Appellate court upholds $4.5 million judgment against Environmental Processing Systems

By Adrian Leake | Feb 23, 2018

BEAUMONT – The Court of Appeals for the 9th District of Texas at Beaumont affirmed a judgment Feb. 5 that found Environmental Processing Systems (EPS) and its president Clark Stegall jointly responsible for debts, penalties and fees amounting to more than $4.5 million.

BEAUMONT – The Court of Appeals for the 9th District of Texas at Beaumont affirmed a judgment Feb. 5 that found Environmental Processing Systems (EPS) and its president Clark Stegall jointly responsible for debts, penalties and fees amounting to more than $4.5 million.

According to the opinion, collection agent Larry Horner obtained notes for the debt owed by the appellants through assignment from creditors, including James L. Parks and U.S. Operating Inc. Soon after receipt of these notes, Horner contacted the debtors and the two parties came to an agreement for an extension of the payment in the form of a renewal note in 2010. Under the new agreement, a new due date for payment was set to February 2012.

This new date came and went without payment being made and Horner notified the appellants that they had defaulted on their loans, subsequently filing suit in foreclosure of payments to the sum of roughly $3.1 million, the opinion states. 

EPS responded with an accusation of usury against Horner and parties who had issued the notes on account of the structure of the renewal that had merged all of their debts. When the case went to hearing in February 2016, this claim proved unsuccessful in trial and Horner was awarded the full amount with interest as well as the right to reimbursement for attorney’s fees incurred during this trial and any unsuccessful future appeals by the debtors.

The opinion states that shortly following the trial, EPS requested a written transcription of all findings and facts as perceived by the court. Once these were filed and delivered, EPS promptly filed an appeal arguing that the court was in error in its failure to see value in membership shares, renewing its allegation of usury against Horner and the original note holders.

The crux of the appellants' grounds for this accusation centered around the belief that their debts, in conjunction with the value of membership units provided in consideration for their loans, brought the amount owed in excess of the maximum annual interest of 18 percent allowed under the terms of their contract.

In cases such as this, the burden of proof falls on the accusing party. As these units were issued primarily in February 2001, EPS was required to present evidence of the value of membership shares at that time as well as reasonable proof that their creditors intended to pursue unlawful compensation through by acquisition of the shares in question. 

The appellants submitted financial records into evidence and referenced options granted to their creditors to purchase shares at an exercise price of $44,643 per unit for 10 years following the original loan agreement. 

"It was undisputed in the trial that the options were never exercised, and that the exercise price for the options, in part, had been derived in anticipation of the funding of a loan from the U.S. Department of Agriculture. The evidence in the trial showed that the loan was never funded," the opinion states.

Ultimately, the appellate court was in agreement with Horner’s assessment that the presented exercise price arrived upon by EPS was not representative of the market price of a unit in their company. The court also found that the appellants had failed to provide evidence that these options were ever used by their creditors, dispelling the possibility of any application of Texas usury laws against them in this case.

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