Rex Performance Products, LLC v. Manu Bettegowda and Pregis Performance Products, LLC ( 2019 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-18-00171-CV
___________________________
REX PERFORMANCE PRODUCTS, LLC, Appellant
V.
MANU BETTEGOWDA AND PREGIS PERFORMANCE PRODUCTS, LLC,
Appellees
On Appeal from the 141st District Court
Tarrant County, Texas
Trial Court No. 141-298129-18
Before Gabriel and Kerr, JJ., and Gonzalez, J.1
Memorandum Opinion by Visiting Judge Ruben Gonzalez, Sitting by Assignment
1
The Honorable Ruben Gonzalez, Judge of the 432nd District Court of Tarrant County,
sitting by assignment of the Chief Justice of the Texas Supreme Court pursuant to section 74.003(h)
of the government code. See Tex. Gov’t Code Ann. § 74.003(h).
MEMORANDUM OPINION
I. Introduction
In two issues in this accelerated interlocutory appeal,2 Appellant Rex
Performance Products, LLC, a Michigan limited liability company, appeals the trial
court’s order granting the special appearance filed by Appellees Pregis Performance
Products, LLC, a Delaware limited liability company, and Manu Bettegowda, a
Connecticut resident and Pregis’s agent, asking us to find that Bettegowda’s email
communications with a Texas resident provided sufficient minimum contacts to
establish personal jurisdiction. We affirm.
II. Background
Rex sued James Donald Tate, Olympus Partners, LP,3 and Appellees, alleging
that Tate, a Texas resident and Rex’s president, CEO, and minority share owner, had
secretly negotiated a side deal for himself when he negotiated the February 23, 2018
sale of Rex’s assets to Pregis. The “side deal,” which Rex claimed was discovered by
reviewing Tate’s emails before the sale closed, involved a $1.5 million “Super Bonus”
2
See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(7) (providing for
interlocutory appeal of the grant or denial of a defendant’s special appearance under
rule of civil procedure 120a); Tex. R. App. P. 28.1(a).
3
At the special appearance hearing, Appellees’ lawyer informed the court that
Olympus Partners, LP did not exist and that the special appearance was filed on
behalf of Olympus Growth Fund V, L.P., the entity that they thought Rex had
intended to sue. Bettegowda is a partner in Olympus Growth Fund V, L.P. The trial
court lined out “Olympus Growth Fund V, L.P.” in the order granting the special
appearance, and no Olympus entity is a party to this appeal.
2
payable to Tate in exchange for driving the sale price down by $3 million. Rex sought
to enjoin the $1.5 million payment and brought a claim for breach of fiduciary duty
against Tate and a claim for conspiracy against all of the defendants. Rex also alleged
that Tate’s co-defendants were joint tortfeasors for knowingly inducing and
participating in Tate’s breach of fiduciary duty and alleged personal jurisdiction under
the Texas long-arm statute on the basis of business torts committed in whole or in
part in Texas and under its joint tortfeasor theory. See Tex. Civ. Prac. & Rem. Code
Ann. § 17.042(2).
Appellees filed a special appearance, arguing that there was no nexus between
them, Rex’s allegations, and the forum; that Rex could not establish either specific or
general jurisdiction over them;4 and that Rex’s Texas lawsuit was “pure
gamesmanship” because Rex had also filed a lawsuit against Tate in Michigan on the
same day that it filed the instant lawsuit. They contended that none of Rex’s alleged
injuries occurred in Texas, that the sale did not occur in Texas, and that the asset-
purchase agreement at issue contained a Delaware forum selection clause.
The only witness to testify during the April 27, 2018 special appearance hearing
was Rex Hansen, who had been Rex’s administrative manager and who testified that
Tate had been authorized to negotiate the sale of assets to Pregis and had negotiated
with Bettegowda. Tate lived in Keller, Texas, managed Rex’s sales around the
4
The parties addressed only specific jurisdiction during the special appearance
hearing and in this appeal.
3
country, and traveled to Michigan once a month in 2017 and 2018 but primarily
worked in Texas.
Hansen identified in Plaintiff’s Exhibits 9 and 10 photographs he had taken of
a building that he said was “the Pregis location in Corsicana[,] Texas.” The trial court
admitted the photographs into evidence over Appellees’ objections. Hansen testified
that he was familiar with Pregis’s logo and that the logo on the building was the same
logo of the company that had purchased Rex’s assets. The trial court also admitted
into evidence Plaintiff’s Exhibit 12, a print-out from a Pregis website that announced,
“Pregis Acquires Rex Performance Products.” During cross-examination, Hansen
said that he took the photographs in Plaintiff’s Exhibits 9 and 10 a week before the
hearing but had not been inside that Pregis location and did not know if it was
operational or an empty building. He also admitted that he did not know which legal
entity owned or operated the building and did not dispute that the Pregis entity sued
in the instant lawsuit was formed in February 2018.
With regard to Plaintiff’s Exhibit 11, Rex’s counsel asked Hansen if he was
familiar with how Rex’s email was managed, and Hansen explained that Rex had a
server in Michigan that ran Microsoft Exchange and that “everybody use[d] their
phone and/or Outlook to get and receive emails.” Hansen said that he was familiar
with the January and February 2018 email exchanges between Bettegowda and Tate
that were contained in Plaintiff’s Exhibit 11. The following recitation ensued:
4
Q. Are these emails business records for Rex Performance
Products?
A. They are.
Q. And were these records made and kept in the course of a
regular conducted business activity?
A. They are.
Q. Are these records routinely made and kept in the course of
Rex’s business?
A. Yes, they are.
Q. And were they made at or near the time of the event that they
record?
A. They were.
Q. And were they made by people with knowledge of events, in
particular Don Tate, as it relates to the events depicted there?[5]
5
Under the business records exception to the hearsay rule, a record of an act,
event, condition, opinion, or diagnosis is not excluded if:
(A) the record was made at or near the time by—or from
information transmitted by—someone with knowledge;
(B) the record was kept in the course of a regularly conducted
business activity;
(C) making the record was a regular practice of that activity;
(D) all these conditions are shown by the testimony of the
custodian or another qualified witness, or by an affidavit or unsworn
declaration that complies with Rule 902(10); and
(E) the opponent fails to demonstrate that the source of
information or the method or circumstances of preparation indicate a
lack of trustworthiness. “Business” as used in this paragraph includes
5
Appellees’ counsel then objected to speculation, and the trial court agreed, stating,
“Yeah, how does he know that?” with regard to whether the emails were made at or
near the time of the event they recorded.
Hansen replied that the emails “were sent under Don Tate’s email account,”
that they had time stamps, and that the email system accurately recorded those time
stamps as emails were sent back and forth. The trial court then challenged Hansen’s
knowledge of how the email exchange system accurately recorded time. Hansen
testified that he used the email system, that in the process of going through the server
exchange, an email was given a time and date stamp recorded within the server
exchange, that he had not found there to be errors at any time with the time-and-date-
stamp system, and that the server exchange system accurately recorded the “to and
from” and “CC and BCC.” The trial court sustained Appellees’ objections to
speculation and lack of foundation, stating, “I don’t think he’s qualified to tell how
the time stamp works, how it goes through the server[,] and how it puts a time stamp
on there.”
The trial court also asked how an email was a business record, and Rex’s
counsel replied, “Well, it’s an email that is prepared by the person that’s an employee
every kind of regular organized activity whether conducted for profit or
not.
Tex. R. Evid. 803(6).
6
of the company.” The trial court observed that an email could be, but not necessarily
was, a business record, depending on its content, and sustained Appellees’ objections
to hearsay and relevance.
After the trial court sustained Appellees’ hearsay and relevance objections,
Hansen testified that there were more than fifty emails, that he had reviewed the
emails’ subject matter, and that the emails evidenced a systematic conversation
between Bettegowda and Tate regarding the asset purchase negotiation. Rex also
offered, and the trial court admitted over Appellees’ objection, Plaintiff’s Exhibit 7, a
February 23, 2018 agreement between Tate and Pregis, signed by Bettegowda as
Pregis’s vice president, in which Pregis promised Tate a bonus of $832,041, to be paid
in three equal installments, as long as he remained employed with Pregis by February
22, 2019.
The trial court granted the special appearance.
III. Discussion
A. Plaintiff’s Exhibit 11
In its second issue, Rex argues that the trial court abused its discretion by
excluding Plaintiff’s Exhibit 11 when “[t]he evidence contained in . . . Exhibit 11 was
properly admissible as evidence as a business record.”6 However, Rex does not
6
Rex also argues that the emails contained in Plaintiff’s Exhibit 11 were
admissible as statements against interest made by party opponents, but it did not make
this argument in the trial court. See Tex. R. App. P. 33.1.
7
complain about the trial court’s having sustained Appellees’ relevance objection to
Plaintiff’s Exhibit 11. When an appellee objects to evidence on several independent
grounds and, on appeal, the appellant complains of the exclusion of the evidence on
only one of those grounds, the appellant waives any error by failing to challenge all
possible grounds for the trial court’s ruling that sustained the objection. Idniarti v. Bell
Helicopter Textron, Inc., No. 02-12-00045-CV, 2013 WL 1908291, at *1 (Tex. App.—
Fort Worth May 9, 2013, pet. denied) (mem. op.); In re Blankenship, 392 S.W.3d 249,
259 (Tex. App.—San Antonio 2012, no pet.); see Spa Castle, Inc. v. Miura N. Am., Inc.,
No. 02-16-00024-CV, 2017 WL 817149, at *1 (Tex. App.—Fort Worth Mar. 2, 2017,
no pet.) (per curiam) (mem. op.) (holding that Spa Castle waived error complaining
about exclusion of its evidence “[b]ecause Spa Castle has not challenged any, much
less all, possible grounds supporting the trial court’s rulings sustaining Appellees’
objections”); see also Ex parte L.S., No. 02-18-00096-CV, 2019 WL 622587, at *2 (Tex.
App.—Fort Worth Feb. 14, 2019, no pet.) (mem. op.) (“If an independent ground
fully supports the complained-of ruling, but the appellant assigns no error to that
ground, we must accept the validity of that unchallenged independent ground, and
thus any error in the grounds challenged on appeal is harmless.”); Britton v. Tex. Dep’t
of Criminal Justice, 95 S.W.3d 676, 681 (Tex. App.—Houston [1st Dist.] 2002, no pet.)
(“Generally speaking, an appellant must attack all independent bases or grounds that
fully support a complained-of ruling or judgment.”). Accordingly, we overrule Rex’s
8
second issue without reaching the merits of the hearsay issue. See Tex. R. App. P.
47.1.
B. Special Appearance
In its first issue, Rex argues that the trial court erred by granting the special
appearance because it presented sufficient evidence that the non-Texas-resident
Appellees were joint tortfeasors who knowingly induced, encouraged, and participated
in Tate’s breach of fiduciary duty. Appellees respond that Rex neither alleged nor
established purposeful contacts with the forum, that Texas precedent rejects Rex’s co-
conspirator and joint liability theories of personal jurisdiction, and that Rex failed to
show that the exercise of jurisdiction comports with due process requirements of fair
play and substantial justice.
Whether a court has personal jurisdiction over a defendant is a question of law.
BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). 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. Id. at 795. But when the appellate record includes both
the reporter’s and clerk’s records, these implied findings are not conclusive and may
be challenged for legal and factual sufficiency. Id. Further, when jurisdictional facts
are undisputed, it is a question of law as to whether those facts establish jurisdiction;
the reviewing court “need not consider any implied findings of fact” and will consider
9
only the legal question of whether the undisputed facts establish Texas jurisdiction.
Old Republic Nat’l Title Ins. Co. v. Bell, 549 S.W.3d 550, 558 (Tex. 2018).
Texas courts may exercise personal jurisdiction over a nonresident if “(1) the
Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of
jurisdiction is consistent with federal and state constitutional due-process guarantees.”
Moncrief Oil Int’l Inc. v. OAO Gazprom, 414 S.W.3d 142, 149 (Tex. 2013) (quoting Moki
Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007)); see also Tex. Civ. Prac.
& Rem. Code Ann. § 17.042. The plaintiff bears the initial burden of pleading
allegations sufficient to permit a court’s exercise of personal jurisdiction over the
nonresident defendant, and once the plaintiff meets this burden, the defendant then
assumes the burden to negate all potential bases for personal jurisdiction that exist in
the plaintiff’s pleadings. Searcy v. Parex Res., Inc., 496 S.W.3d 58, 66 (Tex. 2016) (citing
Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 337 (Tex. 2009)). The
defendant can meet this burden to negate jurisdiction by showing that “even if the
plaintiff’s alleged facts are true, the evidence is legally insufficient to establish
jurisdiction” or that “the defendant’s contacts with Texas fall short of purposeful
availment.” Bell, 549 S.W.3d at 559 (quoting Kelly v. Gen. Interior Constr., Inc., 301
S.W.3d 653, 659 (Tex. 2010)). If the defendant presents evidence that effectively
disproves the plaintiff’s allegations, the plaintiff may then provide evidence to prove
its jurisdictional allegations. Kelly, 301 S.W.3d at 659.
10
To establish personal jurisdiction over a nonresident, federal due process
requires that the nonresident have certain minimum contacts with the forum state
“such that the maintenance of the suit does not offend ‘traditional notions of fair play
and substantial justice.’” Bell, 549 S.W.3d at 559 (quoting Int’l Shoe Co. v. State of Wash.,
Office of Unemployment Comp. & Placement, 326 U.S. 310, 316, 66 S. Ct. 154, 158 (1945)).
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’” and thus justifying “‘a conclusion that the
defendant could reasonably anticipate being called into a Texas court.’” Id. (quoting
Retamco, 278 S.W.3d at 338). Only the defendant’s contacts with the forum are
relevant; the contacts relied upon must be purposeful rather than random, fortuitous,
or attenuated; and the defendant must have sought some benefit, advantage, or profit
by availing itself of the jurisdiction. Id. (quoting Moncrief Oil, 414 S.W.3d at 151).
Further, with regard to specific jurisdiction, the cause of action must arise from
the defendant’s contacts with the forum, and we must focus on the relationship
between the forum, the defendant, and the litigation. Id. (citing Moncrief Oil, 414
S.W.3d at 150; Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 795 (Tex.
2005)). When communications between a nonresident and a resident are alleged as
the basis for jurisdiction, we look to the quality and nature of the communications to
establish purposeful availment. Id. at 560 (noting that changes in technology may
render reliance on phone calls obsolete as proof of purposeful availment); see Riverside
11
Exports, Inc. v. B.R. Crane & Equip., LLC, 362 S.W.3d 649, 655 (Tex. App.—Houston
[14th Dist.] 2011, pet. denied) (“Like telephone calls, emails do not necessarily
indicate anything to the recipient about the sender’s location. The physical address
where one may send or retrieve an email is no more fixed to a particular location than
the address where one may send or receive a telephone call.”). This court has already
questioned whether an email can be sent to a particular state when email is not sent to
a designated computer or electronic device located in a particular place. EnerQuest Oil
& Gas, L.L.C. v. Antero Res. Corp., No. 02-18-00178-CV, 2019 WL 1583921, at *7
(Tex. App.—Fort Worth Apr. 11, 2019, pet. filed) (mem. op. on reh’g) (noting that
email is sent into cyberspace, saved onto one or more servers, and retrieved “by the
recipient wherever that person may happen to be at the given time, whether in Texas,
Tennessee, or Tibet”).
Furthermore, a proper minimum contacts analysis must look to the defendant’s
contacts with the forum state itself, not the defendant’s contacts with persons who
reside there. Bell, 549 S.W.3d at 561 (citing Walden v. Fiore, 571 U.S. 277, 285, 134 S.
Ct. 1115, 1122 (2014)). In Bell, the court stated that it would not determine in the
special appearance context whether a transaction was fraudulent because that
determination involved the lawsuit’s merits; instead, the jurisdictional focus was on
the nonresident defendant’s contacts with the forum, including whether the
nonresident defendant had transferred an interest in Texas real property or merely a
fungible good, e.g., money. Id. at 563–64 (holding that the trial court did not err by
12
granting special appearance when nonresident defendant did not purposefully avail
herself of Texas by speaking to her Texas resident co-defendant by phone on a weekly
basis, by holding a lien on three Texas vehicles, and by sending transfers of money to
the Texas resident).
Rex argues that the trial court had specific personal jurisdiction over Appellees
because it made a prima facie showing that they committed a tort in Texas. Rex
alleged conspiracy and breach of a fiduciary duty. See Miles v. Barton, No. 01-16-
00288-CV, 2017 WL 711745, at *6 n.8 (Tex. App.—Houston [1st Dist.] Feb. 23,
2017, no pet.) (mem. op.) (focusing on minimum contacts for tortious interference
with contract when same alleged underlying conduct gave rise to claim for breach of
fiduciary duty). However, the mere existence of a cause of action against a defendant
is not enough; the plaintiff is required to plead—and when challenged by the
defendant, present evidence—that the defendant’s relevant acts connected to the
plaintiff’s claims occurred, at least in part, in Texas. See id. at *6 (citing Kelly, 301
S.W.3d at 660–61). And the supreme court has declined to recognize the assertion of
personal jurisdiction over a nonresident defendant based solely on the effects or
consequences of an alleged conspiracy with a resident in the forum state. Nat’l Indus.
Sand Ass’n v. Gibson, 897 S.W.2d 769, 773 (Tex. 1995) (orig. proceeding);7 see also Bell,
7
In Gibson, the court restricted its inquiry to whether National Industrial Sand
Association (NISA) “itself purposefully established minimum contacts such as would
satisfy due process” and concluded that it had not, under either specific or general
jurisdiction theories, when the undisputed evidence showed that NISA was not and
13
549 S.W.3d at 560 (“The mere existence or allegation of a conspiracy directed at
Texas is not sufficient to confer jurisdiction.”).
Rex’s pleadings alleged that after the collapse of the initial negotiations between
Rex, a Michigan LLC, and Pregis, a Delaware LLC with its principal place of business
in Illinois, Pregis directly approached Tate, a Texas resident and Rex’s president and
CEO, and in January 2018, Tate flew to Chicago to meet with Pregis personnel. Rex
alleged that Tate then secretly negotiated the “super bonus” side deal via email in
January 2018 with Bettegowda, a Connecticut resident who acted on behalf of Pregis.
Hansen’s affidavit, attached to Rex’s petition, attempted to sponsor eleven pages of
emails, many of which were duplicated in Plaintiff’s Exhibit 11, which the trial court
did not admit into evidence at the hearing.8 In his affidavit, Hansen stated that Tate
never had been a Texas resident; was not required to and had never maintained a
registered agent for service in Texas; did not maintain and had never maintained a
place of business in Texas; did not have and had never had any employees or agents in
Texas; had never maintained an office, mailing address, or phone number in Texas;
had never owned any assets in Texas or paid any taxes in Texas; had never maintained
a bank account in Texas; had never owned, leased, rented, or controlled any real or
personal property in Texas; had never purchased any tangible items or other personal
property in Texas or from a Texas business, citizen, or resident; had never entered
into a contract with any Texas business, citizen, or resident; had never held a board of
directors, officers, or other official meeting in Texas; and NISA’s only contacts with
Texas were limited to various correspondence with a Texas defendant that failed to
demonstrate sufficient contact with the state for personal jurisdiction. 897 S.W.2d at
772–73, 776.
Unduplicated emails attached to Rex’s original petition include a January 15,
8
2018 exchange between Hansen and Tate regarding ownership shares of Rex and a
January 21, 2018 exchange about the super bonus between Tate and another Rex
employee, using the Rex email system.
14
had total control over negotiating the asset purchase agreement. Hansen
acknowledged on cross-examination that the Pregis entity that Rex had sued was not
formed until February 2018.
Nothing in the record reflects that Bettegowda’s alleged January 2018
communications with Tate did anything to purposefully avail Bettegowda—or the
entity he represented before Pregis was formed—of Texas as a forum, that Appellees’
acts caused Rex, a Michigan LLC, to suffer harm in Texas, or that Appellees had any
contacts with Texas that would have given rise to the causes of action here. See
Gibson, 897 S.W.2d at 771–73, 776. To the contrary, per Hansen’s testimony, the
Pregis entity that Rex sued did not exist during most of Bettegowda’s negotiations
with Tate, and although Rex offered and the trial court admitted into evidence two
photographs of a Pregis location in Corsicana, Hansen admitted that he took the
photos a week before the April 27, 2018 hearing and that he lacked any personal
knowledge of what legal entity owned or operated the facility.9 None of the
undisputed facts establish specific jurisdiction in Texas, and the trial court’s implied
findings likewise support the order granting the special appearance. See BMC, 83
S.W.3d at 794–95; see also Bell, 549 S.W.3d at 558. Accordingly, because the record
does not reflect that Appellees had sufficient minimum contacts with Texas for the
9
During the hearing, the trial judge stated, “I’m actually pretty shocked that
[Rex’s counsel] would put on evidence that that’s the Pregis, and he doesn’t even
know. I mean, that’s a little disingenuous, I think to the Court, other than - - I mean,
you ought to do a little research before you put that on.”
15
trial court to exercise personal jurisdiction over them, the trial court did not err by
granting the special appearance, and we overrule Rex’s first issue.
IV. Conclusion
Having overruled both of Rex’s issues, we affirm the trial court’s order.
/s/ Ruben Gonzalez
Ruben Gonzalez
Visiting Judge
Delivered: August 22, 2019
16