Cornerstone Healthcare Group Holding, Inc v. Reliant Hospital Partners LLC, Nautic Partners LLC , 2014 Tex. App. LEXIS 6124 ( 2014 )

Affirmed and Opinion Filed June 5, 2014
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-11-01730-CV
CORNERSTONE HEALTHCARE GROUP HOLDING, INC, Appellant
V.
RELIANT SPLITTER, L.P., NAUTIC PARTNERS VI, L.P., AND KENNEDY PLAZA
PARTNERS VI, L.P., Appellees
On Appeal from the 68th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 11-04339
MEMORANDUM OPINION
Before Justices Bridges, Lang, and Lewis
Opinion by Justice Bridges
Cornerstone Healthcare Group Holding, Inc. appeals the trial court’s orders granting the
special appearances of Reliant Splitter, L.P., Nautic Partners VI, L.P., and Kennedy Plaza
Partners VI, L.P.. In three issues, Cornerstone argues appellees purposely availed themselves of
Texas jurisdiction, there is a substantial connection between appellees’ contacts with Texas and
the operative facts of the litigation, and exercising jurisdiction over appellees would not offend
traditional notions of fair play and substantial justice. We affirm the trial court’s orders.
Cornerstone is a “provider of post acute care hospital services.” Since 2007, Cornerstone
was interested in growth opportunities, including the acquisition of inpatient and outpatient
rehabilitation facilities. Cornerstone’s executive management team was responsible for seeking
and evaluating prospective business relationships with inpatient rehabilitation hospitals. In late
March 2011, several Cornerstone executives resigned in succession.
On March 23, 2011, New Reliant, a Delaware limited liability company with its principal
place of business in Texas, acquired substantially all of the assets of “Old Reliant,” an operator
of inpatient rehabilitation hospitals in Texas. In April 2011, Cornerstone filed suit against New
Reliant and other defendants alleging three of Cornerstone’s executives had usurped a corporate
opportunity from Cornerstone. Specifically, Cornerstone alleged the executives had failed to
inform Cornerstone of a potential opportunity to acquire Old Reliant and worked with Nautic
Partners, LLC1, a Rhode Island private equity firm, in acquiring Old Reliant. Cornerstone
subsequently amended its petition to include claims against appellees.
Appellees filed a special appearance asserting the trial court lacked jurisdiction over them
because they are partnerships formed and existing under Delaware law with their principal place
of business in Rhode Island. Appellees further argued, among other things, they do not
continuously and systematically engage in business in Texas; have not appointed a registered
agent for service of process in Texas; have not obtained a certificate to do business in Texas; and
have no offices, real or personal property, address, telephone number, or bank account in Texas.
Appellees stated they are not direct owners of New Reliant. Instead, appellees entered
into a limited liability company agreement with Reliant Holding Company, L.L.C., a Delaware
limited liability company. Reliant Holding Company owns one hundred percent of Reliant
Pledgor, L.L.C., a Delaware limited liability company. Reliant Pledgor owns one hundred
percent of Reliant Opco Holding Corporation, a Delaware corporation. Reliant Pledgor owns
99.9% of New Reliant, and Reliant Opco owns 0.01%. Thus, appellees argued, they are
Delaware partnerships with their principal place of business in Rhode Island, and their
1
The record indicates Nautic Partners filed a general appearance in this case.
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investment in New Reliant is “an indirect, passive investment via subsidiaries of Reliant Holding
Company, a limited liability company formed under the laws of Delaware.” The trial court
subsequently entered orders granting appellees’ special appearances. This appeal followed.
In its first issue, Cornerstone argues appellees purposely availed themselves of Texas
jurisdiction. In its second issue, Cornerstone argues there is a substantial connection between
appellees’ contacts with Texas and the operative facts of the litigation. And in its third issue,
Cornerstone argues exercising jurisdiction over appellees would not offend traditional notions of
fair play and substantial justice.
The plaintiff bears the initial burden of pleading sufficient allegations to bring a
nonresident defendant within the provision of the Texas long-arm statute. BMC Software Belg.,
N.V. v. Marchand, 83 S.W.3d 789, 793 (Tex. 2002). A nonresident defendant challenging
personal jurisdiction through a special appearance carries the burden of negating all bases of
personal jurisdiction. Id. Whether a court has personal jurisdiction over a defendant is a
question of law. Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 805-806
(Tex.2002) (citing BMC Software, 83 S.W.3d at 794). In resolving this question of law, a trial
court must frequently resolve questions of fact. Coleman, 83 S.W.3d at 806 (citing BMC
Software, 83 S.W.3d at 794). Appellate courts review the trial court’s factual findings for legal
sufficiency and review the trial court’s legal conclusions de novo. BMC Software, 83 S.W.3d at
794. Where the record contains no findings of fact and conclusions of law, we must imply all
findings of fact necessary to support the trial court's findings that are supported by the evidence.
Id. at 795.
The Texas long-arm statute permits Texas courts to exercise jurisdiction over a
nonresident defendant that does business in Texas. See TEX. CIV. PRAC. & REM. CODE ANN. §§
17.041 -.045 (West 2013). The long-arm statute defines “doing business” as: (1) contracting by
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mail or otherwise with a Texas resident with performance either in whole or in part in Texas; (2)
commission of a tort in whole or in part in Texas; (3) recruitment of Texas residents directly or
through an intermediary located in Texas; or (4) performance of any other act that may constitute
doing business. Id. The broad language of the long-arm statute permits Texas courts to exercise
jurisdiction “as far as the federal constitutional requirements of due process will permit.” BMC
Software, 83 S.W.3d at 795.
Personal jurisdiction over nonresident defendants meets the due process requirements of
the Constitution when two conditions are met: (1) the defendant has established minimum
contacts with the forum state; and (2) the exercise of jurisdiction comports with traditional
notions of fair play and substantial justice. Spir Star AG v. Kimich, 310 S.W.3d 868, 872 (Tex.
2010); BMC Software, 83 S.W.3d at 795 (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945)). Personal jurisdiction exists if the nonresident defendant's minimum contacts give rise to
either general or specific jurisdiction. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466
U.S. 408, 413-14 (1984); BMC Software, 83 S.W.3d at 795-96; Schlobohm v. Schapiro, 784
S.W.2d 355, 357 (Tex. 1990). Specific jurisdiction is established if the nonresident defendant’s
alleged liability arises from or is related to activity conducted within the forum. BMC Software,
83 S.W.3d at 796. The minimum contacts analysis for specific jurisdiction focuses on the
relationship among the defendant, the forum, and the litigation. Spir Star, 310 S.W.3d at 873;
Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 790 (Tex.2005).
The “touchstone” of jurisdictional due process analysis is “purposeful availment.”
Michiana, 168 S.W.3d at 784 (citing Hanson v. Denckla, 357 U.S. 235, 253 (1958)). “[I]t is
essential in each case that there be some act by which the defendant ‘purposefully avails' itself of
the privilege of conducting activities within the forum State, thus invoking the benefits and
protections of its laws.” Michiana, 168 S.W.3d at 784 (quoting Hanson, 357 U.S. at 253). The
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Texas Supreme Court has addressed the proper application of the concept of “purposeful
availment” outlining three important aspects to be considered. First, it is only the defendant's
contacts with the forum that count: purposeful availment “ensures that a defendant will not be
haled into a jurisdiction solely as a result of ... the ‘unilateral activity of another party or a third
person.’” Michiana, 168 S.W.3d at 785 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462,
475 (1985)). Second, the acts relied upon must be “purposeful” rather than “random, isolated or
fortuitous.” Michiana, 168 S.W.3d at 785 (quoting Keeton v. Hustler Magazine Inc., 465 U.S.
770, 774 (1984)). Third, a defendant must seek some benefit, advantage or profit by “availing”
itself of the jurisdiction. By invoking the benefit and protections of a forum's laws, a nonresident
consents to suit there. Michiana, 168 S.W.3d at 785 (citing World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297 (1980)).
Finally, in addition to minimum contacts, the exercise of personal jurisdiction must
comport with traditional notions of fair play and substantial justice. Spir Star, 310 S.W.3d at
872; BMC Software, 83 S.W.3d at 795. The following factors are considered in making that
determination: (1) the burden on the nonresident defendant; (2) the forum state's interest in
adjudicating the dispute; (3) the plaintiff's interest in obtaining convenient and effective relief;
(4) the interstate judicial system's interest in obtaining the most efficient resolution of
controversies; and (5) the shared interest of the several states in furthering substantive social
policies. World-Wide Volkswagen, 444 U.S. at 292; Guardian Royal Exchange Assur., Ltd. v.
English China Clays, 815 S.W.2d 223, 231 (Tex. 1991).
In general, a corporation is a separate legal entity that shields its owners and shareholders
from the jurisdiction of a foreign jurisdiction, even if the corporation itself is within the court’s
jurisdiction. Cappuccitti v. Gulf. Indus. Prods., Inc., 222 S.W.3d 468, 481 (Tex. App.—Houston
[1st Dist.] 2007, no pet.). A court may, however, under appropriate circumstances, pierce the
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corporate veil and bring shareholders or others within its jurisdiction as well. Id. (citing BMC
Software, 83 S.W.3d at 798). One basis for piercing the corporate veil is the alter ego doctrine,
which applies when there is such unity between a corporation and an individual that the
separateness of the corporation has ceased and asserting jurisdiction over only the corporation
would result in an injustice. Id.
The alter ego doctrine has also been applied in the context of a parent corporation and its
subsidiary. Id. (citing BMC Software, 83 S.W.3d at 799). Texas courts may exercise personal
jurisdiction over a nonresident parent corporation if the parent’s relationship with its subsidiary
that does business in Texas is one that would allow the court to impute the subsidiary’s “doing
business” to the parent. Id. Because Texas law presumes that two separate corporations are
distinct entities and that a corporation is an entity separate from its officers and owners, the party
seeking to ascribe one corporation’s actions to another corporation or individual for jurisdictional
purposes by piercing the corporate veil must prove the alter ego relationship. Id. (citing BMC
Software, 83 S.W.3d at 798). To join the parent company and its subsidiary for jurisdictional
purposes, the plaintiff must prove that the parent controls the internal business operations and
affairs of the subsidiary. Id. (citing BMC Software, 83 S.W.3d at 799). The degree of control
exercised by the parent must be greater than that normally associated with common ownership
and directorship. Id. (citing BMC Software, 83 S.W.3d at 799). Thus, the plaintiff must present
evidence showing that the two entities are not separate and the corporate veil, therefore, should
be pierced to prevent fraud or injustice. Id. (citing BMC Software, 83 S.W.3d at 799).
Cornerstone argues that, in Schlobohm v. Schapiro, the Texas Supreme Court held “that a
nonresident who funds a Texas company, controls its board, and is actively involved in its affairs
has established minimum contacts with the state.” See Schlobohm, 784 S.W.2d at 359.
Cornerstone argues appellees have sufficient minimum contacts to require them to appear in a
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Texas Court because appellees entered into a limited liability company agreement with Reliant
Holding, which owns one hundred percent of Reliant Pledgor, which owns one hundred percent
of Reliant Opco and Reliant Pledgor and Reliant Opco own 99.9% and 0.01%, respectively, of
New Reliant, which purchased the hospitals at issue. Cornerstone argues further that appellees
“paid for the hospitals at issue here, structured a chain of wholly owned subsidiaries to hold
them, controlled the boards of each, and shortly after the purchase fired the executives who ran
them.”2 In making these arguments, Cornerstone emphasizes that appellees paid 97% of the
money to buy the hospitals and “held 100% of the stock of every entity” involved in the purchase
of the hospitals. Cornerstone essentially argues the existence of the subsidiaries should be
ignored, and appellees should be required to appear in a Texas court because they “control the
funding and the board of New Reliant” and “play a strategic and advisory role” to New Reliant.
We disagree.
In Schlobohm, a Pennsylvania resident, Rolf Schapiro, invested $10,000 in a corporation
named Hangers, Inc. formed by Schapiro’s son, a Dallas resident, to establish a dry cleaning
business in Dallas. Schlobohm, 784 S.W.2d at 356. Schapiro received stock in Hangers and
became its sole director. Although Schapiro did not participate in the incorporation, he
conducted Hangers’ first meeting in Dallas, and his attorney in Pittsburgh kept the corporate
records. Hangers leased space for some of its outlets, and Schapiro guaranteed some of the
leases. Hangers leased a building from Schlobohm in late 1984, but Schapiro did not participate
in the negotiations and did not guarantee the lease. Id. Schapiro loaned Hangers $30,000 of his
personal funds to buy equipment to expand the business. Id. He later visited Dallas and
obtained financing for the rest of the plant, signing a promissory note in his individual capacity
for $136,702.10. Id. Schapiro owned the equipment and leased it to Hangers. Id. Schapiro
2
Plaintiff cites nothing in the record to show appellees acted directly in connection with the hiring and firing of any “executives.”
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“frequently provided funds during startup, expansion, and throughout Hangers’ decline.” Id.
Schapiro “continually” covered Hangers’ payroll and other expenses, and these sums,
characterized as loans, totaled an estimated $474,000. Id. Over the course of his dealings with
Hangers, Schapiro demanded that all shares in the corporation be transferred to him, sent his
personal accountant to Dallas twice, and came to Dallas himself to investigate Hangers. Id.
Schapiro ultimately discontinued his relationship with Hangers, and Hangers stopped paying rent
on the building it leased from Schlobohm. Id.
Schlobohm sued Schapiro, his son, and Hangers for non-payment of the rent, and
Schapiro made a special appearance. The trial court sustained Schapiro’s challenge to
jurisdiction, and this Court affirmed. In concluding the exercise of jurisdiction over Schapiro
was proper, the Texas Supreme Court first determined Schapiro’s activity in Texas was
continuing and systematic. Second, the court considered the fact that Schapiro “became actively
involved in a Texas business and voluntarily continued his commitment for almost two years”
and determined Schapiro therefore purposely availed himself of the benefits of Texas. Finally,
having determined Schapiro had minimum contacts with Texas, the court held the exercise of
jurisdiction over Schapiro did not offend traditional notions of fair play and substantial justice
because Schapiro’s activity in Texas justified the conclusion that he should expect to be called
into a Texas court. Id.
Cornerstone further relies on the Texas Supreme Court’s opinion in Spir Star AG v.
Kimich for its argument “that a nonresident who intentionally targets the Texas market and gains
substantial profits from doing so cannot avoid personal jurisdiction merely by conducting its
Texas business through a subsidiary.” See Spir Star, 310 S.W.3d at 875. Spir Star is a products
liability case in which Spir Star, a German corporation, established a Texas distributorship which
used the trademarked “Spir Star” name and acted as Spir Star’s exclusive distributor in Texas
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and North America. Id. at 871. The court noted a seller’s awareness “that the stream of
commerce may or will sweep the product into the forum State does not convert the mere act of
placing the product into the stream into an act purposefully directed toward the forum State.” Id.
at 873 (citing CSR Ltd.v. Link, 925 S.W.2d 591, 595 (Tex. 1996) (quoting Asahi Metal Indus.
Co., Ltd. v. Superior Court of Cal., 480 U.S. 102, 112 (1987) (plurality op.))). Instead, citing
Asahi, the court set out the additional requirement of some “additional conduct” – beyond merely
placing the product in the stream of commerce – that indicates “an intent or purpose to serve the
market in the forum State.” Id. (citing Asahi, 480 U.S. at 112). Examples of this additional
conduct include: (1) designing the product for the market in the forum State, (2) advertising in
the forum State, (3) establishing channels for providing regular advice to customers in the forum
State, and (4) marketing the product through a distributor who has agreed to serve as the sales
agent in the forum State. Id. (citing Asahi, 480 U.S. at 112). The court concluded Spir Star did
not merely set its products afloat in a stream of commerce that happened to carry them to Texas
but marketed its product through a distributor who has agreed to serve as its sales agent in Texas.
Id. at 880 (citing Asahi, 480 U.S. at 112). Further, Spir Star’s potential liability arose out of its
contacts with Texas, and exercising personal jurisdiction over Spir Star did not offend traditional
notions of fair play and substantial justice. Id.
We find neither Schlobohm nor Spir Star dispositive of this case. In Schlobohm,
Schapiro took an active role in Hangers, investing nearly half a million dollars of his personal
funds and repeatedly coming to Texas to take part in Hangers’ business affairs. Among other
things, Schapiro came to Dallas and obtained financing for Hangers’ plant, signing a promissory
note in his individual capacity for $136,702.10; personally guaranteed some of Hangers’ leases
in Texas; and demanded that all shares in the corporation be transferred to him. Spir Star was a
products liability case in which a German manufacturer established a Texas distributorship
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which used the trademarked “Spir Star” name and acted as Spir Star’s exclusive distributor in
Texas and North America. Moreover, Spir Star marketed its product through a distributor who
agreed to serve as its sales agent in Texas.
In contrast, appellees’ took no direct action in Texas and did not market any product in
Texas. Instead, appellees invested in New Reliant through subsidiaries. The record in this case
does not show that appellees control the internal business operations and affairs of the
subsidiaries at issue or that the degree of control exercised by appellees is greater than that
normally associated with common ownership and directorship. See BMC Software, 83 S.W.3d at
799; Cappuccitti, 222 S.W.3d at 481. Cornerstone has not established that appellees and the
subsidiaries at issue are “not separate.” See BMC Software, 83 S.W.3d at 799; Cappuccitti, 222
S.W.3d at 481. Under the facts and circumstances of this case, we cannot conclude the trial
court erred in granting appellees’ special appearances. We overrule Cornerstone’s issues.
We affirm the trial court’s orders.
/David L. Bridges/
111730F.P05 DAVID L. BRIDGES
JUSTICE
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
CORNERSTONE HEALTHCARE GROUP On Appeal from the 68th Judicial District
HOLDING, INC, Appellant Court, Dallas County, Texas
Trial Court Cause No. 11-04339.
No. 05-11-01730-CV V. Opinion delivered by Justice Bridges.
Justices Lang and Lewis participating.
RELIANT SPLITTER, L.P., NAUTIC
PARTNERS VI, L.P., AND KENNEDY
PLAZA PARTNERS VI, L.P., Appellees
In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.
It is ORDERED that appellee RELIANT SPLITTER, L.P., NAUTIC PARTNERS VI,
L.P., AND KENNEDY PLAZA PARTNERS VI, L.P. recover their costs of this appeal from
appellant CORNERSTONE HEALTHCARE GROUP HOLDING, INC.
Judgment entered June 5, 2014
/David L. Bridges/
DAVID L. BRIDGES
JUSTICE
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