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Phillips v. Msm, Inc.

United States District Court, S.D. Mississippi, Northern Division

February 2, 2015

OAKLEA PHILLIPS; VONDA SILER;, and B.L. LEWIS, III; Heirs at Law of B.L. Lewis Plaintiffs,


CARLTON W. REEVES, District Judge.

Before the Court is the defendants' motion for summary judgment. Docket No. 65. Having reviewed the arguments, evidence, and applicable law, the motion will be granted in part and denied in part.

I. Factual and Procedural History

B.L. Lewis and Mercury Communications Company entered into an employment contract in 1992. They soon parted ways. In 1993, Mercury filed a lawsuit in Arkansas state court seeking to enjoin Lewis from working for a competitor. It claimed there was a non-compete clause in their contract.

Lewis responded that the non-compete clause was a forgery. The United States Secret Service investigated in 1994 and agreed that the page on which the non-compete clause appeared was a forgery. Mercury's attorney was made aware of that conclusion in February 1995.

Four months later, Mercury was advancing a plan to send almost all of its cash to its owners, form another corporation, and transfer its revenues to that corporation. It carried out that plan in 1996.

Specifically, Mercury sent almost all of its cash ($375, 000 out of $405, 000) to its owners and merged with a shell company named MSM, Inc., which had been formed exclusively for the "merger." (For simplicity[1], from here onward Mercury/MSM will be referred to as MSM, except where the timeline indicates that it must be Mercury.) MSM kept its liabilities and spun off its business contracts (assets with a monthly revenue stream) into a new company called MSO, Inc., which had the same owners as the former Mercury. Docket No. 71-17, at 23, 47. Despite the merger and name change, MSM continued to do business as Mercury. Id. at 50. As for MSO, it never did any business other than collect revenues from the contracts it received from MSM. Id. at 24, 36.

The plaintiffs allege that the parceling out of MSM's assets constituted a fraudulent conveyance designed to keep Lewis from getting any money, should he obtain a judgment against them in the ongoing litigation. The defendants claim that the transactions were a legitimate restructuring designed to respond to their own changing desires and evolving conditions in the wireless industry. That is the crux of this suit.

In any event, after years of litigation in the state and federal courts of Arkansas, Lewis did obtain a judgment against MSM for $37, 500 in compensatory damages and $250, 000 in punitive damages. The judgment was affirmed on appeal in 2003. Lewis v. MSM, Inc., 63 F.Appx. 972 (8th Cir. 2003) (unpublished).

By then, though, Lewis could not collect on the judgment. MSM had divested itself of all its assets. It admittedly never even attempted to satisfy the judgment. Docket No. 71-18, at 15. A company with $4.3 million in income in 1998 had wound down such that in 2001 it reported $7 in income. Docket No. 72, at 49, 95. Nor could Lewis collect from MSO: although it was originally named in Lewis's suit, MSO had been dismissed for lack of minimum contacts with Arkansas.[2]

B.L. Lewis died. His heirs renewed their judgment in the United States District Court for the Western District of Arkansas, Texarkana Division (Cause No. 4:10-CV-4044) in 2010 and registered it in this Court in 2011. See Syler v. MSM, Inc., No. 3:11-MC-95-DPJ-FKB (S.D.Miss. Feb. 17, 2011). The plaintiffs initially filed this suit in Arkansas federal court, but after jurisdictional skirmishes had to refile here, which they did in March 2012. See Phillips v. MSM, Inc., No. 09-CV-4056, 2010 WL 1141503 (W.D. Ark. Mar. 22, 2010).

The plaintiffs alleged two causes of action. Count One seeks a declaratory judgment that MSO and the individual defendants, who are the former directors and shareholders of MSM and MSO, breached their fiduciary duties by enacting a fraudulent conveyance and are jointly and severally liable for the judgment. Count Two claims that the defendants are liable to the plaintiffs for the fraudulent conduct of MSM, either directly or for failing to stop the fraud of MSM's employees, officers, and attorneys. At heart, the plaintiffs desire to pierce the corporate veil of MSM and MSO to reach the individual defendants' assets.

After motion practice, a hearing, and discovery, the defendants filed the present motion for summary judgment. They contend that the judgment against MSM cannot be enforced against MSO or the individual defendants because the plaintiffs lack sufficient evidence to show a fraudulent conveyance, to show a continuing enterprise, or to pierce the corporate veil. They also argue that the plaintiffs' claims are time-barred because, among other things, the transactions in question were described in a Plan of Merger publicly filed with the Mississippi Secretary of State on June 27, 1996.

The plaintiffs respond that they first learned the specifics of the transactional fraud on March 25, 2009, during post-judgment depositions of William Mounger, II and E.B. Martin, Jr. Since this suit was filed on March 12, 2012, it is timely, they say.

II. Legal Standard

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A dispute is genuine "if the evidence supporting its resolution in favor of the party opposing summary judgment, together with any inferences in such party's favor that the evidence allows, would be sufficient to support a verdict in favor of that party." St. Amant v. Benoit, 806 F.2d 1294, 1297 (5th Cir. 1987) (citation omitted). A fact is material if it "might affect the outcome of the suit under the governing law." Id. (quotation marks and citation omitted).

A party seeking to avoid summary judgment must identify admissible evidence in the record showing a fact dispute. Fed.R.Civ.P. 56(c)(1); see Tran Enterprises, LLC v. DHL Exp. (USA), Inc., 627 F.3d 1004, 1010 (5th Cir. 2010) ("With respect to an issue on which the nonmovant would bear the burden of proof at trial, if the movant for summary judgment correctly points to the absence of evidence supporting the nonmovant with respect to such an issue, the nonmovant, in order to avoid an adverse summary judgment on that issue, must produce sufficient summary judgment evidence to sustain a finding in its favor on the issue.").

The Court views the evidence and draws reasonable inferences in the light most favorable to the nonmovant. Maddox v. Townsend and Sons, Inc., 639 F.3d 214, 216 (5th Cir. 2011). But the Court will not, "in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts." McCallum Highlands, Ltd. v. Wash. Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir.), as revised on denial of reh'g, 70 F.3d 26 (5th Cir. 1995).

Because this case is proceeding in diversity, the applicable substantive law is that of the forum state, Mississippi. Capital City Ins. Co. v. Hurst, 632 F.3d 898, 902 (5th Cir. 2011). State law is determined by looking to the decisions of the state's highest court. St. Paul Fire and Marine Ins. Co. v. Convalescent Servs., Inc., 193 F.3d 340, 342 (5th Cir. 1999).

III. Discussion

Two matters will be addressed up front.

First, MSM claims it was never served with a summons and complaint. Although one of the returned summons on the docket sheet suggests otherwise, see Docket No. 29, it is not necessary to consider its sufficiency as MSM has waived any defect in service or personal jurisdiction by failing to file a motion to dismiss on those grounds. See Fed.R.Civ.P. 12(h).

Second, to the extent the plaintiffs are attempting to hold the non-MSM defendants liable for MSM's breach of the employment contract or wrongful submission of a fake document to the Arkansas trial court, those claims are too late. Bringing them now would either violate the rule against claim-splitting, since these defendants should have been sued in the lawsuit alongside MSM, or would be time-barred by the three-year statute of limitations set forth in Mississippi ...

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