Troy Brown v. Curtis Pennington ( 2015 )

REVERSE and RENDER; and Opinion Filed June 30, 2015.
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-14-01349-CV
TROY BROWN, Appellant
V.
CURTIS PENNINGTON, Appellee
On Appeal from the 162nd Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-13-12400
MEMORANDUM OPINION
Before Justices Fillmore, Stoddart, and Whitehill
Opinion by Justice Fillmore
John Fields, Kyle Phillips, and Advantage Marking and Labeling, Inc. (Advantage) sued
Curtis Pennington, seeking declaratory relief from the trial court. Pennington, individually and
derivatively on behalf of Advantage, filed counterclaims against Fields and Phillips and third-
party claims against Troy Brown, Michael Collins, and the Collins Law Group. Brown filed a
special appearance asserting the trial court did not have personal jurisdiction over him. The trial
court denied the special appearance.
Brown brought this interlocutory appeal, challenging the sufficiency of the evidence to
support certain of the trial court’s findings of fact and arguing the trial court erred by denying the
special appearance. We reverse the trial court’s order denying the special appearance and render
judgment dismissing Pennington’s claim against Brown for want of personal jurisdiction.
Background 1
Fields, Phillips, and Pennington are equal shareholders of Advantage, a corporation with
business operations in Texas. Each of them served on Advantage’s board of directors, and
Pennington was the company president. According to Pennington, Fields and Phillips, “after
banding together and deciding to oust Pennington from his position as a salaried Advantage
officer, employee, and shareholder,” signed a representation agreement with Collins and his law
firm on May 4, 2012, “for the purpose of planning the method and manner by which they would
squeeze [Pennington] out of the company.” On June 27, 2012, Fields and Phillips called a
special meeting of the board of directors and voted to remove Pennington as Advantage’s
president. “Shortly after” June 27, 2012, Collins sent Pennington an email stating Fields and
Philips wanted to cause Pennington’s “separation” from Advantage by buying his stock.
Pennington subsequently sued Fields, Phillips, and Advantage. 2 Advantage asserted
counterclaims in that litigation. At some point, Pennington non-suited his claims. Advantage’s
counterclaims were tried to the bench, and the trial court rendered a final judgment disposing of
those claims.
Advantage had a banking relationship with Bank of America (BOA) and Banc of
America, Leasing & Capital (BOALC), and Pennington had personally guaranteed Advantage’s
obligations to BOA and BOALC. At some point after June 27, 2012, Advantage’s debt was
moved into the “special asset group” at BOA, and Fields began negotiating with BOA and
BOALC about terms under which Advantage’s banking relationship with BOA and BOALC
could be “stabilized.” In late summer 2012, Fields requested that Brown, who is Fields’s
brother-in-law, replace Pennington as a guarantor of Advantage’s obligations to BOA and
1
The facts are taken from the parties’ pleadings and evidence relating to the special appearance.
2
The appellate record does not indicate when this litigation commenced, but reflects it was ongoing during the late summer and fall of
2012.
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BOALC. Brown, who is a resident of North Carolina, agreed to do so. The BOA and BOALC
representatives involved in the negotiations were located in Missouri and Rhode Island.
Fields also explored an alternative financial arrangement for Advantage with Southwest
Bank, which is located in Texas. Brown sent personal financial statements to Southwest Bank
during Fields’s discussions with the bank. Advantage did not enter into an agreement with
Southwest Bank.
Brown signed a Guaranty dated October 19, 2012, in North Carolina. The parties to the
Guaranty are Brown, BOA, and BOALC. The address stated on the agreement for BOA is in
Georgia. Brown was instructed to return the signed Guaranty to the BOA and BOALC
representative in Rhode Island, and the Guaranty states it is governed by the laws of Rhode
Island.
Brown also signed a Consent and Release Agreement (the Agreement) in North Carolina.
The Agreement states it is “by and among” BOA, BOALC, Advantage, Pennington, and Brown.
However, Advantage was not a signatory to the Agreement, and Pennington never signed the
Agreement. The Agreement noted in its “Whereas” preamble clauses that:
Pennington had guaranteed Advantage’s obligations to BOA and BOALC;
Pennington was no longer involved in the management of Advantage in any way
and drew no salary from Advantage, and his ability to receive any distribution as
a shareholder was limited by a corporate resolution that limited such distributions
unless there was a cash reserve equal to two month’s fixed expenses and salaries,
plus the amount of current maturities of Advantage’s debt; 3
Phillips and Fields now control the management of Advantage;
Advantage and Pennington sought BOA’s and BOALC’s consent to the change of
control and Pennington requested to be released from his obligations under his
guarantees; and
3
As noted, the Guaranty is dated October 19, 2012. The Agreement states it was “made” on October 19, 2012. Although the record
reflects Pennington was not actively involved in the management of Advantage on October 19, 2012, the resolution impacting his salary and
shareholder distributions apparently was not passed until December 5, 2012. The facsimile transmission lines on both the Guaranty and the
Agreement are dated February 13, 2013.
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BOA and BOALC were willing to consent to the change of control and to release
Pennington from his obligations provided that Brown unconditionally guaranteed
Advantage’s obligations to BOA and BOALC and Advantage consented to amend
the terms of a lease with BOALC.
Fields and Phillips, although not listed as parties to the Agreement, signed it as guarantors of
Advantage’s obligations to BOA and BOALC, acknowledging and consenting to the terms of the
Agreement and ratifying and affirming their continuing guaranties of Advantage’s obligations to
BOA and BOALC.
On October 14, 2013, Fields, Phillips, and Advantage filed this litigation alleging that,
only days after non-suiting his claims in the previous litigation, Pennington sent a “Statutory
Notice” to Advantage demanding that it take action against Fields, Phillips, Collins, and the
Collins Law Firm and threatening that, if Advantage did not take the requested action,
Pennington would do so. Fields, Phillips, and Advantage requested declaratory relief from the
trial court. 4 Pennington answered and, individually and derivatively on behalf of Advantage,
filed counterclaims against Fields and Phillips and third-party claims against Brown, Collins, and
the Collins Law Firm. As relevant to this appeal, Pennington alleged Brown “conspired with
and/or aided and abetted and/or assisted and encouraged Fields and Phillips in committing”
shareholder oppression. Brown filed a special appearance supported by his affidavit in which he
negated contacts with the state of Texas.
Pennington responded to the special appearance and, relying on Brown’s deposition
testimony and exhibits to Brown’s deposition, asserted the trial court had specific jurisdiction
4
Fields, Phillips, and Advantage requested declarations that: (1) Fields and Phillips’s decision to remove Pennington from the office of
president of Advantage did not violate any express agreement or understanding between the shareholders; (2) Pennington is barred by the
doctrine of res judicata from raising any claims related to the decision to remove him from office; (3) in deciding to remove Pennington from the
office of president, Fields and Phillips acted in good faith and reasonably believed they were acting in Advantage’s best interest; (4) when Field
and Phillips removed Pennington from the office of president, Advantage suffered no damages as a result of the alleged decision by BOA to place
Advantage in “special asset service”; (5) Advantage’s indemnification of Fields and Phillips for the claims brought by Pennington was authorized
and appropriate under Advantage’s bylaws and applicable law; and (6) Advantage’s refusal to bring a claim against Collins and his law firm was
a proper and appropriate exercise of business judgment.
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over Brown. Pennington also amended his third-party claim against Brown and alleged, as
jurisdictional facts, 5 that:
• Prior to 2012, Brown visited Advantage and expressed to Fields, at least,
an interest in investing in the company “if it got to another level,” and
delivered that information to Fields in Texas;
• Fields reached out to Brown sometime in the spring of 2012 and sought
Brown’s assistance in causing Pennington’s removal from all aspects of
Advantage, including an ownership interest;
• Brown informed Fields that he was ready, willing, and able to assist Fields
and, by extension Advantage and Phillips, in ensuring Advantage was
restructured in a manner that eliminated Pennington and that involved
Brown substituting for Pennington in connection with the ownership or
operation of Advantage and “in particular, with regard to restructuring and
replacing [Advantage’s] bank debt, in the place and stead of Pennington,
but only if [Pennington] had been removed from the ownership and/or
management, and was no longer receiving any financial benefit or
compensation”;
• Brown knew of the disagreements between Pennington, on the one hand,
and Fields and Phillips, on the other hand;
• Starting in August 2012, if not earlier, Brown engaged in a series of
communications and transactions with Fields, Phillips, Advantage, and
two lending institutions, including one, Southwest Bank, that is located in
Texas and with whom he dealt, directly, in Texas;
• “At all times relevant,” Brown knew that Fields needed him to assist
Fields and Phillips in securing funding for a buyout of Pennington’s stock
and he routinely sent communications to Fields and others in Texas to
facilitate such a transaction;
• Brown directed a request to Fields to send him financial information about
Advantage so that he could deliver the information to a “money guy” and
Fields delivered the information to Brown;
• Brown communicated to Southwest Bank in connection with his effort to
assist Fields in restructuring Advantage and its bank debt in a manner that
involved ousting Pennington;
5
Pennington alleged other jurisdictional facts that do not relate to his claims against Brown, such as the fact Brown was born in Texas. We
recite only the alleged jurisdictional facts that could support specific jurisdiction over Brown.
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• Pennington’s complete separation from Advantage was part of the
inducement for Brown’s agreement to guaranty the debt of a corporation
he had no ownership in and “on information and belief,” Fields and
Phillips promised some or all of Pennington’s Advantage stock as
consideration or partial consideration for the guaranty “and/or various
services or benefits Brown secretly has rendered or provided to Advantage
and/or Fields and Phillips, and/or that he is to provide in the future”;
• “On information and belief,” Brown communicated to Fields that his
agreement to become a guarantor of the Advantage bank debt was
conditioned on Pennington having no role in Advantage’s management
and no ability to receive salary or shareholder distributions; and
• Brown signed a Consent and Release Agreement and a Guaranty to assist
in the restructuring of Advantage’s ownership and bank debt on a basis
where Pennington was removed from all rights to participate in
Advantage’s management or ability to receive a salary or shareholder
distributions and Brown was not only aware of this, but “conditioned his
willingness to sign the aforementioned instrument.”
Brown filed a second affidavit, as well as an affidavit from Fields. Through Brown’s two
affidavits and Fields’s affidavit, Brown denied all the alleged jurisdictional facts that are relevant
in this case. Following a special appearance hearing with no live testimony, the trial court
denied Brown’s special appearance and entered findings of fact and conclusions of law. The trial
court concluded it had jurisdiction over Brown because (1) he contracted with Texas residents
for a specific purpose, (2) the contracts he signed were performable, in whole or in part, in
Texas, and (3) the torts he is accused of committing or participating in all occurred in Texas, via
his conduct directed toward Texas.
Analysis
In one issue, Brown challenges the legal and factual sufficiency of the evidence to
support a number of the trial court’s findings of fact and contends the trial court erred by denying
the special appearance.
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Standard of Review
The trial court’s determination it has personal jurisdiction over a nonresident defendant is
a question of law that we review under a de novo standard. Moki Mac River Expeditions v.
Drugg, 221 S.W.3d 569, 574 (Tex. 2007). When resolving this question of law, the trial court
must frequently resolve questions of fact. Am. Type Culture Collection, Inc. v. Coleman, 83
S.W.3d 801, 805–06 (Tex. 2002). If the trial court issues findings of fact, those findings are
binding upon the appellate court, unless challenged on appeal. Lombardo v. Bhattacharyya, 437
S.W.3d 658, 668 (Tex. App.—Dallas 2014, pet. denied). The appellant may challenge the fact
findings on legal and factual sufficiency grounds. BMC Software Belgium, N.V. v. Marchand, 83
S.W.3d 789, 794 (Tex. 2002). A legal sufficiency challenge to a finding fails if there is more
than a scintilla of evidence to support the finding. Id. at 795. In conducting a factual sufficiency
review, we may set aside the trial court’s finding only if it is so contrary to the overwhelming
weight of the evidence as to be clearly wrong and unjust. Lombardo, 437 S.W.3d at 668.
In a challenge to personal jurisdiction, a plaintiff and defendant bear shifting burdens of
proof. Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex. 2010). The plaintiff has
the initial burden to plead sufficient allegations to invoke jurisdiction under the Texas long-arm
statute. Id. Once the plaintiff has pleaded sufficient jurisdictional allegations, the defendant
bears the burden of negating all alleged bases of jurisdiction alleged by the plaintiff. Id.
“Because the plaintiff defines the scope and nature of the lawsuit, the defendant’s corresponding
burden to negate jurisdiction is tied to the allegations in the plaintiff’s pleading.” Id. The
defendant can negate jurisdiction on either a factual or a legal basis. Id. at 659.
Factually, the defendant can present evidence that it has no contacts with Texas,
effectively disproving the plaintiff’s allegations. The plaintiff can then respond
with its own evidence that affirms its allegations, and it risks dismissal of its
lawsuit if it cannot present the trial court with evidence establishing personal
jurisdiction. Legally, the defendant can show that even if the plaintiff’s alleged
facts are true, the evidence is legally insufficient to establish jurisdiction; the
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defendant’s contacts with Texas fall short of purposeful availment; for specific
jurisdiction, that the claims do not arise from the contacts; or that traditional
notions of fair play and substantial justice are offended by the exercise of
jurisdiction.
Id.
Findings of Fact
In his brief, Brown challenges ten of the trial court’s findings of fact. Pennington
responds that Brown is essentially arguing the trial court was required to accept his version of the
evidence. We address each of Brown’s challenges separately.
Finding of Fact No. 5
Brown first challenges the trial court’s fifth finding of fact:
On August 14, 2012, Brown sent an email to Fields in Texas asking Fields how
his discussions had gone with [BOA]. Brown already had come to learn of a
disagreement between Fields and Phillips, on the one hand, and Pennington, on
the other hand, in the summer of 2012, when Fields told him that he had a
financial issue involving Advantage’s loans at [BOA], and requested a co-
signature from Brown to stabilize its loans, which required stabilization because
of the disputes between Pennington, Fields and Phillips.
Brown contends the evidence established (1) he learned of Fields and Phillips’s issues with
Pennington in August 2012, not earlier in the summer of 2012; (2) Fields told him that Fields had
a financial issue at BOA and needed him to be a guarantor on a loan; (3) at the time of Fields’s
request, he was not told about, nor agreed to take any action because of, the disputes between
Pennington, Fields, and Phillips; and (4) he knew Advantage had been moved into the special
asset group by BOA and needed a guaranty to stabilize its banking relationship. Brown asserts
there is no evidence that Fields told him that stabilization was necessary because of disputes
between Fields and Phillips, on the one hand, and Pennington, on the other hand.
In his affidavits, Brown stated Fields contacted him in late summer or early fall of 2012
and requested that he sign a guaranty to assist Fields in keeping his business solvent. He agreed
to assist “solely out of concern for and to assist my sister and her family.” Fields stated in his
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affidavit that he contacted Brown in the late summer or early fall of 2012 and asked Brown to
sign a guaranty to assist him in keeping his business solvent. We agree with Brown that, to the
extent the trial court’s finding of fact number five implies Brown learned of Advantage’s
financial problems earlier than “late summer” of 2012, there is no evidence to support that
finding.
In his deposition, Brown testified Fields said he had a problem with the bank and “needed
help with giving stability to his loans until he could get it resolved.” Brown testified Fields told
him that Fields needed a co-signer because Advantage had been moved into the special asset
group by BOA. Brown testified he learned about a disagreement between Pennington, on the
one hand, and Fields and Phillips, on the other hand, when Fields asked him to co-sign a note, 6
but he did not know very much about the dispute. We conclude there is sufficient evidence to
support the trial court’s finding that Brown was aware of the dispute between the shareholders in
late summer of 2012 when Fields asked him to guaranty the note. Further, there is evidence the
instability in Advantage’s banking relationship with BOA was due to the dispute. However, to
the extent the trial court’s finding implies that Brown knew the instability was due to the dispute,
there is no evidence to support that finding.
Finding of Fact No. 10
In its tenth finding, the trial court found:
In mid-September of 2012, Brown engaged in email exchanges with Fields and
others, which set forth [BOA’s] proposed terms for renewing an Advantage line
of credit. Those emails proposed, in part, that Brown would replace Pennington
as a guarantor, money owed to Pennington would be subordinate to [BOA] and
[BOA’s] approval of an agreement to purchase Pennington’s ownership in the
business would be required.
6
Brown and Fields used the term “co-sign” as well as the term “guaranty.” However, the record reflects only an intention that Brown sign
a guaranty of Advantage’s obligations.
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Brown contends the evidence showed only that he was copied on the emails and there is no
evidence he “engaged in” the email exchange. Relying on the common meaning of the term,
Pennington responds that “engaged in” can include “to do or take part in something” and/or “to
give attention to something” and, therefore, the evidence supports the trial court’s finding.
Exhibit 1 to Brown’s deposition is an email exchange beginning on September 12, 2012.
In the first email, Fields asked Kenni Hisel, a representative of BOA, whether she had “heard
back from management yet.” Hiesel responded to Fields later that day, setting out the terms
BOA was requesting for the renewal of Advantage’s line of credit. Fields responded to Hisel the
next day, with a copy to Brown, questioning certain of the terms requested by BOA. Hiesel
responded to Fields that she had left a message on his cellphone and was waiting for his call. In
the next email, Fields, with a copy to Brown, thanked Hisel and requested a copy of the adjusted
terms. Hiesel, with a copy to Brown, sent the adjusted terms to Fields.
The evidence supports a finding that Brown was copied on at least some of the
September 2012 emails exchanged between Fields and Hisel. However, there is no evidence that
Brown either initiated any of the emails or was actively involved in the negotiation of terms
under which BOA would renew Advantage’s line of credit. To the extent the trial court’s finding
implied any such conduct by Brown, there is no evidence to support it.
Finding of Fact No. 13
The trial court found in finding of fact number thirteen that:
On September 25, 2012, Fields sent an email to [BOA] and Brown, informing
[BOA’s] Kennie Hisel that Curtis Pennington must be taken off of the to-be-
modified loan, which Brown was to guarantee, in order to get litigation with
Pennington resolved.
Brown complains the email was sent to Hisel, but only copied to Brown.
Exhibit 4 to Brown’s deposition begins with an email from Hisel on September 24, 2012,
attaching loan documents and a cover letter. The recipients of this email are not identified in the
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exhibit. On September 25, 2012, Fields responded to the email, with a copy to Brown, asking
that Hisel call him because it appears Pennington was still listed as a guarantor and, “[i]n order to
get this litigation resolved, he must be taken off as guarantor.” Hisel responded, without copying
Brown, that Fields should read paragraph 4.k of the document. We conclude the evidence
supports the trial court’s finding that the September 25, 2012 email from Fields to Hisel was
sent, albeit as a copy, to Brown.
Finding of Fact No. 14
In its fourteenth finding of fact, the trial court stated:
In late 2012, Brown signed a Consent and Release Agreement and a Guaranty
Agreement with [BOA], Fields, Phillips and Advantage which was later fully
executed in February of 2013.
Brown asserts there is no evidence that Brown signed a guaranty with BOA, Fields, Phillips, and
Advantage or that Brown executed either agreement in late 2012.
In the Guaranty, which is signed only by Brown, Brown “unconditionally guarantee[d]
the full and prompt payment” of Advantage’s obligations to BOA and BOALC. We agree with
Brown that there is no evidence that Fields, Phillips, and Advantage were parties to the
Guaranty. As to the date of the documents, the Guaranty states it was signed and delivered on
October 19, 2012 and the Agreement states is was “made this 19 day of October, 2012.”
Although there is evidence the documents may not have been fully implemented until February
2013, there is evidence to support the trial court’s finding the documents were signed by Brown
in late 2012.
Finding of Fact No. 16
Finding of fact sixteen states:
Per Fields’[s] request, Brown also delivered his personal financial statements and
information to Southwest Bank, in Texas, as part of the assistance he was
providing at the request of Fields, with Advantage Label’s restructuring, in Texas.
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Brown takes issue with this finding, arguing the evidence established only that he sent his
personal financial statements to Southwest Bank, and there is no evidence he sent any other
information or that Southwest Bank was in Texas.
Brown admitted he sent his personal financial statements to Southwest Bank. Brown also
testified during his deposition that he knew one of the bankers at Southwest Bank and that the
banker was located in Texas. We conclude there is no evidence Brown sent any information to
Southwest Bank other than his personal financial statements. However, there is sufficient
evidence to support the trial court’s finding Brown sent his personal financial statements to
Southwest Bank in Texas.
Finding of Fact No. 18
The trial court found, in finding of fact number eighteen, that:
Brown did sign a Consent and Release Agreement and a Guaranty Agreement.
The Consent and Release Agreement signed by [BOA], Brown, Fields, Phillips
and Advantage contains the following recitals: (a) Pennington executed
guarantees of Advantage’s obligations to [BOA]; (b) Pennington is no longer
involved in the management of Advantage in any way and draws no salary from
Advantage, and his ability to receive any distributions as a shareholder is limited
by a corporate resolution; (c) Kyle Phillips and John Fields now control the
management of Advantage; and (d) [BOA] waived Advantage’s defaults caused
by the removal of Pennington from Advantage having received Brown’s
unconditional guaranty in the place and stead of Pennington’s.
Brown argues there is no evidence that Advantage signed the Agreement, Phillips and Fields
signed the Agreement as parties, or the Agreement contained the language in section (d) of the
finding as a recital.
As to the complained-about parts of the trial court’s finding, Phillips and Fields signed
the Agreement, although as guarantors acknowledging and consenting to the terms of the
agreement and reaffirming their continuing guaranties, not as parties. However, although the
Agreement lists Advantage as the “Obligor,” there is no evidence Advantage signed the
Agreement. Further, although BOA agreed in the Agreement to waive any defaults caused by
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Phillips and Fields assuming control of Advantage, there is no evidence that language was
contained in a recital.
Finding of Fact No. 20
Brown next objects to finding of fact number twenty in which the trial court stated,
“Brown knew that what he was being asked to execute was in connection with benefitting Fields,
Phillips and Advantage, in Texas.” Brown argues the evidence established only that he executed
the Agreement and Guaranty to assist Fields with a banking issue.
Brown testified Fields told him that Fields had a banking issue and needed him to sign a
guaranty to help keep Fields’s business solvent. Brown signed the Guaranty to assist his sister
and Fields, but admitted his actions may have also benefitted Advantage and Phillips. We
conclude there is sufficient evidence to support the trial court’s finding.
Finding of Fact No. 27
Finding of fact number twenty-seven states, “Brown knew that Advantage had the
unstable banking relationship with [BOA] in Texas.” Brown asserts there is no evidence that
BOA was in Texas. We agree with Brown that the evidence established the BOA and BOALC
representatives involved in the negotiations with were not located in Texas. However,
Advantage was located in Texas and had an unstable banking relationship with BOA. We
conclude there is sufficient evidence to support the trial court’s finding.
Finding of Fact No. 29
In finding of fact number twenty-nine, the trial court found that “Brown knew Advantage
needed a stable banking relationship in order to continue to successfully run its operations in
Texas.” Brown objects to the finding on the ground there is no evidence he “did” anything in
Texas. We read the “in Texas” part of the trial court’s finding to relate to Advantage’s
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operations, not to Brown’s conduct. We conclude there is sufficient evidence to support the trial
court’s finding.
Finding of Fact No. 30
Brown finally objects to finding of fact number thirty:
Throughout the time period that Brown was directing communications into Texas
for the purpose of assisting in the restructuring of Advantage and its bank debt,
Brown transacted business with Texas residents. Brown purposefully availed
himself of the benefits and privileges of doing and transacting business with a
Texas corporation and a Texas resident, and he intended, purposefully, to direct
his contacts to Texas for the purposes stated in his communications to Texas
residents, and in instruments he executed to assist Advantage, a Texas
corporation, and Texas resident Fields.
Brown argues there is no evidence to support the trial court’s findings that (1) he was directing
communications into Texas for the purpose of assisting in the restructuring of Advantage and its
bank debt, (2) he transacted business with Texas residents, and (3) he “purposefully availed
himself of the benefits and privileges of doing and transacting business with a Texas corporation
and a Texas resident, and he intended, purposefully, to direct his contacts to Texas for the
purposes stated in his communications to Texas residents, and in instruments he executed to
assist Advantage, a Texas corporation, and Texas resident Fields.” As set out in more detail
below, we conclude there is no evidence to support these findings by the trial court.
Personal Jurisdiction
A Texas court may exercise personal jurisdiction over a nonresident defendant if the
Texas long-arm statute authorizes the exercise of jurisdiction and the exercise of jurisdiction is
consistent with federal and state due process guarantees. Moki Mac, 221 S.W.3d at 574. As
relevant to Pennington’s allegations against Brown, the long-arm statute allows the exercise of
personal jurisdiction over a nonresident defendant who (1) contracts by mail or otherwise with a
Texas resident and either party is to perform the contract in whole or in part in Texas, or (2)
commits a tort in whole or in part in Texas. TEX. CIV. PRAC. & REM. CODE ANN. § 17.042 (West
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2015); see also Moki Mac, 221 S.W.3d at 574. The long-arm statute extends personal
jurisdiction “as far as the federal constitutional requirements of due process will allow.” Moki
Mac, 221 S.W.3d at 575 (quoting Guardian Royal Exch. Assurance, Ltd. v. English China Clays,
P.L.C., 815 S.W.2d 223, 226 (Tex. 1991)). Under the constitutional due process analysis,
personal jurisdiction over a nonresident defendant is proper “when the nonresident defendant has
established minimum contacts with the forum state, and the exercise of jurisdiction comports
with ‘traditional notions of fair play and substantial justice.’” Id. (quoting Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)).
A nonresident defendant’s contacts with a forum can give rise to either specific or general
jurisdiction. BMC Software, 83 S.W.3d at 795. Pennington’s asserted basis is specific
jurisdiction. Specific jurisdiction exists when the cause of action arises from or is related to
purposeful activities in the state. Moncreif Oil Intern., Inc. v. OAG Gazprom, 414 S.W.3d 142,
150 (Tex. 2013). Because specific jurisdiction is dispute-specific, we focus on the relationship
among the defendant, the forum, and the litigation. Retamco Operating, Inc. v. Republic Drilling
Co., 278 S.W.3d 333, 338 (Tex. 2009). For a nonresident defendant’s forum contacts to support
an exercise of specific jurisdiction, there must be a substantial connection between those contacts
and the operative facts of the litigation. Moki Mac, 221 S.W.3d. at 585.
Purposeful availment is the touchstone of the jurisdictional due process analysis.
Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 784 (Tex. 2005). Minimum
contacts are sufficient for personal jurisdiction when the nonresident defendant “purposefully
avails itself of the privilege of conducting activities within the forum state, thus invoking the
benefits and protections of its laws.” Hanson v. Denckla, 357 U.S. 235, 253 (1958); see also
Michiana, 168 S.W.3d at 784. There are three parts to a “purposeful availment” inquiry. Moki
Mac, 221 S.W.3d at 575. First, only the defendant’s contacts with the forum are relevant, not the
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unilateral activity of another party or a third person. Id. Second, the contacts relied upon must
be purposeful rather than random, fortuitous, or attenuated. Id. And finally, the “defendant must
seek some benefit, advantage or profit by ‘availing’ itself of the jurisdiction.” Id. (quoting
Michiana, 168 S.W.3d at 785).
The purpose of the minimum contacts analysis is to protect a nonresident defendant from
being haled into court when its relationship with the forum state is too attenuated to support
jurisdiction. Coleman, 83 S.W.3d at 806. “Significant contacts suggest that the defendant has
taken advantage of forum-related benefits, while minor ones imply that the forum itself was
beside the point.” Spir Star AG v Kimich, 310 S.W.3d 868, 872 (Tex. 2010). What is important
is the quality and nature of the defendant’s contacts with the forum state rather than their
number. Retamco, 278 S.W.3d at 339.
Pennington alleged that Brown conspired with and/or aided and abetted, and/or assisted
and encouraged Fields and Phillips in committing shareholder oppression. The alleged operative
facts of Pennington’s claim are that Brown, wanting to invest in Advantage, assisted Fields and
Phillips in removing Pennington as president and director of Advantage, preventing him from
receiving a salary from Advantage, and restricting his right to receive shareholder distributions.
Pennington, by asserting Brown committed a tort in Texas, met his initial burden of alleging
jurisdiction under the Texas long-arm statute. See TEX. CIV. PRAC. & REM. CODE ANN. § 17.042;
Moki Mac, 221 S.W.3d at 574. A state has an interest in exercising judicial jurisdiction over
persons who commit torts within its territory. Moncrief, 414 S.W.3d at 152. However, Texas’s
interest in protecting its citizens against torts is insufficient to automatically exercise personal
jurisdiction based on an allegation that a nonresident directed a tort from outside the forum
against a resident. Id. (citing Michiana, 168 S.W.3d at 790–91). Rather, the nonresident
defendant’s contacts must satisfy the purposeful availment inquiry. Id.
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We turn, therefore, to whether Brown successfully negated each of Pennington’s pleaded
jurisdictional facts. To the extent possible, we have grouped the pleaded jurisdictional facts into
categories.
Pre-June 27, 2012 Acts
Pennington first pleaded Brown visited Advantage’s office, expressed to Fields an
interest in investing in Advantage if it “got to another level,” and delivered this information to
Fields in Texas. Brown stated in his affidavit that he visited Advantage’s office one time,
“several years ago” for social reasons. He testified during his deposition that Advantage had a
new facility, Fields was proud of the facility, and he went to see it. Both Brown and Fields
confirmed in their affidavits that Brown made the comment about investing in Advantage if it
got to another level. According to Brown, both men were in North Carolina when the statement
was made. According to Fields, the men never discussed the issue again.
The trial court noted in its findings of fact that Brown admitted (1) he visited
Advantage’s office one time for social reasons, and (2) made a “passing comment” to Fields that
he might be interested in investing in Advantage if it got to another level. However, there is no
finding by the trial court, and no evidence in the record, that either Brown’s visit to the
Advantage facility or a comment made “several years ago” in North Carolina was connected to
the operative facts of Pennington’s claim against Brown. Therefore, neither of these acts by
Brown support the exercise of specific jurisdiction by the trial court. See Moki Mac, 221 S.W.3d
at 576 (Specific jurisdiction exists “if the defendant’s alleged liability ‘aris[es] out of or [is]
related to’ an activity conducted within the forum.” (quoting Helicopteros Nacionales de
Columbia v. Hall, 466 U.S. 408, 414 n.8 (1984)); Capital Tech. Info. Servs., Inc. v. Arias &
Arias Consultores, 270 S.W.3d 741, 749 (Tex. App.—Dallas 2008, pet. denied) (en banc).
–17–
Pennington also alleged that:
Fields reached out to Brown sometime in the spring of 2012 and sought Brown’s
assistance in causing the termination of [sic] Curtis Pennington’s permanent
removal from all aspects of Advantage, including his ownership interest. Brown
informed Fields, in Texas, that he was ready, willing and able to assist Fields, and
by extension Advantage and Phillips, in ensuring that the Company was
restructured in a manner that eliminated Pennington, and that involved Brown
substituting for Pennington in connection with the ownership or operation of the
Company, and in particular, with regard to restructuring and replacing the
Company’s bank debt, in the place and stead of Pennington, but only if he had
been removed from the ownership and/or management, and was no longer
receiving any financial benefit or compensation.
In his affidavit, Brown specifically denied these allegations. The trial court made no finding of
fact that (1) Fields communicated with Brown in the spring of 2012 about removing Pennington
from his role at Advantage, (2) Brown communicated to Fields his willingness to be involved in
removing Pennington from his role at Advantage, or (3) Brown communicated to Fields that he
would be involved in replacing Pennington on Advantage’s bank debt only if Pennington had
been removed from ownership and/or management and was no longer receiving any financial
benefit or compensation. Further, there is no evidence of such communications in the record.
We conclude Brown successfully negated these alleged jurisdictional facts.
Communications Relating to Advantage’s Debt
Pennington next alleged that Brown’s conduct during the negotiations with BOA,
BOALC, and Southwest Bank over Advantage’s debt supports the trial court’s exercise of
specific jurisdiction over Brown. Pennington specifically alleged that Brown knew of the
disagreements between Pennington, on the one hand, and Fields and Phillips, on the other hand;
starting in August 2012, if not earlier, Brown engaged in a series of communications and
transactions with Fields, Phillips, Advantage, and two lending institutions, including one,
Southwest Bank, that is located in Texas and with whom he dealt, directly, in Texas; “at all times
relevant,” Brown knew Fields needed him to assist Fields and Phillips in securing funding for a
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buyout of Pennington’s stock and he routinely sent communications to Fields and others in Texas
to facilitate such a transaction; Brown directed a request to Fields to send him financial
information about Advantage so that he could deliver the information to a “money guy” and
Fields delivered the information to Brown; and Brown communicated to Southwest Bank in
connection with his effort to assist Fields in restructuring Advantage and its bank debt in a
manner that involved ousting Pennington.
We turn first to Pennington’s allegation that Brown knew of the disagreements between
Pennington, on the one hand, and Fields and Phillips, on the other hand. In our discussion of the
trial court’s finding of fact number five, we concluded the evidence supports a finding that
Brown was aware of the dispute between the shareholders in the late summer when Fields asked
him to co-sign the note with BOA and BOALC. Brown, however, learned of the dispute from
Fields. A communication from a Texas resident to a nonresident defendant is insufficient to
support jurisdiction over the nonresident defendant. Moncreif, 414 S.W.3d at 152 (“[T]he
unilateral activity of another person cannot create jurisdiction.”); Michiana, 168 S.W.3d at 786–
87 (telephone call from Texas resident to nonresident defendant that led to sale of product
insufficient to constitute purposeful availment by nonresident defendant).
We next turn to Pennington’s allegation that Brown engaged in a series of
communications and transactions with Fields, Phillips, Advantage, BOA, BOALC and
Southwest Bank. In the summer and fall of 2012, there were a number of emails pertaining to
Fields’s attempts to stabilize Advantage’s banking relationship. We first disregard any emails
sent or copied to Brown because these communications will not support jurisdiction over Brown
in Texas. See Moncrief, 414 S.W.3d at 152; Michiana, 168 S.W.3d at 786–87. As to
communications initiated by Brown, on August 14, 2012, Brown sent Fields an email asking
about the status of the negotiations with BOA. At some point, Brown sent his personal financial
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statements to Southwest Bank. On August 31, 2012, Brown sent an email to Fields, in response
to an email from Fields titled “Buyout” that included financial information relating to
Advantage, asking if he could forward the information to a “money guy.” 7 On September 4,
2012, Fields asked if Brown had forwarded the information, and Brown responded that he had
done so. Brown did not direct any emails to BOA or BOALC in Texas.
Brown did not physically enter Texas in August and September of 2012. Further, he did
not communicate with either BOA or BOALC in Texas. Rather, his communications were
through emails with Fields regarding the status of negotiations relating to Advantage’s financial
issues. These communications do not constitute a contact demonstrating purposeful availment.
See Olympia Capital Assocs., L.P. v. Jackson, 247 S.W.3d 399, 416–17 (Tex. App.—Dallas
2008, no pet.) (communications through telephone and email regrading negotiation and
performance of contract between Texas plaintiffs and nonresident defendant were not contacts of
nonresident defendant with Texas); KC Smash 01, LLC v Gerdes, Hendrichson, Ltd., L.L.P., 384
S.W.3d 389, 393 (Tex. App.—Dallas 2012, no pet.) (rejecting telephone calls and emails as
evidence of purposeful availment). To the extent Brown’s communications with Fields by email
relate to the operative facts of Pennington’s claim, they are insufficient to support the trial
court’s exercise of jurisdiction over Brown.
Guaranty and Consent and Release Agreement
Pennington’s remaining jurisdictional allegations are based on Brown’s signing the
Guaranty and the Agreement, and his reasons for signing the documents. Pennington
specifically alleged that (1) Pennington’s complete separation from Advantage was part of the
inducement for Brown’s agreement to guaranty the debt of a corporation in which he had no
7
Pennington alleged that Brown directed Advantage’s financial information be sent to him. Brown denied this allegation and there is no
evidence in the record that Brown requested the information from Fields or Advantage.
–20–
ownership; (2) “on information and belief,” Fields and Phillips promised Brown some or all of
Pennington’s stock as consideration for the Guaranty or other services Brown had, or would,
provide to Advantage; (3) “on information and belief,” Brown communicated to Fields that his
agreement to become a guarantor of the Advantage bank debt was conditioned on Pennington
having no role in Advantage’s management and no ability to receive salary or shareholder
distributions; and (4) Brown signed the Agreement and the Guaranty to assist in the restructuring
of Advantage’s ownership and bank debt on a basis where Pennington was removed from all
rights to participate in Advantage’s management or ability to receive a salary or shareholder
distributions and was not only aware of this, but “conditioned his willingness to sign the
aforementioned instrument.” Brown denied all these jurisdictional allegations.
As to the second allegation, the trial court found Brown was not promised any or all of
Pennington’s stock as consideration or partial consideration for signing the Guaranty. The trial
court made no findings pertaining to the first, third, and fifth allegations, and there is no evidence
in the record that Pennington’s complete separation from Advantage was part of the inducement
for Brown to guaranty the debt or that Brown communicated to Fields that (1) his agreement to
become a guarantor of Advantage’s bank debt was conditioned on Pennington having no role in
Advantage’s management and no ability to receive a salary or shareholder distributions, or (2) he
conditioned his willingness to sign the Guaranty and the Agreement on Pennington having no
role in Advantage’s management and no ability to receive a salary or shareholder distributions.
Rather, the evidence established that Fields asked Brown to be a guarantor of Advantage’s bank
debt, and Brown agreed to do without any conditions.
We finally turn to Pennington’s fourth allegation that Brown executed the Guaranty and
the Agreement to aid in the restructuring of Advantage’s ownership and bank debt on a basis
where Pennington was removed from all right to participate in Advantage’s management or
–21–
ability to receive a salary or shareholder distributions. The evidence established that, in late
summer 2012, Fields contacted Brown, told him Advantage had been moved into the special
asset group by BOA, and requested he guaranty a note to stabilize Advantage’s banking
relationship. Brown agreed to do so to help his sister and his brother-in-law and ultimately
signed both the Guaranty and the Agreement. In a “whereas” preamble clause, the Agreement
acknowledged Pennington was no longer in control of Advantage and that a corporate resolution
prevented Pennington from receiving a salary from Advantage and restricted his right to receive
shareholder distributions from Advantage.
No Texas resident was a party to the Guaranty. Rather, Brown, a resident of North
Carolina, BOA, with an address in Georgia and a representative in Rhode Island, and BOALC,
with an address and a representative in Rhode Island, were parties to the agreement. The
Guaranty is governed by the laws of Rhode Island, and Brown signed the Guaranty in North
Carolina. The Agreement states it was made “by and among” BOA, BOALC, Advantage,
Pennington, and Brown. However, Advantage was not a signatory on the Agreement, and
Pennington did not sign the Agreement. Although Phillips and Fields signed the
Agreement, they did so only as guarantors of Advantage’s obligations to BOA and BOALC and
to confirm they acknowledged and consented to the terms of the Agreement and to ratify and
affirm their continuing guaranty of Advantage’s obligations to BOA and BOALC. Neither the
Guaranty nor the Agreement was a contract between Brown and any Texas resident. 8
The trial court made no findings, and there is no evidence, that Brown was involved in
negotiating the terms under which BOA and BOALC would continue to extend credit to
Advantage, was involved in the drafting of the Guaranty or the Agreement, or was involved in
8
The fact the Agreement discussed Pennington’s removal from the management and payroll of Advantage does not impact our analysis.
The Agreement did not cause Pennington’s removal and merely acknowledged that a “Change in Control Event” had occurred at Advantage.
–22–
the decisions by the Advantage board of directors to remove Pennington as an officer and
director and to pass the resolution that prevented Pennington from receiving a salary from
Advantage and restricted his right to receive shareholder distributions from Advantage. Further,
the trial court made no findings, and there is no evidence, that Brown benefitted by BOA and
BOALC continuing to loan money to Advantage or by the Advantage board of directors
removing Pennington as an officer and director or passing the resolution. See Michiana, 168
S.W.3d at 785; KC Smash, 384 S.W.3d at 394 (noting there was no evidence nonresident
defendant sought benefit, advantage, or profit by “availing” itself of the forum). We cannot
conclude that Brown’s signing of the Guaranty and the Agreement was a sufficient contact
directed toward Texas to subject him to the jurisdiction of the Texas court.
Conclusion
Pennington framed his jurisdictional allegations against Brown in terms of the “totality of
the circumstances” relating to issues occurring in Texas between Advantage’s shareholders and
the need for Advantage to establish a new lending relationship. “However, if the acts themselves
fail to establish minimum contacts and purposeful availment, the defendant’s knowledge of the
relationship to Texas will not make the defendant amenable to the jurisdiction.” KC Smash, 384
S.W.3d at 394. We conclude Brown lacked sufficient minimum contacts to support the trial
court’s exercise of specific jurisdiction over him as to Pennington’s claim. 9 Therefore, the trial
court erred by denying Brown’s special appearance.
9
Because Brown lacks minimum contacts with Texas to support personal jurisdiction, we need not consider the second prong of the
constitutional due process analysis—whether maintenance of the action offends traditional notions of fair play and substantial justice. Foley v.
Trinity Indus. Leasing Co., 314 S.W.3d 593, 602 (Tex. App.—Dallas 2010, no pet.).
–23–
We resolve Brown’s issue in his favor and render judgment dismissing Pennington’s claim
against Brown for want of jurisdiction.
/Robert M. Fillmore/
ROBERT M. FILLMORE
JUSTICE
141349F.P05
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
TROY BROWN, Appellant On Appeal from the 162nd Judicial District
Court, Dallas County, Texas,
No. 05-14-01349-CV V. Trial Court Cause No. DC-13-12400.
Opinion delivered by Justice Fillmore,
CURTIS PENNINGTON, Appellee Justices Stoddart and Whitehill participating.
In accordance with this Court’s opinion of this date, we REVERSE the trial court’s order
denying appellant Troy Brown’s special appearance and RENDER judgment dismissing
appellee Curtis Pennington’s claims against appellant Troy Brown for want of jurisdiction.
It is ORDERED that appellant Troy Brown recover his costs of this appeal from appellee
Curtis Pennington.
Judgment entered this 30th day of June, 2015.
–25–