Valentine v. Whitetail Capital, LLC

1

FRANCES ELIZABETH CARTER VALENTINE AND WILLIAM RILEY BAXTER CARTER IN THEIR CAPACITIES AS COADMINISTRATORS OF THE ESTATE OF MICHAEL E. CARTER, Plaintiffs, v. WHITETAIL CAPITAL, LLC, PAUL G. COMRIE, AND ELEMENTS INTERNATIONAL GROUP, LLC, Defendants.

No. 3:23-cv-575-L

United States District Court, N.D. Texas, Dallas Division

December 6, 2023

FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

DAVID L. HORAN UNITED STATES MAGISTRATE JUDGE

Defendants Whitetail Capital, LLC, Paul G. Comrie, and Elements International Group, LLC have filed a motion to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(1), or, alternatively, under Rule 12(b)(6). See Dkt. No. 12. United States District Judge Sam A Lindsay has referred the motion to dismiss to the undersigned United States Magistrate Judge for hearing, if necessary, and findings and recommendations. See Dkt. No. 15.

Plaintiffs Frances Elizabeth Carter Valentine and William Riley Baxter Carter, in their capacities as co-administrators of the Estate of Michael E. Carter, have filed a response see Dkt. No. 16, and Defendants have filed a reply see Dkt. No. 17.

For the reasons explained below, the Court should deny the motion.

Background

Michael E. Carter was a salesman and entrepreneur who worked for Elements International, a furniture wholesaler. See Dkt. No. 10 at ¶12. Until his retirement in 2021, Carter served as both an officer and manager of Elements International and held a five percent membership interest in Elements International (the “Carter Membership Interest”). See id.

When he retired, Carter sold the Carter Membership Interest to Whitetail Capital. See id. at ¶¶14-16. Whitetail was the majority owner of Elements International's membership interests. Paul Comrie was Elements International's CEO and Whitetail's president, manager, and sole member. See id. at ¶¶10-12.

Carter and Whitetail executed a Membership Interest Purchase and Sale Agreement dated effective June 30, 2023 (the “P&S Agreement”). See Dkt. No. 10-1. Carter also executed an Assignment and Assumption of Membership Interest in Elements International Group, LLC transferring the Carter Membership Interest to Whitetail (“Assignment Agreement”). See Dkt. No 10-2. And Carter executed a letter of resignation from his various roles at Elements International.

The P&S Agreement provided that the $3.4 million purchase price would be paid in two installments:

Section 2. Purchase Price. As the full purchase price of the Subject Membership Interest, Purchaser shall pay to Seller the sum of Three Million Four Hundred Thousand and No/100 Dollars ($3,400,000.00) (the “Purchase Price), as follows:

(i) At the closing, by wire transfer of immediately available funds to an account identified by Seller to Purchaser (“Seller's Account”), Purchaser shall pay to Seller the sum of Two Million and No/100 Dollars ($2,000,000.00).

(ii) On or before December 31, 2022, by wire transfer of immediately available funds to Seller's Account, Purchaser shall pay to Seller the sum of One Million Four Hundred Thousand and No/100 Dollars ($1,400,000.00).

Paul Comrie and Elements International guaranteed the second payment:

(iv) Each of Paul G. Comrie, the principal of Purchaser (“Comrie”) and the Company [Elements International] (together with Comrie, sometimes called “Guarantors”) agree to guarantee payment of the second payment of One Million Four Hundred Thousand and No/100 Dollars ($1,400,000.00) due to Seller on December 31, 2022, as confirmed by their respective signatures below.

The P&S Agreement further provided:

(v) Should neither Purchaser nor Guarantors pay the payment referenced in Section 2(ii) and 2(iv) above on or before January 10, 2023, the Seller shall have the right to notify the Company of such non-payment, and the Company shall then issue (and Comrie shall cause the Company to issue) to Seller a portion of the Membership Interest commensurate with the outstanding payment, to wit membership interest in and to the Company in an amount equal to 2.0588 of the outstanding membership interest in and to the Company.

See Dkt. No. 10-1 at 1-2.

The P&S Agreement also provided that time was of the essence, see id. at 7 ¶13, and that all notices and communications must be made in writing. See id. at 4 ¶6.

The P&S Agreement was signed by Carter, Paul Comrie as Manager of Whitetail, and Mike Wurster as President of Elements International. See Dkt. No. 14-1 at 13-14. It was approved by Elements International's members and managers. See id. at 19-27 (Joint Consent).

Whitetail paid the $2 million due for the first installment to Carter.

Carter passed away on September 4, 2022.

At the time of his death, Carter was domiciled in Lafayette County, Mississippi. On September 22, 2022, the Chancery Court of Layfette County, Mississippi admitted Carter's will to probate and issued Letters of Administration to Carter's children, Plaintiffs Frances Elizabeth Carter Valentine and William Riley Baxter Carter, as Co-Executors to administer Carter's estate. See Dkt. No. 10-4.

As the December 31, 2022, deadline approached, Comrie repeatedly acknowledged Whitetail's obligation to pay the $1.4 million due to the Carter Estate but complained of financial hardship and stated that he wouldn't be able to pay the obligation when due. See Dkt. No. 10 at ¶31.

On December 19, 2023, Comrie texted “I spoke to our attorney. Sounds like you guys will own 2.0588% of Elements if I do not meet the $1.4MM payment obligation at month end. Let me know if you prefer other options. Hopefully there is a workable deal. Paul.” Id. at ¶33. He followed up with “[l]et me know if there is something you want to try and work out. I just don't want the year end deadline to come and pass us. I'm okay with you guys retaining the shares too.” Id. ¶ 34. On December 27, 2023, Comrie texted that he was “willing to give $100K a month until it is paid off.” Id. at ¶36.

The Carter Estate demanded Whitetail perform by making the $1.4 million second payment before the year end. See id. at ¶ 32. On December 27, 2021, the Carter Estate told Comrie that it was not interested in receiving the membership interest. See id. at ¶35.

Whitetail failed to make the second payment on December 31, 2022. See id. at ¶37.

After the deadline passed, Comrie advised the Carter Estate that he was seeking bank financing for Whitetail to make the $1.4 million second payment. See id. at ¶38.

On January 6, 2022, Comrie wrote

I don't have great news. We are in a tough spot. I'm really not in a position to buy the shares based on hemorrhaging money the last six months. We have too much inflated inventory that is going to make the next little while even bumpier. Based on that the company doesn't want those shares. If you want money right now the best I can do for those shares is getting a loan from my father and giving you $400K for them. If you want the full $1.4MM then it is best to sit on the shares and see if we come out of this. Happy to chat about it. Just wanted to get this in writing so you can digest it.

Id. at ¶39.

On January 10, 2023, counsel for the Carter Estate sent a demand letter to Elements International (directed to Michael Wurster, its president) notifying the company that Whitetail failed to pay the second payment and demanding that Elements International perform its obligation under the guaranty. The demand expressly stated that the “letter [was] not an exercise by the estate of its rights under Section 2(v) of the [P&S] Agreement.” Id. at ¶ 41. Carter Estate counsel also sent a demand letter to Paul Comrie demanding that he immediately perform his personal guaranty of the second payment by paying the estate $1.4 Million. See Id. at ¶43. There was no response to the demand letters. See id. at ¶¶42, 43.

Plaintiffs filed this lawsuit on March 15, 2023. See Dkt. No. 1.

Defendants filed a motion to dismiss the Complaint on April 14, 2023. See Dkt. No. 7. One of their arguments was that the Co-Administrators did not have standing because they failed to file letters of administration from the Mississippi probate court with the complaint. See Dkt. No. 9.

On April 23, 2023, Whitetail and Elements International executed an Assignment of Membership Interest in Elements International Group, LLC “for the benefit of the [Carter] Estate,” in which Elements International assigned 2.0588% of the outstanding membership interest in the company to the Carter Estate “as provided by the terms of Section 2(v)” of the P&S Agreement (the “April 2023 Assignment”). Dkt. No. 14-1 at 28-30.

The Carter Estate filed an Amended Complaint on May 5, 2023, attaching certified copies of letters of administration from the Mississippi probate court in an appendix. See Dkt. No. 10; Dkt. No. 10-4. In the amended complaint, the Carter Estate alleges breach of contract against Whitetail for its failure to pay the second $1.4 million installment under the P&S Agreement and breach of contract against Elements International and Comrie for their failures to pay the second $1.4 million installment under the guaranties in the P&S Agreement. See Dkt. No. 10.

Defendants then filed a Rule 12(b)(1) and 12(b)(6) Motion to Dismiss the Amended Complaint, See Dkt. No. 12, and the Court denied the original motion to dismiss as moot, See Dkt. No. 18.

In the pending motion to dismiss, Defendants contend the Court does not have subject matter jurisdiction because the Carter Estates' breach-of-contract claims are now moot. Defendants construe the P&S Agreement to provide two options for payment of the second installment - either pay the Carter Estate $1.4 million or issue it a 2.0588% membership interest in Elements International. Defendants assert they...