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Mjah Holdings, LLC v. Henson

Court of Appeals of Texas, Third District, Austin

March 29, 2019

MJAH Holdings, LLC, Appellant
v.
Andrew J. Henson, Appellee

          FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT NO. D-1-GN-15-003493, HONORABLE JAN SOIFER, JUDGE PRESIDING

          Before Chief Justice Rose, Justices Kelly and Smith

          MEMORANDUM OPINION

          CHARI L. KELLY, JUSTICE

         MJAH Holdings, LLC, appeals a take-nothing judgment rendered after a bench trial in its suit against Andrew J. Henson arising out of disputes related to Henson's work for MJAH. Although the trial court found that Henson breached his fiduciary duties to MJAH and breached a consulting agreement executed by the parties, it awarded no damages arising from that conduct. MJAH challenges the sufficiency of the evidence supporting the trial court's finding of no damages. We will affirm.

         BACKGROUND

         MJAH is a limited liability company owned by Mark Jansen, Andrew Henson, and H-M Co.[1] The company was formed to lease commercial equipment used to pump and spread hog manure as fertilizer on Midwestern farm fields. Jansen testified that the idea to form MJAH originated when Henson suggested to him that it was a relatively simple business and that Henson had relationships with many farmers in the area. MJAH began operating in the spring of 2013. According to Jansen, in the summer of that year Henson suggested that the company pursue the additional line of business of providing the actual pumping and transfer services associated with moving hog manure from holding ponds and spreading it onto the fields. Jansen testified that MJAH purchased over a million dollars worth of heavy equipment, including John Deere tractors, manure bars, and hoses needed to perform the pumping and spreading services. MJAH purchased the equipment using financing arrangements with John Deere and loans from H-M Co., Gailliot, and Jansen. Jansen stated that the manure pumping business was more complex than simply leasing equipment and that it was important to have an "experienced player" involved. For this experience, Jansen relied on Henson and Ryan Kent, an acquaintance of Henson, who entered into a profit-sharing arrangement with MJAH. At trial, Jansen provided the following description of the business:

This was a business that had a very mature market. There was collateral associated-it was a relatively safe investment in the sense that we had collateral associated with our investment. And so, you know, our ability to either realize a return if business went well was good and at the same time if things didn't go well we had a pathway for getting our money back.

         In July 2013, Henson sent Jansen an email listing the names of seven potential customers and an estimate of the amount of manure to be pumped for each customer. According to Henson's estimate, these customers could provide an annual revenue of $907, 200.[2] Henson stated in his email that he and Kent "would personally get each and every customer to sign a contract." Henson sent additional forecasts for business in the fall of 2014 and again in the spring of 2015. Jansen testified that he relied on Henson's customer lists to project MJAH's revenues. According to Jansen, the "projections looked promising" and "at least in some instances [M]AH] had contracts with some of the individuals."

         In March of 2015, Jansen emailed Henson to inquire about a number of items, including "the status of the bank financing and [Henson's] plan to pay off the debt that the company has." Henson responded:

The company shows too much debt (John Deere and Investors). The company is also showing no cash flow. The calculations of the company have shown a Negative net balance for the second year in a row. The depreciation is not making it possible to Actually roll back over 25%. When the depreciation ends there will be a large gain, at that time I will have invested enough to make that year which will not be allowed anymore depreciation to roll over what is needed to be 60% owner in the company. This year I will take all earnings from harvesting, which is showing to be more than expected, and send that amount to MJAH Holding LLC. Estimating $120, 000 this year (2015). Percent will increase to 37% (2015). This year we will show a Positive Net Balance. I will make sure the investment is made before the end of the fall season to show the 37% so the Percent can be rolled back into the company making my personal investment close to $200, 000 this year. I will try to pull in more customers over the summer months to prolong the length of the fall season to increase our Net Gains.
Hopefully by the end of the Spring Season 2016 I will be at 60% ownership and when I do get to that point I will use my earnings to pay the debt off that the company has (Investments and JOHN DEERE). Lets hit these numbers this year and we can pay the debt off fast.[3]

(Capitalizations in original).

Jansen testified that Henson's promises to pay down the company debt and increase his ownership percentage did not materialize.[4] Jansen also testified that MJAH never "actually hit [the] numbers" Henson had forecasted, although the company was "kind of moving in the right direction."

         Jansen testified that the projection was that MJAH would generate revenue of between $800, 000 and $1 million per year, allowing it to pay off its entire debt in four years. Assuming that plan came to fruition, Jansen estimated that MJAH would have more than $300, 000 available for distributions. In actuality, however, according to Jensen "the wheels started to come off" in 2015 and the company "ended up seeing a bunch of things that we hadn't expected." Jansen stated that Henson represented to him that MJAH had hundreds of thousands of dollars in billings but that "the money wasn't coming in" and he grew concerned about MJAH's ability to make payments to vendors and secured creditors such as John Deere. Ultimately, Jansen instructed Henson to stop using MJAH's equipment because the company was going to transfer it to Kent, who Jansen believed to be a capable operator. Jansen testified, however, that he was unable to locate or recover the company's equipment. Eventually, Henson gathered the equipment he could find and it was sold at prices substantially below what MJAH had paid for it. Jansen testified that he was told that the proceeds of the sale of equipment were used to satisfy MJAH's debt.

         Henson also testified at trial regarding MJAH's operations. Henson stated that he encountered problems conducting company business because MJAH had no operating cash. According to Henson, there were instances when MJAH could not provide services for the next customer because Henson had no money available to him. Henson testified that there were numerous bills that he sent to Jansen for payment that were not timely paid, including bills for ...


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