictional analysis, the court will focus on "the relationship among

the defendants, the forum, and the litigation." J.D. Fields, 21 S.W.3d at 603 (citations omitted).

"This analysis requires courts to inquire •(t) whether the defendant has purposefully directed his

activities at residents of the forum; and (2) whether the litigation results from the alleged injuries

that arise out of or relate to those activities.'' ReedHycalog UK Ltd v. United Diamond Drilling

Servs., No. 6:07 CV 251, 2009 U.S. Dist. LEXIS 77654, •9-10 (E.D. Tex. Aug. 31, 2009).

AcoordJ.ngly, even if the defendant has relatively few contacts with a forum, " the court may still

exercise personal jurisdiction over that party if the suit ...arises out or or is related to the

defendant's contacts with the forum."' Microseismic, 2012 U.S. Dist. LEXIS 101108 at •ts.

The Court may exercise general jurisdiction over a nonresident defendant when the

"nonresident defendant's contacts are continuous and systematic,.. regardless of whether the

alleged liability arises from those contacts. J.D. Fields, 21 S.\V.3d at 602; see also Twister B. V.

v. Newton Research Partners, LP, 364 S.W.3d 428, 434 (fex. App.-Dallas 2012, no pet.).

"General jurisdiction can be assessed by evaluating contacts of the defendant with the forum

over a reasonable number of years, up to the date the suit was filed." Villagomez, 210 S.W.3d at

729.

A defendant objecting to the exercise of jurisdiction bears the burden of presenting "a

compelling case that the presence of some other consideration would render jurisdiction

unreasonable.'' Burger King, 471 U.S. at 477; see also Jones, 954 F.2d at 1068. "Only in rare

cases will the exercise of personal jurisdiction not comport with fair play and substantial justice

when a nonresident defendant has purposefully availed itself of the privilege of conducting

business with a forum." Critin Holdings, UC v. Minnis, 305 S.W.3d 269, 280 (Tex. App. -14tb

Dist. 2009, no pet.). This case does not present that rare circwnstance.

268 D. The Preston Defendants Have PurposefuUy Availed Themselves of the Privilege of Conducting Business With Texas and Are Subject to This Court's Jurisdiction.

As demonstrated above, Preston has purposefully availed himself of the privilege of

doing business in Texas by, among other things:

• Actively engaging in business with MMT to pursue a business opportunity in Bay City, Texas·'

• Actively engaging in business with Collins, a Texas resident, for the development of a business based in Texas~

• Shipping materials to Collins in Texas for his use in connection with business with Preston;

• Serving as a director of TSI and NC 12, companies having their principal place of business in Texas;

• Visiting Texas on numerous occasions as he worked to build business relationships with Collins as well as with the parties involved in the EMC Litigation;

• Engaging in a million dollar financial transaction with BOS, Inc.;

• Appearing as a witness in the personal divorce proceedings of his business coJleague Michael Sydow; and

• Forming a Texas corporation to purchase litigation claims out of Kaiser's Texas bankruptcy estate to pursue those claims in a Texas court.

All of the contacts identified herein directly resulted from Preston's own purposeful

conduct which created a substantial connection with the State of Texas. Preston and his

controlled companies cannot reasonably contend that they have not availed themselves of the

privilege of conducting business in Texas or that they couJd not have reasonably anticipated that

they could he baled into a Texas court as a result of their own purposeful activities in or directed

to Texas.

The acts and events complained of in this litigation all arise directly from Preston•s

activities as a director of and fund raiser for TSI and NC12- both Texas companies. In raising

funds for a TSI and NC12, through fraudulent misrepresentations and then denuding the

269 companies of their assets, Preston, C Change, Brilliant Novelty (which took title to the

companys research facility), could reasonably foresee that NC12 and its shareholders and

investors would suffer direct economic injury. Accordingly, Presto~ C Change, and Brilliant

Novelty are subject to the exercise of personal jurisdiction by this Court under a specific

jurisdictional analysis.

Additionally, the Court may exercise general jurisdiction over Preston and C Change as a

result of their continuous and systematic business dealings in Texas with TSI, NC12, and EMC.

E. Preston Is Not Protected by the Fiduciary Shield.

The fiduciary shield doctrine is expressly limited in application to questions of general

jurisdiction and will not protect an individual from the exercise of specific jurisdiction to shield

the individual from a claim for intentional torts or fraudulent acts for which he may be held

individually liable. Wright v. Sage Eng 'g, Inc., 137 S.W.3d 238, 250 (Tex. App. -Houston [1st

Dist.] 2004, pet. denied). Accordingly, if the claims asserted against individual defendants are

ones for v.rhich they may be held individually liable, the fiduciary shield doctrine wiU not

preclude the exercise of specific persona) jurisdiction over them. Wright, 137 S.W.3d at 251.

"It is well-settled that a corporate agent can be held individually liable for fraudulent

statements or knowing misrepresentations even when they are made in the capacity of a

corporate representative." Wright, 137 S.W.3d at 250. Accordingly, regardless of whether

Preston's allegedly fraudulent conduct was made in the capacity of an officer or director of TSI,

NC12, C Change, or Brilliant Novelty, Preston is subject to personal liability for his actions and

may not hide behind the fiduciary shield to avoid this Court's jurisdiction.

270 F. Traditional Notions of Fair Play and Substantial Justice Support tbe Exercise of Jurisdiction Over the Preston Defendants. The Preston Defendants contend that it would be burdensome for them to participate in

this litigation in Texas. By way of example, the Preston Defendants complain that a

representative of C Change and Brilliant Novelty and Preston "would be required to travel to

Texas to attend court proceedings.'' (See C Change Spec. App. at~ 21, Brilliant Novelty Spec.

App. at~ 22, Preston Spec. App. at 29). However, as noted above, Preston was at all relevant

times a manager of Brilliant Novelty and was a managing partner of and controlled C Change. In

reality, only Preston will need to travel to Texas.

Moreover, in any multi-state dispute, "someone will always be inconvenienced." Tobasso

v. Bearcom Group, Inc., No. 05-11-01674-CV, 2013 Tex. App. LEXIS 7866, *11 (fex. App.-

Dallas June 26, 2013, no pet.). Accordingly, the argument is frequently rejected as a basis for

denying jurisdiction. ld

The Preston Defendants further claim that Texas has little interest in providing a forum

for this litigation, asserting that the "injury occurred outside of Texas." (See Brilliant Novelty

Spec. App. at~ 23). The argument is simply wrong. NC12- the company driven into bankruptcy

by the Preston Defendants• fraudulent conduct - was doing business in Texas and is now a

chapter 7 debtor in a federal court here in this state. Accordingly, this Court has an interest in

adjudicating the claims asserted herein which arise from NC12's operations in this state. See

Tobasso. 2013 Tex. App. LEXIS 7866, at *11 .

Although the Preston Defendants complain about the restrictions on the subpoena power

of this Court, they have failed to identify any witnesses or evidence that would be necessary for

the litigation of this matter beyond the range of this Court•s subpoena power. Moreover, given

271 the pending bankruptcy proceedings, the logical presumption, is that the books and Tecords of the

company and other evidence relevant to these proceed1ngs reside here in Houston.

lV. CONCLUSION AND J>l{.l-\ YER

The PTeston Defendants have established sufficient minimum contacts with Texas to

support fhe exercise of Jurisdiction over tltem by this Court Accordio¥1Y) intervenors Ernjo

hwestments, Ltd. and ILT. von der Goltz respectfully reqqest th<\t this Court deny the SpeCi~;tl

Appearances filed by Jolm T , Pre~ton, C Change _ln.V,est~ents, LLC, and Brilfiant Novelty~

L.L.C. a~d gr:ant ltltetvenw.'s $u.ch .othet ~nd fijrther r·e liefto which they may be entitled.

Respectfully su~m1tted,

ELLISON •KELLER, P;C. :!' -~ ;~ . ) ..... e 1'----./) !.;~ 1 • ' ....~ . . .''At I' . ~,. ...:{'tl t . . .,,I';· !< 6r~-l,-- ..' . . .. . 1(i .. ·-i..i:vt . ,t • (~ , .. ; ""

~~fl~r ti. ~fikr. .. / St(;lte But ~\d. 1U9.$240 T~~accy N. Elli.son State Bar No.. 1.50541'720 5120 Wood~:vay Dtive.~ Su1te :6.019 f:k)tJstotlfTe.xas 770.56 :rdephon,e: 713 -:26(};.~2~0 I~acsl:mi'le: '' ·,, ,, . 713-266~?801 ' '' ' .. ' ~ •,

Allonu~.y.f.for . l.nte.n•enrH•:;iPtaintiffo- Ett~io l~;tre#m~/.~.1$,. Ltd ~mc.I .PL.l von der-Goltz.,

272 CERTIFICATE OF SERVICE

'l11e 1mdersigned hereby certifies that on this 2nd day of July, 2014 a true and correct ~opy of the above Response to the Special Appearances filed by John T. Preston, Brilliant Novelty, L.L.C., ru1d C Change Investments LLC was served on all interested parties) by and through their attorney of recoTd indicated below via emaiL

Randall 0. Sorrels Brent C. Pen·y Clyde J. "Jay" Jackson.llJ Law Offices of Brent C. Perry Abraham W~tk.ins. Nichols~ Sorreis, 800 Commerce Street Matthews & Friend Hou~ton. Texas 770CJ2 son Commerce Street Facsimile: 713,.237-0415 Houston, Texas 77002~ 1770 Aam·neyjor Original Plain:tijfs Facsimile: 713-225-0827 Attorneysfor Original Plainrijj.;·

Asher Griffin Amir Alavi Chris Sile.o Ashley Frankson Sean FJanuner Ahmad. Zavitsanos, Anaipakos, Alavi & Scott. boug1ass & McCounico, LLP Mensing P.C. 600 Congress Ave.~ St-e 1500 3460 One Houston Center Al!Stin, Texas 78701-2589 1221 M~Kinney Street Facs.imile: 512A74-073 I Houston._Texas 770tO Atrorneys for Dejendmus Facsimile: 713-658-0062 Cha/sys, AI/E.T, and Lo Attorneysji:Jr Defendants ~ydow. Preston, Henkel, C Change, and BrilliantJllovel~v F. Eric Fryar State Bru· ·No. 07495770 eric@fryarlawfi rm .com Matthew Buschl State Bar No. 24064982 mbuscht~arlawfinn.com Chrlstin~ Richardson FRYAR LA'" FJJt\1, P. c. State Bar No. 24070495 9J2 Prairie. Suite 100 Houston, Texas 77002-3 145 Fa~imile: 281-605-1888 Attorneysfor all lntervenors,Plaintfff.i:j

273 Cause No. 20 ll-44058

MICHAEL COLLINS; ET AL., § IN TilE DISTRICT COURT PLAINTIFFS, § vs. § OFHAJUUSCOUNTY,TEXAS § MICHAEL SYDOW; ET AL., § DEFENDANTS. § 215th JUDICIAL DISTRICT

AKILA FINANCE, S.A.; ET AL., § IN THE DISTRICf COURT INTERVENORs!PLAINTlFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; ET AL., § DEFENDANTS. § 215th JUDICIAL DISTRICT

AFFIDAVIT OF KELLEY M. KELLER

Before me, the undersigned notary, on this day personally appeared KELLEY M. KELLER, who is personally known to me, and first being duly sworn to law upon her oath deposed and said:

1. My name is Kelley M. Keller. I am over the age of 19 years old and am fully competent to make this affidavit. I am an attorney licensed to practice law in the state of Texas. I am lead counsel for Johan von der Goltz in the above referenced action. The infonnation contained herein is true and correct and is based on my personal knowledge as it relates to my representation of Mr. Von der Goltz.

2. Attached to the Intervenors' Response to the Special Appearance of John T. Preston (the ~'Response~') as Exhibit A-1 is a true and correct copy of the Initial List of Officers, Directors, and Registered Agent of NC12, Inc. \'NC12''), filed with the Nevada Secretary of State on July 29, 2008 and the Annual List of Officers, Directors and Registered Agent ofNC12, filed with the Nevada Secretary of State on May 20, 2009.

3. Attached to the Response as Exhibit A-2 is a true and correct copy of the Application 44 for Registration of a Foreign For-Profit Corporation filed by Texas Syngas, Inc. ( TSI1 with the Texas Secretary of State on June 19, 2008.

4. Attached to the Response as Exhibit A-3 is a true and correct copy of the Application for Registration of a Fo.reign For-Profit Corporation filed by NC12 with the Texas Secretary of State on August 28, 2009.

5. Attached to the Response as Exhibit A-4 is a true and correct copy of the Business Organizations Inquiry - View Entity for Molten Metal Technology, Inc. ("MMT"),

EXHIBIT A 274 reflecting the '"'Filing History" and ''Management," which includes John T. Preston, Director and Chief Executive Offer, 238 Main Street, Suite 20 I, Cambridge. MA.

6. Attached to the Response as Exhibit A-5 is a true and correct copy of the First Amended Complaint filed January 9, 2009 under Case No. 1:08-cv-11456, Quantum Catalytics, LLC and Texas Syngas, Inc. v. Ze-Gen, Inc., eta/, in the United States District Court of Massachusetts, Eastern Division.

7. Attached to the Response as Exhibit A-6 is a true and correct copy of the Affidavit of John T. Preston, dated December 6, 2013, filed in Cause No. 2007-38533, Kaiser v. Collins, pending in the 152 Judicial District Court, Hanis County, Texas, (the "Kaiser Litigation") in support of Plaintiff's Opposition to CoJlins's Motion for Summary Judgment.

8. Attached to the Response as Exhibit A-7 is a true and correct copy of the Articles of Incorporation for Metal Catalyst Ventures, lnc., filed with the Nevada Sec~ of State on June 19, 2006. 9. Attached to the Response as Exhibit A-8 is a true and correct copy of excerpts from the deposition of Russell Read, taken April 21, 2014 in the Kaiser Litigation.

10. Attached to the Response as Exhibit A-9 is a true and correct copy of excerpts from the Amended Answers of John T. Preston to Intervenors' First Set of Interrogatories.

11. Attached to the Response as Exhibit A-10 are true and correct copies the documents produced by Preston in response to Intervenors' Request for Production.

12. Attached to the Response as Exhibit A-1 I is a true and correct copy of the Original Complaint filed May 5, 2014, under Case No. 6:14-cv-149, Procedo Enterprises Establishment and EMC Cement, BV v. Quadrant Management~ Inc. , e/ a/., in the United States District Court for the Western District of Texas, Waco Division.

13. Attached to the Response as Exhibit A-lZ is a true ~d correct copy of excerpts from the transcript of the proceedings held October 6. 201 o. in Cause No. 20 I 0..()271 0. Sydow v. Sydow, In the 308th Judicial District Court, Harris County, Texas.

14. Attached to the Response as Exhibit A- 13 are true and correct copies of excerpts from the document production of BBVA Compass in Cause No. 2010-02710, Sydow v. Sydow, In the 308th Judicial District Court, Harris County, Texas.

15. Attached to the Response as Exhibit A· l3 is a true and correct copy of the Business Organizations Inquiry - View Entity for JK Claims Investment Corporation, a Texas domestic for-profit corporation, reflecting the following HManagement": John T. Preston, Director, 421 Currant Rd., Fall River, MA 02720 USA.

t 6. Attached to the Response as Exhibit A-15 is a true and correct copy of a Memorandum filed by Quantum Catalytics, LLC, John Preston, and Christopher Nagel in Case No. 05- 10077-RGS, in the United States District Court of Massachusetts.

2 275 Dated: Ju1y 2, 2014.

STATEOFTEXAS § § COUNTY OF HARRIS §

BEFORE ,ME, the undersig.tied authority, on this day personally appeared Kelley M, Keller, known to me to be the person w11ose nmne is subscr_.tbed to the foregoing instrument, and acknowledged to me that she read the Ai1idavit of Kelley tvL Keller and that the facts stated therein were wi:thi11 her personal knowiedge and were true. and correct.

e BARBARAOAVIS My Commls$fon E.xplr&a No.vember 14• .2015 1OTARY PUBLIC IN AND FOR THE STATE ()p tEXAS

MY COM1vHSSION EXPLRES:

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... ......... - ..............-- . .............. ..................... .................. ...... - ...ADDRESS ·' ~ ~~ ~ .... .. ' CIT.Y..... ..l?'J........ . . . . . . . . .. •• . . .. . . . . . . . . .. . ,H~-H~ . , . . . . . . . . . . . . . .. • . .• ' . , , , , . , , , , _ , _ , , . , . . . . . . . .. . . . •• ......... :

GOLTZ0775

280 ..

Form301 . (Revised l106) Retum mduplic8te to: lnrf1Leo SecreW'y or State Secreta,: ~ce ot the P.O. Box 13697 fnte of Texas Austin. TX 7871 1·3697 Application for lUN 19 2008 512 463-SSSS Registration of a FAX: SIV463-S709 Foreign For-Profit Corporations Section Fi1in Fee: $750 Co ration

l. The entity is a foreign for-profit corpOJation. The name of the entity is:

Teus Syngas, Inc. 2A. The name of the corporation in its jurisdiction of formation does not contain tbe word ..corporation." "company... "incorporated," or "limited" (or an abbreviation thereof). 1be name of the corporation with lhe word or abbreviation that it eleclS to add for use in Texas is:

2B. The corporation name is not available in Texas. The assumed name under which the corporation will qualify and transacr business in Texas is:

T}I.Syn, Inc.

3. Its federal employer identification number is: .;:2;:.0-..::::8=-24.:..:649~3;.....__ _ _ _ _ _ __ _ __ 0 Federal employer identification nwnber information Is not available at this time.

4. It is incorporated under the laws of: CUt fotthat..aorfo~igncountry} .:.N.:.:e..:...:va=da=---------- and the date of its fonnation in that jurisdiction is: 05122.12006 mmfdd/rm S. A!. of the date of filing, the undersigned certifies th8t the foreign corporation CW'I'Ctll.ly exists as a valid corporation under the laws of the jurisdiction of its formation. 6. The purpose or pW'poses of the corporation that it proposes to pursue in the transaaioo of business in Texas are set forth below. The C

4900 Woodway, Suite 900 Houston TX us nOS6 A.tUr~u CII'J Slate

EXHIBIT A-2 281 ..

~lUllft~~~_R~IU~- ~~~9C. 0 '91\~. the jnjtW teabtered agettt is u:n ~~(~be entity nm1c:tl ubove-) by th~: mune ()~

oli. ((I 9:$, 1m~~ .regi4b!(e(1 ~gent i~ an ittdiv~ ~\dent t>f 11w swe WI!C\s~ rutme J~ Mkltac!: C. ·Collins ~?~tm~~~ . --------------~~~~L~----~l~~~~ -~ ·· .. ·---··-·-- . ---- · ----,..-....~«-~~~·~-~~~·--- 9C. tnehu'l~~ {'ldd.ru$ oftflt.:~gistem:f asem ~d:U<~~.m:noo addtt5.\ i.~ 4~ w~~ Suite 900 Hp~p -rx 77G.S6

IQ. ~~en herebJ IJppolniS the:·~. of~ DfT-exas as its •li· fCH strliee of process ~tne·~ set fextb in sectiPtJ5:Z!l ~f.~ Tc.usBtiSiness Org~~

l f. 'The name and ~s of ea<;b pel'SQU Qn tr4·~.Pf ~CIS is:

I

282 J: . ,_1 '

f r :~t:'F,,.. _,~.:f'I..T:r' .. ,~ ·· "'\~\ <·::s· ~':'':''~ftr~¥mR;t~WWl1jffi:i\~;tm~~1itMrrhk~HHi'. ··· ·' > •·• ·· ,.,... -,..... ,_._. "'· ·-· " ' ' " "' ' '

~Ala. .~ &l~addi:nd$ ~fAA).,J$,~~~ lwl:ti£1 by te:€'~1

1'

A. Ill ThiS:dre ~ ninety {90) days.lrom ·the da~ OJ Stgrung. 1~ ~h\yed eftective,.lale ,i.l): C. D This dQcunlent mires i:ffeet .up~n. tbe ooourren;-of a·fu.ture c~~ritor fact•.4ilier thn,nJhe. pru;sa.ge ()f tim~- 'The wd) day·$ r tlte,date qf.:signing jg:

___________ __ ... ' .

'n1e foUGwing ev!!-nt or'fitct w!ll ~anse Uie de¢.umtmt tQ take effoot-in me m~~ d.e.w.n'hed bdo\v; J ,_ --- -­ ----~--~ f I ·~ \ltltlersi~ si_~ (b.i~ dot~~ftt subjtt~ t(> the pena!ti~s imposed by Jaw fur ·the subrot~si.on (lf ~· nuiterinlly Jnt~ gr ftuHdlll¢nt ·li.l~f$t1~t)l.

Date!

;•

,.

! 283 \."=.=~· J J'araa301 (letflld lJ06) ltdlaDm c1apDak to: 8eanaay afStarD P.O. 8ox1l697 - -1X '78711-leT su~ss J'AX: Sl2/46:W'709 • • lSD

1. 11zo ._II a blip bwprofil aqcasdw. '111DIIIIU ofthe aalily is:

N'Cl2,Iaa.. 2A. n. Jl8ll18 ot cu COipOIIJdan m.tt. JarldcMaD ot fimnatlcm &Ma JUJt CCIIdll&l t~~a -"' "uutpn~• -., u P4: '1wutjiGUIIII:id." ar '1imiiBif" (or 8D ~ tiMnof). 1be JIIIIICofdlc wqollliaawilhdle"tnd ar~111atit ckdi1D aadfbruo Ia Ta. is:

a. 11m c:upcaidiau..,.taJJOt md1ah1e mT-. 1ha -.mod. .DIIUr wJWm t.CCIIJICftli= wJil quaJif1 ad ~tmsia1L'81 ill Taaafa:

1 ~~c:,.... n. &daat1 aplOJIIrid•"i&•t~.:m 1111111b11r ~c ....:n,.;;..;....._Oll4.. .;._.o...... M_..__ _ _ _ __ (il Jtelrn1'diiJI1oJtt fdcntlkafoza D1IIDbar infhmgtfgn u JUillmlilablo al tia 1bDa.

... :afllucaipollled11D!l«lbD t..... oe ._...,.....,.• ...,..__, _s_bdll_atH_emm ______ ad., diD ofill fbaaldfoD iD Cblt~ Ia; ....., 04fl8I2008 S. AI. ofG. diJe of fila& 0. •mdmf&nrd =tifies 11Jat111e enJp CCIIpa&Giwi rurcasd,J ai8la a1 I Yllid. cqp....tmadtrtb laws of G. Jnzltd'«Jma otilu fbm.rio~L 6. 'meJGJlOIP C.:JNIIIIU6C* ottut oa~pa•ticm 1battt Jll'GPC*I wpamum t.o ~ ~ m,... aro • 116Wow. ~ ootpa&atian a11o c.edfllll Y 1t 1a cdbndm1 to pamao l\l:h -..ar1 paiJJCIR ar plllpCIIel ill Cba ataiD or c:oaa!l:yuadcr wlddl it ia iliQQl)I

,......, anzbueiaaa ,.,itW"' Law.

~I

EXHIBIT A-3 284 ~-!IA«!IB.blrllllt'bl6. CaalpiDI8D9C. 0 9A 1be initial registured agent is an OlpDization (CIIDilCJt be emily named above) by the name o£

oa liZJ 9B. Tho iDilial~ aged ia an iDdiWiual re9ideDt of&e &tam wbose oamo is; Midaacl D. Sydow l'rfll.l'i41M M.l. JMrHal• 31/k 9C. 1'be1Juaineaa a.ddrea oftbo zqfatered agent aDd 1he reglallsted oflice addrese is: 4400 PostOakPadr.way, Ste2360 HDuaton 'IX 71027 ..,Mila ~ .... Zfpc.Nr

10. 'I1Ic cocpondialt. hen:by rppaints the Socnury of state ofTcua as its agent ihr aerril:o ofpmc:crss GDdar 6c circumstanrea set fbdh ill aecdon s~s 1 ofdlil Tau Busineas Orpaizaticms Code. 11. Tho Dime 8Dd address ofced1 pc1B011 co.lhe board ofdirect.am is: .. .. . .... . .. . ... . . .. . . . .. ~· :

Mldlael D. I Sydow Jllnt~ M.l. L4sfN.aale &fllx

4400 Poll Oak Paa.ww,-. Ste 2360 HCJUIIOn 'IX USA 77fm lbador...._Mt/nlll a. as ~ -Carle." DJ:atai~ •.· . .. .. .... . . . . .. .. . .. ...

Midaaet Co1J.ills

.. ·~ Jl'lallltatJ ll.l IAtNtrlu

4400 PostOUP~"•:, SIB2360 Houston TX USA 17ffl1 ._cr.&&IJDtc~ ay Cltslitlry ZopCodlt 1~:1 . .. .• .. .· . . .. ·' ... ..... .·. ..

John. Preato&l Finlt~ KL IIAIIN•~ lli:fQm

.w Cammt RDad Fall River MA USA 02720 a.tcrJiaDIIr.,..._ Dlrc:dQr4 • .. .·. . .. . . .. Qt, .. . . .· Sl\:laf CGIJ!l/17 Jli)Cllil8 . ·.

JllmN.• All LllllNtltJttl .std/lz

..,,~..,.,.,_ .~ a. CArurl17 ZIDC'oia

Jlaml.301 6

285 ··~···-" ·. '

286 -.....,_.__,.,.,... • •.S $ ); ( BlJ:SlNESS OR{.iA.'iJlZATIONS lNQU lRY - VIEW ENTITY

TEXAS SECRETARY of STATE NANDITA BERRY UCC I ftt!~.~J~'iJiL~nb~~rm.s Tra~~~mm·k~. I !1~~.1.~ I !~&:!1QWJ.~ l !.~.t~I1ff~~J! l .Br'ieft:ta~ I I !-..&.~>.)Ut BUSINESS ORGANFZATIONS INQUIRY- VtEW ENTUY Filing Number~ 9112306 Entity Type: Foreign Fot~Protil Corporation Original Oate of Filing: April 3, 1992 Entity Status~ Forf~ited existence f'omudion nate: N!A Tax 10: •1 5216599595 FEIN:

Name: MOLTEN METAL TECMNOLOGY, lNC. Adtlress: 400-2 TOTIEN POND RD Waltham. MA 02'154 USA fictitious Name: NIA Juris~iiction : DE, USA Foreign formation Date: NJA

!nstructiqns; ~ To plac~ an order for additional informahon about a ffling press the 'Order' butl(Jrt.

EXHI.BIT .A.-4· 287 BUSINESS OR<:W41ZATIONS IN<~UIRY • Vl'C.W ENfiTY

TEXAS SECRETARY of STATE NAN01TA BERRY

BUSINESS ORGANIZATIONS INQU~RY ~VIEW ENTITY

Filing Number-: 9112306 Entity Type: foretgn For-Profit Corporation Origina l Oats of Filing: Aprif 3, 1992 Entity Status Forfeited existence Formation Date: NfA Tax ID: 15216599595 FEIN: Name: MOLTEN METAL TECHNOLOGY, INC. Address: 400-2 TOTIEN P OND RO \tlallhaf'1, MA 02154 USA Fictiti ous Name: NIA Jurisdi ction: DE, USA Foreign Fonnation Date: NIA

, L~~~-~~.:~:S.~-::~·· · · · .:·.~·.·~·:;~..-.:.·.l~:·.~.·~ : :.:.·.· · · · · ·-. :::=··-~~~~· ~:~:~~;,_~~~,:L~--············;~·~·~·'x~~. :~:·.···········~~~;t~;;·······-.1 7

.................... ~ ;-:::::::::::::::•••••••••••••••••••••••••••••::::::::h·:.....:.::•••••••••••••··•••••••••••••••••••-••••••_::::::::::::::::::::::::::::::·..,..,.,..••·,o-oo.•••••••v•••••...,.•••••....,••••••- . . . . . . . -.......;1..._._............ _:=:::·:::·::·:·:::::!':::·:·::·:~:::::'::·:::~::·::•:::~~ ; !Last Update N.1m4\ Title Address ;l Jui'OOS B Anderson O:rectot ONETO'lllffiSQ.U..O.RE l ~ l Hanford, CT 05183 U~.l\ 11 : !,':, &Jger\:e Bet'tl'\$n VP 400-2 TOTIEN ROAD ·.:}t : Waltham, MA Ct2154 USA ~

!: f\cnj~urin T Dow riG T 400.2 TOTTEN ROAD ;:;l1.

Waltham, MA 02154 USA : ; ::

~~ StJI C':A?rner VP 400-2 TOTTEN ROAD ~~ 1: W~ham. Ml\ 02154 USA ,, .. j~

111 ·11 ·H : : : : : : : : ::

B llan J

~~ <> ~1 Wafiham. MA: Q2154 US.>\ ~-·~. ;l 1 1 .; r F.1l I fll(;A..o c:l • n '' . e VP 100.2 TOTIEN ROAD lflalnarn. 1\~ o-2~ 54 USA ~1 .; ~tcr A Lewis tlroctcr 30 ROCKEfH.H:R r..tfi!ffi ·;1

:'1'1 'j• ~be~ ~ .ms~ A ~r~cto! :: ~~;:~ :~J~~. sunE~7.~~ San Ma.tes, CA !M-dO'l VSA l R ~

II :::::·~~::·· ::·"'" ;::~::lf~' sunt510 1 :,; Waltham M>\ 02~ S-1 USA {! ~~~ Kr.thy Sttnto~(> VP 400-2 TOTTEN ROAD r Waltham, ~ 02~54 USA

.,',!',,, JohnTihSion John T ~~s1or1 p Orector ~.!"~.~~·~~~~ 238 ~..t<\N SW.EE!

• Qsni)tidg~, MA 0214 t U.SA ~l ii .,1 !, !, .lulu) r f•)--P.~ton U:O 238 M!\~'IJ STREET, SUITE 201 \~ ., Carmridge, MA O:l'l4'l USA i,· ii 288 hi'PS :1/dtrtx:t.sos.&tai!l.ilf,.l)$1.-u'f.l..l(ltl ulr')(cVfD-' I'!Clt~l~y- ~:1 ty.a:>~f?tlf)(I!Je ~~~'9 tllt&,:S'pas; ufrll!w=l!a:SftU ~-~~~~= 91 f 2306&f'~doa;rrer.l._~fli{)()r= 5S ~ ~i4ll13e0':!1&.. . 11<. 7/112014 BUSINESS ORGANIZATIONS INQUIRY- VIEW ENTITY John T Preston llrector 238 MAN STRB:T, SUITE 201 carrtJridge, MA 02141 USA NAGS., OiRISTOA-IER .rsrn SRVP 40~2 TO'Tlm ROAD Waltham, MA 02154 USA NAGS., Q-iRISTO~ .rsrn llrector 40~2 TOne.! ROAD Waltham, MA 02154 USA NAGS., OfRJSTOFtffi J•srn llrector 40~2 TOTlB'II ROAD Waltham. MA. 02154 USA Bhan Jacks GENCSL 40~2 TO'Tlm ROAD Waltham, MA. 02154 USA VW!Iam M Haney Ill CEO 40~2 TOTlB'II ROAD Waltham, MA 02154 USA \Nilliam M Haney Ill Director 40~2 TOTlB'II ROAD Waltham. MA. 02154 USA GATIO, VICTOR E"EDD VP 40~2 TOTlB'II ROAD Waltham, MA. 02154 USA Benjarrin T Downs VPFIN 40~2 TOTTEN ROAD Waltham. MA. 02154 USA -·... ··- .... -···- . . -. ·- . --· - -·· -·-· . - -· •. - - . . .

IOrder I I Return to Search I

Instructions: iTo place an order for additional information about a filing press the 'Order' button.

289 https://direclsos.state.tx.us/corp_inquil)lcorpjnq ul~entity.asp?spage=mg mt&:Spag efTOtTF&:Siiling_number=9112306&:Ndocurrent_runber=551530130002&... 212 Case 1:08-cv-11456-JGD Document 74 Filed 01109/09 Page 1 of 20

UNITED STATES DISTRJCT COURT DISTRJCf OF MASSACHUSETTS Eastern Division - - - -- - ---·- - --- -- --·- -- -- QUANTUMCATALYTICS, LLC, and TEXAS SYNGAS, INC., C.A. No. I :08-cv-11456 Plaintiffs,

V. FIRST AMENDED COMPLAINT AND JURY DEMAND ZE-GEN, INC.; WILLIAM ("BILL"} DAVIS; NEW BEDFORD WASTE SERVICES, (Leave to file granted December 18, 2008) LLC; VANTAGE POINT VENTURE PARTNERS; FLAGSHIP VENTURES 2004 FUND LLC~ and IRV MORROW. Defendants.

Plaintiffs Quantum Catalytics, LLC (formerly referred to as Quantum Catalytics, Inc.),

and Texas Syngas, lnc. (collectively "Plaintiffs,.) bring this complaint against Defendants Ze-

Gen, Inc.: William ("Bill'') Davis; New Bedford Waste Services, LLC; Vantage Point Venture

Partners, Flagship Ventures 2004 Fund LLC; and lrv Morrow (collectively "Defendants").

alleging as follows:

THE PARTIES

l. Quantum Catalytics, LLC (hereinafter "Quantum") is a Delaware limited liability

company with its principal place of business in Fall River, Massachusetts.

2. Texas Syngas, lnc. (hereinafter ''TSI", and collectively with Quantum.

"Plaintiffs"), is a Nevada corporation with its principal place of business in Houston, Texas.

3. On information and belief. Ze-Gen, Inc. (herein "Ze-Gen") is a Delaware

corporation with its principal place of business in Boston, Massachuset1s and may be located for

service of process through its president:

EXHIBIT A-5 290 STATE Of MASSACHU$E11'S

COUNTY OF MlDDLESEX

AFFlD.t~ VlT

Before me. the undersigned authority~ (H1 this day persnnally appeared John T. Preston who bein~ by me fitst duly swot1l upon oath did deptJSe :and say;

1. 'My mmH~ iS john Preston. t .atn over the age of2.1, am under t:IQ leg~tl . disability, and an1 wmpetent to make t1'lis :.)flfdavit. Th~! fucrs recited herein lre true

based upotl rny·p.er.sonal km)wierlge. l

2. 1 previously noted in.an affida

Miclme1 A. C. GoJJins solicited Quantum Catafytks to Jicen$e tod.mology to a company

he harl fnrmed cane~ Texas Syngas. in at:lctition Mr. Cotuns soH cited me to assist him

~sa 'Direct<) I' of Texas Syn~as~ He otJ'ered (iuantum Cata lytics an interest in the

.rt~presentf.'!d ' ' ~ . in·electrical and me.cha~ni<;at to nH::· thi.H' he held engjneering degrees '

EXHIBIT A-6 310 gas}.

'~ ·. ··.. l·-~. ..,..·

311 '-~utho tiz~tion was not gramed, no (X.tndush:ms COl1kl be drawn n:~ whether or not

~.;!r. Collins had a degrf.'f~ from Carnegie M{:!11on ~t that thne.

7. Si milzlrly, j t app~ared ti1Jt Ft<~'man dH~t:J.a~d a d (}tabasc, but did no~

11m~ Collins as n graduate:. Acr:ot'{lingly, the Kr9H ~·~~ports w~.m;- inconclusive ~md

equiVOC41L

H. Shortly ;:~t'ter the ~t:Ct)tU.I nfthe f{fc.ll1 ·r~-:!pm·ts~ l cot~h.mte<.l Collins (>rl

his ed~l{:(IQOllal background. C~1JHnH en:pht:~tic~i!y Sf<.~t.\~~1 that he had gntdU

bnth s·chools <.~nd prtHntsed to gE:-nenm~ prol'Jf Hi~ re pt':a tt~d an ea1·lier ~·t·~ttentent. th~t

bce<1use Furman and Clmnson had a john MBA program~ he w;;tS cen~Jn th~-tt his

r~con1s \vere somewhere i·wt.\•Vee.n Cls..~mson dJH.l Furman. but in any ca-sette would

str..1ig.hten out the matte:·, l took hhr: at his word and assumed t~l(Jt pn·wf w(.Juld bt~

fortbcmning.

9. Later in 2009, l !eft tl1~: Bn~rd ofNC12 and d!d. uotlmow untH early

2010 t.11.Ur comns hi-ld nol hJllowr:d thnhtgh on. providing proof of his ch~grees to

NCl2. ln early 201.0, l btiC

1nv<1Jving the ptll·rhr~tsl! l')f ~.sed wmpute.r t.'4Uiprmml ~~t wh

l.H~hH.t;d prkt~. When l check~d on wh£:ther Coil ilH\' bu~:kground had been v;;~lidatt\tl; l

f1Hmd out tiH~t })(~ .never ~H·ovidt~d dw proof of h i~rd.egre•e:s. I as ~~ed .:1 !>tudent ilt

C

dwr.k t\h(">wed no t'ecqrt~ of Mr. Collh:s being .1 gt·<.ldtl<~h'~ of C(lrn!;gi~ Me

HL Confront·ed with rhl$ add~d evidence of pc"~t(~ntial misrepn~st'.mations

by Collin~ and his faihm:: 1·o provid~ the pro<>f t)f his dt~gn!~!s that iw promised. i

312 development effort. and f W

rrvst'.>vorthy.

to t:he Board nf l'.>il"ect.CJr~ of NC:\.2 on Tvl<;y 5, 2010 (Mt::tchment 1).

Oircctnrs and l tcjoined th(.~ 13o~~rd. lnnnediately the new Board baf;kt;d UJ.t an

computer !\)"stems and stttrted <.H:

dev~·!opmen t eftot {. By Nov\1.mber 2010, wt• m;~l i'led rhat il <:ri tical experiment h~ ~-{:;·/.· ·---

di:limed to h<-we (.'Oltductcd,by ,.. Collins had not occ~Jtn~rl We <:ondL~ctcti the

unwotkabie.

13. Jn addition. on-e oftht:! investm·s in NC t2, Meliora. conducted ib own

inves~igations and shared lh~ n~sdts wi;.h m e in late Noveml!er- 2010 >:u:.d early

~ j ~ .., ! : ~ ' ·h ~.1(-~,

\ ·, 'l \ ~,3

,, 313 :vt . Bv th~ end of Nov~mher :w 10, I \:VoS tota\ly convin-ced that CoHlns. had ~

314 . .. "" ~

~.~H H5ll;$~ avaro~tY ot St3'f() 2~:6 ~rttt C~f$on ~~t.e~t C.at'$Cn'OifY, N~lr~da 8910~-4~0~ tr-t~·as.rs'to~ · . . WqbsltQ;. $tlft~tary()f<...>tat~.b~ )11-;;.TTtl.tl{ti.~ln~ tit ~.~~t

ll'lll~~~l'l'i;l~ ' A-rti~tes. of h1oorpo111th:)n Pe SUlt{.l·~·}'li.Wadtl ~~O~Sn1·200$..8 ' ___ l .....

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~ ~~. . .=-~~~~"::r;~~~::~ -~~~~~i~~~~~t~~~£~~*·~.i~ 'Transcript of the Testin1ony of Russell Read1 CFA, Ph .. DI$ Vo4ume: I Date of Deposition: ApriJ 211 2014

Case: Jeffrey B. Kaiser v. Texas Syngas, LCC

contlo~ntlal communications Int. Ltd. Phone: 713.365.0777 Fax: 713.365.0808 EmaH: schedul'lng@recordsdlscovery .co.m. ·Iiltemet: www.:recards.discovery:.com 4777

316 Russell Read/ CFA1 Ph.D. 4777 Page 1 Page 3 VoiiiDiel f'o& IN mE DISTRitT s DY MR. HUNTER 6 56 -s-> Jl( C\.AIMS ~DIT' COURT OORI'ORATION, indivldllllly 111d : 6 TION PAGE TfXASSYNOAS, LLCIIIId MICIJAEI. : OFIIARR~C()UNl"Y, 12 1 l)ocument entitled "Notice of 6 A. COl..LINS, : TElCAs Dotmdl:n!J. ; Intention to Take 01111 DcJl(lsition of . . . . . . . ..... . . . .. « 13 Russel Read" VIOOOfAPF.l> DI!I'OSITION OF RUSSf.J.t. Rf.Af), Cf'A, H l'll.D.• • lriln... call«< oo.bdWI' old\~ flo.iatill't, ~ pl>mW>t ro the Fedcnll Rulto ofCivil ~ . bofo"' ).,.. M. WiUi.amoon, R(8illleftd 15 ••• • M .- -... Merit RqJcrlorund "'"lory I'UI>Ii~ in and for the 16 c;.,.,.mO«weoltb ofM~ II Ole Olli

Page 2 Page 4 1 PROCEED ING S 2 TilE VIDEOGRAPHER: We are now recording and 3 on the record. My nwne is Jason Martin. 1run u 4 legal video specialist for Confidential 5 Communications. 6 TOday is April 21, 20 14. llte time is 11 :23 7 a.m. This is the deposition of Russell Read in Ute 8 matter of Kaiser, et at., Plaintiffs, versus Texos 9 Syngas, LCC, et al., Defendants, in the District PRESENT: (Continued} 10 Court, 152nd Judicial District ofHarris County, 11 Texas. Case No. 2007-38533. (Via teleconference) 12 This deposition is being taken at 175 Ellison Keller, P.C. 13 Federal Street, Boston, Mass. The court reportc:.r is (by Kelly M. Keller, Esq.) 14 Jonc Williamson. 5 120 Woodway Drive. Suite6019. Houston, TX 15 Counsel will state their appearances, and 77056, for the Defendant Michael Collins.I 16 the court reporter \\ill administer the oath. kkeller@ellison-keller.com 17 MR. HUNTER: All right. This is Charles 7 I 3.266.8218 18 Hunter ot'Reich & Binstock LI..P. Jam at 4265 San 19 Filipe Street, Suite 1000, in Houston, Tex.a.~ 77027. 20 rm present with counsel for the 21 defendants, who will state her appearance. Also Present: Jason Martin, National Video 22 MS. KELLER: KeUy KelJer, present tor Reporters, loc. 23 Mic.Juwt CoUins. 24 MR. HUNTER: Ms. Keller is of the law finn ••••• 25 Ellison Keller of Houston, Tcx:as.

1 (Pages 1 to 4) Confidential Communications Int. Ltd. 317 Russell Read , CFA, Ph.D. 4777 P

Page 6 Page 8 1 RUSSELL READ. Cf A. Ph.D. 1 Q. Wlwl is your residence. please? 2 a witness called for exummalion by counsel for the 2 A. My U.S. residence is 38 Mercer Street, 3 Plaintiff~ having been satisfactorily identified by 3 Jersey City, New Jerst!y, 07302. 4 the production of his driver's license and being 4 Q. Thank you. And wttat is yout work address? 5 first duly sworn by the Notary Publie. wDS examined 5 A. I work in Kuwait City for Gulf lnv~tm~:nt 6 811d testified as follows: 6 Corporntion. P.O. Dox 3402 Safat. S-A-F-A-T, Kuwait 7 DIRECT EXAMJNATION 7 City, 13035~ CoUlltry ofKuwail, 8 BY MR. HUNTER: 8 Q. Thank you. After this dcpc>sition, which 9 Q. Thank you, Mr. Read. 9 address or whut method mould lhe co.111 n:porter 10 MR. HUNTBR: Ms. Williamsoot do you have a 10 ~nd you your l~:Stimony? 11 copy of the deposition notice? lnsk lh"t you mark 11 A. My prefem:d method of T\:10Clp4 is by emnil 12 it as Exhibit l of Ibis deposition. 1 don't have 12 1'hc second would be to mail at my work addccss in 13 lillY additionaJ exhibits. 13 Kuwait 14 (Document marked as Rc:ad 14 Q. Can you give us - 0! give the court 15 Exhibit 1 for identification) 15 reporter your email address- 16 Q. Mr. RQd, y;·ould you please stole your full 16 A. My email address is IT88.d, the No. 5, at 17 k:pl name Cot the record. 17 Yahoo.com. 18 A. RusscU Read. 18 Q. Thank you. Mr. Rct1d. 19 Q. I thank you for taking time Lodoy. Mr. 19 Wbc:n you receive the tnmscript. it will 20 Read, from your day and from your stay i.J) the United 20 eitbc:r be in a booklet or in an electronic fonnal 21 States to give the Coun 111\d the Jury )'OUr testimony 21 Ptt:aSe n:vicw your testimony and com:ct any 22 in this actioo. 22 d~ricu l crron; und return the tnmsc~ to me. 23 Have you ever been deposed before? 23 Will you do that for me, please? 24 A. 1 have been. 24 A. Yes, I will 25 Q. Jam sure that you will roo11ll from your 25 Q. Do you understand that if you mak~ uny

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2 {Pages 5 to 8) Confidenti a l Communications Int . Ltd . 318 "'.. ~' • '\ ~ ..:::: ,..~ - -~ ......... t-' ...- ...,.. :-- l - · - '.J >.>N --::-- - A (.) N 7~ 0 ¢ ~ -> ,r '.~ ~ '' J'i~ ... C Q c:l ._: W .N · - 0 ~ C:. .....! "''%". ~ .1.A; ~-=- ~ ~ ~ ~ ~· !&;.; .::;,.. """' ~ ..... - :....,.._

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319 Russell Read, CFA, Ph.D. 4777 Page 29 Page 31 1 about five minw~l 1 officer was replaood. 811d Norm t cBla!lc was rcpUtced 2 MS. KELLER: Sounds goocL Okay, thruU: you. 2 by Gina foote, F-0-0-T.£. In addition. we blld 3 MR. HilJNTSR: OfT the record. 3 anoth4!r operational per.;on who carne on, who was Joe 4 THtl VtOI!OORAPHE:R: 1ne tlmu •:s 12 fl.m•. md 4 S>'~ldMa. each of U1em were junior~ 5 we Q1\! uiTl.h.t: tcX.'OOO 5 Q. Is C Chllnge ln\~"1mcnt.<~ still in operation? 6 (Rcoess taken from 12:00 to 12:06) 6 A. C Change lnv~ents is not opc::mting now. 7 TiiE VTDEOGRAPHER: The time is l 2:06 p.m., 7 Il \\ras d Ycctivcly merged into a n-=w company . calJ~ 8 1111d we are <>;n the record. a "'Tra.osform31ive Enefgy and M~terials Capital, which 9 CROSS EXAMINATION 9 was fonnc:d as a combination or C Change and a group 10 BY MS. KalER: 10 out of New YorX City. ~lied "Quadrant Capital. M

ll Q. Mr. R~. my name is Kclly Keller, arid you 11 Q. Wt:re you uffiliatt:d with Quadrant Capital? 12 understand I represent the defendant in this ca~, 12 A. l\lo, J had no relationship or affiliation 13 Michael Collins, correct? 13 with QuSldrant CapitaL 14 A. I d<>. 14 Q. Oo you know if Mr. Preston has an 15 Q, r want to go briefly - just some brief 1S uflili

Page 30 Page 32 1 to join Mr. Preston? l was invested in? 2 A. Ye~ rt was. 2 A. ft's a little bit beyond when l was there. 3 Q. Who was your employer? 3 But oerwin1y, Olere were SC\•en~ l irwcsunents which 4 A. So after employment from C3fP ERS, we fotmed 4 we had in our pipeline, One was a power from a s a new compan)'. called •c Chang_e lnvestment..'l," SoC 5 biomass company or a project in l lawaii. A second 6 Change Investments was my employer. 6 was a cement oompanyj to be able to activate cemettt 7 Q. And were there any otller principals in C 7 mote qujckty than is convcntjonally ~bJe. A 8 Change othc:nhan you and Mt. ~ton? a Uurd hsd lo uo with housing. the creation of vt:ry 9 A.. When we founded C C~e lm·cstmcnls, John 9 rapidly built, low inoome housins ior the emerging 10 Preston and l were the founders and the only 10 markets. And of COun!C, lhc invcs1mcnl in Texas 11 principals. 11 Syng~q would have- I be!ievc would have been an 12 Q. Did any ol.bcr prindpals uJlimatcly JOin C 12 investment if it hadn't have been X'd.out in 2009. 13 Change? 13 Q. Do you know if any of the initial capitnl 14 A. We hired some senior people who were jumor 14 or the additional 50 million was ln\'c:-1cd in any 15 pattnen. who cover low nnd op erations. 15 entities with which John ?reston was affiliated? 16 Q. And who -are they9 16 A. I'm nrn aware of any invcsuncnts in whicll 17 A.. They included David Bro\Vn, who ~:rvcd as 17 that fund invested ma John Preston-related enti1)'. 18 our general counsel. They included Norm LeBlanc. 19 Q. How long were you as C Chsugc? 19 Norm LeBlanc was our chief operating oftioct" They 19 A. I was with C Chan~ a:s a pru1ner and 20 also included Mr. .)ohn SyJvia, an in,•esoncnt 20 urn ploy~ from July l:st, 2008 until I jointxf as chicl' 21 professional out of San Francisco. 21 investment officer and depu'Y cllief cxecu~ive of the 22 Q. An)' otberi? 22 Gulf Investment Corporation in the summer of 20 I I. 23 A. Later on, we also hired someone who became 23 1'bal being .said, because or difficulties lD 2~ a partner, who was Roger Berry, BrEwR· R- Y. I 211 ft1nd-rnising beginning in 20 I 1. 1 ceased to take 25 believe. And later on, also our chief operating 25 :salary beginning on Jtln\181}' I l>1 o( 20 I l and Sought

8 (Pages 29 t o 32) Confidential Communications Int . Lt d. 320 4 77 i

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(lW...:i op!X•rtwutics. i~~u:uing in ~Ill: st unu~ A Th.: amount reech.ed from I'Jipi' \: tQ fund C Q. l'm ...m; , \\ i;"! w:t:- ll:c n:.lsmt yuu :-~ur.pttv 2 Chaugc wa) S25 uulliuu. l(lklllg " s..~l<·~·"? J Q. Aud \\ llltl \\:tS the ntnount rt:<.~tvcd fn:nu ~k A JIO~cth•e!} , w•~ wcm ttMllk: tv rtH:O:\: 11U1 4 Kcnl-cf> tum! tt ''• 8 ,. million \\:ts warclt{)U!'cd. and tfu1t \'\~ts ulliuuttcl) 9 a u~w mtlit~, ~n~:rl • I'EM Ct)!1lll11. · - , r:m~I.Ir;;m;ll\'~ :::: m~t.t.."<1 ror TS I ~ is thut com:cl'? !.0 Eaw/l!;. ~nd ,\.iatcntds t .:upitul," in ~mhumtir.u \\!th l(l ,\ 1 million \\1tS act1tally ch rc<,1t:d to :md .. .. ': Qtt.~t;rtlt L'.3pilt!l \)Ut {)f !,..,,, Vmlo. <. i!) I '.\iJ:I rt~>l 1:0. bwestoo into Te:-.us Sy n~;JS at {ll(; re<.tuc;;t or Tripe~. .!.2 pitrl (•( tlwt t !li;l'f!\.'T. 12 Q Oka~ .. 1 (J. At tlt..: time l.;f; in tht! ~\ttltt~r ,,f ~•ll, yNt 13 A Ok.a~ . Que miUron \\~lS invested. Tile oth.cr l :. hi>\~ ml~h i~,c~ln;..:~tt funu.; bd C (...huu~ nn~~'? H ttWCSlfilCOb.. the Hl\'esllUcUl!i juto FA~~ I: Africa. &)tc A Eftc"'tivciy. <.. Chnngc ont} l"t!is.:d its 1 ~} suslaiuabk ngticulturc wvcstntent "as :ii·hiO.OOO. lnt>lll!). thnt HJO milli(~t, lor u fumJ in\ cstm.:m i:r tl 16 A1t<; tlr.! uM~sltuenl mt<> tl~ biorunss etccttlctty !';nll!C~nir- ~~~N;.'1:'1Cill \\ i!h Qtw,~:utl f~rt>~l.:ll <>l!lllf n projc(;l mlO H;\w'.lll was arc" ouUion dollars. Tlr~ New 'f'.;uk Cit;. . Sn ;rt thtll f'\lml, I \Hltt!d ·~} 1h;ll .,..,wet amount. i do not recall. :fl.:; numl>-.:r was$ f(~~ 1mlhNl itnJ tt <.~ :~~ pwdJco.tcJ 19 Q . And 11us was maser tt11: fw.l.it" Q So in rmtght~· tlu-c:c yenrs, (' (1~mgc had /\ tn\·e~m~m~ ~\trt> . \v~ tel;.,,vcd onr<::1~h Cl:flital mlc C C:htmt>.C 1ivu1 I npex C()f1~r,llt<>n -·t' raised appm.X"imatcl\ l(l 5 million· is ttral <:oi"W:t'~ /\ ln t.ltc tltre£ )•cnrs. T look. at it usC

o\>t ,al ''~lhl:r!imd. P,"'intanlv. innittm With 3 0. s,, b. it ~rrc-ct tt trrun Q•ta-tihtot Cttpilili •lOl n( N\!" Y<11·}; Cit} . 4 2(/):8, lmm 1ntct'.(i~'ll UJ' until thl' f pa.~ offtct."Th ~md i.:!l'lp!oy~s or ww: ~or,_~ lt• tl~ nuJdlc oflfsl l , tl-.c JOV miUilm \:trmc ~m .-l ~ld.hw~l fWlds raised tl!!ll '''e!\.::sctu..~Hy lll,-est~o:d? the ='·'CfW in th.o1t l::"Sl) ~,-;-r !-..1it HU~'TE~ · ObJ~i!tia:t, f6nu l.l 01aJ' So of lh·.> 26 5 miJJK•Il \\~!\: tWI A. ~t• «)r thl! mvncy dt:~t w:ss iJt\'eSt<:o h\ i ti~ lwking at the lw miUitm. Uul l+f 1.b.c 26 5 <.~nll til.s<} (;hrilitol'llcnkcl, \\~ \\'l:re e~blc ln mukc •• ,.,.c minion. 1 million \\~ l lu] Sl, t.'llm.'>~.:l'? \\CC\: ab!u to bc~h Pll)' cmpluj c-:s am! i!ll.O p.ay r~lf A Cun-cc1 ~~ru~ctmg partr.l..'n> t~ h~lp us lc- ;Jcn:t!)· Q. A t\.'\•· milhon to !he hl-'ma"-q ~1..-ct m mstitut1o:ml m\.;:~·w~ . 'UtJ ulli(•, \\C dld mo.kc :tOnic I !.nvmi, cot~·> :r. im ..:slnwnl~ 1(1 '''"n:n(~Jo'\.' -· ''~ m:t~~: ,.,,nc m\ ""Sinlcr.<.i A Yt.~ •Hl tx.~lv.:lf \l!' <; <..1\iln~e f(l "1m:hou-s.c f<~r., pntcnlltll lEi 0 . ·10U,OGO lc u pw~-cl m A frica oomx:t'! fimd inw~llt\CI)t. .. 7 1\. Y~."' flfu: Of ftl(I:IU tn'\L":->1ltll"TJ[~ \\.'?!~Of J.~ (J.. And {.J' th•>!l".: - f'v~ ! USt llllt~ Om:~ ~liiiiM ...inll:u irwelilUWill imo l~~i'" Syn~a~l\t: 11 9 ltlYL":\tnlcuts. Were there 1my otik!r inv~tm.:nls tha! V/~ ;illi(t t()nde sumc ~d1tiom.1L mn:SimcniS. ''h;ch .:r. we~ mr.dc with the).[,, - willi<)ll c,r did 1h.: rcrn:r in,h:;r mciU<~•Ithc "orehou·m1g nl Ure in'·cstiJICnl Jhr ?. 1 .(Nl to rutllling dt.:: <)pcn:titmsor (. Cilt:ll~C'! hiOltl:t~}. h1 uk~lJ;-:sl~ iu l t;rw<~ir. U$ .,, d l as o 11 MU t £UN1 ER. Oh;tX:ti()n form. ' '. ."! 111\ ~l~lUill n.;crci,~: from 11 i}.t.~Y !r i:c fl•>~~~blc 1 an. nli~te~;t~ill~i'ut~ ~~ ~·ociifl~

9 (?ages 33 to 3~>

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Conf .id(, fl t ;l ;:d , (Wrt\TI\t,lld,t;:i.l !,;,),(H)f$ .tnt . Ltd . 322 .._,.

323 ~ !":i ._..,... '!' -~ ..-;- =-- ~ 0 C"' --< ('>; cr:. r; ;...') ~ r- !:: {'J;. 0 ,.-.li ~; ~ ..,... ~ - ~ "'l) ~ -~ :..D [- ~ t: ~ -: ..."~ ,~ flY ;u • ~ ~ ~ V, C .-; t"'.C. C.) ~ ~~ - t -< -: __. :- _.:: ~ ......,. N f".~ \"\( -<"".i ('-,;. ~..(. ' -, ' - r-...,; ,.. , ,.. • .., ..... -:"t.i <"< C'< ('\; ~ ~ --····---~ ---------------------------..;.----~------ I f ! I I s ~ §"~ Co.~ -- - r..: ~ ~ ~'l ~ ! ' cc c. 0 ~ ~ !""! ~ t:n ~ ~ ~ - o -c-4 --:--: :""! - -~ c.... !'!) ~ ::l ~ : - ro ""' e - :-·... =-" -....: r.;") -... --• --. .-: ~ ,.-: -1 r> - ~l N ~'-J. ~ .~: ~~ ,...c-c.....-t-...-.-~NN~~ ;.-......N 9. .Preston expressly incorporates each ofthe above objections to the extent appHcable1n each specific respvnse to the interrogatories set forth below~ as if fully set furth in the answef to each specific interrogatory.

SPECIFIC RESPONSES AND OBJECTIONS

INTERROGATORY NO. l

State the dates of service for your service on the board of directors ofTSL

Subject to and \\~thout waiving Preston's objections. Preston responds as follows:

Preston served on the board of directors ofTSl between the end of 2004 and on or about May4, 2009.

INTERROGATORY NO.2

Describe in detail tl1e nature ofyour service Of.l the board of directors ofTSI.

ANSWER:

Pre5tnn objoc.ts to. this interrogat{)ry as ~:wefly broad arl.d undllly burdensome in requestin~ that Pn!stO:n.d'Cscribe "'in detaw~ his $et:\ll(~.

Preston ~so .~b.jects t9 this interr()gat~ry as va;gu~ and a.mbigu<.lU$ i~~ requ~sti,ng that Prestoo describe ~'the n.ature ·of'~ his $ervice.. P~ton ,,.,,.ill intecpret thi$ to be a request for Preston to. describe his serVice on tJ)e board ofdh:ectors .

.S'Ubjeet to and ·'rvitbout wnivi~ Prcston.•s objections, Preston.respond$ ·~s follows:.

The board of dire.ctor$ played· a.· roi~ :h'J. t.tle· ·~QVtmtW,'lW~ ·ot ' TSI~ ·:wh,ieh ·i:ncl.uderJ .respoQsibility fQt.tlw·~iring amLnrlilg of the 'CEO~ :'P.tes.to~·h~

ldentify each board meetit)g ·of TSl i.~;t ·wl~ich you . P~:ticipat~ . and ~blte (l) where Sl.l9h mee~ing )v·as held, ·t) ·wherJ. ~uqh nw~ting was hdct aml 3) \Vhether your. p~ttkipatlotJ w~ ilJ pe~~)n, hy Wlepnone, or b;t·som~ other·~lectronic m~a.ns.

324 ANSWER:

Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this request to the extent it does not seek .infonnation that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court has jurisdiction over Preston.

Preston objects to this interrogatory as overly broad and unduly burdensome in requesting that Preston identify "each" board meeting regardless of whether it has any connection to Texas.

Subject to and \~ithout waiving Preston's obj~tions., Preston responds as fo llows:

Preston is not aware which meetings constituted TSI board meetings. He participaled in meetings or cans related to TSJ, however, that may have constituted TSJ board meetings on the following dates and locations, but Preston was never in Texas for any such meetings or cal1s:

Date ; .~·~;.. : ~.:· - : ;~ Location Means March 6, 2006 Massachusetts I In Person March 20, 2006 Massachusetts I Telephone April 21, 2006 MassachusetlS I Telephone June 19, 2006 Massachusetts In Person January l l-1 5,2007 Lugano, Switzerland In Person October 22, 2008 MassachusetlS Telephone

INTERROGATORY NO.4

Identify all payments you received of any nature from TSL

ANS\\'ER!

Preston is not subject to the j urisdiction of this court. Accordingly, Preston objects to this interrogatory on the grounds that it docs not seek infonnation that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court has jurisdiction over Preston.

Preston further objects on the grounds that this infonnation may be obtained directly from other entities that are subject to this court's jurisdiction, which would be tlte least intrusive and most efficient method for Intervenors: to obtain the infonnation they seek.

Preston aJso objects to this request to tl1e extent it seeks proprietary infonnation, trade secrets or other confidential infonnation, disclosure of which would hann Preston or is protected fiom disclosure by confidentiality agreements.

325 INTERROGATORY NO.5

IdentifY all docwnents which you signed as an office or director ofTSL

Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this interrogatory on the grounds that it does not seek infonnation that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court has jurisdiction over Preston.

Preston also objects to this interrogatory on the grounds that it is overly broad and unduly burdensome is seeking "all documents" Preston signed without any limits, regardless of their connection to Texas.

Preston further objects on the grounds that this infonnation may be obtained directly from other entities that are subject to this court's jurisdiction, which would be the least intrusive and most efficient method for Intervenors' to obtain the information they seek.

Preston also objects to this request to the extent it seeks proprietary information, trade secrets or other confidential information, disclosure of which would harm Preston or Quantum Catalytics or is protected from discloS\lfe by confidentiality agreements.

INTERROGATORY NO. 6

Identify all investments that you made in TSI, whether such investment was made in money or services. Include in your response, 1) the date of such investment; 2) the amount of such investment; 3) the nmnber of share or other interest received on such investment; and 4) the returns, if any, received on such investment.

Preston is not subject to the jurisdiction ofthis court. Accordingly, Preston objects to this interrogatory on the grounds that it does not seek infonnation that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court bas jurisdiction over Preston.

Preston further objects on the grounds that this information may be obtained directly from TSI. which would be tbe least intrusive and most efficient method for Interveoo~ to obtain the information they seek.

Preston also objects to this request to the emnt it seeks proprietary information, trade secrets or other confidential infonnation, disclosure of which would bann Preston or is protected from disclosure by confidentiality agreements.

326 INTERROGATORY NO.7

State the dates of service fur your service on the board of directors ofNCl12.

Subject to and without Vvaiving Preston's objections, Preston responds as follows:

.?reston served o~1 the boa..'"(j of directors of NCt2 between May 2009 and September .2.009 and again between August 2010 and around March 2012~ whcrt the trustee was appointed by the bankruptcy judge for NC12.

INTERROGATORY NO.8

Describe in detail the nature of your service on the board of directors ofNCl2.

Preston objects to this interrogatory as overly broad and unduly burdensome in requesting that Preston describe '•in detail» his service.

Preston also obj~ts to this interrogatory as vague and ambiguous in requesting that Preston de~cribe ""the nature or• his service. Preston will interpret this to be a request for Preston to de..~cribe his servjce on the board of directors.

Subject to and without waiving Preston·s objecti<,.ms, Preston responds as foll<.)WS;

The board of directors played a ro.le in the govem~mcc of NC12, which included respon.(jibility for the hiring and firing of the CEO. Preston helpt>d provide govemance.

fNTERROGATQRV NO.9

Identify each board meetingofNCll in which you participated and state (I) where such meeting was held, 2) when such meeting was held. and 3) whether your participation was in person, by telephone, or by some other electroni<: means.

327 ANSWER:

Preston is not subject to the j urisdiction of this court. Accordingly, Preston objects to this request to the extent it does not seek infonnation that relates to or is reasonably calculated to lead to admissible evidence regarding whether thjs court has jurisdiction over Preston.

Preston objects to this interrogatory as overly broad and unduly burdensome in requesting that Preston identify " each" board meeting regardless of whether it has any connection to Texas.

Subject to and without waiving Preston·s objections. Preston responds as follows:

Preston is not aware which meetings constituted NC12 board meetings. He participated in meetings or calls related to NC12, however, that may have constituted NC1 2 board meetings on the following dates and locations. but Preston was never in Texas for any such meetings or calls:

Date .· : - Lcu::ation Means May 1, 2009 Massachusetts In Person September 14, 201 0 Massachusetts In Person October 17, 201 0 Munich, Gennany Telephone November 24,2010 Massachusetts In Person November 29, 2010 Massachusetts In Person January 4, 2011 Massachusetts In Person January 7. 2011 · Massachusetts In Person February 21 , 2011 Massachusetts Telephone February 25, 201 t Frankfurt., Gennany TeleJ:>hone

INTERROGATORY NO. 10

Identify all payments you reocived of any nature from NC 12.

ANS\VER:

Preston is not subject to the jurisdiction of this court. Accordingly) Preston objects to thi s interrogatory on the grounds that it does not seek infonnation that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court has jurisdiction over Preston.

Preston further objects on the grounds that this information may be obtained directly from other entities that are subject to this court' s jurisdiction, which would be the Jeast intrusive and most efficient method for Intervenors ' to obtain the infonnation they seek.

328 Preston also objects to this request to the extent it seeks proprietary infoiDlation, trade secrets or other confidential information, disclosure of which would harm Preston or Quantum Catalytics or is protected fiom disclosure by confidentiality agreements.

INTERROGATORY NO.ll

Identify all documents which you signed as an officer or director ofNC12.

Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this interrogatory on the grounds that it does not seek information that relates to or is reasonably calculated to lead to admissible evidence regarding whether this cowt has jurisdiction over Preston.

Preston also objects to this interrogatory on the grounds that it is overly broad and unduly burdensome is seeking "all documents" Preston signed without any limits, regardless of their connection to Texas.

Preston further objects on the grolDlds that this information may be obtained directly from NC 12, which would be the least intrusive and most efficient method for InterVenors' to obtain the information they seek.

Preston also objects to this request to the extent it seeks proprietary information, trade secrets or other confidentiaJ information, disclosure of which would hann Preston or is protected from disclosure by confidentiality agreements.

UITERROGATORYNO.U

Identify all investments that you made in NC12, whether such investment was made in money or services. Include in your :response, 1) the date of such investment; 2) the amoWlt of such investment; 3) the number of share or other interest received on such investment; and 4) the returns, if any, received on such investment.

Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this interrogatory on the grounds that it does not seek infonnation that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court has jurisdiction over Preston.

Preston further objects on the grounds that this information may be obtained directly from TSI, which would be the least in1J'USive and most efficient method for lntervenors' to obtain the information they seek.

329 Preston also objects to this request to the extent it seeks proprietary information, trade secrets or other confidential infonnation~ disclosure of whjcb would harm Preston Ol' is protected fi·om disclosure by «>nfidentiali ty agreements.

!NTKRROGATORYNO.l3

Identify aU companies, whether public or privat€; wifu offices in Texas, for which you have served on tbe board of directors or as 1m officer or etnpJoyee. Include in your response 1) the dates of such service, 2) the location from wb.ich you worked/served; 3) the compensation received; and 4) the position in which you served and/or were ~'l'lployed.

Preston is not subject to the jurisdiction of tlus court. Acoording1y, Preston objects to this interrogatory to the extent that it does not seek iuformation tl1at relates to or is reasonably calculated to lead to admissible evidence regarding whether this oou.rt has jurisdiction over !>reston.

Subject to and vvithout waiving Prestnn~s. o'bjections.l,reston responds as foUows:

Texas Syngas LLC }s the only company Vrith its principal place of business in Texas or incorporated in Texas for which 11 reston was a

Describe in detail ~.ll of your truvel to Texas since 2000, IncltJde in yo"Ur response, 1) the date of sucb travel~ 2) the purpose of such travel; and the aetivities YQU undertook white in Texas.

Preston objects to this interrogatory to the extent it is overly broad Md unduly burdensome in seeking detailed information about travel that oc~urred so long ago that it (a) does not relate to specific jurisdiction, and (b) cann{)t be used ~s !i basis to support general jl.uisdic:tion,

Subject to end w-ith()ut waiving Preston, s objections., Pre~ion responds as follows:

Preston trsvc1ed 10 T~xas on the foJiowiog Qecas:ions as a representative on behalf of TB-1 Capital between 2006 and the date this suit was filed: ..

330 2009 April2-3

2009 May3-4

20)0 December 30..31

2011 'March 16-17

In addition, Preston tra'veled to Texas on November 10, 2008 o.n behalf of his former employer C-Change Inv~tm~~ts. Preston met with Michael Collins on this trip. Preston also t:n:rveled to 'lexas in May 2011 ID tcstii)' as the cotporete representative fQr NC12, Inc. regarding an asset owned by the oompany h1 Michael Sydow's divorce proc-eedings~

INTERROGATORY NO. 15

State whether uny compAny ~Nl10lly O\VIled by your [sic] or all entity controlled by you owns or controls any real property in Texas or has any business operations in Texas< If so. include in your response) 1) the identity of sllch company~ 2) describe the real property crwned or controlled; and 3} describe in detail t..*le nature of such business.

Preston i.s not subject to the jurisdteti(ln of this court. Accordingly, Prestt)n objects to this . imerrogatory on the grounds that it docs not seek infonmrtion that relates to or i.s reasonably calculated to lead to admissible evidence regarding whether this court bus jurisdiction over Preston,

Subjt:ct to arid without waiving l>remnn's: objections. Preston responds as follo~'S:

No company or entity wholly owned or ccmtroHcd by Prestoll directly owns or controls a.lly real property in "fe.xas or has any business operatio.ns in Tex.as.

1NTERROGATORY NO•.16

State whether any company in which you hold ~ majority interest owns or controls any real pro~rty itl Texas or ha.s f\ny business operntions in Texas. If so) indude in y()ur response; l) the identity of snch t¥lmp:,ny; Z) describe the rw11 prop(..'Tiy owned or controlJed; Md ~} de.<)cribe in detail the nature of such business.

331 ANSWER:

Preston is not subject to the jurisdiction of this court. Accordingly, Preston objects to this interrogatory on the groWids that it does not seek information that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court has jurisdiction over Preston.

Preston further objects to this interrogatory to the extent it is duplicative of Interrogatory No. 15.

Subject to and without waiving Preston's objections. Preston responds as follows:

No company or entity in which Preston holds a majority interest directly owns or controls any real property in Texas or has any business operations in Texas.

INTERROGATORY NO. 17

Identify each investment you have made within the last 10 years in any company incorporated in Texas or having a principal office in Texas. Includ.e in yow- response the amount ofyow- investment and the nature of such investment.

Preston is not subject to the jurisdiction of this court. Accxmlingly, Preston objects to this interrogatory on the grounds that it does not seek information that relates to or is reasonably calculated to lead to admissible evidence regarding whether this court bas jurisdiction over Preston.

Preston objects to this interrogatory as overly broad and \Dlduly burdensome in seeking detailed infonnation about events that OOCWTed so long ago that: (a) do not relate to specific jurisdiction. and (b) cannot be used as a basis to support general jmisdjction.

INTERROGATORY NO. 18

Describe in detail all communications which you have had with any pmon or entities located in Texas within the last five years. Include in your response the dates of such communications, the pwpose of such communications, and the means by which such communications were made.

Preston objects to this intem>gatory as overly broad and unduly bmdensome in seeking detailed information about "all commtmications" over a fiv~yea:r period.

332 Subject to and without waiving Preston~s objections~ Preston responds as follows:

Preston communicated by telephone with Michael Sydow on occasion during the last five years in relation to TSI and NC12. As a representative of TEM Capital, Preston communicated regularly with various individuals in Texas on behalf ofTEM Capital over the last five years.

333 VERIFICATION My name is John Preston, my date of birth is March 18, 1950, and my address is 9 Martins Cove Lane, Hingham, MA 02043. I declare under penalty ofperjwy that the answers in the foregoing John Preston's First Amended Objections and Answers to Intervenor's First Set of Interrogatories are 1rue and correct to the best of my own personal knowledge and belief.

Executed on the.?.oday of March, 2014

JtLr~ ohnPreston

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... ~ REDACTED From: JUDY DALTON Sent: Thursday, March 10, 201111:58 AM To: Katherine Frisina Subject: Travel Reservation March 16 for JOHN THOMAS PRESTON

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JOHN THOMAS PRESTON Reservation code : HKZBLO Travel Arranger Priority comments : ETA/HRG OFFERS 24/7 IN-HOUSE EMERGENCY SERVICE

Wed, Mar 16 Flights : JETBLUE AIRWAYS , 86 1265 From : BOSTON , MA (BOS) Departs : 6 : 40am Departure Terminal : TERMINAL C To : AUSTIN , TX (AUS) Arr i v es : l2 : 09pm Class : REDACTED Seat(G) :Check - In Re quired Status: Confirmed Airline Confirmation: OOKMQI Meal: Smoking : No Aircraft : EMBRAER EMB E90 JET Distance (in Miles ): 1694 Duration: 4hour(s) and 29minute{s) Frequent Flyer: JETBLUE AIRWAYS 2047935390 Please verify flight times prior to departure March 16 Other : Status: Confirmed Information:SEATS RESTRICTED TO AIRPORT CHECKIN . WE WILL CONTINUE TO MONITOR SEAT MAP REDACTED

Thu , Mar 17 Flights : JETBLUE AIRWAYS , B6 1264 From: AUSTIN, TX tAUS) Departs: 4 : 55pm To: BOSTON, MA (80S ) Arrives : 9:43pm Arrival Terminal : TERMINAL C Class : REDACTED Seat(s): PRESTON/JOHN THOMAS- lSD Status : Confirmed Airline Confirmation: OOKMQI

PRESTONOOOOtl

345 Meal: Smoking: No Aircraft: EMBRABR BMB B90 JET Distance (in Miles): 1694 Duration: Jbour(s) and 48minute(s) Frequent Flyer: JBTBL'0'2 AIRWAYS 2047935390 Please verify flight ti111es prior to departure May 16 Othert Status' Confi .ra\ed , Information:VISIT WWW·EXECTBAVEL.CQM ARRANGBR RBMAJU.tS: VISIT US ON THB WBB AT WWW. EXEC1'BAWL. COM • --MY DIR!CT PHONE tS 202 • 496-2791•• •--APTBR HRS EMERGENCY SVC 202-828-0090•• PLS NOTE TICKBT 18 NONREP'UNDABLB CHANGES MUST BE IQDB I

ON OR BBPORE 1'1IE DBPARTORB OP EACH TICKETBD PLIGHT SBGMBHT AND ARB S'UBJBCT TO A PBNALTY PLUS ANY PARE DilTBRINCB. CHANGES RBQUBSTBD APTER DBPARTUR.E DATB 01' ORIGINAL TICKB'l'BD FLIGHT ARB NOT PERMITTED AND TICKBT WILL HOLD NO VALUE. eTicket Receipt(s); 2797962668075 • PREST/J For your convenience, a text version of your itinerary is included in this e-mail and was current as of the time the e·mail was sent Please click on the link above or contact Your Travel Arranger for the most current infonnation.

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346 From: JUQX PALION To: Katbedne Frisina Subjec:t; Trawl Reservation December JO rOf JOHN THOMAS PRESTON Date: Tuesday, December 28, 201B JO:U:37 AM

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Itinerary JOHN THOMAS PRESTON Reservation code: KPUDSE Travel Arranger Priority comments: ETA/HRG OFFERS 24/7 IN-HOUSE EMERGENCY SERVICE

Thu, Dec 30 Flights: AMERICAN AIRLINES, AA 1365 From: BOSTON, MA (BOS) Departs: 8:40am Departure Terminal: TERMINAL B To : DAL NORTH, TX (OFI-1) Arrives: 12:1Spm Class: REDACTED Seat(s) TON/JOHN THOMAS - 18F Status: Confirmed Airline confirmation : KPUDSE Meal: Food for Purchase Smoking: No Aircraft: BOEING 757 JET Distance (in Miles): 1556 Duration: 4hour(s) and 35minute{s) Frequent Flyer: AMERICAN AIRLINES NR\'16022 Please verify flight times prior to departure Thu, Dec 30 - Fri, Dec 31 Flights: AMERICAN AIRL1NES, AA 2282 From: DALLAS FT \>IORTH, TX ( DFW) Departs: 7:45pm - December 30 To: BOSTON, MA {BOS) Arrives : 12:10am -December 31 Arrival al: TERMINAL B Class: REDACTED . Seat(s) TON/JOHN THOMAS - 13A Status: Confirmed Airline Confirmation: KPUDSE Meal: Food for Purchase Smoking: No Aircraft: BOEING 757 JET Dis tance (in Miles): 1556 Duration: 3hour(s) and 25minute(s) Frequent Flyer: ANERICAN At RLINES NRW6022 Please verify flight times prior to departure Ma.rch 01 Other: Status: Confirmed Infoilllation : VISIT WWN. EXECTRAVEL. COM ARRANGER REMARKS: VISIT US ON THE WEB AT WW~I. EXECTRAVEL.COM •--MY DIRECT PHONE IS 202·496-2791•• •--AFTER HRS EMERGENCY SVC 202-828-0090 .. eTicket Receipt(s): 0017943995686 - PREST/J

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348 From: JUQX DALTON To: l

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Itinerary JOHN THOMAS PRESTON Reservation code : CHMDGB Travel Arranger Priority Comments: ETA/HRG OFFERS 24/7 IN-HOUSE EMERGENCY SERVICE

Mon, May 02 Flights: AMERICAN AIRLINES, AA 1771 From: BOSTON, MA {80S) Departs: 5:20pm Departure Terminal: TERMINAL B To : DAL 1-lORTH, TX (DF'.\') Arrives: 8:35pm Class: REDACTED Seat(s} TON/JOHN THOMAS - 21F Stacus: Confirmed Airline Confirmation: CHMDGB Meal: Food for Purchase Smoking: No Aircraft: BOEING 757 JET Distance (in Miles): 1556 Duration: 4hour(s) and 15minute(s) Frequent Flyer: AMERICAN AIRLINES NRW6022 Please verify flight times prior to departure y 03 REDACTED

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349 REDACTED

Wed, May 04 Flights: AMERICAN AIRLINES, AA 1466 From: DALLAS FT WORTH, TX (DFW) Departs: 6:35am To: BOSTON, MA (BOS) Arrives : ll :OOam Arrival al: TERMINAL 8 Cla 811 : REDACTED Seat(a) TON/JOKN THOMAS - 09F Status: Confi~ed Airline Confirmation: CHHDGB Heal: Food for Purchase SmoUng: No Aircraft: BOEING 737 - 800 JET Distance (in Hiles ): 15S6 Duration: Jhour(a) and 2Sminute(s) Fr~quent Flyer: AMERICAN AIRLINES HRW6022 Notes: II I II SEAT 9F Please verify flight times ,p rior to departure July 03 Other: Statu.: Confirmed Information:VISIT WWW . EX&CTRAVEL.COH ARMNGER REMIUU

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351 1

1 REPORTER'S RECORD 2 VOLUHE 1 OF 1 VOLUME 3 TRIAL COURT CAUSE NO . 2010 - 02710 4 5 IN THE MATTER OF ) IN THE DISTRICT COURT OF 6 THE MARRIAGE OF : ) ) 7 MICHAEL D. SYDOW ) AND ) 8 KELLI MCDONALD SYDOW ) ) HARRIS COUNTY, TEXAS 9 AND IN THE INTEREST OF: ) ) 10 MICHAEL WYATT SYDOW, ) ) 11 A MINOR CHILD ) 308TH JUDICIAL DISTRI CT 12 13 ·. 14 - --- -- - - --- - --- - - - -- - --- - --- - - 15 HEARING .. a 16 - - - - - - - - - -- - -- - --- -- - - - - -- ---- Ig 17

..... d ~ 18 ~ On the 6th day of October , 2010 , the following ( 19 ! It 20 pr oceedings came on to be heard in the above-entitl ed ~ II: II: w 21 and numbered cause before the Honorable Robert E. ~ n 22 Newey, judge presiding, held in Houston, Harris ...~ 23 County, Tex as; 24 Proceedings reported by ma chine shorthand . 25

Cheryl L. Pierce, CSR EXHIBIT A-12 352 2

1 AP P EARANCES 2 FOR MICHAEL D. SYDOW: BOBBY KING NEWMAN 3 SBOT NO . 00791347 Lilly, Newman & Van Ness, L.L.P. 4 3355 W. Alabama Houston , Texas, 77098 5 6 FOR MICHAEL D. SYDOW: DAVID J. WUKOSON 7 SBOT NO . 22085600 Attorney at law 8 4801 Woodway , Su1te 300E Houston, Texas, 77056 9

10 FOR MICHAEL D. SYDOW: SHANNON L. BOUDREAUX 11 SBOT NO . 24040550 Attorney at law 12 One Riverway, Suite 1700 Houston , Texas, 77056 13 14 FOR KELLI MCDONALD SYDOW : DENNIS BRIAN KELLY 15 SBOT NO. 11217500 Attorney At Law 16 602 Sawyer, Suite 700 Houston, Texas, 77007 17 18 FOR KELLI MCDONALD SYDOW : LEONEL FARIAS, II 19 SBOT NO. 24050583 Attorney At Law 20 202 Travis Street, Suite 210 Houston, Texas, 77002 ~ 21 22 FOR KELLI MCDONALD SYDOW : JEDEDIAH D. MOFFETT 23 SBOT NO . 24051069 Attorney At Law 24 1010 Lamar, Suite 860 Houston, Texas , 77002 25

Cheryl L. Pierce, CSR 353 3

1 FOR NC12 , INC .: ASHER B. GRIFFIN 2 SBOT NO. 24036684 Scott, Douglass & McConnico, l . L. P. 3 One America Center, 15th Floor 600 Congress Avenue 4 Austin, Texas , 78701 5 6 7 8 9 10 11

12 13 14 15 .., ij $ 16 § g 17 ~ .. :II

a:: w 18 Q. ( 19 ~ w tr 0 20 Q.

II! a: w 21 ~ $ u 22 ...~ 23 24 25

Cheryl L. Pierce, CSR 354 1 WITNESS INDEX 2 Direct Cross Redirect Recross 3 John Preston 63 80 100

5 6 7

12 13 14 15 16 17

20 21

23 24 25

Cheryl L. Pierce, CSR 355 63

1 Be seated . 2 JOHN PRESTON 3 was called as a witness and having been first duly 4 sworn, testified as follows : 5 DIRECT EXAMINATION 6 QUESTIONS BY HR . NEWMAN : 7 Q. Will you state your name, please. 8 A. John I. Preston. 9 Q. And, Hr . Preston, give the court, if you 10 would, a thumbnail sketch of your education . 11 A. I went to the Universit y of Wisconsin for 12 physics . I got a Master ' s in physics and Northwest ern 13 Universit y for an MDA. 14 a. And if you could , were you the director of 15 technolog y anywhere? 16 A. Yes, I was. 17 Q. Where were you the director of technolog y?

4 18 A. I was the director of technolog y , developme nt ffi i 19 of technolog y licensed at HIT.

I 20

21 Q.

A. And when was that, sir? I started at HIT -- I have had many roles at 22 MIT; but I started in 1977, December of 1977; and I 23 still have an appointme nt at HIT. 24 Q. And have you received any appointm ents to 25 advisory positions ?

Cheryl L. Pierce, CSR 356 1 THE COURT : Are you calling this man as 2 an expert? 3 MR. NEWMAN: Well , judge , 1n part , ye s . 4 THE COURT : Expert on what? 5 HR . NEWMAN : Well , basically as it 6 relates to the i r claim with regard to the Fall Ri ver 7 Reality entity. I believe, there is an allegation -- 8 if there is not going to be an allegation that that is 9 some asset that Mr . Sydow owns for purposes of th i s 10 hearing - - 11 THE COURT: I thought that th i s argument

12 was over whether or not Mr . Sydow was still getting 13 $30 , 000 . 00 from NC12 . 14 MR. NEWMAN: That is . I will offer that

15 testimony, too ; but I don't want them to say that

I g d 16 17 there is some additional source of money for Mr. Sydow. So I am just going through that . I can speed ~ 4 18 it up . ~ ~

i 0 19 THE COURT: Quickly . ! ~ « f 20 MR . NEWMAN: Thank you, judge . ! cw 21 Q. (By Mr . Newman) You have signif i cant ~ ~ 22 experien ce in entities wh i ch own real estate and / or 2 g ~ 23 patents and things of th at nature? 24 A. Yes. s ir . 25 Q. And are you on the board of directors of

Cheryl L. Pierce, CSR 357 65

1 NC1 2? 2 A. I am . 3 Q. And what does NC12 do? 4 A. NC12 is a develo pment stage company that is 5 trying to develop a reactor that converts coal i nt o 6 natura l gas or synthetic natural gas . 7 Q. Does NC12 own significant licenses and 8 licensure for patents? 9 A. It took a license for some of the core 10 background patents on high temperatu r e liquid metal 11 c hemist r y . So , yes ; and it has developed its own 12 patent applications t hat ar e i nventions that I don ' t 13 think are filed yet. 14 a. And wit h regard to t he lice nses that NC12 has 15 or had a right to , what entity owns the pr i mary core

I g 16 17 patent licenses? MR. KELLY: I am objecting to hearsay, !.?:1 . .., CE: 18 Your Honor . ! 19 THE COURT: Overruled . ~ li"' I f you know. f 20 ~

~ 21 THE WITNESS: Yes , sir. ~ ~ u 22 A. So the patent that were lice nsed were ~ ...0 23 lice nsed from a company ca l led Quant um Catalytics 24 whi ch is a compa ny that I he l ped create. 25 Q. ( By Mr . Newman) And NC12 ha s been in

Cheryl L. Pi erce, CSR 358 66

1 existence for a little over a year? 2 A. That is correct. 3 a. So it is kind of a start-up company? 4 A. That is correct. 5 a. Now, how much has NC12 earned? 6 How much in revenue and earnings has NC12 7 had since its inception ? 8 A. To the best of my knowledge zero . 9 a. Not one penny? 10 A. That is correct. 11 Q. How is it that NC12 has paid salaries and its 12 officers and/or employees ? 13 A. NC12 raised some venture capital investmen ts 14 from individua ls , and it has been using that money to 15 support itself . ..i3 16 a. Has there been difficult y in obtaining funds Ig 17 from investors to continue the financing for NC12?

..~ a: 18 MR . KELLY: I will object to hearsay , i"'w 19 Your Honor . m 20 THE COURT : Sustained . ~ 21 MR . NEWMAN : You said sustained it . ~ ~ 22 THE COURT: I sustained · the objection . I0 ... 23 The only way that he is going to know that is what 24 somebody else told him . 25 a. (By Mr . Newman) You certainly are a critical

Cheryl L. Pierce, CSR 359 67

1 party in obtaining funds for NC12? 2 THE WITNESS : I have been the primary 3 fundraiser for the company over the last few years, 4 Your Honor . 5 a. (By Mr . Newman) And how much money has been 6 raised for NC12? 7 MR . KELLY : Object to hearsay, and object 8 to relevance . 9 THE COURT : Ove rruled. 10 A. None . If you go back to NC12's predecessor 11 company which was called Texas Syngas . 12 MR . KELLY: Objection to nonresponsiv e . 13 a. (By Mr . Newman) I am just talk i ng about NC12 14 right now. 15 A. I wi ll have to review the records . ... ~ 16 THE COURT: All right . So you don ' t Ig 17 know . ~ ~ 18 THE WITNESS : I don ' t know e xactly, no , • a: !r ! 19 sir .

I a: ~ 20 21 a. (By Mr . Newman) So you don ' t know exactly. Do you have a ballpark figure , sir? ~ ~ MR. KELLY: fj 22 I object to asked and ~ 23 answered , Your Honor . 24 THE COURT : Overruled. 25 Give us your best guesstimate .

Cheryl L. Pierce , CSR 360 68

1 A. Best guesstima te for NC12 is about 2 $5 . 2 million as convertib le debt . 3 a. (By Mr. Newman) And what is convertib le debt? 4 A. Convertib le debt means that it was given to 5 the company as debt which means the company was 6 obligated to repay it. 7 a. As a promissor y note? 8 A. As a promissor y note that would mature as of 9 Septembe r 30th of this year, so a week and a half ago. 10 a. And when that matured, was it enough money in 11 NC12 to pay the promissor y note back? 12 A. No, sir. 13 Q. So what was done with regard to those notes ? 14 MR. KELLY : Your Honor, I am not going to 15 get the sustain probably ; but I want to have a running ., ij 16 objection on hearsay . Everythin g that he 1s talking I 17 about is hearsay . 8 Cl

. ~ II: 18 Q. (By Mr. Newman) Do you have personal I 19 knowledge of what I am asking you about? ~ w &: .. ~ 20 A. Yes , sir . a: a: 21 HR . MOFFETT : Your Honor, can we take the ~ .i: tl 22 witness on voir dire? ...~ 23 THE COURT: No . 24 MR . NEWMAN : And I would like one lawyer , 25 judge.

Cheryl L. Pierce , CSR 361 69

1 THE COURT: That will be Mr . Kelly . 2 MR . NEWMAN: All right . 3 a. (By Mr. Newman) With regard to -- I think my 4 question was: Did NC12 have sufficient funds to meet 5 the obligation to pay the promissory note back? 6 A. No, sir . 7 THE COURT : Well , now hold on just a 8 minute . 9 He may be a fundraiser, but you have not 10 made the tie that he knows enough about the day-to-day 11 management of NC12. 12 HR. NEWMAN : Yes, sir. 13 a. (By Mr. Newman) You are a board member of 14 NC12? 15 HR. KELLY : Object to leading, Your 16 Honor . 17 THE COURT : Sustained. 18 a. (By Mr . Newman) Are you a board member of 19 NC12? 20 A. Yes, sir . 21 a. As a board member of NC12, are part of your 22 duties and obligations to review the major financing 23 situations of NC12? 24 A. Yes , sir . 25 a. And have you done that?

Cheryl L. Pierce, CSR 362 70

1 A. Yes, sir. 2 Q. And as part of that obligation and you 3 carrying out your duties , did you come to the 4 determinatio n whether NC12 had the ability to pay back 5 the prom i ssory notes that are due? 6 MR. KELLY : Objection, Your Honor . The 7 question is based on hearsay. These are documents 8 that I have an issue with because I can't get to them , 9 Your Honor , to say whether they are right or they are 10 wrong. 11 MR. NEWMAN : I didn't ask him anything 12 about a document, judge . 13 HR . KELLY: Well , I know but that is what 14 the question is based on. 15 THE COURT: Are you the chief financial ~ g $ 16 officer for the company? § g 17 THE WITNESS: No, sir. ~ 2 18 THE COURT : What is your involvement with • ~ ! 19 the company day-to-day? ! ~ w ~ 20 THE WITNESS: I have been working with 21 the company really almost day - to-day trying to raise ~ ~ ~ u 22 money and trying - - l 0 ~ 23 THE COURT : But you are not involved in 24 the day-to -day management: in other words, the hiring? 25 THE WITNESS: No, sir.

Cheryl L. Pierce, CSR 363 71

1 THE COURT : I will sustain the hearsay 2 objection . 3 a. (By Mr . Newman) Mr . Preston, although you are 4 not involved in the day-to-day involvement with the 5 hiring and the firing of employees, are you involved 6 wi th virtually the day - to-day involvement with the 7 finances related to the company; in other words, 8 monies available to pay debt and monies available to 9 pay salaries? 10 MR. KELLY : Objection, asked and 11 answered . It presupposes that his response is going 12 to be based on some document . So my objection is 13 hearsay. 14 MR. NEWMAN: Your Honor, 1t is not 15 hearsay . I am not asking about a document . I am "ii 16 asking whether he knows about the financial condition i i 17 of the entity . g c .. ~ 18 THE COURT : Well, let's just play that i Ill a: 19 out a little bit. He is on the board of directors.

I ~ 20 Wouldn ' t directors' minutes, memoranda, 21 all of those things that pass back and forth between ~ ct Ill u 22 companies and their operating officers and board of ...f 23 directors be relevant to this? 24 MR. NEWMAN: Absolutely relevant , Your 25 Honor, and absolutely will record what the parties

Cheryl L. Pierce , CSR 364 f"L

1 did ; but Mr . Kelly's proposit i on is in reverse . They 2 meet, they discuss it , they figure out what the 3 situation is, he has personal knowledge of the 4 situation; and that is documented in some minut e s 5 somewhere and in the financial documents somewhere . 6 I am not asking him about the financial 7 document . I am asking him about his specific 8 knowledge ; and, judge , they are sword and shield i ng 9 it. What they say is , "Either gi ve us the documents 10 which we have not requested . " They acknowledge they 11 have not requested appropriately . They have never 12 requested the documents, judge , from NC12 like they 13 were required to do . 14 And now they are saying , "Well, si nee 15 they didn't produce document that weren ' t reques ted

Ii 16 properly, this witness can ' t testify to what he

g 17 personally knows because it also happens to be

..12 :E

a:: 18 contained in the documents somewhere .u l!' I Ill 19 THE COURT : He has already testified that ~ 20 they invested - - that he got about $5.5 million in ~ .... II:

ei 21 venture capital , that on September the 30th, 2010 , the . ~ «: Ill (J 22 debt came due ; and it wasn't paid . :! a: ... 0 23 Q. (By Mr . Newman) Mr . Preston , does Mr. Sydow 24 set his salary or does t he board set his salary? 25 A. The board of directors s ets the salary for

Cheryl L. Pierce, CSR 365 73

1 the CEO . 2 a. Are you on the board of directors? 3 A. I am. 4 a. Is Mr . Sydow on the board of directors? 5 A. Yes. 6 a. Who else i s on the board of directors? 7 A. Christopher Henkle . 8 THE COURT : Is Mr. Sydow the CEO? 9 THE WITNESS : He is the CEO , yes . 10 a. (By Mr . Newman ) Being the CEO , can he 11 unilaterally set what his salary is? 12 A. No, the board sets his salary. 13 a. Is there sufficient funds now in NC12 to 14 continue paying Mr . Sydow the salary? 15 MR . KELLY : Objection, Your Honor. The r e 16 is no basis for him knowing that . 17 THE COURT : I will take his opinion and 18 give it the weight that I thin k it deserves . 19 A. The board does review financial - - 20 THE COURT : Is it sufficient money to pay 21 Mr . Sydow ' s salary? 22 THE WITNESS: No , sir. 23 THE COURT: In your opinion? 24 THE WITNESS : No, sir . 25 a. (By Mr. Newman ) Are you trying to secure

Cheryl L. Pierce , CSR 366 _ ... 78

1 salary? 2 A. Yes. 3 Q. With regard to there has been an issue of 4 Fall River Reality . 5 Is there an entity that you are aware 6 MR. KELLY: Objection, Your Honor, 7 relevance . 8 THE COURT: Overruled . 9 MR . NEWMAN: Well, judge 10 THE COURT: I have overruled. You can 11 proceed. 12 MR . NEWMAN: Judge, I might can cut th1s 13 short if I can address the present counsel for two 14 seconds . 15 Are you all going to bring up anything 16 about Fall River Reality? 17 MR . KELLY : Eventually, sure . 18 MR . NEWMAN: Well, I am talking about in 19 th1s hearing. 20 MR . KELLY: Other than what you all said, 21 you know, that he owns it; and I might bring that up 22 with Mr . Sydow or somebody but not with this guy. 23 MR . NEWMAN : Okay . 24 a. (By Mr . Newman) Hr . Preston, who owns Fall 25 River Realty?

Cheryl L. Pierce, CSR 367 79

1 A. NC12 to the best of my knowledge owns Fall 2 River Realty . 3 Q. What does Fall River Realty own? 4 A. Fall River Realty owns a piece of property 5 located at 421 Curren Road in Fall River, 6 Massachuset ts . 7 Q, Where did the money come from to purchase 8 that real property? 9 A. From NC12 . 10 Q. NC12 cut a check? 11 A. Yes. 12 Q. Was Fall River Realty -- why would NC12, for 13 example, pay money for another corporation to own a 14 parcel of property? 15 MR . KELLY: Your Honor, I object to the

Ia 16 relevance. I object to hearsay, too .

g 17 THE COURT: Ove r ruled. d . ~ c 18 Q. (By Mr. Newman) Why might you set up a r f 19 different company? ...12 A. It is normal to put property in a separate ~ 20 cr 21 company and the reason for doing that is that it ~ &i: rJ 22 enables you to get a mortgage on the property . It is ...~ 23 a normal business operation. If you have a business 24 over in Company A; and you have got the real estate i n 25 Company B; and the reason for doing that is you can

Cheryl L. Pierce, CSR 368 82

1 Sydow, haven't you, s i r? 2 A. Yes, sir . As I said , I was on the board of 3 Texas Syngas. 4 Q. And Texas Syngas was an organization that di d 5 essentially the same things that NC12 does? 6 A. Texas Syngas re-organized into NC12 . 7 Q. And do you know that Michael Sydow moved his 8 stock out of Texas Syngas into another corporation 9 named Zygometa? 10 HR. NEWMAN: Objection. That assumes 11 facts that are not in evidence. 12 THE COURT : Overruled . 13 Do you know that? 14 THE WITNESS : Yes . 15 Q. (By Hr. Kelly) That he moved his stock out of

I § 16 17 Zygomata into NC12, do you know that? A. Zygomata wa s an entity g ~ 18 THE COURT : Do you know that. that is a • II;

I.... II; 19 yes or no answer . ~ THE WITNESS : Yes, sir . ~ 20 "'a: 21 Q. (By Hr. Kelly) Were you on the board of ~ti: :3 22 directors of Texas Syngas? ~ e 23 A. Yes. 24 Q. How many people were with Texas Syngas , sir? 25 A. How many people?

Cheryl L. Pierce, CSR 369 108

1 REPORTER'S CERTIFICATE 2 THE STATE OF TEXAS ) COUNTY OF HARRIS ) 3 4 I, Cheryl L. Pierce, Deputy Official Court Reporter 5 in and for th e 308th District Court of Harris County , 6 State of Texas , do hereby certify that the above and 7 foregoing contains a true and correct transcription of 8 all portions of evidence and other proceedings 9 requested in writing by counsel for the parties to be 10 included in this volume of the Reporter's Record, in 11 the above-styled and numbered cause, all of which 12 occurred in open court or in chambers and were 13 reported by me . fr' ... _ 14 I further certify that this Reporter's Record of 15 the proceedings truly and correctly reflects the 16 exhibits, if any, admitted by the respective parties . 17 I further certify that the total cost for the

18 preparation of this Reporter's Record is $648.00 and 19 was paid by the Respondent. 20 WITNESS MY OFFICIAL HAND this the 26th ~ay of ffi Ul 21 October, 2010 . s 22 23 CHERYL PIERCE, Texas CSR 2711 24 Expirat '· n Date: 12/31/2010 Deputy Official Court Reporter c 25 308th District Court Houston , Harris County, Texas

Cheryl L. Pierce, CSR 370 No. 2010-027!0

In the Mauer or the Marriage or IN THE DISTRICT COURT OF Michael D. Sydow and KeUi McDonald Sydow HARRISCOU~7Y,TEXAS and in the interest of Micbael Wyatt Sydow, n minor child 308TH JUDICIAL DISTRfCT

DIRECT QUESTIONS TO BE PROPOUNDED TO THE WITNESS

Custodian of Records for: Compass Bank, Brokerage Dept. C/0 CT Corporation System Rtcords Pertaining To: See Exhibit A Type of Records: Any and all records as describ~od on the auachecJ Exhibit 'A'

2. Please state by whom you are employed and tbc business address. Answer: 13B i /4 C:~rn(:Ls S '/0 I - 3 ~n(~ ~~e:t- ~uft J5•fte,i;J(.s,r.)~.5 l. What is lh¢ title of your position or job'?

Answer: I.Je.r,> :=Ro Ci'S'So v:Jt 41. Arc these memoranda, reports, records, or data compilations, outlined in the subpoena duces tecum, penaining t

Answer. __~~~---------------------------------------------------------------------------------------------

3. Arc you able to identify these aforementioned records as the originals or true and correct copies of the originals'?

6. !"lease hand to the Otlieer taking this deposition copies of the memoranda, repons, records, or daru compilations, mentioned in Question No. 4. Have you complied? lfnoc. why?

Am:"'er: Se,, &. by Y'Y \ ~ ~ L.,

7. Are lhe copies which you ha\'e handed to the Officer taking this deposition true and correct copies of such memoranda, reports, records. or data compilations. Answer: ( ·"f ~~~------------------------------------------------------------------------------- Order No. 03-6270-liOl

EXHIBIT A-13 371 -- - -- --- 8. Were such memoranda, reports. records, or data compii:Jtions kept in the regu;ar course of business of this facility"!

Answer: 1 Yf~ 9. Was it in the regular course of busintJ!ols uf thi!\ facility for a person with knowledge of the acLc;, events, conditions, upmi\)tl. or diagnoses, recorded ro mak~: the record or to transmit information thereof to be included in such re.cord?

Answer: ---:,..:...~_f....;S::::..__________________________ _

10. Were the entries on th:se records made nt or shonly after the time of the rransaetion recorded'!

,o\nswer: l r-) II. Was the method of preparation of the~e records trustworthy'?

Answer: 't'S

WINES$ (Custodian of Records)

Before me, the undersigned authority, on this day personally appeared--- -- - -- -- - - - - - - - known to me to be the person whose name is subscribed to the forego ing instrument in the capacity therein stated, who being first duly sworn. stated upon his/her oath that the answers to the foregoing questions ore true and correcL I further certify th:1r the records artached hereto are euct duplicates of the original records.

SWORN TO AND SUBSCRIBED before me this f) {o /-Vl day of J ~flt)D.(t) , 20 I{

MY COMMISSION EXPl~ My Commission Expires: _ _ _O _N_21 __1_2___ _1_5120

Order ~o. 03-6270-00l

:

372 AFFIDAVIT OF SERVICE. Deposition Subpoena To Testify Or Produce Documents or Things, Attached Notice Case Number. 2010-02710

Plaintiff: In The Matter of the Marriage of Michael D. Sydow and vs. Defendant: Kelll McDonald Sydow and In the lnteres to Michael Wyatt Sydow a minor child

Received by Smart Choice Process Service. Inc. on the 15th day of December. 2010 at 3:00pm to be served on Compass Bank, Brokerage Dept. c/o CT Corporation System It's Registered Agent, 350 North St. Paul Street, Ste.•2900, Dallas, TX 75201 .

I, Michael E. Wigginton. being duly swom. depose and sey that on the 16th day of December, 2010 at 2:51 pm, 1: served a AUTHORIZED AGENT by delivering a true copy of the Deposition Subpoena To Testify Or Produce Documents or Things, Attached Notice with the date and hour of service endorsed thereon by me, to: Neshka Taylor as Authorized Person to Accept, at the address of: 360 North St. Paul St.reet, Ste.·2900, Dallas, TX 75201 on behalf of Compass Bank, Brokerage Dept., and informed said person of the contents therein.

J am over eighteen {18} years of age and not a party to nor Interested in the outcome of the above numbered suit am authorized to serve citations and other notices in this cause by The Texas Supreme Court.

Subscribed and Sworn to before me on the 16th day Michael E. of December, 2010 by the affiant who is personally SCH-3613 l

.,..,. MELANIE A. LOCKEt lUIS Our Job Serial Number: LJW-201 0001703 /->•~~ - ...'~!'~~ · - NotarY Public. ~tate of Tes C miss1on EltP'18 Jc~!.~.~,\" ..... ~~.. 0 Mv J:ne 30, 20\4 '.. ·- · .., Cowi;!11 0 11182-2010 g, t;obu• S..W.a, Int. · P1ocau S.,.er'5 Toolllax V!i.

373 No. 201~02710

In tbll Matter of tb~ Marriage of IN THE DISTRICT COURT OF Mic:bael D. Sydow and Kelli Mc:Donald Sydow ~SCOUNTY,TEXAS and Jn the hllerett of Michael Wyatt Sydow, a minor c:hild 308TH JUDICIAL DISTRICT

NOTICE OF DELIVERY

RE: Compass Bank, Brokerage Dept. C/0 cr Corporation System (Any &: AU Records)

1, Shelia Edwards , Notaty Public in and f<>r the State ofTexas, hereby certify pursuant to the Rule 206, Texas Rules of Civil Procedure,

I. That this Deposition by Written Questions of Patricia D. Custard, the Custodian of Records for the above named is a true and exact duplicate of the records pertaining to See Exhibit A, given by the witDess named herein, after said witness was duly sworn by Anneetress D. Walker

2. That the U'IU\SCript is a true record of the testimony given by the witness;

3. That $1,406.15 is the charge for the preparation of the completed Deposition by Written Questions and any copies of exhibits, charged to Anomey for Respondent, Dennis B. KeUy, TBA # 11217500;

4. That the deposition transcript was submitted on the l6tb day of January, lOll , to the witness for examination, signature and return to the officer b:y a specified date;

S. That chana~. it any made by the witness, in th~; transcript and otherwise are auached thereto or incorporated therein;

6. That the witness returned the transcript;

7. That the original depositio~ by Written Questions and a copy thereof, together with copies of all exhibitS was delivered to the anomey or party who Noticed the first questions for safekeeping and use at uial;

8. That pul'$uant to information made a part of the records at the time said testimony was taken. the following includes all parties of record:

Asher B. Griffin Joseph lodelka.to,lr. David J . Wukosoo. Attoraey For Petitioner

and 9. A copy of this Notice of Delivery was served o_n all panies shown herejn,

MerriU Corporation 315 Capitol Suite 210 Houston, TX 77002 (713) 868-1919 Fax (713) 315-1158

SHEUA ANN EDWARDS Order No. 03-6170-001 MV COl.IMISSION EXPIRES OIIC8mber 2. 2011

374 P.EPOSlTION S~OENA TO TESl]fY OR Pft.ODYCE DOCUMJfNTS OR TlllNGS THE STATE OF TEXAS

To any Sheriff or Constable of the State of Texas or Olhrr person aurhorized to serve subpoenas under RULE 176 OF TEXAS RULES OF CIVIL PROCEDURE. - GREETINGS -

You are ~b)· commanded to subpOena and summon the following witnes.s(es): Custodian of Re<:ords for: Compass Bank, Brokerage Dept. CIO CT CorporalJoo System 350 North Sr. Paul Street Dallas, TX 75201 to be and appear before a Notary Public or my dcsignatioo for M~rrill Corporadon (713) 868-2929 315 Capitol Suite 210, Holl$ton, TX 77002 or ii.S designate

and there remain from day to day and Lime to time until dischar~ accordina to law.

WITNESS MY HAND, this tSth day of December. ~.

.... .••···~o 176.8 Enf'orcemcnt of' Subpoena. (a) Contempt. Failure by an)' person wilhout adequate ex~ obey't.1&C)e tf upon that person may be deemed a contempr of tbt coun from which tbe subpoena Is issued <>€& d~~ which the subpoena L5 served, and may be punished by fine or confioemtnt, or both. ~ ••• ":'~ 0:, ~ .~-~~ •;..,.~ ~ ~ •;!'iF~ ..~... . •• •• OFFICER 'S RETURN . ····i::w .:u''' ' ,~.···~· ; ~::.:u•~ ~~:·...... "•.) ·' , 20_. Came to hand this day of • 20_ _ • and executed thts the _ _ day of in lbt rollowlng manner: By delivering 10 the witness - - -- - - - -- - - - -- - -' a true copy bereof.

Returned this _ _ _ d.ay o f - - - - - -· 20_.

PROCESS SERVER

Orlkc 1'\o. 03-6270-001

375 COMPASS BANK - EXHIBIT A

The terms udocuments,, "writings," and "records" are used in t his ex hibit in their c ustomary broad sense and incl ude without lim itation the following items, regardless of origin or location, whether printed, recorded, filmed, or rep roduced by any other mechanical process or written or produced by hand; and whether an original, master, or copyj namely:

1. All acGOunt statements. deposit records. withdrawal records, transfer records, cancelled checks, partnership agreements, funding lines of credit, financing statements, pt·omissory notes and loan documents for tbe period from April 15, 2010, to the present date. for all checking accounts, savings accounts, certificates of deposit, and all other types of financial accounts. whether personal or for businesses in which the parties, Michael D. Sydow (alk/a Michael D. Sydow. Sr., Michael David Sydow, Michael David Sydow, Sr., Michael Sydow, or Michael Sydow~ Sr.) or KelU McDonald Sydow (or either of them), have any interest and that are maintained in the name of the parries (or either of them). in the narne(s) of their business(es). including but not limited to NCJ2, Inc., Texas Syngas. Zagometa, Daedelus Air, The Michael and Kelli Sydow Irrevocable Insurance Trust, Chippendale Park, Loki Investments, Loki Services, American Inte rn atio nal Helicopters , Inc., No Peanuts. or Woden Enterprises. and any other entity on behalf of the parties (or either of them), or on which the parties (or either of them) has or has had the right to draw. includi ng but not limited to each of 'th e fallowing accounts:

a. Joint (Kelli Sydow and Michae~ Sydow) Account #xxx8347 b. Amegy Bank Loan CoUateral FBO Michael D. Sydow Accou nt #xxx8347-1 c. ATM Joint (Kelli Sydow and Michael Sydow) Checking Account #xxx4380 d. Money Market Joint (Kelli Sydow and Michael Sydow) Account #xxx1016 e. Bill Payer Joint (Kellf Sydow and Michael Sydow) Checking Account #xxx7863 f. Kelli Sydow C/F Michael Wyatt Sydow UTMAITX Account #xxx3919 g. VCSP/CollegeAmerica 529 Account for Michael Wyatt Sydow h. Kelli McDonald Sydow Account #xxx6212 i. Kelli Sydow and Michael Sydow Tenants in Common Account #xxx8662 j. Michael Wyatt Sydow (Kelli McDonald Sydow Custodian} A ccount #x.xx3511 k. NC12 Account #xxx8791 I. Texas Syngas Account #xxx8791 m. Airplane Account.

2. AH cashier's checks purchased by or on behalf of Michael D. Sydow (alk/a M ichael D. Sydow, Sr., Michael Da,i d Sydow, M;cbael David Sydow, Sr., Michael Sydow. or Michael Sydow~ Sr.) or any of his businesses, including but not limited to NC 12, Inc.. Texas Syngas, Zagometa, Oaedelus Air, The Michael and Kell i Sydow Irrevocable Insurance Trost, Chippendale Park, loki Investments. l oki Services. Am erican International Helicopters. Inc., No Peanuts, or Woden Enterprises. from April 15,

...

376 2010, to the present date.

3. All financial sratements in your possession prepared by or on behalf of Michael D. Sydow (alk/a Michael D. Sydow, Sr. ~ Michael David Sydow, Michael David Sydow. Sr.• Michael Sydow. or Michael Sydow, Sr.} or any of his businesses, including but not limited to NCI2. Inc .. Texas Syngas. Zagometa. Daedelus Air, The Michael and Kelli Sydow Irrevocable Insurance Trust, Chippendale Park, Loki Investments, Loki Services, American International Helicopters, Inc., No Peanuts. or Woden Enterprises, from April 15, 2010, to the present date.

4. AJI checks and other financial instruments negotiated for cash paid by your institution to Michael D. Sydow (alk.'a Michael D. Sydow, Sr., Michael David Sydow, Michael David Sydow, Sr., Michael Sydow, or Michael Sydow, Sr.) or any of his businesses, including but not limited to NCI2, Inc., Texas Syngas, Zagometa, Daedelus Air, The Michael and Kelli Sydow Irrevocable Insurance Trust, Chippendale Park, Loki Investments, Loki Services, American International Helicopters, Inc., No Peanuts, or Woden Enterprises. from April15, 2010, to the present date.

5. All witinglrouting instructions, information and transactions for Michael D. Sydow (alk/a Michael D. Sydow, Sr., Michael David Sydow, Michael David Sydow, Sr., Michael Sydow, or Michael Sydow, Sr.) or any of his businesses, including but not limited to NC12, Jnc., Texas Syngas, Zagometa, Daedelus Air, The Michael and Kelli Sydow Irrevocable Insurance Trust, Chippendale Park, Loki Investments. Loki Services, American International Helicopters, Inc., No Peanuts, or Woden Enterprises, from April 15, 2010, to the present date, including but not limited to ABA wiring/routing #113011258.

6. All account statements, deposit records, withdrawal records, transfer records, cancelled checks, partnership agreements, funding lines of credit, financing statements, promissory notes and Joan documents for the period from April 15, 2010, to the present date, for th~ following account:

a. Account #1013572 with.Compass Bank (formerly Southwest Bank of Texas)

... 377 No. 2010~2710

In the Matter of tlte Marriage of IN THE DISTRICT COURT OF Michael D. Sydow and 'Kelli McDonaJd Sydow HARRJS COUl'tTY, TEXAS and u• the interest of Michael Wyatt S~·dow, a minor ehJid 308TH JUDICIAL DISTRICT

NOTICE OF INTENTION TO TAKE DEPOSITION BY WRITIE~ QUESTIONS

To Petitioner by and through their anomey(s) of record: David J. Wukoson Toomer party/parties by and through their auomey(s) of record: Asher B. Griffin and Joseph Indelicato, Jr.

You will please tak~ notice that awenty-fow (24) days from the servi~ of a copy bereof with attached questions, a deposition by wriuen questions will be taken of Custodian of Records for: Compass Bank, Brokerage Dept. C/0 CT Corporation System(Any & All Records) 350 North St. Paul Street Dallas, TX 75201

before a Nowy Public for Merrill Corporation (713) 868-2929 Fax (713) 315-2158 315 Capitol~ Suite 21 O, Rous ton, TX 77002 or 1lS designated agenl. which deposition with attached questions may be used in evidence upon the trial of the above·styled and numbered cause pending in the above named coun. Notice is further given that request 1S hereby made as authorit.ed under Rule 200. Texas Rules or Civil Procedure, to the o ff~eer raking this deposition to issue a subpoena duces tecum and cause it to be served on the witness to produce any and all records as described on the auached questions andfor Exhibit(S) and any other such record in the possession, custody or control of the said witness. and every such record to which the witness may have access, pertaining to: See Exhibil A and to tum all such reconhi over to the officer authori:z.ed to take this deposition so that photographic reproductions of the same may be made and anached to said deposition.

Dennls 8 . Kelly Law Offices of Dennis B. Kelly 602 Sawyer, Suite 700 Houston, TX 77007-7524 (713) 868-2700 Fax (713) 86$-6054 Attorney for ~'PQndent SBA # 11217.500

1 hereby certify that a true and correct copy of the foregoing insuument has been forwarded to all Counsel of Record by band delivery. FAX. and/or certified majJ, return receipt requested. on this day. . j

Da~£d: December IS. 2010 by Dg 4~.8· . 44 t:.£v .W A,_., Order No. 03-627().001

378 CERTIFICATE OF SERVICE

I cenify that a true and correct copy of the foregoing Notice and written questions has been hand-delivered and/or mailed receipt requested, 10 the auorneys of record.

Merrill Corporation 315 Capitol Suite 210 Houston, TX 77002 (713) 868-2929 Fax (713) 315-2158

379 (C)Full(/tufl S~I#Mt

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387 TEXAS SECRETARY of STATE NANDtTA BERRY

FHing Num1rer. 801644546 Entity Type: Dnmasti{; Fo-r:.Proffi (';t,"rporfltion Original Date of Filing: August 22, 2012 &'ltity Status: Fotfeited existence Formation Date: N/A Tax 10: 32048819349 FEN: Duration: Perpetual

Name: JK Claims h"~trnent Cor~10fation Addross: 360 N SAJk'T PAUL ST tHE 2900 DALlAS, TX 7520"1-4234 USA rl='f>!ffi·nm·>·n•w•·•"'''""""""''"""'"'""'""''"'"'...,...,.....,...... w ...., . ..... w. ':;'0::':;'=~~~~~~~~==~·'-"" -~

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EXHIBIT A~14 388 BWSIN8>SO~GlJ'-lllA110NS INQUlRY • VJEVVENTITY

TEXAS SECRETARY of STATE NANOITA BERRY .~Ir~~ ! fi_14;~ne~ Or-e~~hath)tl~ t Tr~~em~rks ! .t~ffiJ~\1 t ~~ I ~.!El~ 1 ~r~n{~g~ 1 t&-slm~t BUSINESS ORGAN!ZATJONS JNQ.UJRY ~VIEW E~Pf!TY

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389 Case 1:05-cv-10077-RGS Document 24 Filed 06/02/05 Page 1 of 18

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETJ'S

ROBERTJ. HANFIJNG,CHAPTERll ) TRUSTEE FOR ATG, INC. AND ) CATALYfiCS LLC ) ) Plaintiff, ) v. ) C.A. No. 05-10077-RGS ) EPSTEIN BECKER & GREEN, P.C. ) JOHN PRESTON, CHRISTOPHER NAGEL, ) EUGENE BERMAN, ETHAN JACKS, ) QUANTUM CATALYfiCS LLC, ABC ) CORPS 1 through 5 and JOHN DOES ) 1 through 5, ) ) Defendants. )

MODIFIED MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS QUANTUM CATALYI'ICS, LLC, JOHN PRESTON, AND CHRISTOPHER NAGEL'S MOTION TO DISMISS

Defendants Quantum Catalytia LLC ("Qoantmn"), lolm Preston and Christopher

Nagel (colledively, the "Qaantmn Defendants"), pwsuant to Roles 9(b) and 12(b)(6) of the

Federal Rules of Civil Protedllft, respedfully move 1his Comt to dismi« the Complaiut in the

above-refer-enced dvfl adion with prejudice for failure to state a dalm upon which relief can

be granted. The Quantum Defendants also respedfully move this Comt to dismiss the claims

auetted agaimt them bocav.se tho.se claims are bamd by the appUcahle statute of lhnltatiom.

PROCEDURAL BACKGROUND

The Quantum Defendants timely filed a Motion To Dismiss Or In The Alternative To

Abstain with the llnited States Bankruptcy Comt for the Nol1hem District of California on

March 22, 2004. Pursuant to the Bankroptcy Court Lotal Role 7003-l(b), Plalntifrs

-1-

EXHIBIT A-15 390 Cause No. 2011-44058

MICHAEL COLLINS; ET AL., § IN THE DISTRICT COURT PLAINTIFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; ET AL., § DEFENDANTS. § 215th JUDICIAL DISTRICT

AKJLA FINANCE, S.A.; ET AL.• § IN THE DISTRICT COURT INTERVEl\!QRSIPLAINTfFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; ET AL.1 § D EPENDANTS. § 215th JUDICIAL DISTRICf

AFFIDAVIT OF MICHAEL COLLINS

Before me, the undersigned notary, on this day personally appeared MICHAEL COLLINS, who is personally known to me, and frrst being duly sworn to law upon his oath deposed and said:

1. My name is Michael Collins. I am over the age of 19 years old and am fulJy competent to make this affidavit. I am a former member of Texas Syngas, LLC ("Svngas LLC'), former officer and director of Texas Syngas, Inc. ("TSI"), and a former employee of NC12, Inc. ("NC12"). The information contained herein is true and correct and is based on my personal knowledge gained through my association with Syngas LLC, TSL and NC12, as well as the business relationships I developed with John T. Preston ("Preston'') and Michael D Sydow ("Sydow'l

2. In July 2004, I formed Syngas LLC for the purpose of exploiting technology that I had developed to create environmentally friendly, low-cost energy through a gasification process. I was the original sole member of Syngas LLC.

3. Shortly after forming Syngas LLC, I was introduced to Preston, who I understood held patents on certain technology called Catalytic Extraction Processing ("CEP"). CEP is a process for breaking down hazardous and radioactive waste and recycling them into marketable products.

4. The CEP technology was formerly owned by a company called Molten Metal Technology Inc. (HMMf"). Before I met Preston, he had been active in attempting to put together a project between MMT and Hoescht Celanese for the development of a facility in Bay City, Texas to process waste water byproducts generated at Hoescht Celanese's OulfCoast chemical plants.

EXHIBIT B 408 5. Ultimately MMT went into bankruptcy, and Preston effectively acquired MMT's patents through the bankruptcy proceeding.

6. My first meeting with Preston oc~urred in 2004 when Preston flew to Houston to meet with me near my home in The Woodlands. During this meeting~ Preston touted the patented technology that he had acquired from MMT and encouraged my participation in the commercial development of that technology.

7. Preston came to Texas to meet with me again a few months after that first meeting in The WoodJands. This 1ime, we travelled to Bay City1 Texas to meet with Hoescht Celanese to continue discussions regarding the development and operation of a CEP facility for Hoescht Celanese. Preston returned to Texas again about two months later, when Preston and I met with Hoescht Celanese~ this time in Baytown, Texas.

8. During these three meetings in Texas, Preston and I discussed the commercial opportunities possible utilizjng the MMT technology and the technology I had developed. 1 believed that a viable business could be developed using my technology, along with the patented technology held by Preston.

9. Preston and I continued to talk by telephone over the course of the e11suing months. Preston initiated a number of those calls, either to me at my home in The Woodlands, Texas, or to me at an office I used at the law offices of Jeffrey Kaiser (..Kaiser") on TC Jester and later at the offices of Sydow, McDonald, Kaiser & Ahmed, on Bering Street in Houston, Texas and later Bagby Street in Houston. Preston also shipped records regarding MMT and its patented technology to me: at the Bagby Street office for my review and use in the business I was undertaking with Preston.

10. Ultimately, Preston decjded to join me as a member of Syngas LLC. Preston later requested that his name on the Syngas LLC records be changed to Quantum Catalytics LLC (''QuAAt.Umn), a company owned by Preston. Preston led us to believe that he was the sole owner, officer,and employee of Quantum.

11. When we began our discussions and negotiations in 2004, Preston did not represent himself to be negotiating and planning with me on behalf of any corporate entity. Accordingly, I understood at all times that I was doing business with John Preston, and not Quantum. In fact, after our introduction, it was Preston that solicited me, inducing me to work with him to develop my technology and the technology he had acquired from MMT. 12. At all times during my discussions and business relationship with Preston, I was a resident of The Woodlands, Texas. In my discussions with Preston, I learned that Preston bad been to Texas on multiple occasions prior to our introduction. He told me that he had previously travelled to Texas on numerous occasions for meetings with Hoescht Cel.anese and with Flour Daniel in Clear Lake, Texas. Preston also told me that he had made numerous visits to the Houston Area Research Center, or HARC, on Research Forrest Drive in The Woodlands, Texas to study new technologies in the mid and late 1990s. As a result. Preston was very familiar with The WoodJands. It was my

2 409 understanding that his visits to HAllC were for his personal benefit and not done tluough MIT or any corporation.

l3. ln November 2008~ Preston invited me to dinner at the Houston.ian in Houston, Texas. Dw·.ing this diJ'lner, Preston pl'essed me to consent to a proposal for t1nancing fur NC12 that he was attempting to put together through his company C Change. Investments {"C Change''). However, it appeared tJ1at the prop<;>sal was simply Preston's (lttempt to cut a deal for himselfduough C Change, and not a genuine eff

a ' As 1 understood the transaction, the only pa.rti~s that wonld bene11t would be Preston and companies sole:ly un:der his coutrol, including C Chan.ge, at the expense of NC 12 and its existing ilwestors and shareholders. ;

~tveP~- Michael Collins ·

STATE OF TExAS

COUNTY OF HARRIS.

13l~FORE ~.E. the t.mdersignecl ~uthn.d(y~ q~~.:·thJs dl,\y pel·sonaHy appeared Michael C61lii1si know11 to me to he· the person whose name. is subscl'i.bed to. the· fbregpfug .insfrume1'1t~ and -acknowledged ·to nie that. he re~td the Alllduvit <:>f Michael Collin$ and .that the fact~ stated therein were w.ithhi lus. pet-soual.k11ovoilecige ;.md we.te true and.corre.ct.

GIVEN UNDER MY I:! AND AND SEAL OF OFPICE this thc~duy ·of J~me:20 14.

""NOTAl~YPOB.tJC lN ANP FOR THE STATE OF TEXAS

410 8/8/2014 5 :43:24 PM Chris Daniel • District Clerk Harris County Envelope No. 2104187 By. GAYLE FULLER

MICHAEL COLLINS, ET AL .• § IN THE DISTRICT COURT PLAINTIFFS, § vs. § OF HARRIS COUNTY, TEXAS § . MICHAEL SYDOW, ET AL., § DEFENDANTS. § 215th JUDICIAL DISTRICT

AKILA FINANCE, S.A.; BOSQUES DEL MOLINO, § IN TilE DISTRICT COURT S .A. ~ CENTRANS ENERGY SERVICES, INC.; § CHESTERMESTERHOLDINGS. LTD.; DELTEC § BANK & TRUST, LTD.; EMJO INVESTMENTS, § LTD.; WILLIAM END; EVANS & PETREE 40 JK § PLAN; FlRST BAY INTERTRADE; GM PARTNERS; § MARAlR CORP.; W.L. NICHOL, IV; PANORAMA § INVESTMENT, LTD.; PCOI VERMOEGENS VERW.; § ALEJANDRO SANTO DOMINGO; SINCHI § INVESTMENT; VENTURI GLOBAL § INVESTMENTS., LTD., and HJ. von der GOLTZ § lNTERVENORSIPLAJNTIFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; JOHN PRESTON; CHRISTOPH § HENKEL; C CHANGE INVESTMENTS, LLC; § CHALSYS CAPITAL PARTNERS, LLP; SONIA LO; § BRILLIANT NOVELTY, L.L.C.; OSCURA, INC.; § MELIORA ENERGY TECHNOLOGIES, S.a.r.l; and § FALL RIVER REALTY. LTD., § DEFENDANTS. § 215th JUDICIAL DISTRICT

INTERVENORS' SUPPLEMENTAL RESPONSE TO THE SPECIAL APPEARANCE OF JOHN T. PRESTON

l. INTRODUCTION

Intervenors file this Supplemental Response to the Special Appearance filed by John T.

Preston ("Preston") further addressing Preston's contacts with Texas through JK Claims

Investment Corporation C'JK Claims..) and allegedly through Transformative Energy &

Materials Capital, Jnc. ("TEM Capital"). The evidence confirms that:

413 • JK Claims is merely a shell corporation and the alter ego of Preston. Accordingly, JK Claims' contacts with Texas are contacts of Preston for purposes of the personal jurisdictional analysis.

• TEM Capital was not yet incorporated at the time Preston travelled to Texas, allegedly on behalf of TEM CapitaL Accordingly, Preston is not entitled to the fiduciary shield as to those visits.

D. BACKGROUND A. Preston Established Minimum Contacts with Texas Under the Guise of JK Oaim.

The available evidence confirms that Texas corporatjon JK Claims is merely a front for

and the alter ego of Preston and his co-conspirator Michael Sydow ("Sydow, ), created for the

purpose of purchasing and then dismissing claims pending against them individually in the 152"d

Judicial District Court in Harris County, Texas.1

1. The Kaiser Litigation.

On June 26, 2007, Jeffery B. Kaiser (''Kaiser") filed a lawsuit against Texas Syngas LLC

("Syngas LLC"), Michael Collins ("Co11ins, ), M. Sameer Ahmed, Sydow, and all other similarly

situated officers and directors of "Texas Syngas LLC alk/a Texas Syngas, Inc." in the 152"d

District Court, Harris County, Texas. under cause number 2007-38533 (the "Kaiser Litigation,).

On May 5, 2008, Kaiser filed his Second Amended Petition, adding Preston as a named

defendant. (Exhibit B at ~ 10). As reflected in the Second Amended Petition, Kaiser sought to

recover against Preston, Sydow, and others for what he alleged to have been fraud in the creation

ofTexas Syngas, Inc. ("TSI") and the transfer of Syngas LLC' s assets to TSI in violation of his

rights as a member of Syngas LLC. Kaiser asserted a number of causes of action against all of

the defendants including breach of fiduciary duty. fraud, and violations of the Texas Securities

Act. (/d. at ~~ 23 through 68).

Attached hereto and incorporated herein by reference is the Affidavit of Kelley M. Keller. 2

414 2. Preston~s a nd Sydow's Response to the Kaiser Litigation.

On August 17, 2007, Preston intervened in the Kaiser Litigation through Quantum

Catalytics LLC ("Quantum"). (Exhibit C). Preston is the president of Quantum. (See Exhibit D at

Ex. D). Quantum asserted that Kaiser did not represent the interests of Quantum and was not

entitled to bring any action on its behalf. (Ex. C at ~ 8). Quantum also sought affumative re1ief

against Kaiser for alleged breaches of fiduciary duty, negligence, and breach of contract. (ld at

m!9, 10). Sydow signed Quantum's petition in intervention as counsel for Quantum. (/d.).

On June 20, 2008, Sydow filed an amended answer and counterclaim against Kaiser,

asserting that Kaiser brought the Kaiser Litigation for purposes of harassment, in bad faith, and

without support in fact or in law. (Exhibit E) . The same day, Sydow filed an amended motion for

summary judgment on the claims asserted by Kaiser, asserting:

At its core, this lawsuit concerns Kai ser's anger over the fact that Collins has not offered Kaiser any stock in Texas Syngas, Inc. Of course, Collins has no legal obligation to offer his Texas Syngas, Inc. stock to Kaiser or anyone else. Consequently, Kaiser's second amended petition is a lengthy artful dodge asserting causes of action that would purport to create damages where none exist.

(Ex. D at p. 4). Preston submitted an affidavit in support of Sydow' s motion, asserting that u(t]he

majority of the members of Texas Syngas, L.L.C. have approved the acts taken by Michael C.

Collins in the management of the company." (See Ex. D at Ex. D).

3. The Kaiser Bankruptcy and the Assignment to JK Claims.

On August 8, 2008, Kaiser filed for bankruptcy under Chapter 7 of Title II of the United

States Code in the Southern District of Texas, Houston Division, under Case Number 08-35261-

Hl-7. Ronald J. Sommers was appointed Chapter 7 Trustee (the ...Kaiser Trustee").

Upon commencement of the Kaiser bankruptcy, the claims owned by Kaiser and asserted

in the Kaiser Litigation became the property of Kaiser' s b-ankruptcy estate and the Kaiser Trustee

became the real party in interest. See l l U.S.C. § 541(a).

415 The Kaiser Trustee attempted to find couns.el to pursue Kaiser's claims on behalf of the

Kaiser bankruptcy estate or to find a purchaser for the claims. On March 14, 2012, Gretchen

McCord r·~ceord.,), counsel for the Kaiser Trustee, forwarded a draft motion to sell and order 2 to Kelly Stephens ("Stephens"), of Stephens & Domnitz, PLLC, for his review. (Exhibit F at

38:6-39:7 and Ex. 11 ). Stephens represented the purchaser in connection with the purchase of

Kaiser's claims from the Kaiser bankruptcy estate. (Ex. F at 40:3-7, 4 1:3-42:5 and Exs. 11-13).

In an email to McCord on June 15, 20 12, Stephens refers to his "clients" without identifying the

clients. (Ex. Fat Ex. 13).

On June 19, 2012, the Kaiser Trustee filed a motion in the bankruptcy court seeking authority to sell Kaiser' s claims to JK Claims for $25,000. (Exhibit G). Tn the motion to sell, the

Kaiser Trustee describes the assets to be sold as follows:

Any and call causes of action owned by the Debtor as of the date of his Bankruptcy filing and now owned by the bankruptcy Estate against Texas Syngas, LLC, Texas Syngas, Inc. and their officers. directors, shareholders, agents, attorneys and/or against any predecessor, successor, or affiliated companies, including but not lim ited to the following individuals: Michael Sydow, Michael Collins, John T. Preston, Quantum Catalytics, Inc., and M. Sameer Ahmed. These claims would include specifically all those claims that were owned by the Debtor and that were pled, or that could have been pled, in the Lawsuit with Cause Number 2007-38533, and styled Jeffery B. Kaiser, el. a/ v. Texas Syngas. LLC alkla Texas Syngas, Inc., et a/., currently pending in the 152'1d Judicial District Court of Harris County ("Claims..).

(Ex. Gat~ 15).

The Trustee described the value of the Kaiser Litigation as "tentative at best' and noted

that of ''utmost importance in the Trustee's analysis is that he believes that there is little chance

ofrecovery if he were to pursue'' the litigation. (Ex. Gat~ 23) (emphasis added).

Coli ins requested the deposition of the corporate representatjve of JK Claims in the course of the Kaiser Litigation. JK Claims designated Sydow as the corporate representative. Sydow·s deposjtion in such capacity was taken on February 25, 2014. That deposition is attached hereto and incorporated herein as ExlUbit F.

416 The Kaiser Trustee described the purchaser as follows:

The purchaser is JK Claims Investment Corporation, or its assigns, which the Trustee has been informed is being funded by Paul Lohnes ("Purchaser"). The Trustee has been informed that the Purchaser is a business associate of the Defendants.

(Jd at~ 16). As reflected below, JK Claims had not yet been incorporated at this time. (Ex. Fat

Ex. 3).

The bankruptcy court granted the Kaiser Trustee's motion to sell on July 13, 2012.

(Exhibit H). On July 26, 2012, Stephens & Domnitz, PLLC, wired $24,970 to the Kaiser Trustee

as payment for the claims purchased from the Kaiser Trustee (the ''Kaiser Claims''). (See Exhibit

I at 103).

4. The Formation of JK Claims.

On June 15, 2012, Sydow filed an Application for Reservation of an Entity Name with

the Texas Secretary of State (the " Application"}, reserving the name JK Claims Investment

Corporation for the exclusive use of Preston. (Ex. F at 27:23-28:24, 29:3-1 9 and Ex. 6). An

applicant for a name reservation may be either an organized entity or an individual. (See Ex. F at

Ex. 6). The Application reflects that the applicant is an individual- Preston. (/d). Sydow also

prepared JK Claims' Certificate of Formation and filed same with the Texas Secretary of State

on August 22, 20 12. (Ex. Fat 17: 5-9~ 21 : 17-22:13 and Ex. 3).3

Sydow signed the Application and paid the $30 fee for the name reservation. (Ex. F at

27:23-28:24, 29:20-24 and Exs. 6, 8). Michael David Sydow, Jr., Sydow' s son employed with

Sydow at the time, paid the $300 filing fee for incorporating JK Claims. (Ex. F at 20:15-21 :4,

23:23-25:25 and Ex. 4).

3 Sydow contends that he is ··corporate counsel" for JK Claims and has been since the company's fonnation. (Ex. Fat 6: 18-7:8). Sydow could not say how much he charged for his services in forming JK CJaims and could not even say if he sent JK Claims an invoice for his services. (/d. at 67:2 J-68:4).

417 Although Sydow contends that Quantum would have paid for both the name reservation

and the incorporation, he could not identify any records confirming same - the only available

documentary evidence is that Sydow and his son paid to incorporate JK Claims. (See Ex. F at

20: 15-21 :4, 26: 1-6 and Exs. 4, 6, and 8)."

Sydow contends that he also prepared the bylaws for JK Claims (the "Bylaws"). (Ex. F at

10:3-10, 11:1-1 2). However. JK Claims failed to produce a signed and dated copy of its Bylaws.

(Ex. Fat Ex. 2). According to Sydow, there is not likely a signed and dated copy. (Ex. F at

12:24-1 3:4 , 13: 15-19, 14:10-13, 15:8-12). The Bylaws Sydow did produce appear to have been

hastily prepared from bylaws previously prepared for a Nevada corporation, using a search and

replace feature to include the corporation's name and to substitute the word "Texas'' iu place of

the word ..Nevada.,. While the Bylaws purport to invoke Texas Jaw. they refer to the "General

Corporation Law" throughout - a reference to Nevada law - and refer to specific provisions of

the General Corporation Law of Nevada. (See Ex. Fat Ex. 2 at pp. 21 5, 7)

The only other corporate records that Sydow produced for JK Claims are similarly

lacking in marks of authenticity. Neither the Written Consent in Lieu of Meeting, by which

Quantum consented to the appointment of Preston as the sole director on August 22, 2012, nor

the Wrilten Consent in Lieu of Meeting. by which Quantum reelected Preston as the sole director

on August 22, 2013 , are signed. (Ex. fat Ex. 9, pp. l , 2).s However, the Bylaws require that

written consents in lieu of shareholder meetings be signed by I he stockholders holding at least a

majority of the voting power of the company. (EJt. Fat Ex. 2 at p. 6).

The Bylaws further provide that any action required or permitted to be taken by the JK

Sydow testified that he docs not advance payment for the fonnation of entities. (Ex . fat 33 :4~7) . Accordingly. if the payments were not advances, they were payments made by and on behalf of Sydow and/or Preston. for whom the company name was reserved. s Sydow testified that he prepared these documents at Preston·s request. (Ex. Fat 34:11-36:1). 6

418 Claims board of directors may be taken without a meeting if. ..before or after the action. a written

consent thereto is signed by all/he members of lhe Board." (Ex. Fat Ex. 2 at p. 9) (emphasis

added). However, the document entitled ..JK Claims Action by Director, by which some 6 unnamed director purportedly approved the purchase of the Kaiser Claims is neither signed nor

dated. (ld at p. 3).

5. Officen, Directors, and Ownership of JK Claims.

The JK Claims Certificate of Formation identifies Preston as the sole director and is

signed by Sydow as the organizer. (Ex. Fat 21 :17-22:3 and Ex. 3 at p. 7-9). Preston is and has

always been JK Claims' sole officer (president, secretary, and treasurer) and director. (Ex. F at

7:9-25). According to Sydow, Preston was his sole point of contact on the incorporation of JK

Claims. (Ex. Fat 11 : 17-24).

Sydow contends that JK Claims is wholly owned by Quantum. (Ex. F at 8:1-6. 56:21-

57•3). Sydow initially testified that Quantum held 1,000 shares in JK Claims. (Ex. Fat 8:1-6).

However, there are no share certificates evidencing ownership by Quantum. (Ex. F at 55:2-6,

57:14-19). Later in the deposition, Sydow testified that JK Claims does not have any

shareholders. (Ex. Fat 56:21-57:3).

In fact, there do not appear to be a ny documents evidencing the ownership of JK Claims.

According to Sydow, because JK Claims is an "uncertificated" company under applicable Texas

law, there are no records that identify JK Clajms ' shareholder(s). {See Ex. Fat 57:2-19, 58:3-

59:5). However, "uncertificated" corporations are merely relieved of the obligation to issue

"certificates" to their shareholders evidencing share ownership. See Tex. Bus. Org. Code §

3.201. Ownership of corporatjons electing ·~uncertificated" status is still represented by

6 The Bylaws state that the business and affairs of the company shall be managed by the board of directors. (Ex. F at Ex. 2 at p. 7). 7

419 shareholders. In the event the corporatjon elects to issue ''uncertificated" shares, it nonetheless

"issues" shares7 and must deliver to the shareholder a ''notice for uncenificated ownership

interest" notifying the shareholder of the infonnation required to be stated on the share

certificate, unless such information is reflected in the governing documents of the entity and the

shareholder has been provided with such governing documents. Tex. Bus. Org. Code § 3.205

e•after issuing or transferring an tmc.erlijicaled ownership interest, a domestic entity shall notify

the owner of the ownership interest in writing of any information required onder thi s subchapter

to be stated on a certificate representing the ownership interesf') (emphasis added). Accordingly,

corporations electing to be "uncertificated" must issue notice to each of their shareholders that

includes, among other things. the name of the shareholder and the number and class of

ownership interests held by such shareholdeTS, unless refl ected in the corporate governing

documents. Tex. Bus. Org. Code§§ 3.202(c) and 3.205(a). This information- the identity of the

shareholder and number and class of shares held - is not included in JK Claims' governing

documents.g (See Ex. F at Ex. 2). Accordingly, JK Claims was required to provide the prescribed

notice to its shareholder(s) and, apparently, has failed to do so.

6~ Preston and Sydow Purchased tbe Kaiser Claims, Not JK Claims.

Although the Kaisu Trustee was led to understand that Paul Lohnes, an alleged business

associate of a defendant in the Kaiser Litigation, would be funding the purchase of the Kaiser

Claims, according to Sydow. Mr. Lohnes is not connected to JK Claims in any way. (Ex. F at

66: 12-18). Sydow contends instead that Quantum funded the purchase. (Ex. F at 6 1:25-62:23,

, The T exas Business Organizations Code defmes a ··sbare" as ''a unit into which the ownership interest in a for-profit corporation, . . . is divided, regardless of whether the share Is cerfljicoted or uncertiflcated." Te.~ . Bus. Org . Code § l.002(80) (emphasis added). Accordingly. ownership in uncertificated corporations is still evidenced by shares. Intervenors challenge whether the documents produced by Sydow arc in fact "governing documents" as tJtey are neilher signed nor dated. (See Ex. F at Ex. 2). 8

420 63: 11-23). However, Sydow was not able to produce any records confinning that Quantum

funded the purchase. (See Ex. Fat 61 :25-<>2:23, 63: 11 -23).

Records subpoenaed from JK Claims~ former counsel Kelly Stephens reflect that Sydow 9 and Preston split the cost of the claims purchase - with $12,500 coming ufrom Boston" and

$12,500 from Sydow. (See Ex. I at 0060). Stephens received the funds for the purchase on June

12,2012. (/d.).

As counsel for JK Claims, Stephens negotialed me purchase of the Kaiser Claims with the Kaiser Trustee•s counsel Gretchen McCord. The following communications between

Stephens and McCord confirm that Stephens was negotiating on behalf of Preston and Sydow-

defendants in the Kaiser Litigation motivated to dismiss the Kaiser Claims - not JK Claims - a

corporation not then in existence.

• On September 13,201 1, Stephens emailed the Kaiser Trustee, regarding his prior offer to purchase the Kaiser Claims for $25.000. Stephens indicated that he was making another off~r to purchase, this time at $1 0,000, because he understood that Kaiser was going to attempt to acquire the claims from the bankruptcy estate. (Ex. I at 0001).

o This email indicates that the purchaser wished to keep Kaiser from pursing the claims.

• Later the same day, Stephens emailed the Trustee, raising the offer to purchase back up to $2Si000 and stating that the purchase price was based on a ..,cost of defense' evaluation." Moreover, Stephens' email goes on to explain the weaknesses in Kaiser's claims, concluding that they are "worthless!• (Ex. I at 0002-3).

o The valuation method and conclusion that the claims are worthless reflects settlement discussions, not negotjations by a bona fide purchaser for whom "cost of defense'' would not have been an issue.

• Stephens confirmed in an email to McCord on September 19, 2011 , that the offer was "based on the cost of defense of the clajms made in the prior lawsuit" and stated that the buyer had come forward "because Kaiser has filed a couple of motions to retain." Stephens stated that the purchasers had let the first offer lapse when they "thought the suit would die of natural causes.,, Stephens also confirmed that "we may be interested in

9 Preston is a resident of Boston.

421 maintaining the claims in the original derivative suit depending on the terms of mty settlemellf." (Ex. I at 00 12) (emphasis added).

o A bona fide purchaser wouJd not be interested only because Kaiser had filed a motion to retain, as the purchaser could have filed its own motion to retain. Only a defendant would have an interest in obtaining control of the plaintiff's claims if Kaiser filed the motion to retain. Moreover, Stephens' email confirmed that the nature of the purchase is a settlement.

• On December 21, 2011 , McCord emailed Stephens asking if he was around " to discuss the settlement offer." When Stephens responded that he was, he did not correct McCord' s characterization of the offer as a "settlement offer." Later that same day, Stephens emailed McCord, advising her that he clients were "discussing what vehicle to purchase through." (Ex. I at 0021-23) (emphasis added).

• On December 27, 2011, Stephens emailed McCord advising her that his client bad "decided to make the offer/purchase through one of the individual s involved, Paul Lohnes." (Ex. l at 0024).

• In an email to McCord on January 17, 2012, Stephens indicated that his client is a "he." (Ex. I at 0032).

o We now know through Sydow' s testimony that the "he" was not Lohnes. (Ex. Fat 66:12-18).

• On February 7, 2012, Stephens emaited McCord and advised her that his client was ''forming a company to purchase this asset. •• (Ex. I at 0040).

o We know from Sydow that Sydow formed JK Claims at Preston' s instruction. (Ex. Fat 11 :17-24, 17:5-9. 2 1:17-22:13).

• On March 14, 2012, McCord emailed Stephens stating that she had defined the "purchaser'' as ~• Paul Lohnes or his assignee . . . a business associate of the Defendants," and asked for "some explanation as to why [Lohnes] is buying these claims." She stated "I assume he is a business association of Mr. Sydow. But, l need clarification on that issue." (Ex. l at 0042).

• Later that day, Stephens confirmed the purchaser definition, but did not explain why Lohnes would be purchasing the claims. (Ex. 1 at 0044).

• On March 29, 2012, McCord asked for confirmation that the purchase funds were in Stephens• IOLT A account, and again asked about the purchaser. Stephens responded that he had been ')lnable to speak with Lohnes or Sydow." (Ex. I at 0047).

• On June 7, 2012, McCord emailed Stephens to "take one more stab at contacting'' Stephens. McCord adv1sed Stephens that the Trustee had her engaging special counsel to

422 take the litigation on a contingency fee basis "so we can reach some resolution'' and asked if Stephens' client was stiiJ interested in purchasing the claims. (Ex. I at 0049).

• Later that day~ Stephens emailed McCord, advising her that he had been assurod that the money would be in his trust account the following week. (Ex. I at 0051 ).

• On June 12, 2012, Stephens emailed McCord advising her that he had received notice of a wire transfer of $12,500 "from Boston" and had received "a check in the amount of $12,500.00 from Mr. Sydow.'' (Ex. I at 0060).

• On June 15, 2012, Stephens advised McCord that the name ofthe purchaser would be JK Claims Investment Corporation. (Ex. I at 0067).

• On June 27. 2012, Stephens forwarded to McCord a copy of the June 20 12 order from the 152nd District Court dismissing the Kaiser Litigation. Stephens asked McCord how the order wouJd affect "what we are supposed to be purchasing." (Ex. I at 0069). McCord responded that she did not think it would. (Ex. I at 0070).

• Later that same day, Sydow emailed Stephens the following:

lf the case has been dismissed and the statute of limitations has run there is nothing left to purchase. A dismissal for want of persecution [sic] used to be subject to reinstatement within a certain time. However, if 1 recall correcely the reinstatement was discretionary with the Court. If so, either the trustee needs to have it reinstated to sell it or the buyer is purchasing yet another problem. 1 fail to understand how she thinks the dismissal has no bearing. Perhaps she can explain in just a bit more detail.

(Ex. I at 0071 ).

• McCord emailed Stephens on June 28, 2012. stating that she would need a written commitment from the purchaser that ..if the Trustee reinstates the lawsuit, we still have a deal" or a written statement from the buyer that they were no longer interested in going forward. She further advised that she was meeting with someone to discuss the cost to reinstate the lawsuit. (Ex. I at 0075).

• Stephens confirme

• On July 3, 2012, McCord emailed Stephens asking that they make the motion to reinstate a joint motion. (Ex. I at 0086). Receiving no response. McCord emailed Stephens on July 10, 2012 asking if she could uat least represent that [the defendants] are unopposed." (Ex. I at 0088).

• On July 11, 2012, Stephens responded to McCord,s request for a joint motion to reinstate. According to Stephens. Mike,s reply to joining the motion was (paraphrased) I

423 am buying this thing to prevent further problems with Kaiser, why would I (the defendant) join in a motion to reinstate." (Ex. I at 0089) (emphasis added). Sydow also refused to represent that he was unopposed. (Ex. I at 0090).

• On July 12, 2012, McCord wrote to Stephens asking that he conf~rm that ''Mike Sydow is the one who is having the purchaser buy the claims." (Ex. I at 0095). Stephens responded that he could "confirm that Mike Sydow is [his] primary contact" and that Sydow was ''consulting with" the purchaser regarding the claims. (/d.).

o As noted above, Sydow testified that Preston was his sole contact on the formation of JK Claims. (Ex. Fat 1 1: 17-24).

• According to McCor~ the transfer was effective as of July 27, 2012. (Ex. I at 0102).

o This transfer was negotiated and effected before JK Claims was incorporated. (Ex. F. at Ex. 3).

7. The Dismissals.

Not surprisingly, JK Claims' first order of business as Kaiser's assignee was to nonsuit

with prejudice the claims asserted against Sydow. (See Exhibit J). In return, Sydow nonsuited his

counterclaim agajnst Kaiser. (/d.). On January 14, 2013, Quantum nonsuited its intervention

against Kaiser. JK Claims non-suited Preston through the Third Amended Petition which

dropped Preston as a defendant. (/d). These actions confirm that the Kaiser Claims were

purchased by and solely for the benefit of Sydow and Preston to effectuate a dismissal of the

c1aims asserted against them in the Kaiser Litigation.

B. Pr~ton's Travels to Texas Prior to April 2011 are Contacts for the Jurisdictional Inquiry.

In his affidavit filed in support of his Special Appearance, Preston identified his "only [ )

activity in Texas" as (1) a .. limited number" of visits approximately 20 years ago; (2) a "very

limited number~· of visits to Texas in the past five years on behalf ofTEM CapitaJ ~ and (3) a visit

to Texas in 2010 to testify in the Sydow divorce proceedings. (See Preston Aff. at mJ 5.6''1. In

10 Affidavit of John T. Preston, submitted as Exhibit A to Preston's Amended Special Appearance, filed September 28, 20 ll _

424 responses to Interrogatories, Preston stated that he traveled to Texas ••as a representative on

behalf ofTEM Capital between 2006 and the date this suit was filed." (See Exhibit Kat p. 12).

Specifically, Preston stated that he traveled to Texas on April 2, 2009, May 3, 2009, December

30, 201 0, and March 16, 201 1, as a representative of and on behalf of TEM Capital. (ld. at pp.

12-13).

However, according to Russell Read ("Read"), Preston's fonner partner inC Change and

TEM Capital. TEM Capital was not fanned until 2011. (See Exhibit L at 33:2-12; see also

Exhibit M 11 ). Accordingly, Preston's four trips to Texas between April of2009 and March 2011

could not have been as a representative and on behalf ofTEM Capital.

10. A RGUMENT AND AUTHORITI ES

A. JK Claims is Preston's Alter Ego.

JK Claims was the mere tool or conduit used by Preston and Sydow to purchase the

Kaiser Claims and is the alter ego of Preston and Sydow. See Castleberry v. Branscum, 721

S.W.2d 270, 272 (Tex. 1986) (the corporate veil may be pierced "where a corporation is

organized and operated as a mere tool or business conduit of another"). Such ••alter ego'' status

may be shown " from the total dealings of the corporation and the individual, including the

degree to which corporate formalities have been followed and corporate and individual property

have been kept separately, the amount of financial interest, ownership and control the individual

maintains over the corporationJ and whether the corporation has been used for personal

purposes." ld; see also Tryco Enters. v. Robinson, 390 S.W.3d 497, 508 (Tex. App. -Houston

[1st Dist.] 2012, pet. disrn' d); Stauffacher v. Lone Star Mud Inc.• 54 S.W.3d 810, 816 (fex.

App.- Texarkana 2001, no pet.).

II The Delaware Secretary of State records reflect that Transfonnative Energy & Materials Capital, Inc.- referred to as TEM Capital- was incorporated on April 12, 201 I.

425 As noted above, JK Claims failed to follow any corporate formalities and was used

merely for the personal purpose of Preston and Sydow to purchase the Kaiser Claims pending

against them individuaJly to "prevent further problems with Kaiser." (See Ex. I at 0089). Sydow

further confinned the following:

• JK Claims does not maintain a stock ledger reflecting issued shares. (Ex. F at 55:2-6).

• JK Claims has no shareholder or director meeting minutes. (Ex. F at 56:7-56: 13).

• JK Claims has no documents reflecting the financial condition of the company. (Ex. F at 59: 12-22).

• JK Claims has no documents reflecting any outstanding financial obligations. (Ex. F at 60:25-6 1:5).

• JK Claims does not maintain any type of account with any financial institution. (Ex. F at 61:7-13).

• JK Claims has no employees. (Ex. F at 61: 14-18).

• JK Claims has no investments or business interests other than its interest in the Kaisel' Claims. (Ex. Fat 66:19-67:7).

• JK Claims was formed solely for the purpose of purchasing the Kaiser Claims and has no other business. (Ex. F at 66:1 9-67:7).

Texas Jaw prohibits a settling tortfeasor from accepting an assignment of a plaintiff's

cause of action against other defendants as against public policy. See Beech Aircraft Corp. v.

Jinkins, 739 S. W.2d 19, 21 (Tex. 1987); BDO Seidman, L.L.P. v. Bracewell & Pauerson, L.L.P.•

No. 05-02-006360-CV, 2003 Tex. App. LEXIS 337, *13 (fex. App.- Dallas 2003, pet. denied).

Accordingly, Preston and Sydow were motivated to hide their purchase behind the corporate face

- that is to use the corporate fonn to perpetrate a fraud - to avoid the settling tortfeasor bar to

their continued pursuit of the Kaiser Litigation against Collins.

Moreover, the negotiations for and purchase of the Kaiser Claims on behalf of Preston

and Sydow- which occurred in Te.xas among Texas residents- occurred before Preston and

426 Sydow inc.oq>orated J,K Claims. Accordingly, regardless of whclher .I K Claims is the alter ego of

Prm.i.on, Preston is not afforded the protections of the fiduciary shield doctrine in purchasing tbe

KaiseT Oairns. ,)'tN Cappm;t.:i/li 11. Gu!f l11dus. Prrxlr.. 1m·., 222 ~ . W. Jd 468, 485·86 (Tex:

App.--Houston [ lst Dist.] 2007, n<.) pet.) C"'A promoter cannot ac-t as an agem of a corporation

tlu.tt does not yet exist; the.rc.tbre~ th~ corppration c

pr~m~)ter, and the Ji duci~1ry shiel.d .doctrine caqnqt nppty to him.~).

:a. J~J:-es.t•m~s Travel to Te~as \)efor~ April ~O l l is. ~ot Yr.o~e.c.ted by the t·1dudary S.hi~li-1.

'Bt!catlse TEM C~lpital ~Nas JH:>.t incorporated. during the.t~eriod C)f:Prest:on's:rr.a.vel to Texa~

IV·.. CONCLGS(ON ANO .PRA Yl~:B:

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427 CERTIFlCATE 01" SEUVlCE

The undersigned hereby certifies tlmt on this 8th day of August, 2014 a true and correct copy of 1he ~lbove Supplemental Response t<.) the Special .A.,ppearance med by John ·r. .t.>f(}StQU wM serve~ on all intere~ted panics, by and through their attorneys of record indicated below· via emaiL

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428 Cause No. 2011-44058 MICHAEL COLUNS, ET AL., § IN THE DISTRICT COURT PLAINTIFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW, ET AL.• § DEFENDANTS. § 215th JUDICIAL DISTRICT

AKILA FINANCE, S.A.; BOSQUES DEL MOLINO. § IN THE DISTRICT COURT S.A.; CENTRANS ENERGY SERVICES, INC.; § CHESTER MESTER HOLDINGS, LTO.; DELTEC § BANK & TRUST, LTD.; EMJO INVESTMENTS, § LTD.; WILLIAM END; EVANS & PETREE 401 K § PLAN; FIRST BAY INTERTRADE; GM PARTNERS; § MARAIR CORP.; W.L. NICHOL. IV ~ PANORAMA § INVESTMENT. LTD.; PCOl VERMOEGENS VERW.; § ALEJANDRO SANTO DOMINGO; SINCHI § INVESTMENT; VENTURI GLOBAL § INVESTMENTS .~ LTD., and H.J. von der GOLTZ § INTER VENORSIPLA INTI f'FS, § vs. § OF HARRIS COUNTY t TEXAS § MICHAEL SYDOW; JOHN PRESTON; CHRISTOPH § HENKEL; C CHANGE INVESTMENTS, LLC; § CHALSYS CAPITAL PARTNERS. LLP; SONIA LO; § BRILLIANT NOVELTY, L.L.C.; OSCURA, INC.; § MELIORA ENERGY TECHNOLOGIES, S.a.r.l; and § FALL RIVER REALTY, LID .• § DEFENDANTS. § 215th JUDICIAL DISTRICT

Before me, the undersigned notary, on this day personaUy appeared KELLEY M. KELLER, who is personally known to me, and first being duly sworn to law upon her oath deposed and said:

1. My name is Kelley M . Keller. I am over the age of 19 years old and am fully competent to make this affidavit. 1 am an anomey licensed to practice law in the state of Texas. I am lead counsel for Intervenors H.J. von der Goltz and EMJO Investments, Ltd. (collectively, " Intervenors") in the above referenced action. The infonnation contained herein is true and correct and is based on my personal knowledge as it relates to my representation of Intervenors.

2. Attached to the Intervenors' Supplemental Response to the Special Appearance of John T. Preston (the "Supplemental Response") as Exhibit B and incorporated therein is a

429 true and correct copy of the Plaintiffs~ Second Amended Petition filed in the Kajser Litigation (without exhibits).

3. Attached to the Supplemental Response as Exhibit C and incorporated therein is a troe and correct copy of a Petition in Intervention of Quantum Catalytics, LLC filed in the Kaiser Litigation.

4. Attached to the Supplemental Response as Exhibit D and incorporated therein is a true and correct copy of the Motion for Summary Judgment, without exhibits. filed by Sydow in the Kaiser Litigation.

5. Attached to the Supplemental Response as Exhibit E and incorporat

6. Attached to the Supplemental Response as Exhibit F and incorporated therein is a true and correct copy of the deposition of Michael D. Sydowt as corporate representative of JK Claims Investment Corporation, taken February 25, 2014 in Cause No. 2007-38533, Jeffiry B. Kaiser, et al. v. Texas Syngas, LLC, et a/, in the 152nd Judicial District Court, Harris County, Texas (the ••Kaiser Litigation), with exhibits.

7. Attached to the Supplemental Response as Exhibit G and incorporated therein is a true and correct copy of the Trustee's Motion for Authority to Sell Estate•s Interest in Claims, filed by the U.S. Trustee in Case No. 08-35261-Hl-7, pending in United States Bankruptcy Court for the Southern District of Texas Houston Division (the ..Kaiser Bankruptcy,'), which I obtained from the Pacer case search system.

8. Attached to the Supplemental Response as Exhibit H and incorporated therein is a true and correct copy of an Order entered by the court in the Kaiser Bankruptcy on July 13. 20 1 2~ which I obtained from the Pacer case search system.

9. Attached to the Supplemental Response as Exhibit l and incorporated therein are true and correct copies of documents produced by KeJly Stephens under subpoena in the Kaiser Litigation.

I0. Attached to the Supplemental Response as Exhibit J and incorporated therein are true and correct copies of the Non-Suits filed by JK Claims , Sydow. and Quantum in the Kaiser.

II . Attached to the Supplemental Response as Exhibit K and incorporated therein is a true and correct copy of excerpts from the Interrogatory Responses of John Preston.

12. Attached to the Supplemental Response as Exhibit L and incorporated therein is a true and correct copy of excerpts from the deposition of Russell Read taken April 21, 2014.

13. Attached to the Supplemental Response as Exhibit M and incorpordted therein is a true and correct c~py of the Entity Details for Transformative Energy & Materials Capital, Inc., which I obtained from the website of the Delaware Secretary of State.

2 430 Dated; August 8, 2DJ4.

COUNTY OF HARRIS

BEFORE ME; the tmctersigned authority, o:n this day personaHy appeared Kelley \t Ketier, km:nvu t() me to be the -p(;.rson '~thO-'K~ mune is. subscribed tc' the forego1ng instrui1RWt, and ad\.:nO\vtedged to rne that she read the i\f11davit Qf Kelley l\,1. Keller atld that the facts stated therein were wjthin her perso1)al knowledge and were true and correct

CHVEN UNDER MY HAND AND SEAL OF OFFICE on August 8. 2014, ./~ ... .....-·-'-~

/' ~~---' / i> BARBARA DAVIS My Comm!ss!on Expires NOTARY PUBLrC TN Al\TD FOR November 14, 2015 THE STATE OF TEXAS

wJY COM:MJSSJDN EXPIRES:_..... .t.~~:z:.1f'~---·········-······--·-····----- l """

... ,)

431 ! I flied I

08May&P4:M

=~ Hams Dlstrfct l NO. 2007-38533 I JEFFERY B. KAISER. INDIVIDUALLY. § IN THE DISTRICT COURT OF DERJVAIELY, AND ON BEHALF OF § I! ALL SIMILARLY SIIUA TED § STOCKHOLDERS AND MEMBERS OF §

~= TEXAS SYNGAS, LLC a/kla TEXAS SYNGAS, INC , : Plaintiffs, § ~~ § HARRIS CO~, I EXAS v. § ~ § ~~~ TEXAS SYNGAS, LLC alk/a TEXAS § @a~ SYNGAS,INC.,MICHAELA. COLLINS, § Q~~ MICHAEL D. SYDOW, M. SAMEER AHMED, § ~'V ANDALLOIHERSIMILARLYSITUATED § o ~ OFFICERS AND DIRECTORS OF § ~ TEXAS SYNGAS. LLC alk/a TEXAS § ~(o/j SYNOAS, INC., § ~ Defendants. ~ 152nd JUDICIAL DISTRICT

P~'SECO~NDEDPETnnON COMES NOW, Jeffery B. Kaiser, ~vidually and Derivatively on Behalf of Texas . ~

Syngas, LLC and I exas Syngas. In~~laintitfs"), and files this Second Amended Petition,

complaining of Michael A. CoJlmG,chael D . Sydow, M . Samee.r Ahmed, and Texas Syngas,

LLC and I exas Syngas. Inc. @\port of tbis Second Amended Petition, Plaintiffs show tbe following: ~Q 0~ ~ DISCOVERY 1. ~"\,ay is intended to be conducted under Level 3 of Rule 194 of the I exas

Rules ofCivil~ure. i PARTIES I I II I i I ! J

EXHIBIT B 432 2 Jetfe~y B. Kaiser, r'Kaiser''), is a membe1 of Texas Syngas, LLC, owning 7 5

percent ownership intere~ and resides in HaJJis County, Texas_

3. Fred Sembeta is an individual member and shaJeholder in Texas Syngas. LLC &

Texas Syngas Inc., and resides in Hanis County, Texas.

4. Texas Syngas, LLC is a Texas Limited Liability Company. ~se articles of organi.zation was filed on July 30, 2004, and whose Operating AgJee.m~ signed by its ~ members ou October 4, 2004, and has been served with citation and~swered herein.

5. Texas Syngas, Inc. is a Nevada co1poration, i~ted on May 22, 2006, and has been served with citation and lw answered herein. o-il 6. M"ocllael A CoUins ("CoUins"), is ~er of Texas Syogas L.L.C. and CbaiJman ofthe Board of Direcwts and Senior Vi~esident of I exas Syngas Inc., and owner

of seventy-eight (78%) percent of the owne~~e1ests and stock in each of fex.as Syngas L.L.C. and Texas Syngas Inc ; and. is an in~ual resident ofMootgome~y County, Texas, has been smved with cibllion aad has ODS~ min. 7 Michael D. Sydoaydow") is the Chief Execurive Officer of I exas Syngas

L.L.C. and Texas Syogas ilw@"\dividual resident of Hauls Coo111ty, Texas, bas been smved

with citatioo and bas ans~ hetein. of{@ 8 M.~r Ahmed, !he Project Development Office.- of Texas Syogos L.L.C. and Texas Syng~~-. an individual resident ofFou Bend County, Texas has been setved with

citation and ~d herein. 9. Quantum Catalytics, LLC, is a DelawaJe limited liability company which bas its

principal office at 421 Cunant Road, Fall River. MA 02720, and bas intetvened in this lawsuit .

433 10. 1ohn L Preston is the manager of Quantum Catalytics L.L C. and may be seaved

with citation at% Quantum Catalytics L L-C., 42 t Cwrant Road, FalJ River, MA 02720.

DERIVATIVE ACJ'ION

1t. Kaiset brings this suit individually, and derivatively oo behalf of Texas Syngas,

~~~~~~ ~ VENUE r()(/j ~ 12. Venue is proper in this case pumuant to lexas ~~thereodants have their

business addresses, personal residences., and principal places of~ in Hauis County. lexas

and the caDSe of action occurred in Hauis County, ot all 01 apntial part of the events giving

rise to this claim occwred in Hartis County, I exas. QtF' JURIS»Ip 13. The cowt has jurisdiooon ov4 lawsuit because the amount in conuoversy

ex~ __,_ this cowtt s mmunwn • • • 'sd' - ~ JUll •ction ·~tements

~ ~ FACTS 14. Beginning in a~~ately 2004 and continuing through present, Collins,

Sydow, and Ahmed. and oth~ and di.rectolS of I exas Syngas. LLC and I exas Syngas

Inc. solicited and, upon~ation and belie£ obtained in excess of one miUion dollazs in 0~ investment fimds ~ividual residents of the State ofTexas I exas Syngas, LLC and Texas

Syngas Inc., Col~ ~dow, and Ahmed. and otbez officers and directors, without full discloswe to Plaintiffs,~ oth.et members and stoclcholde~ thereafter participated in concealing the plaruting, organization, tegistration. creation and expenditure of the approximately one million

dollars of the investors' monies by Collins, Sydow, and Ahmed. and o1ber'S to deceive and hide

Texas Syngas, LLC and Texas Syngas, Inc.'s true financiaJ condition from Plaintiffs to further

434 lhe finaocial intcxests of Collins, Sydow, Ahmed, and that of the directors and officers at the

expense, and in breach o~ DefeodanJ.s' statu~ry, contractual, fiduciSiy, and common law

obligations and duties owed to Plaintiffs and other membel-stoc.kholders, causing damages to

Plaintiffs and Texas Syngas, LLC, and I exas Syogas, Inc

15. On or about August 10, 2004, Kais:a's law fum and Sydow~ firm entered b~ch lhey agreed to i I into a retainer agreement with Michael Collins and I ex.as Syngas LLC. i ~ J provide legal services for Collins and Texas Syngas LLC inch~ as to all .aspects of f

Collins/Syngas' effons to exploit the Co.lliiWSyngas proprie~logy. Kaiset received 7.5 i l pescent of the ownership interests in Texas Syngas LLC for~fessional set vices. Mr . .[(ajser I l j continued his tepJCSODlation in all aspecls of Collins~ Syngas LLC's busiJJess efforts to I I utilize tbeii' prop1ietary tecllnology Kaise1 duly ~ as Oene~aJ CounseJ fot Texas Syngas I I

LLC, until the dissolution of Kaiser an.d Sydo~ fum in Febnuuy 2006. ! l 16. On or about October 4, 2oo&e Operating Agreement of I exas Syn~, L.L.C ~ was signed by its members, Michael~· Quantum Cata.lytics. LLC by .John Preston. Michael

Sydow and JeffKaiser, a copy of~ is attached as Exhibit L

17. Collins devel~voluable intellectual ptoptrty to improve and enltance the technology of Molten ~Technology, Inc., whose assets were pwchased by John Preston 0~ •

and othets after M~"f-telab was placed in chaplet II bankruptcy proceeditJa.s and CMat

Quantum Catal~LLC to tequi1e those assets. Texas Syngas, LLC obtained exclusive licenses

ftom Quantmn~ytics fox Texas LLC's use of the intellectual ptoperty in colijunction with Collins proptietary enhancements to Quantum Catalytic's technology, and the licenses and MI.

Collier's intellectual propeny rights and trade secrets were placed in Texas Syngas.. LLC.

435 18 On May 22, 2006, Defendants caused to be incorporated a Nevada corporation,

with tbe name of "Texas Syn.~ Inc." in Texas. TheJeafte1, without Kaiser's knowledge or

consen~ Defendants transfeued, without consideration. all of the assets, ot a substantial part. of

Texas Syngas, L.L.C., to the new COipOtation, Texas Syngas, Inc, thereby illegally and

fiaudulently denuding and stripping I exas Syngas, L.L.C of all of its as~~ violation of

Defendants' statutory, contractual, fiduciEUy, and common law obligatio~d duties owed to ~ Plaintiffs and owed to the legal entities of Texas Syngas. L L.C ~ Syngas, Inc., and other membeJ-stockholdets, and creditors of these legal entiti~add.ition to othet statutory violations, Defendant Collins and Defendant officets vie~ section 101 .255 of Business

Organization Code in that it was a b8DS8dion ~- Syngas, L.L.C. and ao entity owned. controlled and operated by Collins and o~cers, whete that transaction was unfair

to Texas Syngas, L.L.C., the transaction was ~pproved by a disinterested governing body,

and there was no disclosure oftelevant tac& was a violation of section 101.356 oftbat Code ~ in that the transfer of assets in effect ~own the operations of I exas Syngas, LLC , yet there

was no vote of all the members ~ as Kaiser did not Ieceive notice of this uaosaction and had uo opportunity to vo~"\. traDsfer that made his OWIIC!ship inii:Jest in Texas Syngas, L.L C wotthless. ~(J 0~ 19. By' of DecembeT 19, 2006, KaiseJ inquired of Collins why Kaisa had

~er received ~betship certificate for tus 7.5% ownership interest in Texas Syngas. LLC

and the status ~the business and future ptospects of its business. Collins ne-ver responded to the inqliliy

436 20. fwther, despite demand, Defendants have failed, and continue to fail and refuse,

in violation of the Operating Agreement Section 8 01, to provide Plaintiffs the oppo1tunity to

examine the boob and records oflexas Syngas, LLC and Texas Syngas, Inc.

2L Despite deman~ Defendants have failed, and continue to fail and refuse, to

malre an aa:ollllling f01 the investors' funds and interests . A true and~ copy of the December 19, 2006 demand letteJS are attached as Exhibit "2" and Exhibit ~ ~ 22 . Plaintiff K.aiset is a member of Texas Syngas, r;J!fnd by the Opetating

Agreement, and by operation of law, ·he is also a stockholder o~ Syngas. Inc. The actions of the Defendants constitute bleaches of fiduciary duty ofoiJajority stockholder by Michael

Collins, common law fiaud, breach of colllract, ~illes liawl, aiding and abettiog, conspiracy and Joint ente~prise liability under ~~ of the State of Texas, tesulting in

damages to the Plaintiffs exceeding the julisdic@ limits of this Court.

~ONE ~ BREACH OF FIDU

23. Plaintiffs hereby 1~ege and incorporate herein by tefeteoce ParagJaphs 1

duough 22 of!his Petition r@.~ 24. Collins ~ority shareholder in Iexas Syngas LLC, and as the sole Managet o(@ in Texas Syngas ~d as partner and joint venturer with Kaiser, Sydow and Quantum

Catalytics, ,o~~uciary duty to the minority shareholders in the circumstances of this case,

to the other m~rs, to the othec partners and joint ventwms, including Kaiser, including (i) a duty ofloyalty to the joint concern, (ii) a duty of utmost good faith. fairness and hooesty, (iii) a duty of full disclosure of all mattets affecting the <:ommon enteJpise, (iv) a duty to account foi

437 all property of the common eotetprise, and (v) a duty to refrain fu>m competition with the

couunon entetprise

25 . Collins breached his 6duciaty duties owed to Kaiser- as to minority sbateholdeJs,

member, partner and joint venturer, through oppressive conduct and through domi:nat.ed contJol

oveJ lbe business, by dissipation of all the assets of tbt: commoo enterprise s;:lr conversion of

the assets to his own use and benefit, thus destroying the object for which ~int eotcJprise was ~ created and rendering it impossible for the joint entetpxise to co~ its business Collins'

conduct destroyed Kaiset's reasonable expectations lhat were ~to hi.s decision to join and participate in the ventwe. Collins conduct rendered the~ enterptise incapable of the

continued business for which it was es1ablisbed. Coll~bed his duty of loyalty to the joint concern, his duty of utmost good faith, fait ness ~oesty, his duty of full d.iscloswe of all

mattets affecting the common entetprise. his ~to account for all pJopetty of the common eotetp!ise, and his duty to Jetiain from com~on with the common entetJ)Jise. 26. Detendants knew ~~lins' conduct constituted a wroog!UI ad qaiost

Plaintiffs and with intent to assist ~ins in the wrongful acts., defendants substantiaJiy assis~ and eocouJaged Collins by ~ a<:Ca of assjslaDCe and encouragement as alleged beleio. Defendants' assistance ~cowagement was a suh!tllntial factor in causing the wrongful ofjg conduct. AJtemativ~fendonts were engaged in a joint ente!prise. Plaiotiffs aocl Defendants

had an agreem~ common pwpose, a community of pecuniary interest in that common

pwpose, and ~ual tight to direct and connol the enterprise. AI the time ofdefendants' acts as alleged herein they were acting within the scope of the enterprise. Aftematively, defendants wett

engaged in a conspiracy, in that there was a combination among the co-coospiratoas for an r j unlawful pmpose as alleg~ herein 01 lawful pwpose by unlawful means. Defendants knew that I

7 / I I I

438 the agreed acts would result in bairn to Plaintiffs. To accomplish the object of their agreement

Defendants engaged in the overt acts described herein. The agreement to engage in the above

described acts proximately caused injwy to Plaintiffs.

27. Defendants' breach of fiduciary duty injured Plaintiffs by deptiving Plaintiffs of

the value of their property, the loss of their reasonable expectations fm ~~ en~prise and their investment and loss of business opportunities, in damages ind~g the full market ~ value of their ownership interest in the common enterprise ~ry 28. Defendants, breach of fiducimy duty benefited ~ts in that the conversion

of the assets of Texas Syng.as, LLC for use in Texas Syn~~c substantially bene..fited and ~ emiched Defendants to the dettiment of the Plaintiffs ~~

29. PlaintiffS injwy resulted from de~~ts· gross negligence, malice. or actual

fraud, which entitles Plaintiffs to exemplmy 4 under the Texas Civil Pr:actice & Remedies

Code section 41.003(a). ~ ~ ~~UNT TWO F-CH OF CONTRACI' 30. Plaintiffs het~reai.lege and inco1porate herein by reference Pmagraphs t

tlttough 22 ofthis Petitio~Q 0~ 31. On~~beJ 10, 2004, Plaintiffs and Defendants executed a valid and

enforCeable wri~ating Agreement of Texas Syngas, LLC, attached as Exhibit "1" and

incorporated ~ference herein 32. The Operating Agreement provides in Section 5.07 that "no member or Manager

shall engage in 01 possess any interest, legal, equitable, or otherwi~ in any business venture that

competes in any way with the Company W\Jess such participation sball be app:t'Oved by a vote of

439 __ - ... ... . ... ..... . . .

;~ -~~S:·SSEO ~ CAUSE NO. 2007-38533

JEFFERY 8. KAISER, INOJVIDUALLY § DERIVATIVELY, AND ON BEHALF OF § ALL SlMILARLY SITUATED § STOCKHOLDERS AND MEMBERS OF § TEXAS SYNGAS, LLC A/K/A TEXAS § SYNGAS, INC., Plaintiff, § ~ ~ ,· ~ v. § HARRIS CO" "Y) TEXA" ~ <:7 · ~ § 0 ~ ,.] ~ .I TEXAS SYNGAS, LLC A/KIA TEXAS § ~t~ ~v - SYNGAS, INC~, MICHAEL A. COLLINS, § ~ ~) ... · _:::s -:. ~~~~~L~~:~~~~~~~~~;:A~~~D, §§ Q.fi : ~ _: ~ 3 OFFICERS AND DIRECTORS OF § 1+ ·::, ~ ~·. ~." o TEXAS SYNGAS, LLC A/KJA TEXAS § SYNGAS, INC., . § ;:~ Defendants. § 'V 1901h JUDICIAL DISTRICT

T~ INTERVENTION OF QUAN~-.. - CATALYTICS, L.L.C.

TO THE HONORABLE JUDGE OF SAI~QURT:

COMES NOW, Quantum Ca1a' a?: L.L.C., and in support of iiS Intervention under

Rule 60 of the Texas Rules of Civil ~ure would respectfully show the following: o~- --

~. FACTS ~' . l. Quantum C~cs, L.L.C. (hereinafter ''Quantum Catalytics ..). is one of four

members of Texo.s S~. L.L.C. The four members are Michael C. Collins, Quantum

Catalytics., Michae~~dow, and Jeffery Kaiser. jQ 2. ~ther members o fTexas Syngas, L.L.C. are parties to this sui t Jeffery Ka!ser

(hereinafter ·•Kaiser.,) is a Plaintiff, and he has sued Michael C. Colli ns and Michael D. Sydow.

3. The operating agreement, signed by a\1 four members, provides that the company

is to be managed by a majority of its members. All of the corporation•s members other than

Kaiser, who owns a minority interest, agree that it is being managed in the best i.nterests of_the

EXHIBIT C 452 Flied 08 June 20 P4:20 Theresa Chang Olstrfct cterk Hams District CAUSE NO. 2007-38533

JEFFERY B. KAISER, INDIVIDUALLY, § IN THE DISTRICT COURT OF DERIVATELY,AND ON BEHALF OF § ALL SI.MILARtY SITUATED § STOCKHOLDERS AND MEMBERS OF § TEXAS SYNGAS, LLC A/KIA TEXAS § SYNGAS, INC.,

v. Plaintiffs, § § : _e_~. HARRIS C~rY, TEXAS ~ § ~ /[} TEXAS SYNGAS, LLC AIK/A TEXAS § ~ SYNGAS, INC., MICHAEL A. COLLINS, § o ~ MICHAEL D. SYDOW, M. SAMEER § .(~- AHMED, AND ALL OTHER SIMILARLY § ~ ,¥ SITUATED OFFICERS AND § ,flJ~ ()~'0 DIRECTORS OF TEXAS SYNGAS, LLC § ..,_~~ A/KIA TEXAS SYNGAS, INC., § ~?!) Defendants. § ~ 152Dd JUDICIAL DISTRICT .,@?'1 DEFENDANT MIC~L SYDOW'S AMENDED"MOTION ~~tJMMARY JUDGMENT

Defendant Michael D. Sydow her~les his Amended Motion for Summary Judgment,

in suppo~ of which he would r~w the Court as follows: - ~~

0~ INTRoDUCI'ION \ We have been down~~ once before. In April 2008, Defendant Michael Sydow -fJ~ ("Sydow,) moved for~ judgment on all claims asserted against him by Jeffery Kaiser ~- (" Kaiser''). Sydow'~gtion was based on purely legal issues and undisputed facts (e.g.,

Kaiser's admissi# t Sydow did not induce him to acquire an interest in Texas Synp LLC).

-'~ Rather than ~ond to Sydow's motion, Kaiser claimed that he needed a 45-day continWUlce in

order to review additional documents. The Court gave Kaiser one week (until May 9) to file a

response.

But Kaiser's gamesmanship continued. On May 5, Kaiser attempted to side-step

summary judgment by filing a second amended petition. Although the new petition asserts

EXHIBIT D 456 101. l"'fU'90-r.;) p.,c

'JDI.IIOU'B. ~JSD.IlQ)IVJDUALLY IRTD DJRI»ICY OOllll'l' OP . DDJV'ADVBLY,.AKD OlfBICIJAI.B 0'1 jLl, IIIW·'W·Y m'UADD 8'i'oaalOLDD8ANDMBMJIIR8 OlP TRJ1.8 SYm.WI,LLC; A/JC/A..Tl;j'AS ~me. '

••

Defeadant's E~jt -~

475 ··-· -- ---· ---- .. ··-··,- ·--. ·- ~ ~. ... . . .· ...

Michael D. Sydow 1188 aoted as file adafBaaabvo om.- of tbo oompmy umJar 1he · cDmadou 8lld GOD!m1 ofMJcbad C.. CalliDs:Mlabael D. Sydow bas Deverbad auy aathodty cmr tbo expnndlture or dttbiuw:meat ofaJ ibuda biD Taaa ~ L.L.C. Mlob•cl D. Sydow has mm:r slped, or baa autbadzed to tdp. Gil Ifill bat or afJ&ar 'OCf'!'lnfs GfTexas ~ Ll..C.a

476 Ared 08 June 20 P4:04 Theresa Chang Dlstlfct Cfertc Hams Olatrfct CAUSE NO. 2007-38533

JEFFERY B. KAISER, INDIVIDUALLY, § IN THE DISTRICf COURT OF DERIVATELY, AND ON BEHALF OF § ALL SIMILARLY SITUATED § STOCKHOLDERS AND MEMBERS OF § TEXAS SYNGAS, LLC A/KIA TEXAS § SYNGAS, INC., §

v. PlaiDtill's, : : HARRIS CO~, TEXAS ~ TEXAS SYNGAS, LLC AIK/A TEXAS f ~ SYNGAS, INC., MICHAEL A. COLLINS, § ~· MICHAEL D. SYDOW, M. SAMEER § o~c.?e) AHMED,ANDALLOTHERSIMILARLY § <{J~ SITUATED OFFICERS AND § ~ DIRECfORS OF TEXAS SYNGAS, LLC § o~ AIJ(JA TEXAS SYNGAS, INC., § ~ Defendants. §

Michael D. Sydow ('•Sydow'~. files~~ Amended Answer and Cowtterclaim. © . (etp I.

~~ -'~ ANSWER {) I. Sydow::_~~~ally the allegations of the Petition pursuant to Rule 92 of the

Texas Rules of Civil~&~ ....

o~ IL

~~ AFFIRMATIVE DEFENSES ~ 2. ~tiff has no standing to bring the action pursuant to the laws of the State of Texas.

3. Plaintiff has no right to maintain the action because he has failed to comply with

statutory conditions precedent to the filing of the action.

4. Alternatively, Sydow invokes his rights under §§101.454(a)(3), 101.454{b), and

EXHIBIT E 477 Oral Deposition of Michael D. Sydow, Sr.

Page 1 CAUSE NO. 2007-38533 JEFFERY B. KAISER, IN THE DISTRICT COURT OF INDIVIDUALLY, DERIVATELY, AND ON BEHALF OF ALL SIMILARLY SITUATED STOCKHOLDERS AND MEMBERS OF: TEXAS SYNGAS, LLC a/k/a TEXAS SYNGAS, INC. , Plaintiff ,

vs . HARRIS COUNTY, TEXAS

TEXAS SYNGAS, LLC A/K/A TEXAS SYNGAS, INC., MICHAEL A. COLLINS, MICHAEL D. SYDOW, M. SAMEER: AHMED, AND ALL OTHER SIMILARLY SITUATED OFFICERS: AND DIRECTORS OF TEXAS SYNGAS, LLC A/K/A TEXAS SYNGAS, INC. Defendants . 152ND JUDIC I A.L DISTRI CT

************************************************** ORAL DEPOSITION OF MICHAEL D. SYDOW, SR. FEBRUARY 25, 2014 **************************************************

9438 Data scope 713-688-9300 EXHIBIT F 481 Oral Deposition of Michael D. Sydow, Sr . Page 2 Page 4 ORAL DB'OSmOt-~ OF MJCHAa. 0. SYOOW, SR.• ptOd-.cl 1 EXHIBJTS (CONTTNUED) 2 as a witne55 at ~ tii$IAIICIC of~ Oeftndant Mlchul 2 NO. DESCRJPTION PAGE l Collins and duly sworn, waslllkcn in th• abovc-Jtyltd 3 7 L.euer from CT Corporation Symm to Mr. Sydow, 4 and nvmbmd eausc Oft the 2Sth 4Ay ofF~bnwy, 2014, 4 10· JS-12........................... -.-..........30 ~ from !0:26a.m. to 11:46a.m•• bef~ Donna Worley. CSR 5 8 TexBS Secreuuy of State Payment form.~ I5·12..- 31 6 in and (Of tk Statt ofTCJU18.. tCf1011cd by 11mopphlc 6 9 JK Claim$ Written Consent in Lieu or Me-etlt~g. 7 flldhod, llltlle otrlccsof~ic:h .t 8ins1ock. 4265 Soul 7 8-22-12 and 8-22- J3, Resolution of Action By Sole 8 ~dipe. Suile 1000, H~ Tcus, ptll'u:an1 to tJic 8 Di~tt.or...............................- ................ 34 9 Tuu Rules of Civil Pl-o«dvte and the PfO"i$ioM swcd 9 10 E-mail &om Beau Beduu to Amber Polacb. 10 Oft~ reeonl 01 MtKhed heftto. 10 reg:uding 8-22-12 Rq~ Agent for JK Claims )) 11 lnvescment, dated 8-22-12.._,_ ................36 12 12 II E-maiJ from Gret.c:hen MeCord to Kelly Stephens, 1) 13 regarding KaiSJet, 3-14-IL_,_,,_........37 l4 14 12 E-mail from Gretchen M~ord to Kelly Stephens, 1~ 15 regarding Kaiser· Sale Order, 6-15-12...........41 16 16 13 E-mail from Kelly Stephens to Gretchen Mc:Cord. 17 17 regatding Koiser • Sale Order, 6·1 5·12...- ......41 )8 18 19 I 19 20 I 20 11 21 22 22 23 ! 23 z• i 24 - -- - - - - - - ·-~-a-g_e_i·l·-------------- 2 25 _ _s______ ________ _ P_a_g_e_5_1 1 INDEX 1 APPEARANC!iS 2 2 PAGE FOR THE PI..AOOIFF JK CLAIMS INVESTMENT CORPORATION. 3 AppeatanQe$.-·-··- ··-··········.....- .. -·-...5 3 Ml Char lea C lin1011 Hunlel 4 MICHAEL 0 . SYDOW, SR.• REICH .t. BJNSTOCK. L.l-P 5 Examination by Ms. Kelley M. KcliCf...- ..- .... .6 I • 426S San fd ipe, Suilt 1000 lloU$10n. Tcw 77027 6 Changes and Signature P&&e...- ........ _,_.. _,_.74 Phone: (7t.J.) 62l-n7t 7 Rep

482 Oral Deposition of Michael D. Sydow, Sr. Pa9c 54 Page 56 1 10 Reque$1 No. 3. 1 yellina a~ me. and I'm aired oflhat. 2 Q. So is it correct. then. that there are no 2 Q. Yeah. 3 Artides ori~orporation for JK Oaims? 3 A. Evety time I $lOt you. you sealhi$ wny. 4 A. Ofcourse, there are. They've bem produocd. 4 You'n: no11he patty. J~tSt calm down end ask 5 Q. They're not here in ~ I have 5Cal. Js that 5 straig)llforward questioos and get Shighlforw»"d 6 the Cmificale ofF~ion? 6 answer$. 7 A . Yes. 1 Q. l asked 111e question. an: lhcre any 8 Q. Okay. We'veseenaCertlficateofFomration. 8 shardloldcr mceling minutes? 9 Are there Articles oflncorporation7 9 A. TI11:1e are wriaen coMCnts in lieu of 10 A. All the documents·- 10 meeaings. ll Q. lji&St want to know - 11 Q. Th•k you. So chen: are no actual meeting 12 A. - that exist ~ here. 12 minuteS, conetl? 13 Q. -are there Ardcle$ of Incorporation? You 13 A. Corm:t 14 saidthem Articles of lnc:OfJ)(>ralioo. I WWII you to 14 Q. lllank )'OU. 15 find those in the materials we reviewed today. 15 Corpc:~r.Ue resolutions. have you prodoood 16 A. Bates NO$. 36 throv&J! 38. 16 ~II or the eorporaw: resolutions of JK Cbims? 17 Q. Okay. And what is !he titk of thai docomeol 17 A. Yes.. 18 yo~eref~nsto7 18 Q. Otll)'. And -cain. the one$ we've seen are 19 A. Certifu:aac: ofFormillioo For-Profit 19 un1i~, conut? 20 Corporation. 2o A They doo't 113vc to be srBJW!. 21 or Q. Okay. So there'SI Certificate Formation. 21 Q. Oluly. ~lder COMents. have )'OU prodO<:Cd 22 Have you found anything idcntiftcd as Anlc:les of 22 all of lhe sh'mholdet collSalts of JK Clairru? 23 Incorporation for JK Claims? 23 A. There af'Cfl't any sflan:holders. 24 A. Thll($ wtusttbis i.s. 24 Q. Okty. So ~re's ~ sb~boldcrs.. WOO arc 25 Q. Okay . 25 the owner.~·-

Page Pb(JC 57 1 A. It's the some thing. A. Jfs uncertirl.c:ated. 2 Q. Okay. S4oct ledgers. are tbcre any st 22 A. And if you cSon't quiet down and set out of my 22 is &hat correct? 23 face, I'm walking out. 2J MR. HUNTER: Objcaion> form. 2. Q. YWI. I'm noc In your faoc:. 24 A. JK Claims is incorporated as an uncer1ifi~ed 25 A. You arc. vou•re leanJng across the coblc and 25 oompany- • -:;J""- .. .

15 (Pages 54 to 57) 9438 Data scope 713-688 - 9300 495 Oral Deposition of Michael D. Sydow, Sr . Page 58 Pa ge 60 1 Q. (BY MS. KELUR) I've hcatd tha.t. 1 A. It's not filed if it's re~. 2 A. -through the BOC. 2 Q. OkAy. But It was flied and th.en rejected. 3 Q. Wh3e rm eskiJlg is. is lhcre any other way 3 corn:c:t? Jus1 filed. but not ~ted'? .. oth.cr than your testimony today 10 verify the ownership 4 A. )I WIIS wbmitted, OOt not fi)cd bcca.w'c it I 5 ofJK Claims? 5 ~properly filled out. 6 A. I'm~ awan: ofany clocumet~~tlon- well 6 Q. Do yoo bve :a copy of Ill~? 7 attualty tha'c m~t be: some documenwion thai may 7 A. No. 8 exist. 8 Q. Who prepared lhar? 9 Q. Okay. Wbal would IIIII documc:nlalion be:? 9 A. Some DCCOUnWII in Mus:\dwSdts.. 10 A. J believe the consent in lieu of mcell"£,5 1o Q. So does JK Claims have: any profJt and loss ll clc:atl)' sfl.ows who the owner is. 11 scatc:ITICfiiS? 12 MR. HUl'fTER: I think tha'c's a B:aiC$ 12 A. No. 13 No. so. 13 Q. Docs JK Ct3lms have a tJ.I~ sheer? 14 A. Q&~~twn Catalytics, l .l..C., being llle holder l4 A. No. lS of the majority or the shares of JK Claims docs ~by 15 Q. Does JK Claims have any inc:omc: Slalc:ments? 16 consent tO the ac>polntmcnl of John Preston ll$ so~ J6 A. No. 17 dii'CQO: of the company. 17 Q. Oocs JK C1aims have any oilier type of documen.l 18 Q. (BY MS. KEllER) Otay. 18 thai might rellcct the current finOVlcial ClOilditio«< or 19 A. Exhibit 9. 19 JK Claims'? 20 Q. Ok:s.y. Anythi~ eiSIC? 20 A. No. 21 A. Bate.s No. OSO, QIIIUlfUm Catalybc:s. l..l.C., 21 Q. Rc:quc~ No. 6 t\Sk:s for ;!:tly and all loan 22 be&!~ the bolder of the majoriry of the snares or Jl< 22 appiK:ations prepared by or on behalfor IK Caaims. 23 Claims dues hereby redcct John Prescot~ as the sole 23 Has JK Claims pre~ any loan apptic:atioM? 24 di~ of the company. Exhibit 9, Bates No. Sl . 24 A. No. 25 Q. Okly. J2S Q. All documc:nlS re_rlccti11g any ouiSianding

Page 59 1 Page 61

l A. So, yes. lllere are dQCumc:JIIS that reOCCI the l) 2 flnanc:inl obliption held by JK Claims, inc:ludinJ but not limited lO. loorl sta1cmc:nts, credit card account 2 ownersfljp. 3 Q. Okay. Would there be: any other doa!mct1LS 3 stalc:mcnts, promissofy notes, and scc:ID'ity instrvmcnu. 4 otller than E)(hibit No. 9? 4 H&\"C you soc:n eny suc-h documeMS? 5 A. N04IIIal I'm aw1re of. 5 A. Thctt aren'\ any. 6 Q. OQ)'. Request No. 4 asks ror an 6 Q. There an: none? 1 cmployment·tclatcd agrcemenlS ccea.ted by JK Claims 1 RcqYC:St No. &. all ~rds reflccti,.,; the 8 from Jamwy 2012 10 lhe present, including but!)()( I 8 e:xiscence ofall ""oourns held by JK Claim¥ at any type 9 limited to. con.sultina qreements and employment 9 of fin:~r~Ct.llnsdMion, inc:ludine but nocllmJted to. 10 ~LS. Are there any document$? 10 ~opening docwnenlS, si!:Jtarute 11.11horizaliom, \1 A. No.. 11 and 1t1e last six moatbs ofstatements. Docs JK Claims 12 Q. Request No. 9 asks for all doMes, Preston, 8liCV« 11 before? 21 Sydow regat

16 (Pages 58 to 61) 9438 Data s c ope 713-68 8 - 9300

496 Ora l Deposition of Michael D. Sydow, Sr. Paqe 62 1 Page 64 . 1 n:tlled to the soui"CC$ of the JlS.OOO used by JK Claims 1 A. NOihins. ~ 2 to purchast the claims owned by the bankruptcy of 2 Q. Ju~tlhat Q\!Mt\lm Catalytlcs paicf? I! 3 Jeffery Kaiser. What docwncrus lla~e you brouslu 3 A. Yes. 4 n:~.nsiw: to RcqUit:St No. I I? 4 Q. 'Jlut's it? 5 A. No.ne. 5 A. Yes. 6 Q. I'm Sl>rry'! 6 Q. Request No. 12, all documents reO~ or 1 A. None. 7 rdatc:d to CX~mmuniCil.ions between IK Clai~m or it$ 8 Q. Okay. I ass~Umc thallhere wouid be documents 8 repn:scntativcs and the tNStee of the~ regardint 9 te.flectiB3 the sourte ofth1t funding. H1111e you made 9 the pu:d\ase. Thilf$ c:ssmtially these dwc ~rds 10 811Y effort to locate doaunents responsivc 10 Exhibit l0 you produced as Exhibit No. I I thto~tp 13? 11 No. ll - 11 A. Those ue the doQwcr11s that exi~. 12 A. Yes. 12 Q. Is t.hc:re an)'lhin& ebe, any other 13 Q. - exa.rse me- Request No. I I? \3 communications related to the discussioM betwmll.bc 1' A. Y~ 1~ t.rustee of the Ka.iser c:Sl:lll! and my per$00 on hd!o.l f 15 Q. Wbal errOrts 113ve you made? 1S ofJK a.Jms? 16 A. I have dooe an investigolion. 16 A. t..'q. No. no! lhlll I've been able eo determine:. 17 Q. Wha1 wus that i:nv.estiantion? Who did )'OU 17 Q. Were )'OU a puty to lilY of th~ 18 reque;u n:eoord$ from? 18 tornt1WI1i<:.cions? l9 A. Jobn Pn:Sioll. l9 A.. No. 20 Q. When did you make tN.t request? 20 Q. Request No. 13. all e--mails, notes. 21 A. I d 01t1't recall. 21 COrre$J)Qildcrlce, and other dC)CWQCIIts reOectillg 22 Q. And~ wns the: rc:sponlrC from Mr. P~n? 22 convnunk:.uions by and between or 8mOC'IS Lobnc:s. ~on. 23 A. JK Claims doesn't have any suc:b n:eotds. 23 andfor Sydow n:gmding lhc dailn$ znd the pwdaiiSC of 24 Q. Regarding the sour(e ofchdunds of the 24 the same: ffOm the: cswe. Art there ~ documents 25 2.S,000 purthast money for the claims? 2S I'CSJ)OrtSi\-e IO No. 13?

Page 63 --------------------------------------1 1 A. Right 1 A. No. 2 Q. Do you know wha1 souroc of funding for ihe 2 Q. Ob,y. rd like to focus now on con¥erS~Ui011$ 3 p1Rhll$e - whllt w~ the funding source for the 3 becween you M~d Mr. Preston n:~arding the plli'Chase of 4 priase or JX Claims- excuse me - Kaiser claims? 4 Mr. KaiSCf's claims out of lbc K4i$Cr bankruptcy s MR. HUNTER: Objection; fonn. 5 C$tliC. 6 A. r understand it was from QIW!rum Catalytics. 6 When do you n:call you rms spoke with 7 Q. (BY MS. KEU..ER) And how did you make Chat 7 Mr. P~ regardlng some entity pun:twing those 8 Wldmu.nding? e claims? 9 A Through an internal investiption thnt I 9 A. l don't recall. 10 conducted to pn:pru-e for th.e dc:pQsition. 10 Q. How oWly times wootd you say )'OU spoke with 11 Q. And what did you lcam in cbal intef'nll ll Mr. Preston n:g~d ing that matter'? 12 investigation rqarding the payment for Mr. K<~isets 12 A. I don't rec::tll. 13 claim'? 13 Q. Whose proposal was it that some entity 14 A. QU13t1rum Ca~alytics transmitted the money to 14 pUidlose Mr. Kaiscts clAims (rom the bankl\lptcy lS pay for the claims. 15 c$latc? 16 Q. In "Ail# form? Was it a check or win: llanSfct 16 A. I don't recall. 17 rcc:ord? 17 Q. Was it your su~ion l~ somebody pllrdlase 18 A. I don't know. 18 those claimJ? 19 Q. fm S!Orr/1 19 MR. HUNTER: Objedion; foml. 2() A. I don"t know. 20 A. No. 21 Q. And wbo told you that Qu~cum Cnta!Y'ic:s 21 Q. (BY MS. K.ELI.£R) Wz it Mr. ~n'$ 22 lnnSmilkd the money? 22 susges1lon? i 23 A. John Pn:stoll. 23 A. I don't recall. 24 Q. What else djd he say abolJI the fund.ing. of the 24 Q. Could it hnvc been )'OIIr sugscstilon Olo&C the: ~ 25 plltdl&$t of Kaiser dalms? 2S claims be purcllased by somec:ruit)'? i ~.--~~- ~~-~ .-=-~-~ - ~~ - ~-~--~~-~.~-~~~--~---~-~ - ~.-~.~~ -~-~ .-~ .-~~ -~-~ - ~~-~~~~ .-~~ . .. . . 17 (Pages 62 to 65 ) 9438 Data scope 7 1 3-688-9300 497 Oral Deposition of Michael D. Sydow, Sr. Page 66 Page 68 l A. No. 1 A. f dorft know. 2 Q. Wa$ i1 Mr. t.olwles- suucstion? 2 Q. Would )'OU have a copy oftlle bill for services 3 A No. 3 if you did? ~ Q. Do you la!ow if Mr. Lohne$ provided lllc: money 4 A. Yes. ~ WI was wed to purdlo.se the claims from the Kaiser 5 Q. Okay. 6 e:sQtc:? 6 MS. KELLER: Mf make a reqUICSt for 7 A. No. 7 lhaL 8 Q. Do you blow ~Y the: bank.ruptcy trustee would 8 Q. (BY MS. KELLER} Do you know the sources of ~ 9 have 5t.alc:cl thai the money was ~ng &om Mr. Lohnes? 9 funds for the: capit:lli&~~Jjon other th311 yout testimony 10 A. I don't know tint the barlkruptcy tJuMe so 10 Lhat lr came from Quanrum C.1alytics'? 11 staled. ll A. Thllt is the JOuru. 12 Q. Oby. f f tlle bo.nkruptey uustcc st~d cr bankruptcy estate? 21 eloims it putdlased from tbe Koisa' blntrvptcy1 22 A No. 22 A. No. 23 Q. Thai's the onl)' busina-s that J K Ctaims bas 23 Q. Doc$ JK Claims have any liobilrucs? 24 ~done was to purchase those dalms ond pum~C t.hosc 24 A. No. 25 in co~ oom:et'? 2~ Q. As c:mpor.Jte eou.n:sel for JK Claims, ""'C'C >'0'1

Pa qe 67 Page 69 1 A. That's correct. l responsible for obUinifll litiptio.n counsel 10 pursue 2 Q. Okay. fs that Lhe put'p(Ule oftbe formotion or 2 the claims Olat were purchased from lhe Kaiser estate? 3 JK Clllims? J MR. HUNTER: Objection; privileged. 4 A. Yes. 4 Q. (BY MS. KELLER,) I'm going to ask you acain; ~ Q. Okay. Wh3l Other - so is it l.n.lc, lhel\ that ~ and if you rt:fusc to answer it on the basis ofadvice 6 JK Ollim$ has ftO ocher inv~c:nt:s? 6 of oounstl, ~ me know. 7 A. No. it docs not. 7 As corpoi"Dk counsel fo~ JK Claims. ~ 8 Q. Okay. Does JK Claims have g.ny lnvestotS otbc:r 8 you respDn$lble for retaining ClOIJtiSCI tO purme the 9 Lhllll its sole shareholder Quanl\lm Ca.talytics? 9 cl31ms f« bank:rupecy? 10 A. No. 10 A. J refuse 1o llll$Wtr on the advic:c of ~unscl. 11 Q. ~. Did QuMtwn CatalytiC$ provide Any 11 Q. Olc.ay. Goins ba.ck to RcqiJCSt for Production. 12 money for the c:aphafizalion or JK Cl~ims oa Its 12 lhc: ones relaJod to the funding of the P"'rehase. the lJ ronnalion? 13 ~UC:Sl specifically osk$ ror dlcdcs, witt transfer H A. Ofcourse. 14 records, en&. or any loan doeumentation. anythins 15 Q. How much did Quancum Catalytics provide for 1~ relakd to the p~rc:base for the claims. Wert: you able 16 Lhe capit.aliz::a.don ol'lhc company? 16 10 obaln any of lhaa from Mr. Pre$t0n? 17 A. Enough to buy the claims and organke the 17 A. No. 1e comJllllly. 1e Q. Did you asic fo: ttuu from Mr. f>Rs1on7 19 Q, How much was thai? 19 A. Yes. 20 A. Somewflere between 25- 0.11d $26,000. 20 Q. And what was his response? 21 Q. And how mvd! did you c~ JK Clalms as 21 A. JK Claims doesn't h;ave .,Y $UCh docwnents. 22

498 • Corponsflons Section Hope Andrade P.O.Box 13697 .. Austin, Texas 78711·3697 Secretaty of State

Office of the Secretary of State Paek:ln~ SUp June 20, 2012 Pago 1oft ECEXVID R Attn: Michael D\ Sydow The Sydow Pfrm, LLP JUN ~ 6 2012 lU 1980 Post Oak BJvd. Suite 2100 tfouston, TX 17056

~ateh Number: 42636919 Batch Dete: 06.15--2012 CJient ID: 387134096 Return Method: Mail

Document Page Number Document Detail Number I Name Count Fee 426369190002 Applleatlon for Name JK Claims Investment 0 $40.00 Reaervation Corpor.atfon

Total Fees: s-40.00

' ! - I l II Payment Type Payment Status Payment Reference Amount Credit Card Received ············7812 $40.00 Total: $40.00

Total Amount Charged to Client AccoUDt: $0.00 {Applies to docwuents or orders where Client Account Is the payment method)

Note lo Cullomers Paying by Client Acc011111: This is ~t a bill. Payments to your client account should be based on the monthly statement and not this packing slip. Amounts credited to your client account may be refunded upon request. Refunds (ifappJicable) will be processed within 10 business days.

There is a 2.7Yo convenience fee on c.redit card payments. This additional amount will be computed and shown on your credit card statement when the ored.it card transaction is settled.

User ID: RARREU.ANO 1 EXHIBIT

~~ Come villi ur on lhB,/tt~'fk@JHHzi!www.loUIDIB,tx.JUI Pbooe: (.512) 463-SSSS F~"'(S12r.J&3~S709 Dial: 7-1-t for Relay Services

524 i I CosporatioDa Secdoo Hope Andrade

I P.O.Box 13697 Sccrecary of State Austin. Texas 7S7ll~697

I j Office of the Secretary . of State

I June2~ 2012

Atto: ~~ID.Sydow

The Sydow Finn. LLP 1980 Post Oak Blvd. Suite 2100 Ho~n, TX 77056 USA

RB: 1K. Claims Investment Corporation File Nwnber: 801614039

Enclosed is the certificate of reservation for the referenced entity name. Tho name is reserved for a period of 120 days from the date shown on the certificate. This name reservation can be used to organize a domestic filing entity. to change the name of a filing entity, or to make an application for registration of a foreign filing entity 'to transact business in Texas. The right to use this reservation may be transferred to another person by filing with this office a notice of transfer. During the period of reservation. a registrant may tenninate the reservation by filing a withdrawal of the reservation.

This reservation may be renewed by filing an application for oame reservation in tbe manner prescribed for the filiDg of an original applicati~ 'The renewal application may be filed during. the thirty (30) days preceding the expitation date of the reservation period. If no action has been taken Jo renew the reservation or to file an instrument using the above name during the 120-day period, the reservation will expire and other requests, if any, for the name will be honored.

When submitting 8 filing instrument utilizing this ~ation, please submit 8 copy of this reservation. If we can be of further service at any time, please let us know.

Sincerely,

Corporations Section Business & Public Pilings Division (5~2) 463-SSSS Bncloswe

Come v/.fit VI on the lntUMI ttl hltp:/lwwt'M03.~IQ/e.bt..W Phone: (S 12) 463-SSSS Jl\()Q~~109 Dial: 7-J-1 tor Relay Services Prepared by: Ron Anell.Dno TID: 10290 Document: 426369190002

525 \AII)NIIUIUWI &)CNO&VU .u.v.t"' .r~.uw a.u"' P.O.Box 13697 Secretary of State Austin, Texas 78111-3697

Office of the Secretary of State

CERTIFICATE OF RESERVATION OF ENTITY NAME OF

JK Claims Investment Corporation

The undersigned, as Sectetary ofS.tate ofTexas, hereby "certifies that the above entity name has been reserved in this office pursuant to the provisions of Section 5.1 OJ of"the Texas Business Organizations Code for the exclusive use of ·

John T Preston 421 Currant Road, Fall River, MA 02720

i . i. for a period of one hundred twenty days after the date hereof. •I I

I• This name reservation does not au~orize the use {)fa name in this state in violation of the rights of .. ' another under the federal Trademark Act of 1946, the Texas trademark Jaw, the Assumed Business or Professional Name Act, or the common law.

Dated: 06/20/2012

Hope Andrade Secretary of State

Come vls/J us on the /nlernet at hllp:llwww.803.stale.tx..fJ3/ Phone: (512)463·5555 ~~~2~709 Dial: 7-1-J for Relay Services Prepared by: llosa Arrcllano TID: 10317 Document 426369190002

526 > ~ ~~ tj, ._ ·- ,, 1.:-<.._

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,.. i l <8: 9'.C:., ~~..... ~ ·.J!it , "'<) ..:_g,~- ·- ~· ~ < ""' -~ -&' r ~.9 .... ...,pq ~ I f ·~

~

527 : ~

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: :::.;~i;r¥,~~::~~~;:> i :::: i;i• .il:.: ·:::·· :!: ' :t:~:

528 f .. I; t I

t JK. CLAIMS

,t J WRITIEN CONSENT IN LIEU OF MEETING

i I I ; I [ Quantum Catalytics, LLC being the bolder of a majority of the shares of JK. ~ I t Claims, does hereby consent to the appointment of John Preston as the sole director of the

company.

John Preston, Managing Member

August 22~ 2012

EXHIBIT

...... . i-4b- JK Claims 000050

529 JK. CLAIMS WRl1TEN CONSENT IN LIEU OF MEETING

Quantum Catalytics LLC being the holder of a majority of the shares of JK. Claims, does hereby re-elect John Preston as the sole director of the company.

John T. Preston, Managing Member

August22, 2013

I I l r•f r !

JK Claims 000051

530 JK CLAIMS ACTION BY DIRECTOR

The undersigned director does hereby approve the purchase ofall claims of Jeffery Kaiser from the trustee of his Chapter 7 bankruptcy.

JK Claims 000052

531 From: gmcoord@natbansommers.com · · To: keOy.stepbens@hotmail.com Subject: Kaiser Date: Wed, 14 Mar2012 14:13:25 +0000

I am sending you a motion to sell today with a an order for your review. Do you have the money in your aooount? And, do you.have the name ofthe entity set up to purchase the claims? ~Oiuer McCord r Neshan Sommen Jacob! A ProfosdoceJ Corporation II 2800 Post Oak Boulevard I 6btPioor I' Hoostoa, Texas 71056 i Voice: (713) 892.-4816 Fax: (713) 892.-4800

i r pccord@oatbaD8o111111Gn.COIII www.nadumsommcrs.oom I' .. II tBIS B-MAJL MBSSAOB AHD 1HB AlTA

I INFOJIMATION AND YOU·ARBN01'1111tsBNDBil'S JNTI!HDJIDRBCIPJIINTOHOCitl:BOALLYI'RML80BDOR a>NPJDI!NTIAl•lNPORMAnoN. · niB Dl8SIIhfiNA1lON, DJSllUBUJTON, PUBLICATION, DI.Sa..OSt.IRB OR \JliB OP SAID B-NAIL Ml!SSACJB, ATl'.AaiMBNTS AND INI'ORMATlOH AND S'IR1C1LY PROHIBI1BD AND YOU ARB INS"DUJC1ED TO DdMSDJA1ELY (A) NOTIPY niB SI!NIEltBY 'IBI.l!PHONH AT 713.960.1003 a: YOUJl RBCEIPT 01' THIS &NAIL MBSSAGB AND SAID A1TAOIMI3NTS, AND (B) DI!LBlB THJ8 'S-MAIL NJ!SSAGB AND TRB ATrAawBNJS 10 rr. AND DBSTROY ALL OOPfB3 AND P.RDn'OUTS 'T'HJIRE(F.

EXHIBIT II dow "' JK Claims 000013

532 ···- - ---·· . . · · · - · · · - - · · - - - - · -· . . . ..,...,. _ _ _ _ .._ . . , , , ._ _. _ -·· - -- ¥• _ .. _ - . .. . _ · ·- ·- - • • • · · · - - · · ... ·-·-

INPORMAnOH AHD STJUcn.Y PltOHIBITt!D AND YOU ARIIINSTRUCTIID TO IMMEDIATI!I..Y (A) HOT1FY llfB S.BNDER BY Tl!LI!PtJONB AT 713.96Q.m03 OP YOUR JIBCiilPT OP THIS &MAIL MBSSAOB .AND SAID .ATTACHMSNTS, .AND (B) DElETE 11US S-MAIL MliSSAOE AND TJUi ATTACHMENTS TO rr,AND DllS'J"RRY ALLCOPlES AND Pflllfi'OlTI'Snn!ROOP.

J'rom: Kelly Slcphens [mallto:kclly.stepheos@hotmail.com] Seol: Friday, June 15,2012 10:24 AM To: Orctchcu McConi SUbject: RE: Kai&eT- Salo Order

I l Gretchen, l I my clients inform me that they would like to make some changes in the valuation language of the order. f t they are supposed to get me their suggestions today. I will forward upon receipt.

Kelly D. Stephens Stephcos & DomniU. PU.C P.0. Box 79734 Hoaaton, TX 77Z79-9734 281-394-3287 832-476-5460 Fax

From: gma:ord®natbaoso111mcru:om To: kclly.stephens@hotmftll.com Subject Kaiser- Sale Order Dato: Wcd,13 Juo 2012 20:2S:OS -+0000

Attached is a form of order tbat wlll be filed with tho motion. The trustco hnd a few revisioos. I hAve put a signature blank to sign as ao agreed order. but did not blow if you or somcoae else would be algnjag. Pleosc Jet me know asap. Tbanlcs.

GRU:hcn Gauer McCord

Nalhan Somnlm Jacobs

A Prdeaslonal Corpotalloa

2800 Fbat Oak Boulevard 6Jst Roor

Houston, Teus770S6

l Vok« (713) 892-4816

Fax: (713) 892.4800 EXHIBIT

www.nathaMOmmoll.com JK Claims 000053 s~?w 533 Case 08-35261 Document 51 Filed in TXSB on 06/19/12 Page 1 of 11

IN THE 1JNlTED STATES BANKRUPTC'f COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISIO~

INRE: § § JEFFERY B. KAISER § CASE NO. 08-35261-Bl-7 24Zl Wordsworth § Boustoo, TX 77030 § (CBAPTER7) SS#: ux-n-7148 § § DEBTOR(S) §

TRUSTEE'S MOJION FORAUTHORrtY TO SELL ESTATE'S INTEREST IN CLAIMS

PUISuantto Local Rule 9013:

THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE M0110N,.YOU SHOULD IMMEDIATELY CONTACfTBE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITBIN 21 DAYS OF THE DATE TBIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRAN.I'ED WITHOUT FURTBERNOTICETOYOU.IFYOUOPPOSETHEMOTIONANDBAVE NOT REACHED AN AGREEMENT,YOU MUST ATTEND THE BEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE BEARING AND MAY DECIDE THE MOHONAT~~ \

REPRESENTEDPARTIESSBOULDACTTBROUGB 'rBEIRATTORNEY.

COMES NOW, Ronald J. Sommers in his capacity as the Chapter 7 Trustee ("Trusteej for

the above-captioned baDlauptcy estate ("Estate") and files this his Motion for Authority to Sell

Estate's Im.erest in Claims ("'Motionj and would show as follows:

EXHIBIT G

534 Case 08-35261 Document 52 Filed in TXSB on 07/13/12 Page 1 of 3

IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTIUCT OF TEXAS HOUSTON DIVISION ENTERED 07/llllOll INRE: § § JEFFERY B. KAISER § CASE NO. 08-35261-Bl-7 2411 Wordsworth § Roustoa, TX 77030 § (CIIAPTER. 7) SS#: xu-n-7148 § § DEBTOR(S) §

ORDER GRANTING TRUSTEE'S MOTION FOR AUTHORITY TO SELL . ESTATE'S INTEREST IN CLAIMS

ONnDSDAYcameonforconsiderationtheTrustee'sMotionforAuthoritytoSellEstate•s

Interest in Claims (the "Motion'') filed by Ronald J. Sommers, the chapter 7 trustee in the above- . ' captioned bankruptcy estate (the '"Trusteej, pursuant to 11 U.S.C. § 363. The Court, after

c:onsiderini the Motion, the argument of couusel and any evidence presented, finds that I. · This is an action filed under Fedtmil Rule of Bankruptcy Procedure 6004 and the

coaesponding local rules for the Southern District of Texas and under 11 U.S.C.

§§ 363 to sen the estate's interest in property. 2. This Court has jurisdiction over this matter.

3. The sale approved herein is in the best interests of the creditors and the abov&-

captioned bankru~ estate \Esfatej.

4. The Trustee is exercising reasonable business judgment.

5. The sale approved herein is free and clear of liens.

6. The Trustee and the bvyer nogotiated the sale at arms length and in good f8ifh.

EXHIBIT H

545 Case 08-35261 Document 52 Filed in TXSB on 07/13/12 Page 2 of 3

7. Adequate notice ofthe Motion and any hearing on the Motion has been given to all

creditors and parties-in-interest.

8. The sale of the Claims is a sale of the Estate's interest in such Claims.

9. The Trustee has not made any n:presentations or wmanties with rospect to the sale

or ownership of the Claims. ·... 10. Any and all objections have been withdmwn or are ovenulod.

Acc.ordinglyt it is

ORDERED that the Trustee is authorized to sell the Estate's interest, ifany~ in the following claims

to JK Claims Investment Corporation, or its assigns (""Buyer"), for twenty-five thousandandno/100

dollars (S2S,OOO.OO) ('"Sale Price") in accordance with the teuns ofthis order:

Any and all causes of action owned by the Debtor as of the date ofhis Bank.ruptc:y filing and now owned by the bankruptcy Estate against Teus Syngas, LLC, Texas Syngas, Inc. and their officers, directors. shareholdcm, age11ts, attomcya and/or against any predecessor, successor, or affiliated companies, including but not limited to the following individuals: Michael Sydow, Michael Collins, John T. Preston, Quan1mn Catal.ytics, Inc., and M. Sameer. Ahmed. These claims would include specifically all those claims that were owned by the Debtor and that were pled, or that could ~ve been pled, in the Lawsuit with Cause Number 2007-38533, and styled Jeffery B. Kmser, et a1 v. Texas Syngas. LLC alkla Teras Syngas, Inc. et al, currently pending in the 1S2nd Judicial District Coort ofH.anis County ('Oaimsj.

Further, it i$

ORDERED that within three days ofthe entry ofthis order, Bu~rmustdelivertheenti.rety

ofthe Sale Price to the Trustee in good funds. Further, it is.

ORDERED fh:at, upon receive of the Sale Proceeds in good funds. the Trustee will provid~

to Buyer a receipt of such funds in writing. Further, it is

546 Case 08-35261 Document 52 Filed in TXSB on 07/13/12 Page 3 of 3

ORDERED that the sale ofthe Claims shall be effective immediately upon the c~ons

in 1bis Order being met without further Older ofthis Court or fUrther docum~tation and~ Order

shall be sufficient evidence ofthe assignment and sale ofthe Claims. Further, it is

ORDERED that 1he sale ofthe Claims is free and clear ofany liens, claims or interests. It is

. ORDERED that the Trustee is authorized to execute all documents and take all other actions

necessary to complete the compromise and the sale ofthe Claims. It is further

ORDERED that the Trustee bas made no wmanties or representations as to the sale or

ownership ofthe Claims. It is further

ORDERED that the sale of the Claims is a sale of the Estate's intetest therein, and tbatthe

Court makes no finding that the Estate bas any actual interest in the Claims, ownmhip of.wbich

is disputed.

Signed: July 13, 2012

·United States Bankruptcy Judge

547 311<4/2014 QIU~con Print au;ege

II _,- .

In re: Kaiser and In re: Jorden ... ·-- ·' ... . - . .- -- ··- - "* --··· --- . From KeUy Stephens (keDy.stephens@hotrnail.com) Sent: Tue 9/13/11 2:23PM To: r.;onuners@natbansormners.com

Ron.

I need to discuss two ~sues with you.

I) Cause No. 08-35261, In Re: Jeffery B. Kaiser.

On tim case, you may rem:mbcr that I made a written offi:r to p~base the Estate's interest in aD cases and/or causes ofaction whi:h JeffKa.i<;erfibe Estate had a claim against Texas Syngas, lLC, Texas Syngas, Inc., Michael Sydow etc. We oBCred you $25,000.00 cash fur those claims. You never n:~onded. Keer has recently (this year) tiled two rrotions to retain in the existing laws~ claiming to have acq d or tbat he is about to acquire from you the right to go furward in this case.

I can still offer you$ J 0,000.00 fur those cJairm assuming they ha not been abandoned. Please !et me know your position on this rmtter.

2) lDlSU1'e about the cause but I believe that the case is In Re: Ro ert Jordan.

I received a call from Artice Allen yesterday n:questing that I rep~nt bim in th5 matter and his deposition. Based on our conversation, ~ bas been noticed for ~day o is week. 1 am requesting a postponement of that deposition to give me a c ce to meet with him, get the doct.Dll!nts concerning the property in band and to get a grasp on your clairm.

please call me asap to discuss.

KeDy D. Stephens Stephens & Do~ PILC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

lit

KDS 0001 EXHIB IT I 548 I Cause No. 08-35261, In Re: Jeffery B. Kaiser

From: Kelly Stephens (kelly.stephcns@hotml..il.com) Sc:nC: The 9/13/1 1 6~0 PM To: Ronald SorTI't)ers (rsommcts@nathansoi'l:IIllers.com) Bee: ~haelsydow@lbesydowfirm.com; Amber Polach (amb .potach@tbesydowfitm.com)

Ron,

I am contacting you in reference to my offer to purchase rights/ca es ofaction of the estate ofJeftery Kaiser. ln my earlier email, l offered $10,000.00 fur those ri&hts. As we discussed this afternoon, I am renewing that ofler at S2S, 0.00. My client would hlce to purchase any a.ad aD causes ofaction held by the estate against Texas Syngas, , Texas Syngas, Inc., Michael Sydow, Michael Collins, John T. Preston, Quann.un CataJytics., lnc., and . Samecr Ahmed.

These wouH include specifically aD those claims !llldc in Cause 2 !'7-38533, Jeffery B. Kaiser, et aJ v. Texas Syngas, LLC a/kla Texas Syngas, Inc. er aL, currently p iog in the I 90th Judicial District Co\D1 of Harri; CoLilty.

(n that case, Mr. Ka~er bas filed a derivative action as a shareho and is allc~g loss oflm "iwe.~tn'le.m" and/or o~ irerest io Texas Syngas, ILC. Mr. K~ did t co.atribute any real rmney fur his ownership ~st, rather it was predicated on ~ contrinltion as officer and prorroter ofthe con;>an)'.

A partial S\m'Dil8J}' judg,mnt was issued ~h decJared that Te Syngas, Inc., was not a contim.ration o( subsidiary ofor a substftution corporation for Texas Syngas., LLC Mr. Kaiser had no affiliaEX>n will or ownership in Texas Syngas, Inc. Therefore he has no cla.irrs or s nding to make derivative claim; regarding tim entity.

My client is rmking tim otrer based on a "cost ofdefenw" cvatua · n I might point out that Mr. Kaiser filed this banknlptcyon the eve ofsumnary judgment~ being h on behalfofaDderendants io that suit. It 6 my beliefthat lOOse tiX>ti>ns woukl havclwill be granted. Mr. Kais s claims are refuted by over 75% oflhe shareholders ofthe COJ11>any. Additionally, in deposition, Mr. K · was ur.ablc to detail even a singfe instance ofmSrepresentation or omission on behalfofthe officers directors oftbe cornpany. "''e believe that Mr. Kaiser's b~tcy W8$ directly and predoroillately pred ated on 1m inability to sobstan~Dy respond to those motions or to provide any evidence to support the clemen ofhis claims.

As you may be aware, both Texas Syngas, ILC and Texas Synga Inc., are now defunct non-operating j

companies with no assets. tbe mibe ofTexas S}'Df}lS, LLC wasp icated on a severe lack of funding. The fit.Wre ofthe new company (with subsLantiaJ new investors and gement) Texas Syngas, Inc., was brought about by tbe inabaity ofthe COfl1)any to rmke the synthesis proces coll'lrrerCiaDy viable.

KOS 0002 549 311412014 '~ l I

It is my beliefthat the clairm ofMr. Ka.i5er are wortbJess. It wo . 6tate be in the best. interest ofthe ! . to take ' tlm cash offur. I i Kelly D. Stephens Stephens & Donmitz, PILC I P.O. Box 79734 Houston, TX 77279-9734 28 1-394-3287 832-476-5460 Fax

212.

K.DS 0003 550 311~4

RE: Kaiser Bankruptcy

From: KeUy Stephens (kclJy.stephens@hotrmil.com) Sent Moo 9/19/11 12:06 AM To: gmccord@nathansoiJllrers.com

Grethen,

our offi:r is the same we made a couple ofyears ago. it~ based· n the cost ofderense ofthe claims made in the prior lawsuit we came forward becal.lSe Kaiser has filed a couple of motions t retain. the one early in ttm year was made wiihout notice to myselfor my client. the last one was noticed an promted the re up of the otrer. the first offer was not responded to, so we thought the suit would die of nattn"al causes.

at any rate, we rmy be interested in maintaining the c)ajms in the o 'ginal derative suit depending on the tenTlS of any settlerrent

you should know that according to Sydow, he has oot been serve with the suit you furwarded.

Kelly D. Stephens Stephens & Domnitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

__ ___ .. ______ _ ! __ __ __ _ __ __ _ Subject Kaiser Bankruptcy Date: Fri, 16 Sep 2011 14:05:45 -0500 From: gmccord@nathansommers.corn To: kelly.stephens@hotmail.com

Kelly:

htlos:lltM7l.rnlil.li~e.cxmc#rreli.IT1ICJPrir-.M as sao es?ITN=an-us

KDS 0012 551 311412014 8

RE: Cause No. 08-35261, In Re: Jetfe y B. Kaiser

From: Gretchen McCord (gmccord@nathansommers.com) Sent: Wed 12121/11 7:47AM To: 'KeOy Stephens' (kelly.stcphens@hotrmilcom)

Are you around this week to discuss the settlement offer?

Gretchen Gauer McCord

Nathan Sommers Jacobs

A Professional Corporation

2800 Post Oak Boulevard

61stFioor

Houston, Texas 77056

Voice: (713) 892-4816

Fax: (713) 892-4800

qmccord@nathansommers.com

www.na!hansom mers.cqm

THIS E-MAIL MESSAGE AND THE ATTACHMENTS HERETO, IF ANY. ARE INTE~OED ONLY FOR USE BY THE SENDER'S INTENDED RECIPIENT($). IF YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF THI~ E-MAIL MESSAGE OR YOU RECEIVED THIS E-MAIL MESSAGE OR THE ATTACHMENTS TO IT IN ERROR, OR THIS E-MAIL MES~AGE OR SAID ATTACHMENTS CONTAIN LEGALLY PRIVILEGED OR CONFIDENTIAL INFORMATION AND YOU ARE. NOT THE SE~DER'S ll'lTENDEO RECIPIEI'lT OF SUOi LEGALLY PRIVILEGED OR CONFIDENTIAL INFORMATION. THE DISSEMINATION. DISTRIBtiON, PUBLICATION, DISCLOSURE OR USE OF SAlD

htiDs:llltU173.mall.ll\e.aJI'Iolfrrellm.cJPriniMessaaes ?m4:~W~ous

KDS 0021 552 311412014 Oullockc:an Print M~e II I RE: Cause No. 08-35261, In Re: Jeffet B•. Kaiser_

From: KeDy Stephens (kelly.stephcns@hotmail.com) I Sent: Wed 12121/1 I 10:54 AM To: grn:cord@nathansoJTD'l'X:rs.com

lam

Kelly D. Stephens Stephens & Dornnitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

- ---- --·----·- ··- -- From: gmccord@nathansommers.com To: kelly.stephens@hotmailcom Subject RE: Cause No. OR-35261, In Re: Jeffery B. Kaiser Date: Wed, 21 Dec 2011 12:47:47 +0000

hflns:/~u173.m:lil.ll\eCa~Vcf/nal.m.o9rintMessao es'?ni«=erH5 118

KDS 0022 553 311412014 OuiJocP.com Print Mesaage

RE: Cause No. 08-35261, In Re: Jeffery B. Kaiser

From: KeUy Stephens (kelly.stephens@hotrnail.com) Sen!: Wed 12/21111 12:57 PM To: grrocord@nathansom:rrers.com I attacmnt OrderRetaining09232011.PDF ( 135.3 KB)

Gretchen,

attached are the orders regarding retention ofthe case by Judge Schaffer. I talked with the coordinator a minute or so ago. no action has been taken or will be taken fur a week or so at least my clients are interested in going forward with the asset purchase as discussed and will be available for testinxmy ifneeded. I will furward more precise language on the offer shortly, my clients are discussing what vehicle to purchase through etc.

Kelly D. Stephens Stephens & Doi11Ilil4 PUC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

from: gmccord@nathansommers.com To: keDy.stephens@botrnail.com Subject: RE: Cause No. 08-35261, In Re: Jeftery B. Kaiser Date: Wed, 21 Dec 2011 12:47:47 +0000

KDS 0023 554 31t4120t4 OUUoaltcom Print Message

Kaiser estate

From: KeUy Stephens (kelly.stephens@hotmail.com) Sen!: Tue 12127/11 10:39 AM To: gmccord@nathansommers.com

sony for the delay. I know we need to get th5 in. my client has decided to make the oiler/purchase through one the individuals involved, Paul Lohnes.

I am renewing the offer of $25,000.00. My dient would like to purchase any and all causes of action or potential causes of action held by the estate against Texas Syngas, LLC, Texas Syngas, Inc., their officers, directors, shareholders, agents, attorneys, etc. (or any predecessor, successor, or related companies), including but not limited to the following individuals: Michael Sydow, Michael Collins, John T. Preston, Quantum Catalytics, Inc.; and M. Sameer Ahmed. These would include spedfically all those claims made or that could have been made in Cause 2007-38533, Jeffery B. Kaiser, et al v. Texas Syngas, LlC a/1

Kelly D. Stephens Stephens & Domnitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281 -394-3287 832-476-5460 Fax

htta;:/11:iu173.mail.ll..e.~l.m.c/PrintMassaoes?!TH=en-us 111

KDS 0024 555 RE: Kaiser

From: KeUy Stephens (keOy.stephcnc;@hotrnail.com) Sent: Tue 1/17/12 10:27 AM To: gm:cord@oathanso11111rrs.com

no word, Mike was in deposition all day and did not return my call

Kt:Dy D. Stephens Stephens & Domnitz, PLLC P.O. Box 79734 Houston. TX 77279-9734 281-394-3287 832-476-5460 Fax

From; gm:cord@nathansolllln!rs.com To: kelly.stephens@botma.ilcom Subject Kcmer Date: Tuc, 17 Jan 20 12 15:09:5 5 +0000

Any word?

2800 Post Oak Boule..erd

61sl Floor

hUD1!://tl.u173.rmiiJI~oa.

KDS 0029

556 ~14120'14

RE: Kaiser

From: Kelly Stephens (kelly.stephens@hottmilcom) Sent: Tue 1117/12 4:47PM To: ~cord@nathansommers.com

left you a voi;e mail, but just in case.

Have conmunicat:i>n from my client he is Wllting to put the rroney in my IOLTA account pending approval He wants rre to hold. assuming that is sufficient I woukJ give you notice ofthe deposit and hold pending approval

lctm: know.

Kelly D. Stephens Stephens & Do~ PLLC P.O. Box 79734 Ho~ton, TX 77279-9734 281-394-3287 832-476-5460 Fax

From: gm:;cord@nalhansoiJ'II'DCrs.com To: keDy.stephens@hotmail.com Subject Kaiser Date: Tue, 17 Jan 2012 15:09:55 +0000

KDS 0032

557 3/1412014 0\Alook.com Pfin\ Message

From: Kelly Stephens (kefly.stephens@hobnail.com) Sent: Tue 2/07/ 12 12:01 PM To: gm:oord@nathansoouners.com

a couple ofthings.

I . My clienl5 furming a company to purchase th.5 asset. should have that infO mid day totrorrow. 2. Should have the rmney by Thursday.

3. His lawyer in Boston is asking to review the tran!ifer doclDTICnts. do you use a standard fur fur asset purchase? ifso, can I get a copy to give them so that we speed up the process.

Kelly D. Stephens Stephens & Donmitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

From: gux:cord@nathansommers.com To: kelly.stephens@hotmait.com CC: rsormrers@nathansorruners.com Subject Kaiser Date: Thu, 2 Feb 2012 17:01 :45 +0000

I wanted to file the motion to sell this week. Do you helVe the funds in your lolta account? Also, did you send the email I requested that I can attach to the motion to sell as the offer?

KDS 0040

558 3/1412014 Ot.Cicdtoom Print Message

Kaiser

Front Gretchen McCord (gm:cord@nathansommers.com) Sent Wed 3/14/12 12:08 PM Tn: Kelly Stephens (kelly.sl<.:phcn<>@hotmail.com) (kcUy.stephcns@hotmail.com)

Since I never heard who the purchaser was, I defined it as follows :

The purchaser is Paul Lohnes or his assignee ("Purchaser"). The Purchaser is a business associate of the Defendants.

There needs to be some explanation as to why he is buying these claims . I assume he is a business associate of Mr. Sydow. But, I need clarification on that issue.

61st Roor

FalC (713) 892-4800

gmccord@nalhansommers .com

www.nathansommers.com

THIS E·MAIL MESSAGE ANO THE ATTACHMENTS HERHO. 1r ANY. ARE INTENDED ONLY FOR USE BY THE SENDER'S INTENDED

KDS 0042

559 31141'lUI4

Fmm: Kelly 0 Stephens (kelly.stephens@hotrnail.com) Sent: Wed 3/l4/12 1:04l,M To: Grelchen McCord (gmccord@nathansormncrs.com)

I am out of the ottlc ~c unt i J Monday. The definition is acr.ually 90ad as he has not yet i nforrned me either.

r-Mobile, America's .First Nat.i,,nwide o1G Network Sent by Samsung Mobile

Gretchen M<:Cor:d wrot:e:

>Since I never heard who the purch~H~~ was, defined i t as follows: > >The purchaser i~ Paul Lohnes or h i s assi9nee ("Purchaser"). The Purchaser is a busin~ss associate of the Defendants. > >There needs to be some explal'lation as to why he is buying these clalms. r assume hP. i~ a business associate of l'tr. Syd~. But, I lHWd c i~t" l fication on t.hat issue . > > >Grel~c h en Gauer McCord >Nathan Sommers Jacobs >A Professional Co cporaL ion >2B OO Post Oak Roulevard >6lst rloor >Houst on, Texas 77056 >Voice : (7131 892 - 48Ui >Fax: (713) 892-4800 >gmccord@oathansommers. com >www. nathansommers . com

> >TIIIS E-MAlL MESSAGE hNO TH~ ATTACHMENTS HERETO, I f ANY, ARE INTENDED ONLY FOR USE BY THE SENDER'S INTENDED RECI l'IENT (S) • IF YOU A~ N0'1' THE SENOE~' S INTENDED RECIPIENT Of THIS E-MAl~ M~SSAG~ OR YOU RF.CEIVF.O THIS E-MAIL MESSAGE OR THE ATTACHMENTS TO 1'1' .TN ERROR, OR THIS E-MAIL ME:SSAGE OR SJI.IO A'1"1'ACHMENTS CONTAIN f,EGALLY PRIVILEGED OR CONFIDEN'l' IAL IN F'ORMA'l'ION AND YOU ARE NOT THE SENDER'S INTENDED RECIPIENT 01-· SUCH LI::GA.LLY PRIVILEGED OR CONFIDENTIAL INfORMATION, THE DISSEMINATION, DISTRTBUTION, PUBLICATION, DI~CLOSURE OR OSE Cr SAID !::-MAIL MESSAGE, 7\T'rACHMENTS AND I Nf'ORMA'flON AND STRl C'rL't I:'ROH1lH'l'ED J',ND YOU ARE INSTRUCTED TO IMMEDIATELY (A) NOTlfY THt:: SENDF.R BY TEI.EPHONE AT 713.960.0303 OF YOUR RECEIPT Of' l'HlS E-MAIL MESSAGf. AND SAl D ATTACHMENTS, AND (B) DBL.£'1'£ '!'hlS E-MAIL MESSME J\ND THE J\Tl'ACHMENTS TO IT, AND DES'l'I{OY AI~L COPIES J\ND PRTN'l'OU'J"S THEREOF . >

KDS 0044

560 311412()14 C\JI/ookcan Print Message

Front Kelly Stephens (kciJy.steplx:ns@hotJnailcom) Sent: Tue 4/03/ 12 10:08 AM To: gmccord@natbansommers.com

j l.l.'it wanted to let you know, J urn not ignoring your request I have been tmable to speak with Lohnes or Sydow. I do not have the money as ofyet

KeUy D. Stephen" Stephens & Do~ PLLC P.O. Box 79734 Houston. TX 77279-9734 28 1 ~394-3287 832~476-5460 Fax

> From gm:cord@nathansommers.com > To: kelly. stephe~hotimilcom > Subject RE: Kaiser > Date: Thu, 29 Mar 2012 16:01 :12 +0000 > > KeDy: > > Can you confirm that you have the rmney in your JOLTA account? That the buyer still wants to trove furward? > > Also, per my request can you give me a short explanation of the identity ofthe buyer? (per my question below) If there bas not yet been an entity set up, then J will use the definition below. > > Gretchen Gauer McCord > Nathan Sommers Jacobs > A Professional Corporation > 2800 Post Oak Boulevard

hltns:/Mu173.maii.Ji~olfmail.mdf'riniMMSIIIl8.'1'?rrH=etH.IS 113

KDS 0047

561 :Y1412014 OUUookcom Pril'lt Mesuge

From: Gretcben McCord (gm:cord@nalhansommers.com) Sent: Tiw6/07/12 2:56PM To: Kelly Stephens (kclly.slcphens@hoiJm.ilcom) (kelly.stephens@hotmail.com)

I thought I would take one more stab at contacting you. Ron has me engaging special counsel to take this on an contingency fee basis so we can reach some resolution. Is your client still interested in purchasing the claims? We had reached an understanding, but your client was required to pay·the money into your t rust account. Last we spoke, they had still not done this.

If 1do not hear back from you by tomorrow morning, I will assume that your client is no longer interested in purchasing the claims.

AProfessional Corporation

61slFioor

Houston, Tellas 77056

Voice: (713)892-4816

Fax: (713)892-4800

gmCCQrd@na!hansommers .com

KDS 0049

562 31141'.!014 OU!c:dtccm Pr~nt Message

From: Kelly Stephens (keDy.stephen~hotmail.com) Scn1: Thu 6107/ 12 3:23 PM To: gm:cord@nathansommers.com

I am again assured that the money wiD be in my trust accoWlt mid next week.

Kelty D. Stephens Stephens & Do~ PT.l.C P.O. Box 79734 Houston, TX 77279-9734 281 -394-3287 832-476-5460 Fax

From: gm:cord@nathansollllll:rs.com To: kclly.stephens@botmail.com Subject: Katier Date: Thu, 7 JlUl 20 I2 18:56:48 +0000

I thought I would take one more stab at contacting you. Ron has me engaging special counsel to take this on an contingency fee basis so we can reach some resolution. Is your client still interested in purchasing the daims? We had reached an understanding, but your client was required to pay the money Into your trust account. last we spoke, they had still not done this.

If I do not hear back from you by tomorrow morning, I will assume that your client is no longer interested in purchasing the claims.

KDS OOSJ

563 311412014 OUtlockcan Print Message

From: Kelly Stephens (kelly.stephens@hotmail.com) Sent: Tue 6/12/12 5:53PM To: gm:cord~natbansoiJ:mErs.com

this DX>ming. I received notice ofa wire transfer of$12,500.00 from Boston this afternoon, I received a check in the amounl of$12,500.00 from Mr. Sydow. I deposited S<~Ire around 4:15p.m tim afternoon.

I guess I can say that 1 have the money in my trust account

Kelly D. Stephens Stephens & Donmitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

1/1

KDS 0060

564 Oullockc.cm Prfnt Message

RE: Kaiser- Sale Order

From: Kelly Stephens (kelly.stephens@hotmJ.il.com) Sent: Fri 6/15/12 11:23 AM To: gm:cord@nathansommers.com

my clients infurm Ire that they would like to make some changes in the valuation lan!,'lUlgc ofthe order. they are supposed to get rre their suggestions today. I will forward upon receipt

Kelly D. Stephens Stephens & Dorrm~ PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

From: grrecord@nathansommers.com To: keDy.stephens@hotrmil.com Subject: Kaiser- Sale Order Date: Wed, 13 Jun 2012 20:25:05 +0000

Attached is a form of order that will be filed with the motion . The trustee had a few revisions. I have put a signature blank to sign as an agreed order, but did not know if you or someone else would be signing. Please let me know asap. Thanks.

htiDs:/it1u173.1'11!ll.lhe.am'dlrreil.m.c/PrintMessao es?rl1F~ us 1l2

KDS 0063

565 311412014

From: Gretchen McCord ~cord@nathanc;ommers.com) Sent Fri 6/l5/12 llJ2 AM To: Kelly Stephem (kelly.stephens@hotrmil.com)

I am pretty much married to that language . I will look at what they send, but the language is already broader than I think it should be .

61st Floor

Houston, TeJ~as 77056

FalC (713) 892·4600

gmcoord@nathansom mers .com

www.nalhansommers.com

THIS E-MAIL MESSAGE AND THE ATTACHMENTS HERETO. IF ANY, ARE INTENDED ONLY FOR USE BY THE SENDER'S INTENDED RECIPIENT(S~ IF YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF THIS E-MAIL MESSAGE OR YOU RECSIVED THIS E~\!AIL

MESSAGE OR THE ATIACHMENTS TO IT IN ERROR. OR THIS E-MAIL MESSAGE OR SAID ATTACHMENTS CONTAIN LEGAlLY PHIVILEGED OR CONFIDENTIAL INFORMATION AND YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF SUCH LEGALLY PRIVILEGED OR CONFIDENTIAL INFORMATION. THE DISSEMINATION. DISTRIBUTION. PUBLICATION, DISClOSURE OR USE OF SAID E-MAIL MESSAGE. ATIACHMENTS AND INFORMATION AND STRICTLY PROHIBITED AND Y OU ARE INSTRUCTED TO IMMEOIATEL Y (A) NOTIFY THE SENOER BY TELEPHONE AT 713.960.0303 OF YOUR RECEIPT OF THIS E·MAIL MESSAGE AND SAID ATTACHMENTS. AND (B)OELETE THIS E-MAIL MESSAGE AND THE ATTACHMENTS TO IT, AND DESTROY All COPIES AND PRINTOUTS THEREOF.

llttn

KDS 0065

566 :Y14r.!Ut4 Oullook.com Print Massagu

FW: Kaiser- Sale Order

From: Kelly Stephens (keDy.stephens@hotmliLcom) Sent: Fri6115/12 3:45PM To; grn;cord@nathansoirfl'l:rs.com

Kelly D. Stephens Stephens & DomniiL; PLLC P.O. Box 79734 Homton, TX 77279-9734 28l-394-3287 832-476-5460 Fax

Date: Fri, 1S Jun 2012 12:45:07 -0700 From: michaelsydow@thesydowfirmcom Subject Re: Kaiser- Sale Order To: keDy.stephens@honmiJ.com

After consulting his Boston lawyers , Ihey can live with the language.

From: Kelly Stephens To: Michael Sydow Sent Wednesday, June 13, 2012 3:57PM Subject: FW: Kaiser- Sale Order

Mace,

see the attached. we have a window to make suggestions.

Kelly D. Stephens Stephens & Donmitz, PLLC P.O. Box 79734 112

KDS 0066

567 311412014 OIJUooltcom Pril'll Messago

From: KeBy Stephens (kelly.stephens@hotmlil.com) Sent: Fri 6/15/12 4:09PM To: gmccord@nathllnsoiTIFT1:rs.com

Here ~ the ilusive name.

Kelly D. Stephens Stephens & Domnitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

Date: Fri, 15 1lll20 12 12:54:56 -0700 From: ~haelsydow@th:sydowfinncom Subject Re: Kaiser- Sale Order To: kclly.stephens@hotrmil.com

The name ofthc purchas er will be JK Cluirrti lnvcsm.:n t C'.orporation .

--··--·- - From: KeUy Stephens To: "mdsydow@yahoo.com• ; Michael Sydow Sent Friday, June 15, 2012 11:33 AM Subject: FW: Kaiser- Sale Order

KeDy D. Stephens Stephe~ & Do~ PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 113

KDS 0067

568 Dismissal of State Court Action

F'ronr KeUy Stepbem (kclly.stephenc;@hotmaucom) Se::nl: Wed 6!J.7112 10:08 AM To: gnx:cord@nathansoiilllErs.com Bt:c: Michael Sydow (michael.sydow@thesydowfirm.com); Amber Polach (amber.potach@thesydowfinncom) 1 attachment Order Oi.omlissing case 06-12-2012.pdf( I 8.5 KBJ

Gretchen.

have you seen ths order, how does this aOCct what we are supposed to be purchasing.

KcDy D. Stephens Stephens & Domnitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 28 1-394-3287 832-476-5460 Fax

t'Gm://hl11\ 73.nwll.fl\e.cornldhnlil.md'rlrAMesl;aoOS'?rrii:P.fl.tA 1/t

KDS 0069

569 Outlod(.ocm Pr inl Message

Re: Dismissal of State Court Action

From: Gretcbeo McCord (gm;:cord@nathansommers.com) Sent: Wed 6fl.7/ 12 10:12 AM To: kelly.stephens@hotmailcom (kelly.stephens@hotmailcom)

l don't think it does.

Sent from my HTC on the Now Network from Sprint!

----- Reply message ----- From: "KeUy Stephens" Date: Wed, Jun 27, 2012 9:08am Subject D~missal ofState Court Action To: "Gretchen McCord"

have you seen thf; order, how docs lh.is affect what we arc supposed to be purchasing.

KeDy D. Stephens Stephens & Dormtitz, PLLC P.O. Box 79734 Holl~on, TX 77279-9734 28 1-394-3287 832-476-5460 Fax

11!

KDS 0070

570 31141'..'014 Oullockcom Pl'inl Message

FW: Dismissal of State Court Action

rrom: KeUy Stephe.os (kclly.stephens@hotrnail.com) Sent: Thu 6128/12 II :16 AM To: gm:cord@nathansomrrers.com

see the question below.

Kelly D. Stephens Stephens & Oomnitz, PLLC P.O. Box 79734 Ho~ton, TX 77279-9734 281-394-3287 832-476-5460 Fax

_____ _ _- -·· ·--·-·-·-··-·-------------·-·· . ---· , _ . - ------------ --·- - -- -···------------- Date: Wed, 27 Jun 2012 13:54:42 -0700 From: michaelsydow@thcsydowfirm.com Subject Re: Dismissal ofState Cowt Action To: kelly.stepbens@hotmailcom

If the case has been dismissed und the s tatute of limitations has run there is no tbing left to purchase. A dismissal for want of persecution used to be subject to reinstatement within u certain time. However, ifl recall correctly the reinstatement was d iscretionary with the Court. If s o, either the trustee needs to have it re instated to :;ell it or the buyer is purchasing yet another problem. I fail to understand how s he thinks the dismissal ha:; no beuring. Perhaps she can explain in just a bit rrore detail.

li!Ds:/~u173.mail.lile.cc:rM:UrrBI.rnrA'riniMessaoes?rrk=en-us 111

KDS 0071

571 Kaiser

From: Gretchen McCord (gm:cord@natbaosormners.com) Sent: Thu 6/28/12 11 :56 AM To: Kelly Stepbe~ (kclly.stcphens@hotlmil.com) (keDy.stephcns@hotmail.com) C:c: Ron Sornrrers (rsommers@nathansornmers.com)

I need a written commitment from the purchaser that if the Trustee reinstates the lawsu it, we still have a deal and the purchase money needs to be paid to t he t rustee to hold in trust pending approval of the motion.

Or, I need a written statement from the buyer that they are no longer interested i n going forward because the case has now been dismissed .

Please let me know today. I am meeting with someone to discuss the cost to reinstate the lawsuit.

A Profes sional Corporation

2800 Post Oalc Boulevard

61 st Floor

Voice: (71 3) 892~816

Fax: (713)892~800

gmQCOrd@nathansomm ers .com

THIS E·MAIL MESSAGE ANO THE ATTACHMENTS IIERETO. IF ANY. ARE INTENDED ONLY FOR USE 8Y THE SENDER'S INTENDED

ht!Da:J~u173.mail.lhe.c:miallmail.rrM1Prlnll\Aessanes'?n1t=rn-us 112

KDS 0075

572 FW: Kaiser

From: KeOy Stephens (kcUy.stcpbcns@hotl'micom) Sent: Thu 6/28/12 2:52 PM To: gm:cord@nathansolllt1l!rs.com

here is the response.

KeDy 0. Stephens Stephens & Do~ PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

Date: Thu, 28 Jun 2012 J0:45:23 -0700 From: michaelsydow@thesydowfirmcom Subject Re: K~er To: ketly.stepher6@hotma.il.com

I have !>flOkcn to the purchaser. He is OK with the tms lee holding Lhe ~roncy IN TRUST, ami w ill go through with the purchase it:

I. The cue i11 rcin11taled retroactively so that o nly limitations defenses available al the tiu10 the s uit wat> filed arc now available; and 2. The Court approves t he sale of the cause of action in substantially the fonn agreed.

-----·---·---- -· .. -· .. -.- -- -· , ____ _______ .. -·- - - ---- - -

hllll&:llblu173.mlli.Hifuxrn'dhnlll~ntMesslllles?miP~us 111

KDS 0076

573 Kaiser

From: Gretchen McCord (gm:cord@nathansorrurers.com) Sent: Tue 7/03/ 12 12:28 PM To: Kelly Stephens (kelly.stephens@mtmaa.com) (kelly.stcphcns@hotmailcom) C:c: R.X;k K.incheloe (rkiocheJoc@nathansonmers.com) 2 attachments mln rcin'itme.v2.pdf(68.4 KB) . mtn rcinst.ah.!.v2.wpd (2 1.5 KH)

I asked about Michael Sydow because I think that we should perhaps make this a j oint motion. See the draft attached hereto (we will have to change, as I thought Michael was counsel to some defendants, including himself).

But see what I want to do and get back with me.

The reason I would like to make it joint, is that I don't want to run into a problem with the court saying the trustee never intervened. There are two schools of thought· one that the trustee just steps in without the necessity that a motion for intervention is necessary and two that the trustee has to formally intervene . I just don't want it to be an issue and then have the court say the trustee had no standing to file the motion to reinstate .

Gretchen Gauer Pvteord

A Professional CorporaUon

2800 Post Oak Boutewrd

61st A oor

Houston, TelCBs 77056

KDS 0086

574 ~14.'2014

From: Gretchen McCord (gmccord@nathansoll111l!rs.com) Sent: Tue 7/10/12 6:14PM To: KeUy Stephens (kelly.stephens@hotimilcom) (kclly.stcphcno;@hotmaitcom) Cc: lti:k KirK:heloc (rkincheloe@nathanc;ommers.com)

If they are not going to join in the motion, can I at least represent that they are unopposed. I need an answer asap.

61s l Aoor

gmccord@na!hansommers.com

www.na!hansommers.com

THIS E-MAIL MESSAGE ANO THE ATTACHMENTS HERETO. IF ANY. ARE INTENDED ONlY FOR USE BY THE SENDER'S INTENDED RECIPIENT(S~ IF YOU J\RE NOT THE SENDER'S INTENDED RECIPIENT OF THIS E-MAIL MESSAGE OR YOU RECEIVED THIS E-MAIL MESSAGE OR THE ATTACHMENTS TO IT IN ERROR. OR THIS E-MAIL M ESSAGE OR SAID ATTACHMENTS CONTAIN LEGALLY PRIVILEGED OR CONFIDENTIAL INFORM A liON AND YOU ARE NOT THE SENDER'S INTENDED RECIPIENT OF SUCH LEGALLY PRIVILEGED OR CONFIDENTIAL INFORMATION. THE DISSEMINATION. DISTRIBUTI ON. PUBLICATION. DISCLOSURE OR USE OF SAID E-MAIL MESSAGE. ATT ACHtAENTS AND INFORMATION AND STRICTLY PROHIBITED ANO YOU ARE INSTRUCTED TO IMMEDIATELY (A) NOTIFY THE SENDER BY TELEPHONE AT 713.960.0303 OF YOUR RI:CEIPT OF THIS E-MAIL MESSAGE AND SAID ATTACHMENTS.

lels:/lblu173mlll.llw,carldlrrfi,l.md'rirCMessaa es?!TH=eo-us 112

KDS 0088

575 311412014 OUIJook.am Prlnl Message

From: Kelly Stephem (kelly.stephcns@hotmail.com) Sent: Wed 7/ll /12 10:17 AM To: grnccord@nathansol'l'llJI:rs.com

we're back to please don't shoot the m:ssengec. Mike's reply to joining the Jrolion was (paraphrased):

I am buying this thing to prevent further problem; with Kaiser, why would I (the defendant) join in a motion to reinstate.

I have fOrwarded your request below to him, but have not heard hack yet I am about to get on the road fur Duval County fur a hearing th~ afternoon. my cen is 713-252-4945. please caU IR! around noon. my hearing is at I :30. I'll try to reach Mike while I am on !he road.

Kelly D. Stephens Stephens & Domnitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

·-- - --·--·- - - From: gmccord@nathansomrners. com To: keDy.stephenc;@hotmail.com CC: rkincheloc@natharmmmers. com Subject: Ka~er Date: Tue, tO Jul2012 22:14:53 +0000

l-.ms:JftAut73.maii.IM.cc:rrld/mail.rnciPrintMessaoos~en-us 112

KDS 0089

576 3f1412014

From: KeDy Stephem (kelly.stephen~hotmailcom) Sent: Wed 7/11/12 11:01 AM To: gmccord@nathansonnners.com

first, my hearing in Duval got cancellec.llale yesterday and I just fuund out.

second: I looked at the court records regarding dte parties in this litigdlion:

JeffKaiser represented bimscU: now your position.

1 represented John Preston, Texas Syngas, Inc. and Quanhan Calalytics, LLC

Steve Da\16 (Davis & Davi<;) represented Sameer Ahmed.

Teresa Schnieer (Winstead) represented Michael Cotlins, Micheal Sydow and Texas Syngas, lLC She withdrew leaving each ofthese prose.

On behalfofJohn Preston, Texas Syngas,lnc. and Quantum CataJytics, U£, I have requested authority but have not received it to represent t.batlhey arc \DlOpposed.

Mike Sydow's position is that he cannot rmke that representation for any of the other defendants, and will not on his own behalf.

I have not been able to reach Steve Davis, but I represent Sam:er Ahmed in other tmtters (and have made him aware of~) and he wants this thing dead so I doubt if he wouki agree.

I have no conmcl with Michael Collins.

1 realize this corrplicates thin~, but ils the best I can do at this poinl

KeDy D. Stephem Stephens & Oomnitz, PLLC P.O. Box 79734 Houston, TX 77279-9734 281 -394-3287 832-476-5460 Fax

hiiDtiJ/tJu t73.rrei1Jiw.am'dmal.~ ntM01111.10 II':?rri(:m-'15 113

KDS 0090

577 311~4 Oudoollccm Prml Message

From: KeUy Stephens (kelly.stephens@hot:rmilcom) Sent: 11w 7/12/12 5:29PM To: gmccord@nathan.c;omrners.com

I can confirm that Mike Sydow is my primary contact My Wlderstanding i.<> that the purchaser is consulting with Mike regarding the claim; (their merits etc under Texas Law), but not that he is "having" someone purchase the claim.

Kelly D. Stephens Stephens & Do~ PLLC P.O. Box 79734 Houston, TX 77279-9734 281-394-3287 832-476-5460 Fax

From: gnx:cord@nathansommers.com To: keDy.stephens@hotmtilcom Subject: RE: Kaiser Date:Thu, 12 Jul2012 21:07:34 +0000

Please confirm for me t hat Mike Sydow is the one who is having the purchaser buy t he claims.

h!UI&:IIbluf73.mlll.lhe.carrldlmaii.ITIICiPrintMessaoes'?lriFen-us 1/4

KDS 0095

578 311412014 OuUcx:Kc

Fronr Gretchen McCord (gnx;cord@nathansoll'll'rern.com) Sent: Thu 1 J/01/12 5:09PM Tu: Kel)y Stephens (kelly.stephens@hotmlil.com) (kelly.stephens@hotrnail.com) J attachment Assigtuncnt (0817 J 2)V.2 ..dncx (19.3 KB)

I have not run this by the Trustee. Accordingly, it is subject to his approval. I still assert this is unnecessary and the transfer of the claims was effective as of July 27, 2012, when the order reinstating the state court lawsuit was entered and It would appear that filing that order would be sufficient. Having said that, if a separate assignment is going to be entered into It needs to incorporate the sale order, the sale order needs to control any conflict, and the Trustee cannot assign things other than what is owned by the estate . I think the language needs to be identical to that of the sale order. I also do not know the reason that the Assignee would ever give a release for the Trustee . And, the Trustee does not own the claims any longer so is not going to settle the pending lawsuit.

Having said all of this, I made some possible changes. See if you are ok with them.

Grelcllen Gauer IVcCord

Houston, Te~s 77056

YfWW.n@lhansgmmers .com

hi!M:/Iblu173.1Tflll.ll~e.c:am'1jftrei1.111\CA)rin1Messao es'lrrH=en-us 1/2

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KDS 0103 580 Fled 12 Odober 1 A11:33 ctll'ts Daniel - Olstr1c:t Cleric Harris Ccul~ E0101J017105803 By. daunshae n. wtltrfch CAUSF. NO. 2007-38533

JEFFERY B. KAISER, INDI\'IDUALL Y § IN THE OISTRICf COURT OF DERIVATIVELY, AND ON BEHALF OF § ALL SIMILARLY SITUATED § STOCKHOLDERS AND MEMBERS OF § TEXAS SYNGAS, LLC A/KIA TEXAS § SYNGAS, INC., § Plaintiff, § ~ § r- ,'~~ v. § HARJU CO~N , TEXAS § ~ .- ,_.·. ([ ,,~ TEXAS SYNGAS, LLC A/KIA TEXAS :'1 ~~ SYNGAS, I~C., MICHAEL A. COLLINS, § ::_,~ MICHAEL D. SYDOW, M. SAMEER AHMED,§ ,~ AND ALL OTHER SIMILARLY SITU~ TED § ..J OFFICERS AND DIRECTORS OF § "··Qi" TEXAS SYNGAS, LLC A/K/ A TEXAS § ~:-- SYNGAS, INC., § !!,:.f Defendants. . ~~- 152n" JUDICIAL OISTRJCT •• ·~ "1

PLAINTIFF'S NmoiS~g fiTH PREJt fDICF. ,p·v TO TttE HONORABLE J COG E OF SAID COIJR!rt ' c'~'­ ·~ COMES NOW, JK Claims lnv¢811ment Corporation (. ucce!iSor in interest to Jeffery B. ~...:=..

' .. ~ ~,.., l· :> ~d .:tnd entitled cause. and respectfully files this Nonsuit Kaiser). Plai ntiff in the above-n ..7~,.~ \~ ,, With Prejudice. ln support o ft~P'otion f'laintiff shows as follows: .0." ·~ I• ., 'l (' ,~

Plaintiff has ~eCI•Defenaant, Midael D. Sydow, for alleged mismanagement, breach of ~ . ~~ fiduciary duty. ~lion of state or federal securities law.;. fmud. misreprcsentat:on, and ,) ··...:::-· misapprop~ . Plaintiff no longer wishes to pursue the claims against Defendant. Michael D. " Sydow.

II.

Plaintiff asks the Court lo sign ar. order of nonsuit with prejudice on all of Plaintiff's

claims against Defendant, Michael D. Sydow.

PltfNonsuit w/Prejudice

EX HIBIT J 581 Plaintiff asks that all cl<:jms against Defendant, Michael D. Sydow, be dismissed with

prejudice. Plaintiff asks that all costs of court be assessed against the party incurring same.

III.

WHEREFORE, PREMISES CONSIDERED, Plainti ff respectfully requests that this

motion for Nonsuit With Prejudice be f:ranted; that the Court d ismiss wi_.~t prej:Jdice all ~(7/!'> ;'~:~~· claims against Defendant. Michael D. Syd·)W; that all costs of (:ourt be a~~'cd against the party ~ incurring same; and for such other relief, at law or in equity, to whic!'~~!ntiff is entitled. ,~)' ~: ..t.::;; ./~~- Respectfully subnjrt~a. STEPHENS ~~bMNITZ, P .. .Jt ~

kelly.stcphcns@hotmail .com . Attorneys for Plaintiff, JK Clainrs Jm,estment ~ Corporation, Defendants, Texas Syngas·, LLC and F)) !' ·0:1 ~ Texas Syngas, /11c. and Intervenor, Quantum . -=~ '!-...._.) Cata/ytics, LLC. r.,; ~,.+.-.

§i;~,; Certificate of Service '~· (~ I her~~rtify that a tn:.e and correct copy of the foregoing document has been served on this l 51 d~t>f October, 2012. on the following:

Via Telecopier No. (713) 781-2235 Mr. Steven Ray Davis Davis & Davis 440 Louisiana, Suite 1850 Houston, Texas 77002 Attorneys for Sameer Ahmed

Pltf Nonsuit w/Prejudice

582 Via Telecopier No. (713) 552-1949 Mr. Michael D. Sydov. 1980 Po!:l1 Oak Ooulevard, Sujte 2 100 Houston. Texas 77056

Defendant Pro Sc

Via Certified Mail, Return Receipt Reque5ted #70JJ 1570 0000 9065 3472 Mr. Michael A. Collins 63 Sky Terrace Place U r.*n~ The Woodlands, Texas 7738 1 1'..>, __ <·~~v 'd\, ?Afj~~i"/.::;~~=- Defendant Pro Sc

~ghens f~~ .-::::..~'.! ~; .. -:...·~ ., .....- ... -\ ~

,r· -~ ·\..,..-

CAUSE NO. 2007-38533

Pltf Nonsuit w/Prejudicc 3

583 Flied 13 Jan~ 11 P5:09 Chris Daniel - Dla1rlct Cleric Hania County ED101J017268621 By. Marcella D. HRI

Cause No. 2007-3 8533

JEFFERY B. KAlSER, INDlVIDUALLY, § IN THE DISTRICT COURT OF DERIVATELY, AND ON BEHALF OF s STOCKHOLDERS AND MEMBERS OF § TEXAS SYNGAS, LLC a/k/a TEXAS ~ SYNGAS, INC., ~ Plaintiffs, § § v. § § TEXAS SYNGAS, LLC a/k/a TEXAS § SYNGAS, rNC., MICHAEL A. COLLINS, § MICHAEL D . SYDOW, M. SAMBER § AHMED, ANDALLOTHERSIMILARL Y § SITUATED OFFICERS AND DfRECTORS § -:8• ~ ·~DJ OF TEXAS SYNGAS, LLC a/k/a TEXAS § ~"'~ SYNGAS, lNC., Defendants. ~ ~(w §,. G;~2nd JUDICIAL DJSTRlCT ·'\.~'"" .~- ,J

DEFEND ANT Ml~l:L D. SYDOW'S MOTION TO NONSUrf CAUSE OF ACTION

TO THE HONORABLE JUDGE OF ~ COURT : _© r~ ,ir..Jf-·J; NOW C O MES Defendant ~'Chael D . Sydow, and requests this Honorable Court to j( ) ~!J nonsuit the counterclaim he fil~.against Plaintiff Kaiser in Cause Number 2007-38533 for the ~I . r),':'s ground set forth herem. ..;:-~ \.-!' T. ~ ... ,r . ., ~'} A. De~t requests nonsuit of his counterclaim in Cause Number 2007-38533 for -~ (.~ the followin~~n: " 1. Kaiser has dismissed his claims against Mr. Syuuw in exchange for tht;

nonsuit ofMr. Sydow's bad faith claim against Kaiser.

WHERE FORE, Defendant requests this Honorable Court to nonsuit his counlerclajm

against Kaiser in Cause Number 2007-38533 and for such other and further relief that may be

584 awarded at law or in equity.

RespectfuJiy submitted,

Is/ Michael D. Sydow ~ Michael D. Sydow ~" Texas Bar No. 19592000 (; - 1980 Post Oak Boulevard, 5\ti.te 2100 Houston, Texas 17056 ~~-- (713) 622-9700 [Tel~p~e] (713) 552-1949 [T~~ t erJ Attorney for Oef~dadt, Michael D. Sygqw. ~ " -41- ..,

~~ h~~l..~r

CERTIFICATE AN ~RVICE Olf; ~·-- ·-v I certify that on January ll , 20 13 ~~ouston, Texas a true and correct copy of Defendant's Motion to Nonsuit was ~~ed on Kelley M . Keller electronically at kkcller@cllison.keller.com, and the electro t'fuansmission was reported as complete. (l>n _, ,r~\~1 ~.

~~ Is! Michael D. Sydow (--:::-.~ y Michael D. Sydow \ E-mail: michael.sydow@ thesydowfirm.com ...~\ -o-~ f\_A

585 01/14/2013 02:32:33 PM 713-755-1451 Page2/5 Filed 13 January 14 P2:33 Chris Daniel ·District Clerk Harris County FAX15387276

JEFFERY B. KAISER. INDIVIDUALLY. § IN THE DJSTRICf COURT OF DERIVATELY, AND ON BEHALF OF § STOCKHOLDERS AND MEMBERS OF § TEXAS SYNGAS. LLC alkJa TEXAS § SYNGAS, INC., Plaintiffs, : Jt ~ § (( ~ ~ ~- ~ 0~

'II. § HA.RRlS CO~TEXAS ~ ,, t TEXAS SYNOAS. LLC a/kla TEXAS § .r.~ SYNGAS, INC., MICHAEL A. COLLINS, § ~~" MICHAEL D. SYDOW, M. SAMBER AHMED, AND ALL OTIIER SIMILARLY § ~~:· § ~"Y SmJATED OFFICERS AND DIRECTORS § .. ·@ ~~ OF TEXAS SYNGAS, LLC alkla TEXAS ¥ ~""' SYNGAS, INC., Defendants. § § r::J '-J· §. ..,•<... 52nd JUDJCIAL DfSTRICT ~<~ ' . JNDayENOR OUANIUM CAT4\ t1c. LLC'S MODQN FOB NONSUIT r- ~ TO nfE HONORABLE JUDGE 0~~~ COURT: t.AV> NOW COMES Intcrven~~tum Catalytic., U..C. and requests this Honorable Court ·~.//

to nonsuit the counterclaim he ~ against Ptaintiff Kaiser in Cause Number 2007-38533 for the ~l' (~ ground set forth herein. P ~· ~

following~

l. JK Claims Investment Corporation has acquired the cause of action of

Kaiser, and Intervenor is not adverse to JK Claims Investment Corporation. Intervenor

wiU align its interests with those JK Claim Investment Corporation in an amended

petition.

586 01/14/2013 02:32:33 PM 713-755-1 451 Page 3/5

WHE.REFORE. Intervenor requests this Honorable Court to nonsuit his claim against

Kaiser in Cause Number 2007-38533 and for such other and further relief that may be awarded at

law oc in equity.

587 01/14/2013 02:32:33 PM 713-755-1451 Page 4/5

I certify that on January 11, 2013 at Houston, Texas a true and correct copy of Defendant's Motion to Dismiss wa.~ served on Kelley M. Keller electronically at kkellec@ellison.k.ellcr.com, and the electronic transmission was reported as complete.

588 'Transcript of the Testin1ony of Russell Read_, CfA, Ph .. DI$ Vo.4ume: I Date Qf Deposition: ApriJ 21, 2014

Contlo~ntlal Comm.un·ications Int. Ltd. Phone:.71.3.365.0177 Fax: 713.365:0808 E.maH: schedul'lng@recordsdlscovery .co.m. Internet: www.:records.distovery:. corn 47TJ

EXHIBIT L

600 817/2014 Diloision of Ccrporatic:ns- Online Senices

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EXHIBIT M 608 1/1 10/27/2014 9:26:29 AM Chris Daniel · District Clerk Harris County Envelope No. 2958109 By: GAYLE FULLER Filed : 10/24/2014 7:28:31 PM

MICHAEL COLLINS, ET AL.. § IN THE DISTRICT COURT Plaintiffs § § § vs. § OF HARRIS COUNY § sf\ MICHAEL SYDOW, ET AL. § Defendants § 215rn JUDICIAL DISTRICT

AKILA FINANCE, S.A. , ET AL. , § TN THE DISTRICT COURT Intervenors/Plaintiffs § § vs. § OF HARRIS COUNTY, TEXAS § MlCHAEL SYDOW; ET AL. § Defendants . § 215TH JUDICIAL DISTRICT

DEFE NDANTS JOHN T. PRESTON, BRILLIANT NOVELTY, L.L.C., AND C CHANGE I NVESTMENTS, LLC'S REPLY IN SUPPORT OF THEIR SPECIAL APPEARA NCES AND MOTION TO STRIKE HEARSAY STATEMENTS

Pursuant to Texas Rule of Civil Procedure 120a. Defendants John T. Preston. Brilliant

Novelty, L.L.C. ("Bdlliant Novelty"), and C Change Investments, LLC ("C Change" ) (together

"Massachusetts Defendants") fi le this Reply in Support of Their Special Appearances and

Motion to Strike Hearsay Statements, and in support state as follows:

PRELIMINARY STATEMENT

At issue here is whether claims filed by foreign corporations and individuals-none of

whom are Texas residents- against a Masachusetts resident and two Massachusetts companies

should be allowed to go forward even though after three years of litigation there still is no

evidence for assertingjurisdiclion over any of the Massachusetts Defendanls in a Texas court.

617 The Massachu etts Defendants established in the ir Special Appearances that personal

j urisdiction cannot be asserted over them. Neither the lcnglhy response or supp lcm~nt al

response submiued by the Intervenors should be considered in this case because both are 1 untimely. Jn a ny event. nothing in either brief c hanges the fact that there is no specific or

general jurisdiction over any of the Mas achusetts Defendants. First. there is no specific

jtu·isdiction because Ute Intervenors do not even allege that the Massachusetts Defendants

conunitted any act in Texas that gives rise to the claims in t11i s lawsuit. The Texas Supteme

Court has explicitly rejected the theory on which the Intervenors rely for specific jurisdiction. Jt

i not enough to allege that a t01t was ·'directed" at Texas. Second. there i no general

j urisdiction over any of these defendants. Preston has not lived in Texas since he was an infant

over sixty years ago and the handful of visits he has made to Texas since the n are not

jurisdictional contacts because they were made in a t'e pt'e sentative capacity. The handful of

contacts by C Change with Texas through Preston were not o ··continuou and systematic" to

render C Change "essentially at home" in Texas as the U.S. Supreme Cmu1 requires. Finally.

Intervenors have not cited any specifi.c contacts by Brilliant Novelty with Texas.

J. THE MASSACHUSETTS DEFENDANTS COMPURD WITH RULE 120A.

The Intervenors claim that d1c Massachusetts Defendants' special appearances do not

comply with Rule 120a on the grounds that the special appearances themselves arc not verified.

But as the Intervenors acknowledge, affidavits were attached to each of the special appearances.

Resp. at 8-9. These affidavits swear to the truth of every statement of fact in the mot ions. Jt

1 Despite the fact that Defendants agreed to several extensions of the deadline for Intervenors' response briet~ Intervenors fajJed to meet the agreed July 2, 2014 deadline for flli ng tfleir Response Brief. Ex. A, Rule 1t Agreement (June 29. 2014); Intervenors' Resp. at 1 (July 3, 20l4). More significantly. Intervenors subsequently filed an additional S\ipplemental response brief on AugustS, 2014. despite being bound by the Rule 11 Agreement reqmring that any resJlonse by the Intervenors must be fi led by July 2. 2014. Intervenors' Supp. Resp. (Aug. S, 2014).

618 makes no sense to argue they are not sworn motions as Rule 120a requires. In any event, even if

there were a technical defect- which there is not- the Texas Supreme Court has made clear that

a special appearance can be veri fied after the hearing. 2

ll. INTERVENORS DID NOT MEET TH~IR BURDEN OF PLEADING S UFFICIENT JURISDICTIONAL ALLEGATIONS OVER NON-RESIDENTS.

The1·e is no allegation that any acts by the Massachusetts Defendants giving rise lo the

Intervenors claims took place in Texas. That means it is enough to establish that the

Massachusetts Defendants m·c not residents and the Court does not need to go any further. "The

plaintiff has the initial burden of pleading sufficient allegations to bring the nomesident

de fendant within the provisions of the Texas long-aJ:m statute. . .. If the plaintjff docs not plead

jurisdictional allegati ons, i.e .. that the defendant has committed any act in Texas, the defendant

can satisfy its burden by presenting evidence that it is a nonresident. ''3

Ill. THERE IS NO SPECII

Here, none of the legal requirements for asser1ing specific jurisdiction are met for any of

the Massachusetts Defendants. To assert specific jmisdiction over a defendant that defendant

"must have made minimum contacts with Texas by purposefully a.vaj ling itself of the privilege of

conducting activities here" and "liahility must have atisen from or related to those contacts.'.4

Moreover. there has to be ··a substantjal connection between [the defendant 's forum] contacts

and the operative facts of the litigation.'.s

~ Dawson-Austin v. Austin. 968 S. W .2d 31 9, 322 (Tex. 1998). 3 C·Lnr· Reremiofl Sys.. fnc. v. Hendrix. 993 S.W.2d 473,476 (Tex. App.- Houston [14th Oist.J 1999. no pet.): see t1lso Hmel Panners v. KPMG Pem Manvick. 847 S.W.2d 630, 634 (Tex.App.·Oallas 1993. writ denied) (granting special appe.arance prorer where the defe ndant established it wa.~ a non-resident and the plaintiff's ''pleadings contained no allegatio ns that [the defendant] committed any acts in Te:~:as'l

*M oki M ac Ri1•er E.qJeditions v. Drugg. 22.1 S. W .3d 569. 576 (Tex. 2007). 5 fd. at SSS.

619 A. No Allegations in the Intervenors' Petition Support Specific Jurisdiction.

The Jntervenors do not make a single fact ual allegation in their petition that any conduct

by the Massachusetts Defendants actuaJly took place in Texas. Without specific allegations

regarding acts by the Massachusetts Defendants in Texas, there can be no specific jurisdiction. 6

B. None of the Contacts Alleged by the Intervenors in Their Briefing Support the Exercise of Specific Jurl~di c tion.

The Tntervet1ors argue that specific jurisdiction may be asserted over the Massachusetts

Defendants based on ..Preston' s activities as a director of and fund raiser for TS J and NC12-

both Texas companies" and on the grounds that they "could reasonably foresee that NC12 and its 7 shareholders and investors would suffer direct economic iJljury." T his argument echoes

Intervenors· ge neral claim in their petition that jlllisdiction is proper simply because tortious

conduct '·was directed at the State of Texas:·S But the Texas Supreme Court unequivocally

rejected the ru·gument that j urisdiction can arise just because actions caused harm to a Texas

.resident.Y "Several pmblems arise if jurisdiction rums not on a defendant's contncls, bur on

where it 'directed a tort.''' 11) Here, the Intervenors· allegations are even further removed given

that none of the Intervenors ru·c Texas residents ~md TSJ ru1d NC 12 ru·c Nevada corporations. not.

Texas corporations.

11 Vosko v. Chase Manharran Bank. N.A.• 909 S.W.2d 95. 99 (Tex.Arp.-Houston [14th Oist.J 1995. writ denied) (" if the plainriff does not allege that the defendant performed a specific act in Texas. the defendant's evidence ttl at he is a nonresident is enough to cany his burden of pmof): Olympia Capita( A.~sors.. LP. v. Jackson. 247 S.W.Jd 399, 407 (Tex.App.-Dallas 2()08, no pet.) ('"absent allegations of any specific. purposeful act through which the defend am can he snid to have sough t a benefit by ' availing itself of the ,jurisdiction.' . .. evidence that a defendant is a nonresident is suffic ient to me~t.s its burden"). 7 Inletvenors' Resp. at 13.

REx. B. Orig. Pet. in Intervention ut ~144 (Nov. 1 I. 2011).

'~ Michiana Easy Livin' Cmmtry. Ttw. v. llofum, 168 S. W.3d 777 (Tex. 2005). 10 lei. at 790.

620 Because the general allegations by the Intervenors do not point to any activities in Texas,

they also fail to show that Preston " purposely avail[ed] [him]self of the privilege of conducting

activities" in Texas. 11 Nor do the actual facts related to Preston's involvement with NC12 show

a connection to Texas. Preston is a shareholder and di rector of NC 12. but the only board

meeting he attended physically took place in Massachusetts. not Texas. and the only tirne he ever

traveled to Texas in relation to NC1 2 was to serve as a witness in a representative capacity for

the company for the limited purpose o f testifying about an asset in a divorce proceeding. 1z

The Intervenors argue that Preston is not protected by fiduciary shield docttine for

purposes of specific j urisdiction. 13 But thi s does not change the fact that there are no allegations

here of contacts with Texas that g ive rise to specific jUli sdiction. Intervenors simply have no t

pointed to any specific conduct that took place in Texas that gives rise to the claims asserted in

this case.

IV. T HERE IS NO GENRRAL J URISDICTION OVER THE MASSACHUSETTS DEFENDANTS.

There can be no question that none of the Massachusetts Defendants have the s ubstantial

continuous and syste mat ic contacts with Texas that are necess

Th is should be clear based on the fact that for the last 60 years Preston has not lived in Texas and

has not had an y contact with the state in his personal capacity. Brill iant Novelty has had no

contacts with Texas. and contacts by C Change have been extremely limited . General

jmisdiction can only be asserted over nonresident defendants that have contacts with the forum

that are "so 'continuous and syste matic· as to render them essentially at home in the forum

11 Moki Mac River E\peditions. 22 1 S .W.3d at 576.

Ex. C, Preston Dec. U6. 7 (Sept. 26, 20 11 ). Ex. 0 , Preston Supp. Dec. Cf.~[ 3 ·8 (Oct. 23. 2014). 12

13 Ex. B. Resp. at 14.

621 State." 14 General jurisdiction, therefore. is "dispute-blind," inquiring only whether a nonresident

defendant's contacts with the forum are substantial enough that they would support jurisdiction

over a hypothetical dispute that has no connection whatsoever to Texas. 15 " Usually, ' the

derendant must be engaged in longstanding business in the forum state, such as marketing or

shipping products. or performing services or maintaining one or more offices there" and

"activities that are less extensive than thal will not qualify for general in personam

j m·isdiction." 16 The Massachusetts Defendants ' almost complete lack of contact with Texas does

not meet this standard.

1. Preston is not a Texas resident and does not do business in Texas in his individual capacity.

Preston is not subject to general jUJisdiction because he is not a resident and is not

·'engaged in longstanding business" as is required to support general jurisdiction. 17 He has not

been a resident of Texas for the last 60 years. but rather is a res ident of Massachusetls.18 His few

visils to Texas have all been in a representative capacity. 19 P1·eston is employed outside of Texas

and has never been employed in Texas or maintained an orfice in Texas?0 PTeston does not

employ anybody who resides in Texas. or who regu larly travels to Texas in connection with l1is

or her business? 1 Because Preston does not reside in or conduct business in Texas. he has never

14 Goodyear Dunlup Tires Operation~, S.A. v. Brown. 131 S. Ct. 2846. 2851 (2011). 15 PJ-JC-Minden. 235 S.W.3d at 169. 16 Itl. ar 168 (quoting 4 W1ighr & Millet, Federal Practice and Procedm-e § 1067.5).

17 [(/_

18 Ex . C, Preston Dec. l4. 19 ltl. t'K 4-6: Ex. D, Preston Supp. Dec.

622 incurred or paid any taxes in Tex,as. 22 Preston is not required to and does not maintain any agent

in Texas who is authorized to receive service of process. 23

Preston cannot be consideted "essentially at home" in Texas because he does not

maintain any presence in Texas. 24 Preston is not engaged in any husiness in his indi vidual

capacity in Texas and has never maintained an office or any other facility, telephone listing. post

office box, or mailing address in Texas.25 Nor has he ever rented. owned. or possessed any real

or personal property in Texas.:!~ Preston is a Director of NC 12, lnc., but that company was not

incorporated in Texas and the only board meeting Pteston eve1· physically attended did not take

place in Texas. but in Massachusetts.27

Fw·ther. the Intervenors' sugges1ion that tangential contact with Texas by Preston based

on his mle as a directot or investor in companies that operate in Texas fails as a matter of law to

demonstrate any genuine contact with Texas for jmisdictional purposes. Mere "investor status''

is not sufficient to impute contacts by NC12 with Texas to Preston for purposes of jurisdiction.28

In any event, the Intervenors admit that lt was Quantum Catalytics that invested in TSL not

12 ltL '1 12.

!3 Jd_ 1(8.

Goodyear Dunlop Tires Operations. S.A .• 131 S. Ct. at 2851 (requiring that a nonresident defeJldant must have !.1 "continuous and systematic" contacts with the fonun that are "so 'continuous and systematic' as to render them essentially at home in the fomm State" to exercise general jurisdiction). 2 ~ Ex. C, Preston Dec. <(i1 5-10.

~ 6 /d. (I 9.

27 Id. n 2. 6 -7. 18 See. e.g .. PHC- Mi11den v. Kimberly- Clark Corp., 235 S.W.3d 163. 176 (Tex. 2007) : Mikuni Corp. v. Fvster. No. 01-11-00383-CV, 2012 WL 170603. *5 (Tex. App.-Hot•ston fi st Dist.l Jan 19.201 2. no pet.).

623 Preston.'29 Also, notwithstanding the Intervenors' claims, Preston was not involved with Metal

Catalyst Venture. Inc.30

intervenors also claim that certain visits to Texas by Preston that he initially stated were

on behalf of TEM Capital must have been made in a personal capacity because the visits

preceded the formation of TEM Capital.31 As Preston explained in his supplemental declaration.

however, these contacts were made on behalf of C Change. an entity affiliated with TEM

Capita1.32

Even if the handful of visits Preston made to Texas in hi s representative capacity were

j urisdictional contacts- which they are not-"[o]ccasionaltravel to Texas is insufficient by itself

to establish continuous and systematic contact." 33 Here. like the defendant in Gamer v.

Furmanite Australia Pty., Ltd., Preston' s handful of visits to Texas in a representational capacity

cannot give 1ise to general jurisdiction. 34

3. Intervenors Have Not Shown that Preston is the Alter Ego for JK Claims.

Knowing the weakness of their argument for general jurisdiction over Preston,

lntervenots filed an untimely supplemental response in a last ditch effort to create nonexistent

connections between Preston and Texas. In this desperate supplemental brief. Intervenors argue

that contacts by JK Claims Investment Corporation ("JK Claims") with Texas should be imputed

to Preston.

9 ! Intervenors' Resp. at 6.

Jo Ex . 0. Preston Supp. Oec. ~[ 9. 31 Intervenors ' Resp. at 6. 32 Ex. 0. Pre~ton Supp. Oec. ~11 5-6. 33 PrettSSag AkTiengesellscha.fi. v. Colmwn. 16 S. W .3d II 0, 124 (Te~. App.-Hous ton (I st Oist.J 2000. pet. denied). 34 966 S.W .2d 798. 803 (Tex. App.-Houston [lst Dist.] 1998. pet. denied) (holding no general Jmisdictwn over individual who made eight to 10 visits to Texas on behalf of company).

624 Absent a showing that a company is the alter ego of an ind ividual defendant, an

individual defendant's contacts witl1 Texas on behalf of a corporation or company cannot be the

basis fot genetaljudsdict ion over a person.35

Because Intervenors· attempt to assert that contacts hy JK Clai ms should he considered

contacts of Preston for pw-poses of general j urisdiction:i6 Intervenors must prove-not simply

allege- that Preston is the alter ego of JK Claims for the Court to consider these contacts in its

j m·isdictional analysis. The convoluted suing of hearsay statements presented in the Intervenors'

untimely Supple mental Response falls far short of the sttingent requirements for showing that JK

Claims is the alter ego of Preston. Moreover. Quantum Catalytics-not Preston- is the sole

shareholder of JK Claims and Preston is only one of the 21 shareholders in Quantum

Catalytics. 37 Thus, there is no basis for concluding that Preston is the alter ego of JK Claims and

that its contacts should be imputed to Preston.

And even if these contacts were imputed to Preston-though there is no reason for them

lo be-Preston's contacts with Texas still would fall fru· shorr of the contacts required to

demonstrate th at he is "essentially at home" in Texas as the U.S. Supteme Court made clear is

required in Goodyear.

3 ~ SJTQ E.U., Inc. v. Reata Rests., /n('.. 111 S.W.3cl 638. 65 1 (Tex. App.-Fmt Worth 2003. pet. denied): Brown v. Gen. Brick Sales Co .. 39 S.W.3d 29 1. 300 (Tex. App.-Fort Worlh 2001 . no pet.); cj: Ganwr 1'. Fumwnite Australia Pty .. Ltd .. 966 S.W.2cl 798. 803 (Tex . App.-Houston [1 st Dist.] 1998. pet. denied) (ho lding rbut fid uciary shield doctrine protected Australian resident from trial court's exercise o f general jurisdiction becuuse hi.s only contacts with Texas were on his employer's business). 36 T here ill no question that Intervenors' allegatio ns related to .IK Claims cannot fonn the basis for asserting specific jlllisdicrion because the claims in this case are not related in any way to rhe,<;e allegations. 37 Ex. D. Preston Supp. Dec. ~I 10.

625 V. THF. COURT SHOULD STRIKE HF.ARSA Y STATEMENTS IN THE COLLINS AFFIDAVIT.

T he Mass~chu setts Defendants object to and move to strike the following statements in

lhe Collins affidavit U1at was attached as Exhibit B lo the Intervenors' Response for the

following reasons:

4 Before I met Preston, he had been active in There is no evidence tJult the attempting to put together a project between declarant has personal MMT and Hoescht Celanese for the developmenl knowledge. TEX. R. Evm. of a faci lity in Bay City, Texas to process waste 602. water bypmducts generated at Hoescht Celanc c · s Gulf Coa t. chemical plants. This statement constitutes inadmissible hearsay under TEX. R . Evm. 802 because this information is clearl y based on s t~tement s alleged to have been made by another person.

6 During thi s meeting, Preston touted the patented This statement constitutes technology that he had acquired from MMT and inadmissible hearsay under encoW'aged my participat ion in the commercial TEX. R. EVID. 802 becau e this development of that technology. information is clearly based on statements alleged to have been made by another person.

10 Preston later requested that his name on the This statement constilutes Syngas LLC record be changed to Quantum inadmj ssible hearsay under Catalytics LLC ("Quant um"), a compa ny owned TEX. R. EVID. 802 bec~use this by Preston. Preston led us to believe that he was information is clearly based on the sole owner. officer. and employee of statements alJeged to have QuantunL been made by another person.

11 When we began our discussions and negotiations This statement constitutes in 2004. Preston did not represent himself to be inadmissible hearsay under negotiating and planning wllh me on behalf of TEX. R. Evm. 802 because this any corporate entity. information is clearly based on statements alleged to have been made by another person.

626 12 In my discussions with Preston. I learned that This statement constitutes Preston had been to Texas on multiple occasions inadmissible hearsay under prior to our introduction. He lold me that he had TEX. R. EviD. 802 because this previously travelled to Texas on numerous information is clearly based on occasions for meeting with Hoescht Celanese and sr~rement s alleged to have with Flour Daniel in Cleru· Lake. Texas. Preston been made by another person. also told me that he had made numerous visits to the Housto n Area R e~earc h Center, or HARC. on Research Fon cst Drive in The Woodlands. Texas to study new technologies in the mid and late 1990s. As a result Presto n was very famili~u· with The Woodlands. It was my understanding that hi s visits to HARC were for his personal benefit and not done through MIT or any corporation.

13 During this dinner. Preston pressed me to consent · This statement constitutes to a proposal for fi nru1cing for NC l2 that he was inadmi ssible hearsay under attempting to put together through his company C T EX. R. EVlD. 802 because this Change lnvestments ("C Change"). However. it information is cle~ul y based on appeared that the proposal was simply Preston· s statements aiJeged to have attempt to cut a deal for himself through C been made by another person. Change, and not a gcnujne effort to raise fu nding for NC12. As I understood the tran saction. the T here is no evidence that the only parties that would hene fit would he Preston declara nt has personal and companies solely under hi controL including knowledge of the statements in C Change, at the expense of NC 12 and its the second two sentences. existing investors and shareholders. TEX. R. Evm. 602.

This Court should rejecl the aUempt by the Intervenors- none of whom urc Texas

residents- to have this Court assert personal j urisdiction over nonresidents with practically no

contact with Texas in a case in which they assert c laims related to activities involving Nevada

corporations. T here is no specific jurisdiction over any of the Massachu ctts Defendants because

this dispute docs not arise from or re la te to any acl they performed in Texas. There is no general

jurisdiction over the Massachusetts DefendanLS because none of the m have continuous and

627 systematic contacts with Texas. Preston is not a Texas resident, does not conduct business in

Texas in his personal capacity, and has no presence in Texas. Btilliant Novelty has no

connection to Texas whatsoever and C Change only a handful of contacts with Texas that fall far

short of the contact that are necessary to support general jurisdiction.

AHMAD, ZA VITSANOS, ANAIPAKOS, ALA VI & MENSING P.C.

By: Is/ Jamie A. Aycock Sean Gorman Texas Bar No. 08218100 Jamie A. Aycock Texas Bar No. 24050241 1221 McKinney St., Suite 3460 Houston, Texas 77010 Telephone: (713) 655-1101 Telecopier: (713) 655-0062

ATIORNEYS FOR D EFENDANTS MICHAEL SYDOW, JOHN T. PRESTON, CHRISTOPH c HENKEL, CHANGE INvEsTMENTS , LLC, AND BRILLIANT NOVELTY, L.L.C.

628 CERTIFICATE OF SERVICE

I hereby ce11ify that on the 24th day of October 2014, a true and correct copy of the above and foregoing document was served by E-File.TxComts.Gov. or facsimile on the following counsel of record in accordance with the Texas Rules of Civil Procedme:

Kelley M. Keller State Bar No. 11198240 Tracey N. Ellison State Bar No. 15054720 5120 Woodway Dr., Suite 6019 Houston, Texas 77056 Telephone: 713-266-8200 Fax:713-266-8201 )f.J:&~U~x@ellison-keller .corn Attonzeys for Intervenors/Plaintiffs Em:io Investments, Ltd. and H.]. von der Goltz

Asher Griffin Chris Sileo Sean Flammer SCOTT, DOUGLASS & MCCONNICO, LLP 600 Congress Ave., Ste 1500 Austin, Texas 78701-2589 Fax:512-474-0731 Attorneys fort Defendants Chalysys, MET, and Lo

F. Eric Fryar State Bar No. 07495770 eri~~@ f:r.xarlawfirm.com. Matthew Bus chi State Bar No. 24064982 mbuschi@ti'yar1 awfirm.com Christina Richardson FRYAR LAW FIRM, P.C. State Bar No. 24070495 912 Prairie, Suite 100 Houston, Texas 77002-3145 Fax:281-605-1888 Attorneys for all Intervenors/Plaintiffs

Is/ Jamie A. Aycock Jamie A. Aycock

629 CAUSE NO. 2011-44058

MICHAEL COLLINS, ET .t\.L, rN THE DISTH ICT COURT P l a im1 m~

§ YS. § OF HARRIS COCNY § § MICHAEL SYDOW, ETAL. § f)(;;f'emhmt.s § 215TH JUD1C IAL DfSTRlCT

AKILA FINANCE, S.A., ET AL., IN ·nrE DISTRICT COURT lnterve11urs/PJni.riliffs

VS. OF HARRlS COUNTY. -n~:XAS

MICHAEL SYDOW. ET AL. Defendants. § 2 15TH J1JD1CIAL DISTRfCT

.JOHN T. ])RESTON'S SlJPl>LEMENTAL DF.CLARATION IN SUl}PORT OF HlS SPECIAL APPEARANCE

l. My name is .loJ.m T. Pl·~s'lbrt. My date of birth is MarCJ) 18, 1950, and r.ny address is 9 Martins Cove Lane, Hingham, MA 02043. l deciate under penalty of perjury that the statements ~n tllis declaration are true ~nd con'CcL 1 1 am l.rver the age of 21. [ have neve.r been convi~ted or a felony or crime invotving nHn·al turpitude. 1 a.tll of {)OUnd mind a.u d am fully competent to make this declaration.

3. As I previously d1sdos~d in this case, l traveled to rcxas in the 1990s on a handful of occssions. None of those trips wei'e in111y personal ca}}acity. 4. l keep dct.ailed reconis of my tJ:a.v~l. i\fter reviewing my traveJ reco.rds, Tiden1.ified Bll of roy trips to Texas in the five years beforf~ this lawsuit was filed for which I could locaLe travel in1orm

5. 'I previously identUied tt·ips that I took to Texas that I .st.at'ed w~re ()ll behalf of TEM Capital. an afHlia1.ed emily ll:iat was crer.•.rted by C Change Investment~. At the lime of my statement, I believed these ttips were rnade on behalf of TEM Capital. ·n~e three trips I took to Texas heforc fEM Caplta:l was fo·rmed in April 2011. howe-vt.-r, were ru.adt.? HOt on behalf of TEM Capital but on behaif of C Change Inv-estments, which was formed on or about May 2008.

__________ ___ ............ ........ ~ --~~- ___ .._.............................................................................. . 672 6. 1 prl:~viously identified another trip to Texas in 2008 on behalf of C Cba:t1ge Investmet1ts. Russell Read traveJed '"'ith me on that t.t'ip. l do not recall any other trip~ tt') Texc:_.., with Mr. Read. 7. I previously identHkd ~ trip to Texas in May 201 i. My records did not indicate the pnr.posc of this trip. 1 mistaket1iy assumed that this nip was for testimony in Mjcbael Sydow's divort:(.~ proceeding-s. l appear~d at a t:Ored

Executed in Cambridge, Massachtt.'k~tts l)l'J the J, 3 day of October, 20 14.

~'"b::_ ~'\hcf·~ "~. -m~\~ 4fH7-()2~H1592 , v. I C::xnn·\,~-:>)Q-" ~~~ ~

673 Cause No. 2011-44058

MICHAEL COLLINS, ET AL., § IN THE DISTRICT COURT PLAINTIFFS, § VS. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW, ET AL., § DEFENDANTS. § 215th JUDICIAL DISTRICT

AKILA FINANCE, S.A; BOSQUES DEL MOLINO, § IN THE DISTRICT COURT S.A.; CENTRANS ENERGY SERVICES, INC.; § CHESTER MESTER HOLDINGS, LTD.; DELTEC § BANK & TRUST, LID.; EMJO INVESTMENTS, § LID.; WILLIAM END; EVANS & PETREE 401 K § PLAN; FIRST BAY INTERTRADE; GM PARTNERS; § MARAIR CORP.; W.L. NICHOL, IV; PANORAMA § INVESrNffiNT, LTD.; PCOl VERMOEOENS VERW.; § ALEJANDRO SANTO.DOMJNGO; SINCID § INVESTMENT; VENTURI GLOBAL § INVESTMENTS., LTD., and H.J. von der GOLTZ § lNTERVENORSIPLAINTJFFS, § vs. § OF HARRIS COUNTY, TEXAS § MICHAEL SYDOW; JOHN PRESTON; CHRISTOPH § HENKEL; C CHANGE INVESTMENTS, LLC; § CHALSYS CAPITAL PARTNERS, LLP; SONIA LO; § BRILLIANT NOVELTY, LL.c.; OSCURA, INC.; § MELIORA ENERGY TECHNOLOGIES, S.a.r.l; and § FALL RIVER REALTY, LID., § DEFENDANTS. § 215th JUDICIAL DISTRICT

ORDER DENYING SPECIAL APPEARANCES OF JOHN T. PRESTON, BRILLIANT NOVELTY, L:L.e. AND C CHANGE INVESTMENTS, LLC

On. this day came on for consideration the Special Appearances of John T. Preston,

Bri:Hiam W~velty, L.L.C. and C Change Investments, LLC. The Court, having considered same,

the Petition in Intervention, tile Intervenors' Response to the Special Appearances, and any

further replies and responses, and the argument of counse4 the Court

OVERRULES the special appearances of John T. Preston, QriUiaat "Novelty, L.L.~ and

C Change Investments, LLC and retains this suit on the Coutt•s docket.

RECORDER'S MEMORANDUM Th!s 10strument1s ofpoor ~a lily at the lime of imaging 674 Signed this }~

675 Kelly v. General Interior Const., Inc., 301 S.W.3d 653 (2010) 53 Tex. Sup. Ct. J. 247

301 S.W.3d 653 Supreme Court of Texas.

Dan KELLY and Laura Hofstatter, Petitioners, v. GENERAL INTERIOR CONSTRUCTION, INC., Respondent.

No. 08–0669. | Argued Nov. 18, 2009. | Delivered Jan. 15, 2010.

Synopsis Background: Hotel corporation sued Arizona general contractor for claims arising from renovation of hotel in Texas. Subcontractor filed cross-claims against general contractor for breach of contract, violation of Texas Trust Fund Act, and fraud. The 125th District Court, Harris County, John A. Coselli, Judge, denied general contractor's motion for special appearance. General contractor appealed, and the Court of Appeals, 262 S.W.3d 79, affirmed denial.

[Holding:] On general contractor's petition for review, the Supreme Court, Guzman, J., held that trial court lacked personal jurisdiction over Arizona general contractors.

Judgment of cap reversed in part; judgment rendered dismissing cross-claims.

Attorneys and Law Firms

*655 David C. Holmes and Leymon L. Solomon, The Solomon Law Firm, Houston, TX, for Petitioners.

Ross A. Sears II, Sears Crawford, L.L.P., Houston, TX, for Respondent.

Opinion

Justice GUZMAN delivered the opinion of the Court.

[1] To establish personal jurisdiction in Texas courts over nonresident defendants, plaintiffs must plead a connection between the defendants' alleged wrongdoing and the forum state. Asserting statutory and common law claims, General Interior Construction, Inc. (GIC), a Texas corporation, sued Daniel Kelly and Laura Hofstatter (collectively, the Officers), both Arizona residents. Absent from GIC's pleadings, however, is any allegation that Kelly and Hofstatter committed any acts giving rise to these claims in Texas. Because the Officers filed a special appearance proving that

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1 Kelly v. General Interior Const., Inc., 301 S.W.3d 653 (2010) 53 Tex. Sup. Ct. J. 247

they do not live in Texas, they successfully negated all alleged bases for personal jurisdiction in Texas courts. We accordingly reverse in part the court of appeals and render judgment dismissing GIC's claims against the Officers for lack of personal jurisdiction.

I. Background

Kelly and Hofstatter are the sole shareholders and officers of Diva Consulting, Inc., an Arizona- based general contractor that Meristar Hospitality Corporation, a non-Texas entity, hired to renovate a Houston hotel. Diva then entered into subcontracting agreements with various companies, including Texas-based GIC, to perform the work. During construction Kelly made several trips to Houston to oversee the project. Diva also sent change orders and payments to and received invoices from these Texas companies, while receiving funds from Meristar to pay for the work.

Disputes arose between Diva and GIC, with the former claiming that GIC did substandard work requiring substantial expenditures *656 to remedy, and the latter claiming that Diva did not pay the entire contract amount. Meristar ultimately filed a lawsuit against Diva and various subcontractors, including GIC. GIC filed cross-claims against Diva and third-party claims against the Officers, asserting claims for breach of contract, violations of Chapter 162 of the Texas Property Code (Texas Trust Fund Act), 1 and fraud.

1 Texas law provides that payments made to a contractor or its officers, agents, or directors are trust funds if made under a contract for the improvement of real property in this state. See TEX. PROP.CODE § 162.001(a). The contractor or its officers, agents, or directors who receive or control the funds are trustees thereof. Id. § 162.002. The beneficiaries of the trust funds are persons who provide labor or materials for the project. See id. § 162.003. A trustee who acts, inter alia, with intent to defraud by using, disbursing, or otherwise diverting “trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries” misapplies the trust funds. Id. § 162.031. “Intent to defraud” means, as relevant here, that the trustee so used trust funds obtained by means of an affidavit under Texas Property Code § 53.085 containing false information relating to the trustee's payment of the obligations. Id. § 162.005(1)(C); see also id. § 53.085 (requiring the affiant, upon request of the payor, to aver that subcontractors, laborers, and materialmen have been paid in full).

Regarding the trust-fund claims, GIC alleged that the Officers “were the trustee[s] of all payments made to [Diva] by [Meristar]”; that GIC was “a beneficiary of the trust money paid to the trustees”; and that the Officers “provided affidavits to [Meristar] stating that all subcontractors (including [GIC] ) were paid or would be paid” when in fact those statements were “untrue.” In its fraud claim, GIC referred to its trust-fund allegations and alleged that “the material representations made by [Diva] were false and were made with the intention that GIC would rely thereon.” The only mention of Texas in GIC's pleading is the incorporation by reference of Diva's contract with GIC, which identifies the Houston hotel as the job site. GIC did not allege that the Officers lived in Texas, that they conducted business in Texas, or that any of the operative facts of the trust-fund and fraud claims occurred in Texas.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2 Kelly v. General Interior Const., Inc., 301 S.W.3d 653 (2010) 53 Tex. Sup. Ct. J. 247

The Officers filed a special appearance, stating they were residents of Arizona, did not own property in Texas, did not employ anyone in Texas, and did not conduct business in Texas in their personal capacities. The trial court denied the special appearance, and a divided court of appeals affirmed in part, reversing only as to the breach-of-contract claim. 2

2 GIC has not sought review of the court of appeals' judgment regarding the breach-of-contract issue.

The majority reasoned that the Texas Trust Fund Act reaches past the corporation to hold its officers personally liable for violations of the Act: “[W]e must focus only on whether [GIC] has pleaded that the Officers, regardless on behalf of [Diva] or in their individual capacities, controlled and directed funds received for the [hotel] project.” 262 S.W.3d 79, 86. Finding that GIC had so pleaded, the court upheld the trial court's order. The court used similar reasoning regarding the fraud claim, concluding that “[t]he Officers' alleged fraud sufficiently ‘relates to’ conduct purposefully directed toward Texas.” Id. at 86–87. In response to the dissent's claim that the Officers had no connection with Texas, the majority pointed to the following facts: “The record reveals that performance under the construction contract was to be performed exclusively in Texas. The Officers sent and directed payments to [GIC] in Texas. Kelly made site visits to the Texas work site. The Officers received *657 numerous invoices from Texas regarding the [hotel] project.” Id. at 86 n. 5.

The dissent found no connection between the Officers and Texas for either claim:

In its third-party petition, [GIC] alleges that the Officers acted with intent to defraud by providing false affidavits to Meristar and that the Officers violated section 162.005(1)(C) of the Texas Property Code. [GIC] also asserts that the Officers fraudulently represented that [GIC] would be paid in full under its contract with Diva. Notably, [GIC] does not allege that any of these acts occurred in Texas. Moreover, in its third-party petition, [GIC] does not allege that the Officers committed any act whatsoever in Texas or that they conducted any business whatsoever in Texas. Therefore, [GIC's] third-party petition lacks sufficient allegations to invoke the trial court's personal jurisdiction over the Officers, and the Officers, thus, could satisfy their burden of negating all bases of personal jurisdiction merely by presenting evidence that they are not residents of Texas.

Id. at 93 (Frost, J., dissenting). Because the Officers established that they do not live in Texas, the dissent would have reversed the trial court's denial of the Officers' special appearance.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3 Kelly v. General Interior Const., Inc., 301 S.W.3d 653 (2010) 53 Tex. Sup. Ct. J. 247

The Officers petitioned this Court for review, which we granted. 52 Tex. Sup.Ct. J. 792 (June 5, 2009). We have jurisdiction because there is a dissent in the court of appeals. See TEX. GOV'T CODE § 22.225(c); BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 793 (Tex.2002).

II. Standard of Review

[2] [3] Whether a court can exercise personal jurisdiction over nonresident defendants is a question of law, and thus we review de novo the trial court's determination of a special appearance. Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex.2007); BMC Software, 83 S.W.3d at 794. “When [as here] a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied.” BMC Software, 83 S.W.3d at 795 (citing Worford v. Stamper, 801 S.W.2d 108, 109 (Tex.1990); Zac Smith & Co. v. Otis Elevator Co., 734 S.W.2d 662, 666 (Tex.1987); In re W.E.R., 669 S.W.2d 716, 717 (Tex.1984)).

III. Discussion

A. In Personam Jurisdiction

[4] [5] [6] [7] A nonresident defendant is subject to the personal jurisdiction of Texas courts if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of jurisdiction does not violate federal and state constitutional due process guarantees. Schlobohm v. Schapiro, 784 S.W.2d 355, 356 (Tex.1990). The broad “doing business” language in Texas's long-arm statute allows the trial court's jurisdiction to “reach as far as the federal constitutional requirements of due process will allow.” Moki Mac, 221 S.W.3d at 575 (quoting Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex.1991)). Personal jurisdiction is consistent with due process “when the nonresident defendant has established minimum contacts with the forum state, and the exercise of jurisdiction comports with traditional notions of fair play and substantial justice.” Id. (internal quotation marks omitted) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). “A defendant establishes minimum contacts with a state when it purposefully avails itself of the privilege of conducting activities within the forum *658 state, thus invoking the benefits and protections of its laws.” Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338 (Tex.2009) (internal quotation marks omitted) (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)).

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[8] [9] GIC argues that the trial court had only specific jurisdiction over its claims against the Officers. “Specific jurisdiction ... arises when (1) the defendant purposefully avails itself of conducting activities in the forum state, and (2) the cause of action arises from or is related to those contacts or activities. In a specific jurisdiction analysis, we focus ... on the relationship among the defendant, the forum[,] and the litigation.” Id. (alteration in original) (citations and internal quotation marks omitted).

B. Special Appearance

[10] Our special-appearance jurisprudence dictates that the plaintiff and the defendant bear shifting burdens of proof in a challenge to personal jurisdiction. We have consistently held that the plaintiff bears the initial burden to plead sufficient allegations to bring the nonresident defendant within the reach of Texas's long-arm statute. See id. at 337; Moki Mac, 221 S.W.3d at 574; Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 807 (Tex.2002); BMC Software, 83 S.W.3d at 793; McKanna v. Edgar, 388 S.W.2d 927, 930 (Tex.1965). Once the plaintiff has pleaded sufficient jurisdictional allegations, the defendant filing a special appearance bears the burden to negate all bases of personal jurisdiction alleged by the plaintiff. E.g., Retamco Operating, 278 S.W.3d at 337. 3 Because the plaintiff defines the scope and nature of the lawsuit, the defendant's corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff's pleading. 4

3 The adoption of the special appearance was a significant development in Texas law. For most of its history prior to 1962, Texas law did not recognize a special appearance, and a nonresident defendant who appeared in a Texas court waived any objection to personal jurisdiction. See Atchison, Topeka & Santa Fe Ry. Co. v. Stevens, 109 Tex. 262, 206 S.W. 921, 921 (1918) (“A special appearance is unknown to our practice. The filing by a defendant of any defensive pleading, though it be only for the purpose of challenging the jurisdiction of the court, constitutes an appearance and a submission to the jurisdiction of the forum.”); see also York v. Texas, 137 U.S. 15, 21, 11 S.Ct. 9, 34 L.Ed. 604 (1890) (holding that Texas's rule disallowing special appearances did not violate due process); E. Wayne Thode, In Personam Jurisdiction; Article 2031B, the Texas “Long Arm” Jurisdiction Statute; and the Appearance to Challenge Jurisdiction in Texas and Elsewhere, 42 TEX. L.REV. 279, 292–97 (1964) (recounting early special- appearance jurisprudence). Thus, a nonresident defendant wishing to challenge personal jurisdiction in Texas had but one choice —default and challenge jurisdiction collaterally when the plaintiff came to enforce the judgment in the defendant's home state. Faced with a waiver of any objection to jurisdiction or a default on the merits, the nonresident defendant had to choose between two unpleasant alternatives. Seeking to remedy this dilemma, this Court promulgated Texas Rule of Civil Procedure 120a, which allows nonresident defendants to specially appear for the sole purpose of challenging the trial court's jurisdiction over them or their property. See TEX.R. CIV. P. 120a.

4 While the pleadings are essential to frame the jurisdictional dispute, they are not dispositive. Rule 120a requires a special appearance to be made by sworn motion, TEX.R. CIV. P. 120a(1), and also requires the trial court to “determine the special appearance on the basis of the pleadings, any stipulations made by and between the parties, such affidavits and attachments as may be filed by the parties, the results of discovery processes, and any oral testimony,” TEX.R. CIV. P. 120a(3). Even so, this additional evidence merely supports or undermines the allegations in the pleadings.

[11] [12] If the plaintiff fails to plead facts bringing the defendant within reach *659 of the long-arm statute (i.e., for a tort claim, that the defendant committed tortious acts in Texas), the

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defendant need only prove that it does not live in Texas to negate jurisdiction. See Siskind v. Villa Found. for Educ., Inc. 642 S.W.2d 434, 438 (Tex.1982) (“[T]he only evidence offered to negate jurisdiction was [a defendant's] testimony that she and the other individuals were residents of Arizona.... In view of [the plaintiff's] failure to allege any act by these individuals in Texas, we believe that the [defendants] have sustained their burden.”). 5 When the pleading is wholly devoid of jurisdictional facts, the plaintiff should amend the pleading to include the necessary factual allegations, see TEX.R. CIV. P. 63, thereby allowing jurisdiction to be decided based on evidence rather than allegations, as it should be.

5 See also Perna v. Hogan, 162 S.W.3d 648, 653 (Tex.App.-Houston [14th Dist.] 2005, no pet.) (“If the plaintiff does not plead jurisdictional allegations, i.e., that the defendant has committed any act in Texas, the defendant can satisfy its burden of negating all bases of personal jurisdiction by presenting evidence that it is a nonresident at the special appearance hearing.”); Frank A. Smith Sales, Inc. v. Atl. Aero, Inc., 31 S.W.3d 742, 747 (Tex.App.-Corpus Christi 2000, no pet.) (“[The plaintiff's] third-party petition stated only that [the defendant] had committed acts of negligence, without specifying what those negligent acts were, or where they occurred. Therefore, [the] petition fell well short of pleading sufficient allegations to show jurisdiction in Texas.”).

[13] [14] [15] [16] [17] The defendant can negate jurisdiction on either a factual or legal basis. Factually, the defendant can present evidence that it has no contacts with Texas, effectively disproving the plaintiff's allegations. The plaintiff can then respond with its own evidence that affirms its allegations, 6 and it risks dismissal of its lawsuit if it cannot present the trial court with evidence establishing personal jurisdiction. 7 Legally, the defendant can show that even if the plaintiff's alleged facts are true, the evidence is legally insufficient to establish jurisdiction; the defendant's contacts with Texas fall short of purposeful availment; for specific jurisdiction, that the claims do not arise from the contacts; or that traditional notions of fair play and substantial justice are offended by the exercise of jurisdiction. 8

6 If the plaintiff's evidence does not fall within the scope of the factual allegations in the pleading, then the plaintiff should amend the pleading for consistency.

7 The losing party in the trial court can challenge the factual sufficiency of the evidence in the court of appeals. E.g., BMC Software, 83 S.W.3d at 794.

8 The losing party in the trial court can challenge the legal sufficiency of the evidence in the court of appeals and in this Court. E.g., id. The trial court's legal conclusions are, as noted, reviewed de novo. See id.

C. Analysis

[18] Turning to the case at hand, the only relevant prong of the Texas long-arm statute extends jurisdiction over a nonresident who “commits a tort in whole or in part in this state.” TEX. CIV. PRAC. & REM.CODE § 17.042(2). 9

9 We recognize that § 17.042 is non-exclusive, see BMC Software, 83 S.W.3d at 795, but GIC does not separately allege that the Officers conducted business in Texas, and the only remaining claims against them are for tortious activity, making this subsection

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directly applicable. Section 17.042(1), regarding performance of a contract in Texas, does not apply as the Officers were not parties to Diva's contract with GIC, nor did they guarantee it.

GIC failed to plead facts within the reach of the long-arm statute because it did not allege that the Officers committed any tortious acts in Texas. As noted, GIC's live pleading contains no allegations *660 that the Officers' wrongdoing occurred in Texas. Regarding the fraud claim, GIC did allege several fraudulent acts (e.g., providing false affidavits to Meristar and misrepresenting to GIC that it would be paid in full), but it did not allege that any fraudulent acts occurred in Texas. Regarding the trust-fund claims, GIC did not allege that the Officers used or retained the trust funds in Texas, nor that they submitted false affidavits to Meristar in Texas. Thus, although GIC has alleged two claims of wrongdoing, it has not alleged that any acts giving rise to these two claims occurred in Texas.

Because GIC failed to plead jurisdictional facts, the Officers could, and did, meet their burden to negate all bases of jurisdiction by proving that they do not live in Texas. See Siskind, 642 S.W.2d at 438. GIC did not challenge that fact, nor did it present any responsive evidence establishing the requisite link with Texas. The most relevant piece of evidence is an affidavit of GIC's president stating that Laura Hofstatter promised him payment. But even this affidavit does not state where this conversation occurred or make any connection with Texas. In short, GIC's rebuttal evidence is as silent as its pleadings regarding the Officers' Texas contacts related to its claims. Having met their burden of proof, the Officers' special appearance should have been granted.

Although the trier-of-fact may ultimately conclude that Kelly and Hofstatter violated the Texas Trust Fund Act and committed fraud, the mere commission of an act does not grant Texas courts jurisdiction over the actor. Rather, as we have frequently emphasized, the requirements of due process must be upheld, particularly the connection between the defendant, the forum, and the litigation in the specific jurisdiction context. See, e.g., Retamco Operating, 278 S.W.3d at 338.

[19] [20] [21] The majority in the court of appeals focused on a corporate officer's potential for individual liability under the Texas Trust Fund Act, finding sufficient GIC's allegations that the Officers controlled and directed funds received under Diva's contract with Meristar. See 262 S.W.3d at 84–86. But the mere existence of a cause of action does not automatically satisfy jurisdictional due process concerns. A state is powerless to create jurisdiction over a nonresident by establishing a remedy for a private wrong and a mechanism to seek that relief. Instead, jurisdictional analysis always centers on the defendant's actions and choices to enter the forum state and conduct business. See, e.g., Int'l Shoe, 326 U.S. at 316, 66 S.Ct. 154 (focusing the inquiry on the defendant's presence in, or contacts with, the forum state); Retamco Operating, 278 S.W.3d at 338 (“We focus on the defendant's activities and expectations when deciding whether it is proper to call the defendant before a Texas court.”); Moki Mac, 221 S.W.3d at 575 (“[O]nly the defendant's contacts with the forum are relevant, not the unilateral activity of another party or a third person.”); Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 784–85 (Tex.2005) (“[I]t is essential in each case that there be some act by which the defendant purposefully avails

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itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” (quoting Hanson, 357 U.S. at 253, 78 S.Ct. 1228)). The concept of minimum contacts is rooted in the notion that a defendant may reasonably be haled into the forum state's courts when it purposefully, not randomly or fortuitously, engages in activities there. See, e.g., Michiana, 168 S.W.3d at 785. Thus, merely pleading that Kelly and Hofstatter violated the Texas Trust Fund Act is not enough; GIC must also plead and, when *661 challenged by the defendants, present evidence that the Officers' relevant acts (i.e., those connected to GIC's claims) occurred, at least in part, in Texas.

The court of appeals also erred by allowing GIC's fraud claim to proceed despite the lack of allegations and evidence that any part of the claim originates from the Officers' conduct in Texas. See 262 S.W.3d at 86–87. The court reasoned that “[t]he Officers' alleged fraud sufficiently ‘relates to’ conduct purposefully directed toward Texas.” Id. But we rejected the concept of directed-a- tort jurisdiction in Michiana, instead affirming the importance of the defendant's contacts with the forum state. See 168 S.W.3d at 788–92. While we noted that “on one occasion the United States Supreme Court found specific jurisdiction based on alleged wrongdoing intentionally directed at a forum resident,” the defendant's conduct in that case still “constituted a substantial ‘presence’ in the state.” Id. at 789 (discussing Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984)). Here, as noted, GIC has not alleged that the Officers engaged in activities that constitute any presence—let alone a substantial presence—in this state.

IV. Conclusion

Because GIC's pleadings lack Texas-specific allegations, the Officers negated all jurisdictional bases by proving that they do not live in Texas, and GIC has not presented any evidence to the contrary. 10 Accordingly, we reverse in part the court of appeals and render judgment dismissing GIC's claims against Kelly and Hofstatter for lack of personal jurisdiction.

10 Because we decide this case based on the lack of alleged minimum contacts with Texas, we do not discuss the fair-play-and- substantial-justice prong of personal jurisdiction.

Parallel Citations

53 Tex. Sup. Ct. J. 247

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© 2015 Thomson Reuters. No claim to original U.S. Government Works. 8 BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789 (2002) 45 Tex. Sup. Ct. J. 930

83 S.W.3d 789 Supreme Court of Texas.

BMC SOFTWARE BELGIUM, N.V., Petitioner, v. Michel MARCHAND, Respondent.

No. 00–1019. | Argued Sept. 5, 2001. | Decided June 27, 2002. | Rehearing Denied Aug. 29, 2002.

Employee sued Houston based corporation and its foreign subsidiary for breach of contract, fraud, negligent misrepresentation, and declaratory relief. The 127th District Court, Harris County, Sharolyn Wood, J., denied foreign subsidiary's special appearance contesting jurisdiction, and foreign subsidiary appealed. The Court of Appeals affirmed and foreign subsidiary petitioned Supreme Court for review. The Supreme Court, James A. Baker, J., held that: (1) trial court did not have specific jurisdiction over foreign subsidiary; (2) trial court did not have general jurisdiction over foreign subsidiary; (3) foreign subsidiary was not the alter ego of its parent for jurisdictional purposes; and (4) trial court did not abuse its discretion in denying employee's request for a continuance of the special appearance hearing.

Court of Appeals reversed, and judgment rendered.

*792 Merritt B. Chastain, III, Thomas H. Wilson, Houston, Vinson & Elkins, for Petitioner.

Stuart M. Nelkin, Carol Nelkin, Nelkin & Nelkin, Houston, for Respondent.

Justice BAKER delivered the opinion of the Court.

This is an interlocutory appeal from the denial of a foreign corporation's special appearance. A divided court of appeals affirmed the trial court's ruling. 80 S.W.3d 52. We conclude that the foreign corporation's contacts with Texas are insufficient to create either specific or general jurisdiction. We also conclude that the trial court did not abuse its discretion in denying the plaintiff's motion to continue the special appearance hearing. We therefore reverse the court of appeals' judgment and render judgment dismissing the plaintiff's claims against the foreign corporation for want of jurisdiction.

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*793 I. BACKGROUND

Michel Marchand, a Belgian citizen, was employed by Platinum Technologies in Belgium. In March 1996, Marchand began negotiating with Gerd Ordelheide and Adri Kok for employment with BMC Software Belgium, N.V. (BMCB). Ordelheide and Kok were directors of BMCB, a wholly-owned subsidiary of BMC Software, Inc. (BMCS), a Delaware corporation headquartered in Houston.

On March 29, 1996, Marchand and BMCB signed a letter agreement outlining the terms of Marchand's employment with BMCB, including the offer of options to purchase 20,000 shares of BMCS stock. The agreement did not specify when the options would be granted or when Marchand could exercise them. The letter agreement also referenced a “management agreement” that Marchand had apparently presented to BMCB. On June 13, 1996, BMCB and Marchand executed the management agreement between BMCB and a company called Procurement, N.V., of which Marchand was the sole officer and director. The record shows that Marchand asked BMCB to hire Procurement as a management company so that Marchand could work for Procurement as an independent contractor rather than directly for BMCB. Apparently, this arrangement enabled Marchand to reduce his Belgian tax liability. The management agreement was in German, and it stated that Belgian law applies and the court at Brussels had exclusive jurisdiction.

When Marchand actually began working for BMCB is unclear. But it is clear that in July 1997, BMCB discharged Procurement and Marchand. Marchand was never granted any options to purchase BMCS stock. He sued BMCB and BMCS for breach of contract, fraud, negligent misrepresentation, and declaratory relief. Marchand alleged both specific and general jurisdiction over BMCB. BMCB filed a special appearance, which the trial court denied. BMCB appealed the trial court's interlocutory order. See TEX. CIV. PRAC. & REM.CODE § 51.014(a)(7). The court of appeals affirmed, 80 S.W.3d at 55, and BMCB petitioned this Court for review.

II. THIS COURT'S JURISDICTION

Until 1997, a trial court's order denying a special appearance was reviewable only on appeal after trial. Canadian Helicopters Ltd. v. Wittig, 876 S.W.2d 304, 307 (Tex.1994). But the Legislature amended section 51.014 of the Civil Practice and Remedies Code to permit an interlocutory appeal from a trial court's ruling on a special appearance.

Typically, a court of appeals judgment in an interlocutory appeal is conclusive and an appeal to this Court is not allowed. See TEX. GOV'T CODE § 22.225(b). However, because there is a

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dissent in the court of appeals, we may exercise jurisdiction in this case. See TEX. GOV'T CODE § 22.225(c).

III. APPLICABLE LAW

A. SPECIAL APPEARANCE—STANDARD OF REVIEW

[1] [2] The plaintiff bears the initial burden of pleading sufficient allegations to bring a nonresident defendant within the provisions of the long-arm statute. See McKanna v. Edgar, 388 S.W.2d 927, 930 (Tex.1965). A defendant challenging a Texas court's personal jurisdiction over it must negate all jurisdictional bases. Kawasaki Steel Corp. v. Middleton, 699 S.W.2d 199, 203 (Tex.1985). This Court has never clearly articulated the standard for reviewing a trial court's order denying a special appearance. The Fourth Court of Appeals has held that, because personal jurisdiction involves both legal and factual questions, appellate courts should review *794 the trial court's decision for an abuse of discretion. See, e.g., Klenk v. Bustamante, 993 S.W.2d 677, 681 (Tex.App.-San Antonio 1998, no pet.). However, other courts of appeals review the trial court's factual findings for legal and factual sufficiency and review the trial court's legal conclusions de novo. See, e.g., E.L.M. LeBlanc v. Kyle, 28 S.W.3d 99, 101 (Tex.App.-Texarkana 2000, pet. denied); In re Estate of Judd, 8 S.W.3d 436, 440–41 (Tex.App.-El Paso 1999, no pet.); C–Loc Retention Sys., Inc. v. Hendrix, 993 S.W.2d 473, 476 (Tex.App.-Houston [14th Dist.] 1999, no pet.); Cadle v. Graubart, 990 S.W.2d 469, 471 (Tex.App.Beaumont 1999, no pet.); Ball v. Bigham, 990 S.W.2d 343, 347 (Tex.App.Amarillo 1999, no pet.); Garner v. Furmanite Australia Pty, Ltd., 966 S.W.2d 798, 802 (Tex.App.-Houston [1st Dist.] 1998, pet. denied); Al–Turki v. Taher, 958 S.W.2d 258, 260–61 (Tex.App.-Eastland 1997, pet. denied).

[3] [4] [5] [6] [7] We agree with the latter view and disapprove of those cases applying an abuse of discretion standard only. 1 Whether a court has personal jurisdiction over a defendant is a question of law. See Hotel Partners v. Craig, 993 S.W.2d 116, 120 (Tex.App.-Dallas 1994, writ denied) (stating that this Court's decision in Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex.1991), suggests that personal jurisdiction is a legal question). However, the trial court frequently must resolve questions of fact before deciding the jurisdiction question. See E.L.M. LeBlanc, 28 S.W.3d at 101; C–Loc Retention Sys., 993 S.W.2d at 476. If a trial court enters an order denying a special appearance, and the trial court issues findings of fact and conclusions of law, the appellant may challenge the fact findings on legal and factual sufficiency grounds. See Hotel Partners v. KPMG Peat Marwick, 847 S.W.2d 630, 632 (Tex.App.- Dallas 1993, writ denied). Our courts of appeals may review the fact findings for both legal and factual sufficiency. Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex.1996). This Court's review of the trial court's fact findings is limited to legal sufficiency. Ortiz, 917 S.W.2d at 772.

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1 See Whalen v. Laredo Nat'l Bancshares Inc., 37 S.W.3d 89, 91 (Tex.App.-San Antonio 2000, pet. denied); Joe Guerra Exxon Station v. Michelin Tyre Pub. Ltd., 32 S.W.3d 383, 386 (Tex.App.-San Antonio 2000, no pet.); Case v. Grammar, 31 S.W.3d 304, 307–08 (Tex.App.-San Antonio 2000, no pet.); Jones v. J.P. Sauer & Sohn, 27 S.W.3d 157, 161 (Tex.App.-San Antonio 2000, pet. denied); Eakin v. Acosta, 21 S.W.3d 405, 407–08 (Tex.App.-San Antonio 2000, no pet.); Long Distance Int'l, Inc. v. Telefonos de Mexico, S.A., 18 S.W.3d 706, 711 (Tex.App.-San Antonio 2000), rev'd on other grounds, 49 S.W.3d 347 (Tex.2001); Transportes Aereos de Coahuila, S.A. v. Falcon, 5 S.W.3d 712, 717 (Tex.App.-San Antonio 1999, pet. denied); Jones v. Beech Aircraft Corp., 995 S.W.2d 767, 769–70 (Tex.App.-San Antonio 1999, pet. dism. w.o.j.); Magnolia Gas Co. v. Knight Equip. Mfg. Corp., 994 S.W.2d 684, 689 (Tex.App.-San Antonio 1998, no pet.); Klenk, 993 S.W.2d at 681.

[8] [9] [10] Appellate courts review a trial court's conclusions of law as a legal question. Hitzelberger v. Samedan Oil Corp., 948 S.W.2d 497, 503 (Tex.App.-Waco 1997, pet. denied). The appellant may not challenge a trial court's conclusions of law for factual insufficiency; however, the reviewing court may review the trial court's legal conclusions drawn from the facts to determine their correctness. Templeton v. Dreiss, 961 S.W.2d 645, 656 n. 8 (Tex.App.-San Antonio 1998, pet. denied); Dallas County v. Sweitzer, 881 S.W.2d 757, 763 (Tex.App.-Dallas 1994, writ denied). If the reviewing court determines a conclusion of law is erroneous, but the trial court rendered the proper judgment, the erroneous conclusion of law does not require reversal. Scholz v. Heath, 642 S.W.2d 554, 559 (Tex.App.-Waco 1982, no writ).

*795 [11] [12] [13] When a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied. See Worford v. Stamper, 801 S.W.2d 108, 109 (Tex.1990); Zac Smith & Co. v. Otis Elevator Co., 734 S.W.2d 662, 666 (Tex.1987); In re W.E.R., 669 S.W.2d 716, 717 (Tex.1984). When the appellate record includes the reporter's and clerk's records, these implied findings are not conclusive and may be challenged for legal and factual sufficiency in the appropriate appellate court. Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex.1989); Zac Smith & Co., 734 S.W.2d at 666. For legal sufficiency points, if there is more than a scintilla of evidence to support the finding, the no evidence challenge fails. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex.1992).

B. IN PERSONAM JURISDICTION

[14] The Texas long-arm statute governs Texas courts' exercise of jurisdiction over nonresident defendants. See TEX. CIV. PRAC. & REM.CODE §§ 17.041–.045. That statute permits Texas courts to exercise jurisdiction over nonresident defendants that “does business” in Texas, and the statute lists some activities that constitute “doing business.” TEX. CIV. PRAC. & REM.CODE § 17.042. The list of activities, however, is not exclusive. We have held that section 17.042's broad language extends Texas courts' personal jurisdiction “as far as the federal constitutional requirements of due process will permit.” U–Anchor Adver., Inc. v. Burt, 553 S.W.2d 760, 762 (Tex.1977). Thus, we rely on precedent from the United States Supreme Court and other federal

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courts, as well as our own State's decisions, in determining whether a nonresident defendant has met its burden to negate all bases of jurisdiction. See Guardian Royal, 815 S.W.2d at 226; U– Anchor Adver., 553 S.W.2d at 762.

[15] [16] [17] [18] [19] Personal jurisdiction over nonresident defendants is constitutional when two conditions are met: (1) the defendant has established minimum contacts with the forum state, and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). A nonresident defendant that has “purposefully availed” itself of the privileges and benefits of conducting business in the foreign jurisdiction has sufficient contacts with the forum to confer personal jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474–76, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (discussing the constitutional boundaries of personal jurisdiction). Although not determinative, foreseeability is an important consideration in deciding whether the nonresident defendant has purposefully established “minimum contacts” with the forum state. Guardian Royal, 815 S.W.2d at 227. However, a defendant should not be subject to a foreign court's jurisdiction based upon “random,” “fortuitous,” or “attenuated” contacts. Burger King, 471 U.S. at 475, 105 S.Ct. 2174. Because of the unique and onerous burden placed on a party called upon to defend a suit in a foreign legal system, the minimum contacts analysis is particularly important when the defendant is from a different country. CSR Ltd. v. Link, 925 S.W.2d 591, 595 (Tex.1996) (citing Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 114, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987)).

[20] [21] [22] Personal jurisdiction exists if the nonresident defendant's minimum contacts give rise to either specific jurisdiction or general jurisdiction. *796 Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 413–14, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); Guardian Royal, 815 S.W.2d at 226. Specific jurisdiction is established if the defendant's alleged liability arises from or is related to an activity conducted within the forum. Guardian Royal, 815 S.W.2d at 228. In contrast, general jurisdiction is present when a defendant's contacts in a forum are continuous and systematic so that the forum may exercise personal jurisdiction over the defendant even if the cause of action did not arise from or relate to activities conducted within the forum state. Guardian Royal, 815 S.W.2d at 228; Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex.1990).

IV. ANALYSIS

In his original petition in the trial court, Marchand alleged the following to support jurisdiction over BMCB: (1) BMCB is operated by and is a wholly owned subsidiary of BMCS; (2) BMCS provides support to and uses its wholly owned subsidiaries such as BMCB to jointly market BMCS's products worldwide; (3) BMCS and BMCB have the same officers; (4) BMCB has continuous

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and systematic contacts with BMCS; (5) BMCB uses stock in BMCS to entice employees to work for it; and (6) the stock allegedly offered to Marchand is located in Houston, Texas.

The court of appeals determined that the trial court could have reasonably concluded that BMCB failed to negate all possible bases for establishing specific jurisdiction. In doing so, the court of appeals explained that the evidence shows that BMCB and BMCS officers discussed Marchand and the stock option offer in Texas. 80 S.W.3d at 59–60. Furthermore, the court of appeals concluded that the record showed that BMCB had sufficient continuous and systematic contacts with BMCS and thus Texas to establish the trial court's general jurisdiction. In so concluding, the court of appeals relied upon alleged conversations in Texas about Marchand between BMCB and BMCS officers, BMCB's selling BMCS's software and services, BMCS's including its subsidiaries' financial performance on annual reports, and BMCB providing its employees BMCS stock options as part of an employee incentive plan. 80 S.W.3d at 58–59. Because the court of appeals determined the trial court could have found specific and general jurisdiction over BMCB, it did not reach BMCB's argument that the evidence is not legally sufficient to establish that BMCB was BMCS's alter ego. 80 S.W.3d at 59.

A. SPECIFIC JURISDICTION

Marchand asserts that the trial court had specific jurisdiction over BMCB because BMCB committed a tort in whole or in part in Texas. See TEX. CIV. PRAC. & REM.CODE § 17.042(2). Specifically, Marchand alleges that Ordelheide and Max Watson, BMCS's chairman and chief executive officer, discussed in Texas the stock-options offer BMCB made to Marchand and, in this conversation, they planned to defraud him. Marchand argues that the discussion Ordelheide and Watson had in Texas forms the basis of his fraud and negligent misrepresentation claims about the stock options. In response, BMCB argues that there is no evidence in the record to support the trial court's implied fact findings to support specific jurisdiction. We agree with BMCB.

[23] Here, Marchand alleges that his fraud and negligent misrepresentation claims arise from the alleged Watson–Ordelheide conversation in Texas. See Schlobohm, 784 S.W.2d at 357 (“Where the activities of a defendant in a forum are isolated or disjointed ... jurisdiction is proper if the cause of action arises from a particular activity.”). But they do not. The nature of the claims demonstrate that they can only arise from BMCB's contact *797 with Marchand, which all occurred outside of Texas. Even assuming Watson and Ordelheide talked in Texas about Marchand's employment and the stock options, Marchand was not a party to those conversations. BMCB negotiated with Marchand about his employment, and offered the stock options to Marchand, in Europe. Moreover, Marchand accepted the employment offer in Belgium and worked in Belgium. Consequently, BMCB made no representations to Marchand in Texas, and he did not rely to his detriment on the conversation in Texas. See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d

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218, 222 (Tex.1992) (fraud requires showing that plaintiff acted in reliance on defendant's material misrepresentation); Federal Land Bank Ass'n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex.1991) (negligent misrepresentation requires that the plaintiff justifiably rely on the defendant's representation). Therefore, Marchand's alleged damages arose outside of Texas. See, e.g., Primera Vista S.P.R. de R.L. v. Banca Serfin, S.A. Institucion de Banca Multiple Grupo Financiero Serfin, 974 S.W.2d 918, 926 (Tex.App.El Paso 1998, no pet.) (holding that specific jurisdiction did not exist where defendant deposited money in Texas but misrepresentations to plaintiffs about that money occurred elsewhere).

There is no evidence to support the trial court's conclusion that BMCB committed a tort in whole or in part in Texas so that specific jurisdiction exists. See Guardian Royal, 815 S.W.2d at 227; TEX. CIV. PRAC. & REM.CODE § 17.042(2); see also Roberson, 768 S.W.2d at 281. Accordingly, we conclude that the trial court lacked specific jurisdiction over BMCB.

B. GENERAL JURISDICTION

Marchand also contends that the trial court has general jurisdiction over BMCB. Marchand relies on the alleged Watson–Ordelheide conversation and BMCB's purchasing products from BMCS in Texas. On the other hand, BMCB asserts that these events are not enough to establish general jurisdiction. We agree and conclude that neither of the events Marchand relies upon are continuous or systematic so as to establish general jurisdiction in Texas.

[24] [25] General jurisdiction may only be exercised when the nonresident defendant's contacts in a forum are continuous and systematic. Helicopteros, 466 U.S. at 414–15, 104 S.Ct. 1868; Guardian Royal, 815 S.W.2d at 228; Schlobohm, 784 S.W.2d at 357. Though a single act may be enough to show general jurisdiction in some instances, the alleged conversation between Ordelheide and Watson in Texas is not enough here. See Guardian Royal, 815 S.W.2d at 230 n. 12. We have recognized that “[g]eneral jurisdiction requires a showing that the defendant conducted substantial activities within the forum, a more demanding minimum contacts analysis than for specific jurisdiction.” CSR Ltd., 925 S.W.2d at 595 (citing Guardian Royal, 815 S.W.2d at 228). For the reasons discussed above, the alleged Watson–Ordelheide conversation does not constitute “substantial activities” within the forum to meet the more onerous burden of proving general jurisdiction. See Guardian Royal, 815 S.W.2d at 228.

[26] Furthermore, BMCB's purchasing products from BMCS in Texas to distribute in Europe is not enough to establish general jurisdiction. In Helicopteros, the United States Supreme Court examined a Colombian corporation's contacts with Texas to decide if Texas courts could exercise general jurisdiction. Helicopteros, 466 U.S. at 415–16, 104 S.Ct. 1868. The nonresident defendant had purchased helicopters, equipment, and training services from *798 a Texas company, sent

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its employees to Texas for training, and sent its chief executive officer to Houston for contract negotiation. Helicopteros, 466 U.S. at 416, 104 S.Ct. 1868. The Supreme Court held that these contacts were insufficient to warrant a Texas court's exercising general jurisdiction. Helicopteros, 466 U.S. at 415–16, 104 S.Ct. 1868 (reversing Hall v. Helicopteros, 638 S.W.2d 870 (Tex.1982)). The Court noted that “mere purchases, even if occurring at regular intervals, are not enough to warrant a State's assertion of in personam jurisdiction over a nonresident corporation in a cause of action not related to those purchase transactions.” Helicopteros, 466 U.S. at 418, 104 S.Ct. 1868.

This case is analogous to Helicopteros. Marchand's claims against BMCB do not arise from the purchases BMCB made from BMCS. To the contrary, Marchand's claims arise from his employment with BMCB in Belgium and the alleged misrepresentations BMCB made to Marchand concerning his employment. BMCB's unrelated purchases in Texas from BMCS are not the type of contacts that justify a finding that BMCB could have “reasonably anticipate[d] being haled into court” here. World–Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980); see also Helicopteros, 466 U.S. at 418, 104 S.Ct. 1868.

There is no evidence to support the trial court's conclusion that BMCB's contacts with Texas were continuous and systematic so that they established general jurisdiction. See Helicopteros, 466 U.S. at 414–15, 104 S.Ct. 1868; Guardian Royal, 815 S.W.2d at 228; Schlobohm, 784 S.W.2d at 357; see also Roberson, 768 S.W.2d at 281. Thus, we conclude that the trial court lacked general jurisdiction over BMCB.

C. ALTER EGO

Marchand's jurisdictional allegations in his original petition can be read to allege that the trial court has general jurisdiction over BMCB because it is BMCS's alter ego. In response, BMCB contends that there is no evidence to support a determination that it is BMCS's alter ego.

[27] [28] [29] Personal jurisdiction may exist over a nonresident defendant if the relationship between the foreign corporation and its parent corporation that does business in Texas is one that would allow the court to impute the parent corporation's “doing business” to the subsidiary. Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159 (5th Cir.1983); Walker v. Newgent, 583 F.2d 163, 167 (5th Cir.1978). The rationale for exercising jurisdiction is that “the parent corporation exerts such domination and control over its subsidiary ‘that they do not in reality constitute separate and distinct corporate entities but are one and the same corporation for purposes of jurisdiction.’ ” Hargrave, 710 F.2d at 1159 (citations omitted); see also Conner v. ContiCarriers & Terminals, Inc., 944 S.W.2d 405, 418 (Tex.App.-Houston [14th Dist.] 1997, no writ). The party seeking to ascribe one corporation's actions to another by disregarding their distinct corporate entities must prove this allegation. Walker, 583 F.2d at 167; Conner, 944 S.W.2d at 418–19; see also Lucas v.

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Texas Indus., Inc., 696 S.W.2d 372, 375 (Tex.1984). This is because Texas law presumes that two separate corporations are indeed distinct entities:

The general rule seems to be that courts will not because of stock ownership or interlocking directorship disregard the separate legal identities of corporations, unless such relationship is used to defeat public convenience, justify wrongs, such as violation of the anti-trust laws, protect fraud, or defend crime.

Bell Oil & Gas Co. v. Allied Chem. Corp., 431 S.W.2d 336, 339 (Tex.1968) (citations omitted).

*799 [30] 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. Conner, 944 S.W.2d at 418–19 (discussing Hargrave, 710 F.2d at 1160; Walker, 583 F.2d at 167). But the degree of control the parent exercises must be greater than that normally associated with common ownership and directorship; the evidence must show that the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice. See Hargrave, 710 F.2d at 1160; Conner, 944 S.W.2d at 419; see also Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 573 (Tex.1975).

[31] We conclude that there is no evidence to support any implied findings by the trial court to support that BMCB was BMCS's alter ego so that general jurisdiction exists in Texas. In Gentry, this Court held that “[a] subsidiary corporation will not be regarded as the alter ego of its parent merely because of stock ownership, a duplication of some or all of the directors or officers, or an exercise of the control that stock ownership gives to stockholders.” Gentry, 528 S.W.2d at 573. Though Gentry dealt with whether a subsidiary corporation should be regarded as its parent's alter ego for purposes of service of process, the Fifth Circuit and our courts of appeals have relied on its alter ego rule in determining personal jurisdiction. See Walker, 583 F.2d at 167; Gutierrez v. Raymond Int'l, Inc., 484 F.Supp. 241, 253 (S.D.Tex.1979); Conner, 944 S.W.2d at 419; 3–D Elec. Co. v. Barnett Constr. Co., 706 S.W.2d 135, 139 (Tex.App.-Dallas 1986, writ ref'd n.r.e.). Accordingly, general jurisdiction does not extend to BMCB to the extent Marchand relies on BMCB and BMCS having duplicate officers.

In addition to alleging that BMCB and BMCS share the same officers, Marchand argues that the record shows the following to establish BMCB's alter-ego status: (1) BMCS's SEC documents incorporate BMCB's financial performance, and BMCS's annual report includes BMCB's financial performance on a consolidated basis; (2) BMCS gives BMCB financial assistance; (3) BMCS provides stock options for BMCB's employees; (4) BMCS treats BMCB's offices, employees, and accounts receivable as its own property; (5) BMCS personnel has offices at its subsidiary facilities; (6) BMCS performs human resources, accounting, risk management, and marketing services for BMCB; (7) BMCS recruits employees for BMCB and approves hiring and competition; (8) BMCB and BMCS use the same letterhead and use the terms “BMC” and “BMC Software”

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interchangeably; and (9) Watson's deposition testimony shows that BMCB is a mere BMCS operation or department.

[32] There is no evidence in the record to support Marchand's assertions that BMCB is BMCS's alter ego. There are no SEC filings in the record, and nothing in BMCB's annual report supports a reasonable inference that BMCS considered its subsidiaries' revenue as its own or that it offered BMCB financial assistance. The annual report's listing international sales figures could represent either the subsidiaries' revenue or BMCS's revenue from selling its products to those subsidiaries. Moreover, the annual report's listing Belgium as a location of both International Offices and Independent Agents fails to show that BMCS treated its subsidiaries as mere departments or offices. BMCS's referencing its subsidiaries in its annual report is a common business practice, which the Internal Revenue Service, the SEC, and generally accepted accounting *800 principles recommend. See Calvert v. Huckins, 875 F.Supp. 674, 678–79 (E.D.Cal.1995). Finally, the annual report's stating that BMCS engaged in hedging transactions to protect against the volatility of foreign currency exchange rates is not evidence that BMCS engaged in risk management for BMCB.

[33] Additionally, the letter agreement between Marchand and BMCB is not evidence that BMCS typically recruits, controls, and approves personnel whom BMCB employs or that BMCS typically compensates BMCB employees with stock options. And, in any event, a parent company's offering a stock option plan to a subsidiary's employees is acceptable under IRS regulations and is not evidence of abnormal control over the subsidiary. See In re Silicone Gel Breast Implants Prods. Liab. Litig. (MDL 926), 837 F.Supp. 1128, 1136 (N.D.Ala.1993), vacated in part on other grounds by, 887 F.Supp. 1455 (N.D.Ala.1995).

Further, Watson's deposition testimony that BMCS employees were “from time to time ... in the offices of a variety of our subsidiaries” does not permit a reasonable inference that BMCS exerted such control over BMCB that the two entities ceased to be separate. See Hargrave, 710 F.2d at 1160; Conner, 944 S.W.2d at 418. Moreover, in discussing certain BMCS employees in his deposition, Watson identified a senior vice-president for worldwide marketing and a vice— president for human resources. But the existence of these two positions for BMCS is not evidence that BMCS performed marketing and human resources for its subsidiaries, or that, even if BMCS did perform such services, the subsidiaries were not charged for them. Similarly, BMCS and BMCB having letterhead with “BMC Software” is no evidence that the two entities do not observe corporate formalities, because both entities have “BMC Software” as part of their names.

In sum, the record does not reveal any evidence to support the trial court's conclusion that BMCB was BMCS's alter ego. See Hargrave, 710 F.2d at 1160; Walker, 583 F.2d at 167; Conner, 944 S.W.2d at 419; see also Roberson, 768 S.W.2d at 281. We therefore conclude that the trial court did not have general jurisdiction over BMCB based on BMCS's “doing business” in Texas.

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V. OTHER ISSUES

Before the special appearance hearing, Marchand objected to the hearing going forward because of BMCB's and BMCS's alleged failure to cooperate in discovery and requested that the trial court continue the hearing so that he could complete discovery. The trial court overruled the objection and denied the motion for continuance. Marchand asserts that, even if we reverse the court of appeals' judgment, we should remand his claims for further proceedings, because the trial court prevented him from conducting sufficient discovery before the special appearance hearing.

[34] [35] [36] This Court will not disturb a trial court's order denying a motion for continuance unless the trial court has committed a clear abuse of discretion. Villegas v. Carter, 711 S.W.2d 624, 626 (Tex.1986). A trial court “abuses its discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law.” Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex.1985). Here, the record shows that Marchand had ample time to conduct, and did conduct, discovery. BMCB filed its special appearance on January 29, 1999, and the trial court held the hearing seven months later on September 7, 1999. During that time, Marchand deposed Watson and served numerous written discovery requests on BMCS and BMCB. Although BMCB and BMCS objected to several discovery requests, the record does not reveal that Marchand ever filed a motion to compel *801 or otherwise attempted to obtain any discovery BMCB and BMCS did not provide. Based on the record, we cannot conclude that the trial court abused its discretion in overruling Marchand's objection to the special appearance hearing and denying his motion for a continuance to conduct further discovery.

VI. CONCLUSION

We hold that there is no evidence to support the trial court's conclusion that BMCB's contacts with Texas were sufficient to confer either specific or general jurisdiction. In so holding, we also conclude that there is no evidence to support a finding that BMCB was BMCS's alter ego so that general jurisdiction in Texas exists. Finally, we hold that the trial court did not abuse its discretion in denying its motion to continue the special appearance hearing. Accordingly, we reverse the court of appeals' judgment and render judgment dismissing Marchand's claims against BMC Software Belgium, N.V. for want of jurisdiction.

45 Tex. Sup. Ct. J. 930

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End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.

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235 S.W.3d 163 Supreme Court of Texas.

PHC–MINDEN, L.P. d/b/a Minden Medical Center, Petitioner, v. KIMBERLY–CLARK CORPORATION, Respondent.

No. 05–0823. | Argued Nov. 16, 2006. | Delivered Aug. 31, 2007.

Synopsis Background: In context of action against tampon manufacturer brought by representative of consumer's estate for products liability and other claims, tampon manufacturer filed third-party claim against Louisiana hospital for medical malpractice. The County Court at Law #2, Gregg County, F. Alfonso Charles, J., denied hospital's special appearance and determined that court had general jurisdiction. Hospital appealed, and the Tyler Court of Appeals, 202 S.W.3d 193, affirmed.

Holdings: On petition for review, the Supreme Court, Wallace B. Jefferson, C.J., held that:

[1] hospital's contacts with Texas were not continuous and systematic, so as to establish general jurisdiction;

[2] relevant time period for assessing hospital's contacts with Texas ended at time suit was filed, abrogating MedCost, L.L.C. v. Loiseau, 166 S.W.3d 421, Schott Glas v. Adame, 178 S.W.3d 307, and AmQuip Corp. v. Cloud, 73 S.W.3d 380; and

[3] hospital and its parent company did not operate as single business enterprise such that parent's contacts with Texas could be imputed to hospital.

Reversed and rendered.

*164 R. Brent Cooper, Diana L. Faust, Devon J. Singh, Cooper & Scully, P.C., Dallas, for petitioner.

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*165 C. Michael Moore, David G. Cabrales, Locke Liddell & Sapp LLP, Dallas, James K. Horstman, Rodney E. VanAusdal, Iwan Cray Huber Horstman & VanAusdal, LLC, Chicago, IL, for respondent.

Mark P. McMahon, Erskine & McMahon, L.L.P., Kenneth Charles Cunningham, Director of Legal Services, Good Shepard Medical Center, Longview, Susan Cassidy Cooley, Schell & Cooley, L.L.P., Timothy D. Ryan, Shell, Mitchel & Cooley, L.L.P., Addison, Mary Olga Lovett, Andrew J. Wupper, Greenberg Traurig LLP, Gracelyn M. Sessions, Texas Children's Hospital, Houston, Stephen A. Madsen, Ryan D. Adair, Cantey & Hanger, Fort Worth, Mark A. Stinnett, Stinnett Thiebaud & Remington L.L.P., Dallas, for other interested parties.

Roger Townsend, Alexander Dubose Jones & Townsend LLP, C.W. “Rocky” Rhodes, Houston, for amicus curiae.

Chief Justice JEFFERSON delivered the opinion of the Court.

The United States Constitution prohibits a court from exercising jurisdiction over a party that lacks minimum contacts with the forum. Personal jurisdiction has been described as either specific—that is, based on contacts arising from the dispute at issue—or general, predicated on a party's “continuous and systematic” contacts with the forum. Minimum-contacts analysis is easily muddled, however, as courts frequently import contacts relevant to one type of jurisdiction when deciding the other. Additionally, courts sometimes impute contacts of related entities to each other, when mere relatedness is an insufficient basis on which to confer jurisdiction. Today, we must determine whether a Louisiana hospital, either independently or through its parent corporation, has continuous and systematic contacts with Texas. We conclude that it does not.

Factual and Procedural Background

While traveling through Louisiana on December 10, 2000, Texas resident Jajah Eddington sought medical care at MHC–Minden Hospital (“Minden Hospital”), a 159–bed acute care hospital located in Minden, Louisiana. Medical personnel treated Eddington's flu-like symptoms in the emergency room and advised her to consult her primary care physician if her condition did not improve. Four days later, Eddington was admitted to Good Shepherd Medical Center in Longview, Texas, where she ultimately was diagnosed with toxic shock syndrome. That infection led to her death on December 28, 2000.

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DeWayne Eddington, individually and as next friend of Devvyn Eddington, and as representative of Jajah Eddington's estate, sued Kimberly–Clark Corporation asserting product liability, breach of warranty, and negligence claims. He alleged that Eddington's use of Kotex tampons led to the infection that caused her death. On February 28, 2003, Kimberly–Clark filed a third-party petition against PHC–Minden, L.P. (“Minden”), which owns Minden Hospital, asserting that Minden's negligence proximately caused Eddington's death. 1 Minden is a nonresident of Texas and a wholly owned subsidiary of Province Health Care (“Province”). Kimberly–Clark pleaded that Province, whose headquarters is in Tennessee, did business in Texas and that its forum-related acts *166 should be imputed to Minden because: (1) Province owns Minden; (2) Province and Minden share officers, directors, and “common departments or business”; (3) Province and Minden do not differentiate their operations and have failed to erect “formal barriers” between themselves; and (4) Province's officers and directors control Minden's policies. Minden filed a special appearance and, subject thereto, a general denial. The parties conducted extensive discovery relating to the jurisdictional issue. After a hearing, the trial court concluded it had general jurisdiction over Minden and denied the special appearance.

1 Kimberly–Clark also filed third-party claims against Good Shepherd Medical Center; Longview Emergency Medicine Associates; Schumacher Group of Louisiana; Dr. Russell Riggs; Dr. Rodney Slone; Dr. Don Ferguson; D. Lea, R.N.; C. Bennett, R.N.; and C. Coleman, R.N.

The court of appeals affirmed, reasoning that (1) Minden itself had “continuous and systematic contacts with Texas”; and (2) Minden and Province operated as a single business enterprise, and Minden, through Province, did business in Texas. 202 S.W.3d 193, 203–04. We granted Minden's petition for review to decide whether Texas courts have general jurisdiction over Minden. 2 49 Tex. Sup.Ct. J. 950 (Aug. 25, 2006).

2 Charles W. “Rocky” Rhodes and Riata Energy, Inc. submitted amicus curiae briefs.

II

General Jurisdiction

[1] [2] [3] The Texas long-arm statute governs Texas courts' exercise of jurisdiction over nonresident defendants. See TEX. CIV. PRAC. & REM.CODE §§ 17.041–.045. That statute permits Texas courts to exercise jurisdiction over a nonresident defendant that “does business” in Texas, and the statute identifies some activities that constitute “doing business.” Id. § 17.042. The list, however, is not exclusive. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex.2002). We have held that section 17.042's language extends Texas courts' personal jurisdiction “as far as the federal constitutional requirements of due process will permit.” U–

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Anchor Adver., Inc. v. Burt, 553 S.W.2d 760, 762 (Tex.1977). Thus, we rely on precedent from the United States Supreme Court and other federal courts, as well as our own decisions, in determining whether a nonresident defendant has negated all bases of jurisdiction. See BMC Software, 83 S.W.3d at 795–796. Personal jurisdiction over nonresident defendants is constitutional when: (1) the defendant has established minimum contacts with the forum state, and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945).

In Helicopteros Nacionales de Colombia, S.A. v. Hall, the Supreme Court adopted the terms “specific” and “general” to describe the differing types of personal jurisdiction. Helicopteros, 466 U.S. 408, 414, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984) (citing Arthur T. von Mehren & Donald T. Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 HARV. L.REV.. 1121, 1144– 1164 (1966)). The Court defined specific jurisdiction as “arising out of or related to the defendant's contacts with the forum.” Id. at n. 8. By contrast, the Court referred to general jurisdiction as “personal jurisdiction over a defendant in a suit not arising out of or related to the defendant's contacts with the forum.” 3 Id. at n. 9 (citations omitted).

3 The use of the terms “specific” and “general” to connote differing types of personal jurisdiction has been criticized as contributing to the confusion among courts as to the quality and quantity of contacts required for each. See Mary Twitchell, The Myth of General Jurisdiction, 101 HARV. L.REV.. 610, 612–13 (1988) (suggesting that the “general/specific framework” has led to ambiguity and suggesting the terms “dispute-blind” and “dispute-specific” instead). Ironically, Professors von Mehren and Trautman suggested the terms “specific” and “general” to alleviate the confusion associated with the “in rem,” “quasi in rem,” and “in personam” jurisdictional terminology. von Mehren & Trautman, Jurisdiction to Adjudicate, 79 HARV. L.REV.. at 1135–36 (noting that “some of the terminology conventionally employed in Anglo–American discussions of jurisdiction to adjudicate is not very helpful”).

*167 In Helicopteros, the Court concluded that Texas courts did not have general jurisdiction over a Colombian company, Helicol. One of Helicol's helicopters had been involved in a crash in Peru, and the survivors and representatives of the decedents sued Helicol in state district court in Harris County, Texas. Helicol filed a special appearance and moved to dismiss the case, but the trial court denied the motion. The court of appeals, however, agreed with Helicol that in personam jurisdiction over Helicol was lacking. Helicopteros Nacionales De Colombia, S.A. v. Hall, 616 S.W.2d 247 (Tex.App.-Houston 1981). Our Court reversed. Hall v. Helicopteros Nacionales De Colombia, S.A., 638 S.W.2d 870 (1982).

The Supreme Court granted certiorari, and it summarized the pertinent jurisdictional facts:

It is undisputed that Helicol does not have a place of business in Texas and never has been licensed to do business in the State. Basically, Helicol's contacts with Texas consisted of sending its chief executive officer to Houston for a contract- negotiation session; accepting into its New York bank account checks drawn on a Houston bank; purchasing helicopters, equipment, and training services from

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Bell Helicopter for substantial sums; and sending personnel to Bell's facilities in Fort Worth for training.

Helicopteros, 466 U.S. at 416, 104 S.Ct. 1868. The Court concluded that the CEO's trip to Houston could not be described as a “continuous or systematic” contact. Id. Similarly, it held that Helicol's acceptance of checks drawn on a Houston bank was of “negligible significance.” Id. at 416, 104 S.Ct. 1868. The Court held, relying on a 1923 unanimous opinion written by Justice Brandeis, that “purchases and related trips, standing alone, are not a sufficient basis for a State's assertion of jurisdiction.” Id. at 417, 104 S.Ct. 1868 (citing Rosenberg Bros. & Co. v. Curtis Brown Co., 260 U.S. 516, 43 S.Ct. 170, 67 L.Ed. 372 (1923)).

The point at which jurisdictional contacts reach a tipping point, however, has eluded precise formulation. Beyond stating that mere purchases and related travel are not enough, the Supreme Court has given little guidance on the appropriate inquiry for general jurisdiction, although its Helicopteros conclusion that general jurisdiction was improper suggests that the requisite level of contacts is fairly substantial. 16 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 108.41[3] (3d ed.2007); 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5 (2007) (noting that the Court's rejection of each contact and its failure to aggregate contacts “suggests very strongly that the threshold contacts required for a constitutional assertion of general jurisdiction over a nonresident defendant are very substantial, indeed”). Perkins v. Benguet Consolidated Mining Co., the only case in which that court has upheld a finding of general jurisdiction, offers an insight into the nature of the contacts required. Perkins, 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485 (1952). In assessing whether the nonresident defendant's Ohio contacts were sufficient to warrant a finding of general jurisdiction, the Court noted that the company's president, who was also the general manager and principal shareholder, *168 maintained an Ohio office in which he “did many things on behalf of the company.” Id. at 447–48, 72 S.Ct. 413. He maintained company files in Ohio, carried on correspondence from there, drew and distributed salary checks from his Ohio office, used two Ohio bank accounts for company funds and had an Ohio bank act as transfer agent for the company's stock, held directors' meetings in Ohio, supervised policies dealing with the rehabilitation of the corporation's properties in the Philippines there, and dispatched funds from Ohio bank accounts to cover purchases of machinery for such rehabilitation. Id. The Court concluded that the company “carried on in Ohio a continuous and systematic supervision of the necessarily limited wartime activities of the company,” and even though “no mining properties in Ohio were owned or operated by the company, many of its wartime activities were directed from Ohio and were being given the personal attention of its president in that State at the time he was served with summons.” Id. at 448, 72 S.Ct. 413. The Court held that “under the circumstances above recited, it would not violate federal due process for Ohio either to take or decline jurisdiction of the corporation in this proceeding.” Id.

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A general jurisdiction inquiry, therefore, is very different from a specific jurisdiction inquiry and involves a “more demanding minimum contacts analysis,” CSR, Ltd. v. Link, 925 S.W.2d 591, 595 (Tex.1996), with a “substantially higher” threshold, 4 WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5. Usually, “the defendant must be engaged in longstanding business in the forum state, such as marketing or shipping products, or performing services or maintaining one or more offices there; activities that are less extensive than that will not qualify for general in personam jurisdiction.” 4 WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5; see also Hall, 638 S.W.2d at 882 (Pope, J., dissenting) (noting that “substantial and continuous activity” required for general jurisdiction suggests that defendant “must establish some close substantial connection with the state approaching the relationship between the state and its own residents”); 16 MOORE'S FEDERAL PRACTICE § 108.41[3] (stating that general jurisdiction “typically requires the defendant to have an office in the forum state”); Lea Brilmayer, A General Look at General Jurisdiction, 66 TEX. L.REV. 723, 742 (1988) (proposing that “the basic inquiry must be whether the defendant's level of activity rises to the level of activity of an insider, so that relegating the defendant to the political processes is fair”); Charles W. “Rocky” Rhodes, Clarifying General Jurisdiction, 34 SETON HALL L.REV. 807, 811 (2004) (suggesting that a proper general jurisdiction query should evaluate whether the defendant engaged in activities in the forum state similar in frequency and nature to the activities of local businesses); Mary Twitchell, The Myth of General Jurisdiction, 101 HARV. L.REV.. 610, 635 (1988) (noting that “traditional indicia” of general jurisdiction are “a home base, an agent for the service of process, a local office, or the pursuance of business from a tangible locale within the state”).

[4] General jurisdiction has been described as “dispute-blind,” an exercise of the court's jurisdiction made without regard to the nature of the claim presented. Twitchell, The Myth of General Jurisdiction, 101 HARV. L.REV.. at 613. It involves a court's ability to exercise jurisdiction over a nonresident defendant based on any claim, including claims unrelated to the defendant's contacts with the state. 16 MOORE'S FEDERAL PRACTICE § 108.40. Some commentators suggest that courts assessing general jurisdiction employ an analytical *169 device to determine whether the jurisdiction is, in fact, dispute-blind. Twitchell, The Myth of General Jurisdiction, at 680; Rhodes, Clarifying General Jurisdiction, 34 SETON HALL L.REV. at 819. They propose that the court construct a hypothetical claim without any forum connection “to insure that any related forum activities of the defendant are not improperly infiltrating the dispute-blind query.” Clarifying General Jurisdiction, 34 SETON HALL L.REV. at 819. For example:

[A]re the corporate defendant's actual activities in California so pervasive and extensive that it should be amenable to the adjudicatory jurisdiction of California for a hypothetical employment discrimination claim filed by a New York citizen employed at corporate headquarters in New York? Or, with respect to a foreign corporation, do the corporation's actual California contacts support jurisdiction

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even for a hypothetical cause of action arising from its sale of a product in Germany that injured a German citizen?

Id. at 819–20. Such an inquiry properly frames the issue, as general jurisdiction is based solely on the defendant's “continuous and systematic” contacts with the forum. Helicopteros, 466 U.S. at 416, 104 S.Ct. 1868.

A

Minden's Contacts

[5] With this in mind, we turn to an analysis of Minden's Texas contacts, as the court of appeals concluded that Minden had “continuous and systematic contacts with Texas” sufficient to support general jurisdiction. 202 S.W.3d at 204. We first determine the appropriate time period for assessing contacts for purposes of general jurisdiction, an issue on which our courts of appeals are in conflict. Some examine the defendant's forum-related activities up to the time of the occurrence that prompted the suit. See MedCost, L.L.C. v. Loiseau, 166 S.W.3d 421, 434 (Tex.App.-Austin 2005, no pet.); Schott Glas v. Adame, 178 S.W.3d 307, 313–14 (Tex.App.-Houston [14th Dist.] 2005, pet. denied); AmQuip Corp. v. Cloud, 73 S.W.3d 380, 388 (Tex.App.-Houston [1st Dist.] 2002, no pet.). Others focus on contacts up to the time of filing suit. See, e.g., Equitable Prod. Co. v. Canales–Trevino, 136 S.W.3d 235, 237–38, 245 (Tex.App.-San Antonio 2004, pet. denied) (considering corporate defendant's relocation from Texas, which occurred after the cause of action accrued but before suit was filed, for purposes of determining jurisdiction); see also Tuscano v. Osterberg, 82 S.W.3d 457, 467 (Tex.App.-El Paso 2002, no pet.) (holding that jurisdictional contacts were “too attenuated in time,” because such activities occurred more than “three years before service of this suit was effected”). Another—the court of appeals in this case—noted the conflict and assessed contacts under both timetables. 4 202 S.W.3d at 203 (“A relevant continuous contact in this analysis includes those contacts over a period up to the date of injury ... or up to and including the date suit commenced....”).

4 This conflict gives us jurisdiction over this interlocutory appeal. TEX. GOV'T CODE § 22.225(c).

[6] We conclude that the relevant period ends at the time suit is filed. As noted above, general jurisdiction is dispute-blind; accordingly, and in contrast to specific jurisdiction, the incident made the basis of the suit should not be the focus in assessing continuous and systematic contacts— contacts on which jurisdiction over any claim may be based. See Charles W. *170 “Rocky” Rhodes, The Predictability Principle in Personal Jurisdiction Doctrine: A Case Study of the Effects of a “Generally” Too Broad, But “Specifically” Too Narrow Approach to Minimum Contacts, 57 BAYLOR L.REV. 135, 238 (2005) (noting that “analyzing the contacts at the time

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of accrual is not appropriate under the proper explanation of general jurisdiction as dispute-blind general adjudicative authority”); see also 4 WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5 (noting that “a court should consider all of a defendant's contacts with the forum state prior to the filing of the lawsuit”). We also agree that “a mere one-time snapshot of the defendant's in-state activities” may not be sufficient, see Rhodes, Predictability Principle, 57 BAYLOR L.REV. at 239, and contacts should be assessed over a reasonable number of years, up to the date suit is filed, see Access Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 717 (5th Cir.1999). This includes contacts at the time the cause of action arose, and it comports with the Supreme Court's guidance on the issue, as well as our prior caselaw. See Helicopteros, 466 U.S. at 409–11, 104 S.Ct. 1868 (evaluating contacts over the seven-year period before suit was filed); American Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 807–08 (Tex.2002) (assessing contacts over the twenty-year period preceding suit).

[7] We now turn to Minden's contacts up to the time of suit. A general jurisdiction inquiry can be tedious, as it “demands ... that all contacts be carefully investigated, compiled, sorted, and analyzed for proof of a pattern of continuing and systematic activity.” Schlobohm v. Schapiro, 784 S.W.2d 355, 359 (Tex.1990). In conducting this dispute-blind inquiry, Jajah's Eddington's status as a Texas resident, her treatment in Minden Hospital's emergency room, and her family's choice not to sue Minden are irrelevant. Instead, we focus solely on Minden's contacts with Texas. Minden is a nonresident limited partnership that owns a hospital licensed by the state of Louisiana. Minden's only facility is in Minden, Louisiana, and ninety percent of its patients reside within a twenty-five mile radius of Minden Hospital. Minden does not advertise in Texas. It owns no Texas property and has no Texas office or bank accounts, nor does it maintain a registered agent for service of process here. The court of appeals relied on three categories of contacts in determining that Minden's Texas contacts were continuous and systematic: (1) Minden employees' attendance at seminars in Texas; (2) Minden's purchases from vendors with Texas addresses; and (3) three contracts with Texas entities. We examine each in turn.

1. Texas Trips The evidence showed that, since 1999, Minden employees attended two Province-sponsored meetings in Dallas. These isolated trips fall short of the “continuous and systematic contact” the Supreme Court requires. In Helicopteros, the Supreme Court rejected the notion that multiple trips to Fort Worth supported general jurisdiction, noting that the trips did not “in any way enhance[ ] the company's contacts with Texas.” 466 U.S. at 418, 104 S.Ct. 1868; see also Kulko v. California Superior Court, 436 U.S. 84, 93, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978) (basing California jurisdiction on 3–day and 1–day stopovers in that State “would make a mockery of” due process limitations on assertion of personal jurisdiction); Nat'l Indus. Sand Ass'n v. Gibson, 897 S.W.2d 769, 774 (Tex.1995) (concluding that attending a meeting in Texas, as well as periodic mailings to Texas members, “presented no evidence of general jurisdiction”). We agree with that analysis.

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*171 2. Payments to Texas Vendors Since October 1, 1999, Minden paid $1,508,467.20 to 136 entities with Texas addresses. The largest payment, $515,650.15, was to Alcon Laboratories in Dallas, Texas, and the second largest, $209,997.36, to Centerpoint Energy in Houston, Texas. Most of the remaining payments are for less than $10,000.00 each. In Helicopteros, 466 U.S. at 418, 104 S.Ct. 1868, the Supreme Court held that “mere purchases, even if occurring at regular intervals, are not enough to warrant a State's assertion of in personam jurisdiction over a nonresident corporation in a cause of action not related to those purchase transactions.” And we have recognized that “purchases from Texas vendors will not alone support the exercise of general jurisdiction.” American Type Culture Collection, 83 S.W.3d at 808. We conclude that the payments to Texas vendors do not support general jurisdiction over Minden in Texas.

3. Contracts with Texas Entities The court of appeals also identified three contracts with a Texas connection: (1) a September 23, 2003 contract with Cox Business Services, a Tyler, Texas-based company, for internet service (at a charge of $59.95 per month) and a cable modem; (2) a July 2002 contract with Lone Star Research, located in The Woodlands, Texas, pursuant to which Lone Star Research would conduct a one- time marketing survey of 200 adult residents in Minden Hospital's service area; and (3) an April 2001 professional services agreement with Horizon Radiology, P.A., a Texas company, whereby Horizon would provide specialty coverage (via teleradiology equipment) to Minden Hospital, in exchange for $1600 per month.

We agree with the court of appeals that the 2003 Cox contract, entered into after suit was filed, is irrelevant to the jurisdictional inquiry here. 202 S.W.3d at 203. The 2002 Lone Star contract pursuant to which a Texas company conducted a marketing study of residents in Minden Hospital's service area—presumably Louisiana, as ninety percent of the hospital's patients live within twenty- five miles of the hospital—does not establish a continuous and systematic Texas contact. Lone Star agreed to conduct 200 telephone interviews and analyze the data within a week of the survey's completion, in exchange for $5,200. This type of sporadic Texas contact is not substantial enough for general jurisdiction.

Of the three contracts, the Horizon agreement has the most substantial connection to Texas. The agreement, signed in 2001 and renewed twice thereafter, required that Louisiana-licensed physicians (located in Texas) provide teleradiology services, for which Minden supplied the necessary equipment, in exchange for $1600 per month. Even this agreement, however, does not support general jurisdiction. Hiring a contractor to perform such limited services in the forum state does not equate to “continuous and systematic contacts.”

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Even when amassed, Minden's Texas contacts simply are not “continuous and systematic general business contacts” sufficient to support general jurisdiction, particularly when compared to the substantial, regular business activities conducted by the nonresident defendant in Perkins. Helicopteros, 466 U.S. at 416, 104 S.Ct. 1868; Perkins, 342 U.S. at 447–48, 72 S.Ct. 413. Instead, the facts here are more like those described in Helicopteros: the nonresident defendant had limited contacts with Texas but none sufficient to support general jurisdiction. Accordingly, the court of appeals erred in holding otherwise.

*172 B

Jurisdictional Veil–Piercing

[8] As its second basis for general jurisdiction, the court of appeals imputed Province's Texas contacts to Minden, concluding the two entities operated as a single business enterprise and that Minden, through Province, did business in Texas. In 1925, the Supreme Court of the United States considered whether a North Carolina court had jurisdiction over a nonresident parent corporation whose subsidiary did business in North Carolina. Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 335, 45 S.Ct. 250, 69 L.Ed. 634 (1925). In affirming the district court's dismissal for lack of jurisdiction, the Court held:

Through ownership of the entire capital stock and otherwise, the defendant dominates [its subsidiary], immediately and completely; and exerts its control both commercially and financially in substantially the same way, and mainly through the same individuals, as it does over those selling branches or departments of its business not separately incorporated which are established to market the [defendant's] products in other states. The existence of the [subsidiary] as a distinct corporate entity is, however, in all respects observed. Its books are kept separate. All transactions between the two corporations are represented by appropriate entries in their respective books in the same way as if the two were wholly independent corporations.

Id. The Court concluded that “the corporate separation, though perhaps merely formal, was real. It was not pure fiction.” Id. at 337, 45 S.Ct. 250.

The Court has never disavowed Cannon, despite an opportunity to do so. Instead, it essentially echoed the Cannon rule in Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n. 13, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984). See William A. Voxman, Comment, Jurisdiction over a Parent Corporation in Its Subsidiary's State of Incorporation, 141 U. PA. L.REV. 327, 339 (1992) (noting that Keeton footnote implicitly recognized Cannon's continuing validity). In that case, then-Justice

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Rehnquist, writing for the Court, noted that “jurisdiction over a parent corporation [does not] automatically establish jurisdiction over a wholly owned subsidiary.... Each defendant's contacts with the forum State must be assessed individually.” Keeton, 465 U.S. at 781 n. 13, 104 S.Ct. 1473; see also Voxman, 141 U. PA. L.REV. at 338 (noting that “[t]he clear implication of Rehnquist's assertion is that the nature of the parent-subsidiary relationship may well be a factor in determining whether jurisdiction comports with due process, but the existence of the relationship will not, in and of itself, be dispositive of the issue”).

The Fifth Circuit Court of Appeals followed Cannon in Hargrave v. Fibreboard Corp.:

Cannon ... stands for the proposition that so long as a parent and subsidiary maintain separate and distinct corporate entities, the presence of one in a forum state may not be attributed to the other. Cases in this circuit appear to have followed the Cannon rule in applying the Texas long-arm statute, although sometimes without explicit citation. We have noted often that 100% stock ownership and commonality of officers and directors are not alone sufficient to establish an alter ego relationship between two corporations. Generally, our cases demand proof of control by the parent over the internal business operations and affairs of the subsidiary in order to fuse the two for jurisdictional purposes. The degree of control exercised by the parent must be greater than that normally associated with common ownership *173 and directorship. All the relevant facts and circumstances surrounding the operations of the parent and subsidiary must be examined to determine whether two separate and distinct corporate entities exist.

Hargrave, 710 F.2d 1154, 1160 (5th Cir.1983) (citations omitted). The court held that the two corporations at issue “maintained a degree of corporate separation that was more than superficial” and “[t]he policy making authority held and exercised by [the parent] was no more than that appropriate for a sole shareholder of a corporation” and not enough to warrant the extraterritorial exercise of jurisdiction over that shareholder. Id. at 1161. The court concluded: “The Lone Star of Texas may shine brightly throughout the world, but its long arm is not judicially all encompassing.” Id.

We recently followed Hargrave (and, by implication, Cannon ) in explaining when the contacts of a related corporate entity may be considered for purposes of determining general jurisdiction. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795–796 (Tex.2002). We held that “[p]ersonal jurisdiction may exist over a nonresident defendant if the relationship between the foreign corporation and its parent corporation that does business in Texas is one that would allow the court to impute the parent corporation's ‘doing business' to the subsidiary.” Id. at 798 (citing Hargrave, 710 F.2d at 1159 and Walker v. Newgent, 583 F.2d 163, 167 (5th Cir.1978)). The rationale for exercising jurisdiction is that “the parent corporation exerts such domination and control over its

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subsidiary ‘that they do not in reality constitute separate and distinct corporate entities but are one and the same corporation for purposes of jurisdiction.’ ” Id. (quoting Hargrave, 710 F.2d at 1159 (citations omitted)). We required that the party seeking to ascribe one corporation's actions to another by disregarding their distinct corporate entities prove this allegation, because Texas law presumes that two separate corporations are distinct entities. Id.; accord 4A WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1069.4 (noting a “reluctance to exercise personal jurisdiction over a subsidiary merely because its parent corporation is doing business in the forum state”). We concluded that there was no evidence to support the trial court's finding of general jurisdiction over a Belgian subsidiary based on allegations it was the alter ego of its American parent. BMC Software, 83 S.W.3d at 801.

1. Single Business Enterprise Here, the court of appeals held that Province and Minden operated as a single business enterprise— a theory we have never endorsed—and, therefore, Province's Texas contacts could be imputed to Minden. 5 202 S.W.3d at 202; see Southern Union Co. v. City of Edinburg, 129 S.W.3d 74, 86–87 (Tex.2003) (noting that this Court “has never considered the ‘single business enterprise’ concept in any detail” and declining to decide “whether a theory of ‘single business enterprise’ is a necessary addition to Texas law regarding the theory of alter ego for disregarding corporate structure”). In doing so, the court of appeals examined eight factors as they related to Minden and Province: (1) common employees, (2) common offices, (3) centralized accounting, (4) payment of *174 wages by one corporation to another corporation's employees, (5) common business name, (6) services rendered by the employees of one corporation on behalf of another corporation, (7) undocumented transfers of funds between corporations, and (8) unclear allocation of profits and losses between corporations. 202 S.W.3d at 201–02. The court's analysis failed to recognize, however, that veil- piercing for purposes of liability (“substantive veil-piercing”) is distinct from imputing one entity's contacts to another for jurisdictional purposes (“jurisdictional veil-piercing”).

5 The record contains no evidence regarding the structure of Province's ownership of Texas hospitals. That is, there is no evidence regarding whether those hospitals are owned directly by Province or instead by a wholly owned subsidiary like Minden. The parties assume that Province (rather than its subsidiaries) does business in Texas; for purposes of our analysis, we make the same assumption.

[9] Courts have acknowledged that jurisdictional veil-piercing and substantive veil-piercing involve different elements of proof. See, e.g., Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 425 (9th Cir.1977) (noting that undercapitalization, “which is important to deciding whether to pierce the veil raised by a subsidiary corporation in order to hold the parent corporation liable for failure of the subsidiary to meet its debts, may not be relevant to a showing that the two corporations are in fact one so as to establish that the out-of-state corporation—be it parent or subsidiary—is present within the forum for jurisdictional purposes”; instead, “the operative question is whether the two corporations are in fact mere ‘divisions' or ‘branches' of a larger whole”); Daimler–Benz Aktiengesellschaft v. Olson, 21 S.W.3d 707, 721 n. 5 (Tex.App.-Austin 2000, pet. dism'd w.o.j.) (“Although many of the factors relevant to

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[determining whether subsidiaries' contacts should be imputed to parent] may also be relevant in determining whether a parent corporation should be liable for the actions of its subsidiary, the determination whether two corporate entities are one and the same for jurisdictional purposes is distinct.”), cert. denied, 535 U.S. 1077, 122 S.Ct. 1960, 152 L.Ed.2d 1021 (2002); see also 2–32 WILLIAM V. DORSANEO, TEXAS LITIGATION GUIDE § 32.06 (2005). This makes sense in light of the fact that personal jurisdiction involves due process considerations that may not be overridden by statutes or the common law. Cf. City of Monroe Employees Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 667–668 (6th Cir.2005) (refusing, in case involving jurisdictional allegations based on alleged “control person” under the securities laws, to “substitute our analysis of the securities laws' substantive bases for liability for the required, due-process based personal jurisdiction analysis”); AT & T Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 591 (9th Cir.1996) (concluding that “liability is not to be conflated with amenability to suit in a particular forum. Personal jurisdiction has constitutional dimensions, and regardless of policy goals, Congress cannot override the due process clause, the source of protection for non-resident defendants.”); In re Baan Co. Sec. Litig., 245 F.Supp.2d 117, 129 (D.D.C.2003) (noting that liability under the Securities Act “cannot on its own support personal jurisdiction,” as such an approach “impermissibly conflates statutory liability with the Constitution's command that the exercise of personal jurisdiction must be fundamentally fair”); Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 790–91 (Tex.2005) (rejecting theory that where defendant “directed a tort” was relevant inquiry for specific jurisdiction, as such a rule improperly “equat [ed] the jurisdictional inquiry with the underlying merits”); Nat'l Indus. Sand Ass'n v. Gibson, 897 S.W.2d 769, 773 (Tex.1995) (observing that “[c]onspiracy as an independent basis for jurisdiction has been criticized as distracting from the ultimate due process inquiry: whether the out-of-state defendant's contact with the forum was such that it should reasonably anticipate being haled into a court in the forum state” and declining to recognize *175 personal jurisdiction based on conspiracy allegation); John A. Swain & Edwin E. Aguilar, Piercing the Veil to Assert Personal Jurisdiction Over Corporate Affiliates: An Empirical Study of the Cannon Doctrine, 84 B.U.L. REV. 445, 453 (2004) (noting that “the principle of limited liability is statutory and does not speak to judicial jurisdiction”).

For this reason, fraud—which is vital to piercing the corporate veil under section 21.223 of the Business Organizations Code—has no place in assessing contacts to determine jurisdiction. See TEX. BUS. ORGS.CODE § 21.223. Similarly, some of the factors courts look to in determining whether an entity may be held liable as a “single business enterprise” are irrelevant to an analysis of jurisdictional contacts. For example, the court of appeals examined whether Province and Minden shared a common name and concluded that “[Minden's] partnership name and initials, PHC– Minden, L.P. can be construed as a reference to Province Healthcare Company.” 202 S.W.3d at 201. Whether two related entities share a common name, however, does not affect whether each has sufficient contacts with the forum for jurisdictional purposes.

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2. Factors [10] Instead, we recently outlined the relevant factors for jurisdictional veil-piercing:

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. But the degree of control the parent exercises must be greater than that normally associated with common ownership and directorship; the evidence must show that the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice.

BMC Software, 83 S.W.3d at 799 (citations omitted). We also relied on our prior precedent, which held that “[a] subsidiary corporation will not be regarded as the alter ego of its parent merely because of stock ownership, a duplication of some or all of the directors or officers, or an exercise of the control that stock ownership gives to stockholders.” Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 573 (Tex.1975). A leading treatise suggests that in determining whether a subsidiary corporation is subject to the jurisdiction of a forum state because its parent corporation is present or doing business there, courts should determine whether the subsidiary is “separate and distinct from its parent corporation for personal jurisdiction purposes,” taking into account the amount of the subsidiary's stock owned by the parent corporation, the existence of separate headquarters, the observance of corporate formalities, and the degree of the parent's control over the general policy and administration of the subsidiary. 4A WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1069.4.

Here, the court of appeals cited the following as evidence that Province and Minden were a single business enterprise:

the record shows that Province and [Minden] have at least one common employee and that Province pays certain [Minden] employees, although the salaries are intercompany payables. The names of the two companies are similar, and Province employees provide various services to assist [Minden] in its operations. Province exercises control over [Minden]'s revenues and expenditures and oversees [Minden]'s operations, financial performance, and completion of strategic initiatives. Further, Province audits [Minden]'s financial goals to determine if [Minden] will be able to meet these goals. Considering the totality of *176 this evidence, we conclude that Province and [Minden] have integrated their resources to achieve a common business purpose.

202 S.W.3d at 202.

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[11] Upon closer examination, however, it is clear that Province does not exercise the sort of control over Minden that is required to fuse them for jurisdictional purposes. BMC Software, 83 S.W.3d at 799. Much of the evidence cited points to parental involvement —involvement consistent with its investor status—not atypical control. See 16 MOORE'S FEDERAL PRACTICE § 108.42[3][b]. “Appropriate parental involvement includes monitoring the subsidiary's performance, supervision of the subsidiary's finance and capital budget decisions, and articulation of general policies.” Id. What is lacking here is the “plus” factor, “something beyond the subsidiary's mere presence within the bosom of the corporate family.” Dickson Marine, Inc. v. Panalpina, Inc., 179 F.3d 331, 338 (5th Cir.1999); see also Central States, Southeast & Southwest Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 943 (7th Cir.2000) (holding that “constitutional due process requires that personal jurisdiction cannot be premised on corporate affiliation or stock ownership alone where corporate formalities are substantially observed and the parent does not exercise an unusually high degree of control over the subsidiary”); De Castro v. Sanifill, Inc., 198 F.3d 282, 283–84 (1st Cir.1999) (requiring “strong and robust” evidence of parental control over subsidiary, such that subsidiary is “mere shell,” before subsidiary's contacts could be imputed to parent). The two entities maintain separate headquarters, Minden in Louisiana and Province in Tennessee. Minden's Board of Governors approves Minden's budget and oversees day-to-day operations, and Minden alone establishes its policies and procedures for providing health care to patients. Province is not involved in Minden's physician recruitment, and the two entities share no directors. While Minden's chief executive officer, chief nursing officer, and chief financial officer receive their paychecks from Province, their salaries are intercompany payables; that is, the monies come from Minden's revenues. Similarly, while Province provides Minden's general liability insurance and a group health insurance policy for its employees, the policies are funded from Minden's revenues. There is no indication that Minden and Province have disregarded corporate formalities. The court of appeals cited evidence that two Minden employees received Province stock options, but we have said that “a parent company's offering a stock option plan to a subsidiary's employees is acceptable under IRS regulations and is not evidence of abnormal control over the subsidiary.” BMC Software, 83 S.W.3d at 800. Put simply, we find no evidence of control other than that consistent with Province's investor status, and the court of appeals erred in imputing Province's Texas contacts to Minden.

III

Minden does not have continuous and systematic contacts with Texas, nor is there any basis for imputing Province's Texas contacts to Minden. We reverse the court of appeals' judgment and

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render judgment dismissing the claims against Minden for want of jurisdiction. TEX.R.APP. P. 60.2(c).

50 Tex. Sup. Ct. J. 1153

End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.

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