Mt. McKinley Insurance Company and Everest Reinsurance Company v. Grupo Mexico S.A. De C v. ( 2013 )

NUMBER 13-12-00347-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
MT. MCKINLEY INSURANCE COMPANY
AND EVEREST REINSURANCE COMPANY, Appellants,
v.
GRUPO MEXICO, S.A.B. DE C.V., Appellee.
On appeal from the 319th District Court
of Nueces County, Texas.
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Benavides and Perkes
Memorandum Opinion by Chief Justice Valdez
In this appeal, we are asked whether the trial court erred by granting a special
appearance filed by appellee Grupo Mexico, S.A.B. de C.V. (“Grupo”) in a lawsuit
brought by appellants Mt. McKinley Insurance Company (“Mt. McKinley”) and Everest
Reinsurance Company (“Everest”). By two issues, appellants argue (1) that the trial
court erred by granting the special appearance, and (2) in the alternative, that the trial
court erred by denying Mt. McKinley’s motion for continuance. We reverse and remand.
I. BACKGROUND
In 1999, Grupo, an international mining concern based in Mexico City, acquired
Asarco, Inc. (“Asarco”)1 in a leveraged buyout. Grupo formed a wholly-owned
subsidiary, Americas Mining Corporation (“AMC”), to hold the shares of Asarco. In
2001, Asarco sued Mt. McKinley and other insurers in Nueces County, Texas, seeking
payment under an insurance policy for asbestos claims made against Asarco. Grupo
was not a party to that litigation. On March 20, 2003, Asarco and Mt. McKinley entered
into a “Settlement Agreement, Release and Policy Buy-Back” whereby Mt. McKinley
agreed to pay $12 million in exchange for the release of all claims against it and the
voiding of the insurance policy. The agreement further provided:
ASARCO agrees that it shall defend, indemnify, save and hold harmless
Mt. McKinley from and against any and all claims, crossclaims, actions or
liability of any kind (including, but not limited to, direct action suits, suits for
contribution, indemnification or subrogation, claims by other insurers and
any claims for coverage by any other insured or alleged insured under the
Policies) encompassed by this Agreement and from all costs or expenses,
including reasonable attorneys’ fees incurred in defending against any
such claims, crossclaims, actions or liabilities.
The settlement agreement contained definitions of certain terms, including the following:
“ASARCO” means ASARCO Incorporated, Lac d’Amiante du Quebec
(hereinafter “LAQ”) and Capco Pipe Company, Inc. (hereinafter “Capco”),
Grupo Mexico S.A. de C.V., Corporation Minera Nor Peru, and any all of
their predecessors, any and all of their past, present and future
successors, assigns, subsidiaries, divisions, joint ventures, affiliates,
holding companies, parent companies, agents, servants, employees,
officers, and directors, and any and all other Persons (as herein defined)
insured or claiming, or which in the future may claim, any right, title or
interest in or under any of the Policies (as herein defined) as named
1
Asarco is an acronym derived from the company’s former name, the American Smelting and
Refining Company.
2
insureds, additional insureds, additional named insureds or otherwise.
In 2005, Asarco and several of its wholly-owned subsidiaries filed for bankruptcy.
Two years later, Asarco initiated adversary proceedings against Mt. McKinley in
bankruptcy court, in which it sought to avoid the 2003 release as a constructive
fraudulent transfer. See FED. R. BANKR. P. 7001–7087 (regarding adversary
proceedings). In the adversary proceedings, Asarco contended that it released its right
to insurance coverage for less than “reasonably equivalent value” and that it was
insolvent at the time or became insolvent as the result of the release. See 11 U.S.C. §
548 (stating that the bankruptcy trustee “may avoid any transfer . . . of an interest of the
debtor in property . . . if the debtor . . . received less than a reasonably equivalent value
in exchange for such transfer . . . and . . . was insolvent on the date that such transfer
was made . . . or became insolvent as a result of such transfer”).
Mt. McKinley then asked Grupo to acknowledge its duty, pursuant to the 2003
settlement agreement, to defend and indemnify it for the adversary proceedings in
bankruptcy court. Grupo refused to do so. Subsequently, Mt. McKinley filed the
underlying suit in Nueces County against Grupo, Asarco, and AMC, seeking a
declaratory judgment that the defendants were obliged to defend and indemnify Mt.
McKinley under the settlement agreement. McKinley also sought damages for the
amount it incurred and will incur in connection with the bankruptcy adversary
proceedings.
When Grupo did not answer the lawsuit within the time prescribed by law, Mt.
McKinley filed a motion for default judgment. Grupo then filed a special appearance on
3
February 27, 2009,2 some fifteen months after suit was initially filed, contending that the
trial court lacked personal jurisdiction over it. Mt. McKinley propounded interrogatories
and requests for production seeking evidence relevant to the jurisdictional inquiry. In a
letter to Mt. McKinley’s counsel dated May 13, 2009, Grupo’s counsel refused to comply
with the discovery requests, claiming that Grupo “is under no obligation to respond until
the court considers and rules on” the motion for default judgment and the special
appearance. Appellants filed a motion to compel discovery, which the trial court granted
by order dated September 30, 2009. However, Grupo objected to each of Mt.
McKinley’s initial requests for production and produced no discovery related to the
jurisdictional issue.3
Grupo filed an amended special appearance on March 4, 2010. On November
28, 2011, the trial court heard arguments on the amended special appearance as well
as on various motions filed by appellants regarding discovery, including a motion for
continuance of the special appearance hearing in light of the fact that Grupo was
allegedly refusing to provide discovery related to the jurisdiction issue. The trial court
denied the motion for continuance and granted Grupo’s special appearance, dismissing
Grupo from the case. This appeal followed. See TEX. CIV. PRAC. & REM. CODE ANN. §
51.014(a)(7) (West Supp. 2011) (stating that a person may appeal from an interlocutory
2
Appellants argue that Mt. McKinley was not served with the special appearance until April of
2009.
3
Grupo even demurred to appellants’ request for an admission that “Grupo is a Mexican
Corporation with its principal place of business in Mexico.” In its response to the request, Grupo
complained that the request “seeks admission of a principal place of business, which is a legal
conclusion.” Grupo’s response further stated that, “after making a reasonable inquiry, the information
known or easily obtained by [Grupo] is insufficient to enable [Grupo] to admit or deny this request.” This
is despite the fact that, as set forth herein, Grupo had already submitted an affidavit by its general
counsel in which it admitted that it is “organized under the laws of Mexico” and has its principal place of
business in Mexico.
4
order that “grants or denies the special appearance of a defendant under Rule 120a,
Texas Rules of Civil Procedure, except in a suit brought under the Family Code”).
II. DISCUSSION
A. Personal Jurisdiction
By its first issue, Mt. McKinley contends that the trial court has personal
jurisdiction over Grupo under both general jurisdiction and specific jurisdiction theories.
1. Standard of Review and Applicable Law
Issues of personal jurisdiction are questions of law and are reviewed de novo.
Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 337 (Tex. 2009)
(citing BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002)). The
plaintiff has the initial burden to “plead sufficient allegations to confer jurisdiction.” Id.
Once that burden is met, the defendant seeking to avoid the court's jurisdiction takes on
the burden to negate “all potential bases for jurisdiction pled by the plaintiff.” Id. Where,
as here, the lower court does not make findings of fact and conclusions of law in
support of its ruling, “all facts necessary to support the judgment and supported by the
evidence are implied.” Id. (citing BMC Software Belg., 83 S.W.3d at 795).
Non-residents are subject to the personal jurisdiction of Texas courts if: (1)
jurisdiction is authorized under the state’s long-arm statute; and (2) it comports with
guarantees of the United States and Texas Constitutions. Id. (quoting Moki Mac River
Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007)). Under Texas’s long-arm
statute, a non-resident defendant is within the court’s jurisdiction if the defendant
conducts business in the state. See PHC-Minden, L.P. v. Kimberly-Clark Corp., 235
S.W.3d 163, 166 (Tex. 2007). Thus, the exercise of personal jurisdiction is
5
constitutional when: (1) the non-resident defendant has established minimum contacts
with the forum; and (2) the exercise of jurisdiction follows the traditional notions of fair
play and substantial justice. Id. (citing Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945)).
Although this “fair play” and “substantial justice” test is well known to
appellate courts, the expression is imprecise. It gains meaning, however,
when viewed in light of the “minimum contacts” a defendant has with the
forum. 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. When a nonresident defendant has
purposefully availed itself of the privilege of conducting business in a
foreign jurisdiction, it is both fair and just to subject that defendant to the
authority of that forum's courts.
Spir Star AG v. Kimich, 310 S.W.3d 868, 872 (Tex. 2010) (citations omitted).
“A defendant’s contacts with a forum can give rise to either specific or general
jurisdiction.” Id. (citing CSR Ltd. v. Link, 925 S.W.2d 591, 595 (Tex. 1996)). “General
jurisdiction exists when a defendant’s contacts are continuous and systematic, even if
the cause of action did not arise from activities performed in the forum state.” Id. (citing
CSR, 925 S.W.2d at 595). A court has specific jurisdiction over a defendant if its
alleged liability arises from or is related to an activity conducted within the forum. Id.
Unlike general jurisdiction, which requires a “more demanding minimum contacts
analysis,” specific jurisdiction “may be asserted when the defendant’s forum contacts
are isolated or sporadic, but the plaintiff’s cause of action arises out of those contacts
with the state.” Id. (citing CSR, 925 S.W.2d at 595; 4A CHARLES ALAN W RIGHT & ARTHUR
R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1067.5 (3d ed. 2002)). In such cases,
“we focus on the ‘relationship among the defendant, the forum[,] and the litigation.’” Id.
(citing Moki Mac, 221 S.W.3d at 575–76). Specific jurisdiction is appropriate when (1)
6
the defendant’s contacts with the forum state are purposeful, and (2) the cause of action
arises from or relates to the defendant’s contacts. Id. (citing Retamco, 278 S.W.3d at
338).
2. Evidence
The evidence pertinent to the jurisdictional inquiry includes the 2003 settlement
agreement, which, as noted, defined “ASARCO” to include Grupo. The agreement
further provides:
The persons signing this Agreement represent and warrant that they are
duly authorized to execute this Agreement on behalf of ASARCO and Mt.
McKinley, as defined in this Agreement, respectively, and to bind said
corporations to the terms, conditions, provisions, duties and obligations
set forth in this Agreement.
Appellants argue that Grupo was therefore a named signatory to the agreement.
Kevin McCaffrey, Asarco’s in-house counsel, negotiated and drafted the 2003
agreement. He testified at his deposition that, prior to executing the settlement
agreement, he presented the agreement to Gennaro Larrea, the president of Asarco
and AMC and one of Grupo’s vice presidents. McCaffrey testified that Gennaro
approved the agreement after consulting by telephone with his brother German Larrea,
who is Grupo’s chairman and chief executive officer. After Gennaro spoke with
German, Gennaro told McCaffrey: “Okay. Sign the agreement.”
According to McCaffrey, after Grupo’s 1999 acquisition of Asarco, Asarco’s board
of directors consisted entirely of Grupo representatives. He testified: “[D]uring my time
at Asarco, and after the Grupo acquisition, there was no decision, whether it was paper
clips or a $100 million insurance settlement, that wasn’t presented to German Larrea.”
7
In support of its special appearance, Grupo submitted the affidavit of Alberto de
la Parra, its general counsel. De la Parra averred, in relevant part, as follows:
3. [Grupo] is organized under the laws of Mexico with its principal
place of business in Mexico;
4. [Grupo] has no connection or continuous or systematic contacts
with Texas;
5. [Grupo] is not a resident of Texas and is not required to maintain a
registered agent for service in Texas;
6. [Grupo] does not maintain a place of business in Texas and has no
employees, servants, or agents within the state;
7. [Grupo] has not entered into a contract with a Texas resident that is
performable, in whole or in part, in Texas;
8. [Grupo] has not committed any tort, in whole or in part, in Texas;
9. [Grupo] has not recruited Texas residents, directly or through an
intermediary located in Texas, for employment inside or outside
Texas . . .
10. [Grupo] has no substantial connection with Texas.
11. [Grupo] was not a named insured, additional insured, or beneficiary
of the insurance policies underlying the Settlement Agreement . . . .
[Grupo] did not have any right, title or interest in the insurance policies
such that it could make a claim to the proceeds of the insurance policies.
12. [Grupo] was not a party or a signatory to the Settlement
Agreement . . . . [Grupo] did not authorize any person or entity to sign or
execute the Settlement Agreement.
13. Kevin McCaffrey has never been an officer, director or employee of
[Grupo]. Further, [Grupo] never authorized Kevin McCaffrey to execute or
enter the Settlement Agreement on [Grupo]’s behalf.
14. [Grupo] received no consideration under the Settlement
Agreement . . . .
15. [Grupo]’s subsidiaries that do business in the United States
maintain separate physical offices, have separate employees, and
conduct separate operations from [Grupo]. For instance, [Asarco], a New
8
Jersey corporation, maintained separate offices in New York, New York.
[Asarco] was later re-organized into a limited liability company under
Delaware law, at which time it moved its offices to Phoenix, Arizona.
3. Analysis
Mt. McKinley first argues that the trial court has general jurisdiction over Grupo
because (1) Asarco and AMC have extensive contacts with Texas, and (2) the contacts
of those subsidiaries must be imputed to Grupo under the alter ego doctrine.
The alter ego doctrine provides that a parent company and its subsidiary may be
“fused” for jurisdictional purposes if the plaintiff proves that “the parent controls the
internal business operations and affairs of the subsidiary.” BMC Software Belg., 83
S.W.3d at 799. “But the degree of control the parent exercises must be greater than
that normally associated with common ownership and directorship; the evidence must
show that the two entities cease to be separate so that the corporate fiction should be
disregarded to prevent fraud or injustice.” Id. A parent company cannot be subjected to
personal jurisdiction based on the local activities of its subsidiary when “the subsidiary’s
presence in the state is primarily for the purpose of carrying on its own business and the
subsidiary has preserved some semblance of independence from the parent and is not
acting as merely one of its departments . . . .” 4A W RIGHT & MILLER, FEDERAL PRACTICE
AND PROCEDURE § 1069.4; see Landmark Land Co. v. Bennett, No. 13-12-00117-CV,
2012 Tex. App. LEXIS 8026, at *19 (Tex. App.—Corpus Christi Sept. 20, 2012, pet.
denied) (mem. op.). “[T]he party seeking to ascribe one corporation’s actions to another
by disregarding their distinct corporate entities [must] prove this allegation, because
Texas law presumes that two separate corporations are distinct entities.” PHC-Minden,
235 S.W.3d at 173.
9
It is undisputed that Asarco and AMC have continuous and systematic contacts
with Texas such that the exercise of general jurisdiction over those entities is proper.
The question for this Court, then, is whether those entities may be fused with Grupo for
jurisdictional purposes. The Texas Supreme Court has relied on the following factors in
determining whether a subsidiary is separate and distinct from its parent corporation for
personal jurisdiction purposes: (1) the amount of the subsidiary’s stock owned by the
parent corporation; (2) the existence of separate headquarters; (3) the observance of
corporate formalities; and (4) the degree of the parent’s control over the general policy
and administration of the subsidiary. Id. at 175 (citing 4A W RIGHT & MILLER, FEDERAL
PRACTICE AND PROCEDURE § 1069.4); cf. El Puerto de Liverpool, S.A. de C.V. v. Servi
Mundo Llantero, S.A. de C.V., 82 S.W.3d 622, 634–35 (Tex. App.—Corpus Christi
2002, pet. dism’d w.o.j.).4 It is undisputed that AMC is a wholly-owned subsidiary of
4
In El Puerto de Liverpool, this Court, citing pre-PHC-Minden case law, enumerated the following
factors relevant to the alter ego inquiry:
(1) whether distinct and adequately capitalized financial units are incorporated and
maintained;
(2) whether daily operations of the corporations are separate;
(3) whether formal barriers between the management of the entities are erected, with
each functioning in its own best interest;
(4) whether the companies filed consolidated tax returns;
(5) whether operating capital is financed by the parent or borrowed from other sources;
(6) whether the subsidiary’s stock is owned by the parent;
(7) whether the companies share common officers and directors;
(8) the extent to which separate books and accounts are kept;
(9) whether the companies have common departments of businesses;
(10) whether the companies have separate meetings of shareholders and directors;
(11) whether an officer or director of one corporation is permitted to determine the
10
Grupo and that AMC owned 100% of Asarco’s stock; and yet, it is also undisputed that
the subsidiaries maintain separate headquarters from Grupo. Accordingly, application
of the first two factors enumerated in PHC-Minden does not resolve the jurisdictional
question.
We next evaluate the extent of the observance of corporate formalities and the
degree of the parent’s control over the subsidiaries. See PHC-Minden, 235 S.W.3d at
175. McCaffrey testified that Asarco’s board of directors consisted entirely of Grupo
representatives, and that “after the Grupo acquisition, there was no decision, whether it
was paper clips or a $100 million insurance settlement, that wasn’t presented to
German Larrea,” Grupo’s president and chief executive officer. He also averred that
Asarco’s president consulted with German Larrea before approving the 2003 settlement
agreement.5 But parent companies normally exercise at least some control over their
subsidiaries, and “[a] subsidiary corporation will not be regarded as the alter ego of its
parent merely because of stock ownership, a duplication of some or all of the directors
or officers, or an exercise of the control that stock ownership gives to stockholders.”
Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 573 (Tex. 1975). Indeed, the
policies of the other;
(12) whether those with whom the corporation comes into contact are apprized of their
separate identity; and
(13) the extent to which contracts between the parent and subsidiary favor one over the
other.
El Puerto de Liverpool, S.A. de C.V. v. Servi Mundo Llantero, S.A. de C.V., 82 S.W.3d 622, 634–35 (Tex.
App.—Corpus Christi 2002, pet. dism’d w.o.j.) (citing Daimler-Benz Aktiengesellschaft v. Olson, 21
S.W.3d 707, 721 (Tex. App.—Austin 2000, pet. dism’d w.o.j.) (noting that “[n]ot all of the above factors
need be present or considered”)).
5
Appellants also claim that Grupo once issued a press release on behalf of Asarco regarding the
payment of certain bonds. However, the record evidence to which appellants direct this Court is merely
an Asarco press release; appellants do not direct this Court to any evidence that such press release was
in fact “issued” by Grupo.
11
Texas Supreme Court has held that “‘[a]ppropriate parental involvement includes
monitoring the subsidiary’s performance, supervision of the subsidiary’s finance and
capital budget decisions, and articulation of general policies.’” PHC-Minden, 235
S.W.3d at 176 (quoting 16 MOORE’S FEDERAL PRACTICE § 108.42[3][b]). To pierce the
corporate veil in the context of personal jurisdiction, there must be “something beyond
the subsidiary’s mere presence within the bosom of the corporate family.” Id. (quoting
Dickson Marine, Inc. v. Panalpina, Inc., 179 F.3d 331, 338 (5th Cir. 1999)). McCaffrey’s
testimony did not establish that Grupo “controls the internal business operations and
affairs” of Asarco and AMC such that exercise of jurisdiction over Grupo would be
necessary to prevent fraud or injustice. See BMC Software Belg., 83 S.W.3d at 799.
We therefore conclude that Grupo’s special appearance should not have been denied
on the basis of general jurisdiction.
We next consider the issue of specific jurisdiction. Appellants urge that specific
jurisdiction lies because (1) Grupo was a named party to the 2003 settlement
agreement, (2) the 2003 agreement settled a pending Texas lawsuit, (3) McCaffrey had
authority to execute the settlement agreement on behalf of Grupo, and (4) Mt.
McKinley’s claims for indemnification arose out of that agreement. In response, Grupo
argues that no one had authority to bind Grupo to the terms of the settlement
agreement. It further argues that, even if it were bound by the settlement agreement,
that would not give rise to specific jurisdiction because it would not mean that Grupo
directed actions at Texas or otherwise purposefully availed itself of the Texas forum.
Appellants are correct that the 2003 agreement settles Texas litigation; that Mt.
McKinley’s claims against Asarco arose out of that agreement; and that the agreement
12
defines Asarco to include, among other entities, Grupo. However, the affidavit of
Grupo’s general counsel, de la Parra, established that McCaffrey was never an officer,
director, or employee of Grupo and that Grupo did not authorize McCaffrey or anyone
else to execute the 2003 settlement agreement on Grupo’s behalf. Although our review
of a special appearance ruling is de novo, “all facts necessary to support the judgment
and supported by the evidence are implied” where no findings of fact or conclusions of
law are filed. Retamco, 278 S.W.3d at 337 (citing BMC Software Belg., 83 S.W.3d at
795). An implicit finding that McCaffrey had no authority to bind Grupo is necessary to
support the trial court’s judgment and is supported by de la Parra’s affidavit.
Accordingly, we may not disturb the implicit finding that McCaffrey had no authority to
bind Grupo and, in turn, that Grupo was not bound by the settlement agreement.
Even if Grupo were bound as a signatory to the agreement, its entrance into that
agreement would not alone establish that Grupo purposefully availed itself of the
benefits of the Texas forum. “It 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
Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 784 (Tex. 2005). “It is true that in
some circumstances a single contract may meet the purposeful-availment standard, but
not when it involves a single contact taking place outside the forum state.” Id. at 787;
see Ashdon, Inc. v. Gary Brown & Assocs., 260 S.W.3d 101, 113 (Tex. App.—Houston
[1st Dist.] 2008, no pet.) (“Generally, a contract calling for performance outside of Texas
does not subject a party to jurisdiction here.”); Turner Schilling L.L.P. v. Gaunce Mgmt.,
Inc., 247 S.W.3d 447, 456–57 (Tex. App.—Dallas 2008, no pet.). This is true even if the
13
contract is related to the settlement of a Texas lawsuit. See Cerbone v. Farb, 225
S.W.3d 764, 769–71 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (reversing denial of
special appearance where appellants’ only contact with Texas was the execution of a
promissory note in Illinois that was related to the settlement of a pending Texas lawsuit).
Here, the only evidence that Grupo purposefully availed itself of the Texas forum was
that it authorized McCaffrey to execute the settlement agreement on Grupo’s behalf.
But even if we were to assume the truth of that allegation, that would not change the
facts that: (1) the agreement was executed in New Jersey, (2) performance of the
contract was not required to take place in Texas, and (3) Grupo was not a party to the
settled Texas litigation. See id. at 770–71.6 Accordingly, Grupo’s alleged status as a
signatory to the agreement cannot, by itself, support specific jurisdiction. See Michiana,
168 S.W.3d at 784.
We conclude that, on the evidence presented, the trial court did not err in
granting Grupo’s special appearance. Appellants’ first issue is overruled.
B. Motion for Continuance
6
The appellee in Cerbone cited Diversified Resources Corp. v. Geodynamics Oil & Gas Inc., 558
S.W.2d 97 (Tex. App.—Corpus Christi 1977, writ ref’d n.r.e.), in support of its argument that the court had
personal jurisdiction over the appellant. Cerbone v. Ferb, 225 S.W.3d 764, 770–71 (Tex. App.—Houston
[1st Dist.] 2007, no pet.). In Diversified, we considered whether the trial court had jurisdiction over a
Nevada resident who entered into an agreement and signed a promissory note to settle litigation filed by
the Texas plaintiff in federal district court in Texas. 558 S.W.2d at 97. The note provided that the
payments be made in Texas. Id. We concluded that “there were contacts by the defendant in Texas
other than making of payments; to-wit, the settling of aforesaid lawsuit between the parties here and the
making of an agreement to implement the settlement.” Id. at 99. We held that executing the note was
sufficient to warrant exercise of specific jurisdiction over the defendant because it “not only purposefully
conducted business in the State of Texas but it also contracted to perform its obligations within the State
of Texas, thus invoking the benefits and protections of this State’s law.” Id. The Cerbone court declined
to follow Diversified, noting that the appellant in Cerbone, unlike the defendant in Diversified, “was not a
defendant in the underlying case that was settled by an agreement and a promissory note.” Cerbone,
225 S.W.3d at 771. The court therefore concluded that execution of the contract did not support specific
jurisdiction. See id. The same rationale applies here.
14
By their second issue, appellants argue that, in the event we found no error in the
trial court’s granting of the special appearance, the order must nevertheless be reversed
because the trial court erred in denying its motion for continuance. Appellants argue
that (1) TRCP 120a “specifically provides for jurisdictional discovery” and (2) Mt.
McKinley “diligently pursued” discovery from Grupo but Grupo refused to provide it.
1. Standard of Review and Applicable Law
Texas Rule of Civil Procedure 120a(3) permits a trial court to order continuance
of a special appearance hearing to permit further discovery “should it appear from the
affidavits of the party opposing the motion that he cannot for reasons stated present by
affidavit essential facts to justify his opposition.” TEX. R. CIV. P. 120a(3). The trial
court’s denial of a continuance will not be disturbed absent a clear abuse of discretion,
and “the record should clearly show that the trial court has disregarded a party’s rights
before reversing the trial court’s ruling.” Barron v. Vanier, 190 S.W.3d 841, 847 (Tex.
App.—Fort Worth 2006, no pet.); see also BMC Software Belg., 83 S.W.3d at 800.
The Texas Supreme Court has considered the following non-exclusive factors
when deciding whether a trial court abused its discretion by denying a motion for
continuance seeking additional time to conduct discovery: (1) the length of time the
case has been on file, (2) the materiality and purpose of the discovery sought, and (3)
whether the party seeking the continuance has exercised due diligence to obtain the
discovery sought. Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 161 (Tex.
2004); Barron, 190 S.W.3d at 847.
15
2. Length of Time on File
We first consider the length of time the case has been on file. See Joe, 145
S.W.3d at 161. Although Mt. McKinley initially filed its lawsuit on October 25, 2007,
Grupo did not file its special appearance until February 27, 2009.7 A hearing on the
special appearance, and on four pending discovery motions filed by appellants, was
held on November 28, 2011, more than 21 months after the special appearance was
initially filed. Grupo argues that the “sheer magnitude of time” that elapsed between the
filing of the special appearance and the hearing thereon is dispositive of appellants’
issue. Grupo points to BMC Software, in which the Texas Supreme Court rejected the
appellant’s complaint that the trial court erred in denying a continuance where seven
months passed between the filing of the special appearance and the hearing. See BMC
Software Belg., 83 S.W.3d at 800–01. BMC Software is distinguishable, however,
because, although the defendants in that case objected to several discovery requests,
the plaintiff “[n]ever filed a motion to compel or otherwise attempted to obtain any
discovery [defendants] did not provide.” Id. at 801. The Supreme Court based its
continuance ruling in part on that fact. See id. Here, appellants filed multiple motions to
compel discovery which were not ruled upon until the special appearance hearing.
Therefore, the fact that nearly two years elapsed between the filing of Grupo’s special
appearance and the hearing thereon is not, by itself, conclusive as to the issue of
whether the trial court abused its discretion in denying a continuance.
7
The record reflects that much of this delay could be attributed to the fact the case was removed
to bankruptcy court on February 28, 2008 and was not remanded to the trial court until January 22, 2009.
16
3. Materiality and Purpose of Discovery Sought
Next, we consider “the materiality and purpose of the discovery sought.” See
Joe, 145 S.W.3d at 161. Mt. McKinley’s first requests for production, served upon
Grupo within one month after it contends it was served with Grupo’s special
appearance, asked for, among other things: “[a]ll documents that relate to the authority
of Kevin McCaffrey to sign the Settlement Agreement on behalf of you or any other
entity”; “[a]ny documents upon which you rely in asserting that you are not within the
definition of ‘ASARCO’ contained in the Settlement Agreement”; “[d]ocuments showing
all present and prior relationships between you and Kevin McCaffrey”; and “[a]ny
document indicating that you have were [sic] authorized to do business in Texas or that
you have done business in Texas at any time since January 1, 1998.” Mt. McKinley’s
second request for production additionally sought, among other things: “[a]ny
correspondence or communication between you and any subsidiary, affiliate, or
company related to you concerning the Settlement Agreement”; “[d]ocuments showing
the relationship between you and (a) [AMC], (b) Minera Nor Peru, (c) Asarco . . . at any
time since January 1, 1998”; and
[a]ll orders and opinions issued by the court . . . [and] all pleadings,
motions (including any response and any other document related to each
such motion), discovery requests, and discovery responses filed by or on
behalf of any party in Asarco, LLC v. Americas Mining Corp., No. 1:07-CV-
00018, in the United States District Court for the Southern District of
Texas, Brownsville Division.
As noted, Grupo refused the requests and asserted that it “is under no obligation
to respond until the court considers and rules on” the pending motions and special
appearance. Counsel for Grupo, in an email addressed to Mt. McKinley’s counsel,
17
stated that “[w]e . . . do not intend on engaging in any form of discovery until the Court
rules on our special appearance.”
Subsequently, appellants submitted a supplemental request for production by
letter dated July 19, 2010, to Grupo’s counsel, seeking the following:
1. All documents and/or exhibits admitted into evidence in Asarco LLC
v. Americas Mining Corporation case No. 1:07-CV-00018
(“Fraudulent Conveyance Litigation”) relating to the settlement or
alleged monetizing [Asarco’s] insurance coverage in 2002–03,
2. All documents and/or exhibits admitted into evidence in the
Fraudulent Conveyance Litigation relating to Grupo/AMC’s alleged
exercise of dominion and control over [Asarco] in 2002–03,
3. All of the plaintiffs’ exhibits admitted into evidence in the Fraudulent
Conveyance Litigation,
4. All of the defendants’ responses to all of plaintiffs’ Requests to
Admit in the Fraudulent Conveyance Litigation,
5. The deposition transcripts, together with all exhibits to such
transcripts, taken in the Fraudulent Conveyance Litigation for the
following individuals:
a. German Larrea,
b. Gennaro Larrea,
...
e. Kevin McCaffrey, . . . and
k. Alberto de la Parra.
By their supplemental discovery request, appellants sought to obtain the evidence
presented during the bankruptcy adversary proceedings, which resulted in the
bankruptcy judge finding that “[t]he record establishes without a doubt that German
Larrea rules Grupo and all of its affiliates and no major decision is made without his
approval.” Asarco, LLC v. Ams. Mining Corp., 396 B.R. 278, 300 (S.D. Tex. 2008).
18
This evidence would be relevant to appellants’ theory that personal jurisdiction existed
over Grupo under the alter ego doctrine. See PHC-Minden, 235 S.W.3d at 173.8
Consideration of the materiality and purpose of the discovery sought, therefore,
weighs in favor of a finding of abuse of discretion on the part of the trial court in denying
a continuance.
4. Due Diligence
We finally consider whether appellants have exercised due diligence in their
efforts to obtain discovery. See Joe, 145 S.W.3d at 161.
Appellants filed a motion to compel discovery after receiving the letter from
Grupo’s counsel which stated that Grupo had no intention of participating in the
discovery process until its special appearance was ruled upon. The trial court granted
the motion to compel on September 30, 2009, and it ordered Grupo to respond to the
then-pending discovery requests relevant to personal jurisdiction. However, in
response, Grupo asserted boilerplate objections to each of Mt. McKinley’s requests and
produced no documents.9 Appellants then filed a second motion to compel and a
motion for sanctions. The trial court granted the motion in part on March 23, 2010 and
awarded $2,500 in sanctions against Grupo “to compensate Mt. McKinley for
preparation and prosecution of the motion.” Grupo then filed amended responses in
which it repeated its boilerplate objections to each request, based in part on the fact that
8
Appellants also contend that Grupo has refused to provide discovery regarding whether its
subsidiaries held separate shareholder and board meetings. This information would also be relevant to
the evaluation of appellants’ alter ego theory. See El Puerto de Liverpool, 82 S.W.3d at 634–35 (noting
that one factor considered in the alter ego inquiry is “whether the companies have separate meetings of
shareholders and directors”).
9
Grupo’s response to each of the propounded requests for production was as follows: “Grupo
objects to this request because it has a special appearance on file with this Court. Grupo further objects
to this request as it is overly broad, unduly burdensome and not reasonably calculated to lead to the
discovery of admissible evidence as it seeks information unrelated to jurisdictional issues.”
19
its special appearance was still pending before the trial court. The trial court
subsequently rendered a protective order stating that Grupo complied with the March
23, 2010 order and prohibiting appellants from “communicating threats or abusive
accusations to Grupo” regarding the requests for production or Grupo’s compliance
therewith.
After negotiations with Mt. McKinley’s counsel, Grupo’s counsel eventually
agreed to produce: (1) “a document identifying the Texas proceeding(s) in which Grupo
was a party (e.g., the docket sheet of a legal proceeding)”; (2) “a chart depicting the
corporate structure of Grupo, AMC, Old Asarco, and New Asarco as of March 2003, as
well as a recent one”; and (3) “‘public filings’ made by Grupo to the SEC.” Appellants
claim that, as a result of having reviewed the docket sheet of the bankruptcy adversary
proceedings as provided by Grupo, it determined that “alter ego jurisdiction documents
existed” in the bankruptcy court file. Appellants then submitted their supplemental
discovery requests to Grupo’s counsel.
In July 2010, Grupo refused to produce documents responsive to appellants’
supplemental request. Grupo then filed a motion for protection on August 5, 2011, in
which it argued that it is not required to produce documents related to the bankruptcy
adversary proceedings because
(1) any documents from the [adversary proceedings] do not fall within the
scope of [appellants’] requests for production because Grupo was not a
party to that litigation; and (2) AMC is a named defendant in this lawsuit,
and [appellants] have not directed their collection efforts at AMC. It is
therefore evident that [appellants] are more interested in fabricating a non-
compliance case against Grupo than in conducting jurisdictional discovery.
Appellants note that, on October 22, 2010, they submitted a request for production to
AMC seeking documents from the bankruptcy adversary proceeding, but that AMC
20
“ultimately produced no responsive documents.” Appellants also sought to depose the
Larreas, but Grupo denied the request. A motion filed by appellants to compel the
Larreas’ deposition was pending at the time of the special appearance hearing.
Our review of the record leads us to conclude that appellants exercised due
diligence in pursuing discovery relevant to the jurisdictional issue. Moreover, as
previously discussed, appellants’ pending discovery requests sought information that
was relevant to personal jurisdiction over Grupo, either under a specific jurisdiction or
general jurisdiction theory. Consideration of this factor weighs in favor of a finding of
abuse of discretion in denying the continuance.
5. Analysis
Although a substantial amount of time passed between the filing of the special
appearance and the hearing thereon, it is apparent that Grupo was engaged in a
strategy of obstruction that went beyond, as it claims, merely “oppos[ing] discovery
requests as needed to protect its rights.” Instead, Grupo sought to avoid even the most
benign and reasonable discovery requests—such as a request to confirm that Grupo is
a Mexican corporation with its principal place of business in Mexico. Moreover, Grupo’s
counsel repeatedly urged that Grupo was under no obligation to respond to discovery
requests until the trial court ruled on the special appearance—a position that is plainly
belied by the rules of civil procedure. See TEX. R. CIV. P. 120a(3) (“The court shall
determine the special appearance on the basis of the pleadings, any stipulations made
by and between the parties, the results of discovery processes, and any oral
testimony . . . .” (Emphasis added)).
21
Under the circumstances of this case, we conclude that the trial court abused its
discretion by denying appellants’ motion for continuance.10 See Barron, 190 S.W.3d at
850 (finding, where plaintiff “alleged sufficient information which, if existing and
discovered, could support his allegations of personal jurisdiction,” that the trial court
abused its discretion in denying a continuance of a special appearance hearing
“especially in light of [defendants’] apparent strategic avoidance of [plaintiff’s] attempted
discovery”). Appellants’ second issue is sustained.
III. CONCLUSION
The judgment granting Grupo’s special appearance is reversed, and we remand
the cause to the trial court with instructions to grant the motion for continuance and for
further proceedings consistent with this opinion.
____________________
ROGELIO VALDEZ
Chief Justice
Delivered and filed the
18th day of April, 2013.
10
Grupo contends in its response to appellants’ second issue that, because the parties entered
into a Rule 11 agreement with respect to the date of the special appearance hearing, there could be no
abuse of discretion in failing to continue the hearing. We disagree. The Rule 11 agreement referred to
by Grupo states that an “[o]ral hearing on all pending motions” would take place on Monday, November
28, 2011. Grupo contends that Mt. McKinley impermissibly “changed its mind” when it filed its motion to
continue the special appearance hearing. However, the hearing went ahead as scheduled; and
appellants would arguably not have been in violation of the Rule 11 agreement had it obtained a
continuance from the trial court. It is also noteworthy that among the motions to be heard at the hearing
were four of appellants’ motions to compel discovery. If those motions were granted, it would have been
necessary to continue the special appearance hearing. Accordingly, even though “[a] Rule 11 agreement
is a contract subject to the usual rules of contract interpretation,” Barton v. Fashion Glass & Mirror, Ltd.,
321 S.W.3d 641, 644 (Tex. App.—Houston [14th Dist.] 2010, no pet.), we will not construe this particular
agreement to implicitly foreclose the possibility of a continuance.
22