Northwest Cattle Feeders, LLC, Riley Livestock, Inc., and Jeff Cox v. Jason O'Connell and Tom O'Connell

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-17-00361-CV
NORTHWEST CATTLE FEEDERS, APPELLANTS
LLC; RILEY LIVESTOCK, INC.; AND
JEFF COX
V.
JASON O’CONNELL AND TOM APPELLEES
O’CONNELL
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FROM THE 271ST DISTRICT COURT OF JACK COUNTY
TRIAL COURT NO. 16-06-052
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OPINION
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This appeal arises from a modern-day cattle rustling scheme. It stems,
according to Jason O’Connell, from a “problem in Texas.”
Appellants Northwest Cattle Feeders, LLC (Northwest); Riley Livestock,
Inc. (Riley); and Jeff Cox appeal the trial court’s order that granted the special
appearance of appellees Jason O’Connell and Tom O’Connell and that
dismissed claims against the O’Connells for lack of personal jurisdiction.
Appellants contend that the trial court’s order is erroneous because the record
establishes that Texas has personal jurisdiction over the O’Connells on a theory
of specific jurisdiction. We affirm the trial court’s order in part, reverse it in part,
and remand this case to the trial court for further proceedings.
Background
Midwestern Cattle Marketing, LLC (Midwestern) was a Nebraska cattle
brokering company; the company matched cattle producers with cattle buyers
and made a profit on the difference between the buying and selling prices. Tom
O’Connell was Midwestern’s chief financial officer; his nephew, Jason O’Connell,
was Midwestern’s president.
Midwestern reached an agreement with Tony Lyon, a Texas resident, to
buy and sell cattle on Midwestern’s behalf. Tony kept the cattle on Lyon Farms
in Perrin, Texas. He had a criminal history: in 2001, he was convicted and
imprisoned for bank fraud. At some point, to facilitate Tony’s buying cattle on
Midwestern’s behalf, Midwestern gave Tony one of its checkbooks along with a
stamp of Jason’s signature to endorse the checks.
In 2015, Northwest, through its managing member Jeff Cox, agreed to buy
554 steers from Midwestern. Midwestern issued an invoice that stated that
Northwest was buying the steers for $798,351.19. It recited that the steers were
at Lyon Farms. Riley, an investor in Northwest’s business, issued Midwestern a
check for the full amount of the sale, and Midwestern deposited the check into its
2
account at Points West Community Bank (Points West). Cox went to Lyon
Farms and saw the 554 steers.
After Northwest bought the cattle, Cox let them graze in Perrin with the
intention of retrieving them later. He understood that Tony would responsibly
care for the cattle during the interim period and would be compensated for doing
so. Northwest had previously bought cattle from Midwestern and, on those
occasions, Cox had likewise allowed them to remain under Tony’s control on
Lyon Farms to graze before sending them to another location.
In June 2015, Points West called Tom and told him that Midwestern’s
account had been overdrawn by over $1 million. Tony had led the O’Connells to
believe that Midwestern would soon receive $5 million from a check written from
George Cattle Company to buy cattle from Midwestern. But when Tom went to
the bank, the bank’s president expressed his concern that Midwestern was the
victim of a check-kiting scheme by Tony, who had control over his own account
in Texas and over Midwestern’s account in Nebraska. As explained by Tom,
[Midwestern] had given [Tony] our checking account. [Tony was]
writing a number of checks on our account, and we would . . .
deposit it back to our account to cover those checks. . . . And
everything was fine as long as . . . deposits came back into
[Midwestern’s] checking account.
Once the music stopped, . . . there [were] no seats to be sat
in, and Midwestern was left holding the bag on a $5,020,000 deposit
that was no good. So it drained all of the money that we had in our
account [and] left us with a $1.3 million overdraft.
3
Tom informed Jason about the overdraft, and after meeting with Tom in
Nebraska, Jason told Tom that he was “going to head to Texas and see if [he
could] get to the bottom of this.” Jason asked Tim Correll, a business associate,
to go with him to Texas to “get this figured out.”
Jason drove all night to reach Texas. On the way, Correll advised Jason
to inform Midwestern’s customers about what was happening. While on his way
to Texas, Jason called Cox, told him that there was a “problem in Texas,” and
asked him to come to Tony’s property.
On the morning of July 1, 2015, Jason confronted Tony at his property.
Tony confessed to Jason that “there [was] no money, [that] he had committed
fraud, [and that] there was no George Cattle Company.” Jason, with Correll’s
assistance, decided to seize all of the cattle on Tony’s property. That day, Tony
and Jason signed a handwritten document stating:
Approx 850 head of cows, calves, bulls located in and around
Perrin[,] Texas are owned by [Midwestern and] Points West . . . .
Cattle are roaming on pasture land owned or leased by Lyon Farms.
Lyon Farms agrees to provide care in a husbandly fashion and
not move any cattle off pasture without the knowledge of Jason
O’Connell or Tom O’Connell[,] owners of [Midwestern].
Tony later testified in a deposition,
As soon as [Jason] got to Perrin he sat down . . . and wrote this up
and had [me] sign it, which I would not have signed if I had known
the cattle [were] not going to Brule, Nebraska.[1]
1
Northwest Cattle Feeders has a Brule, Nebraska address. Midwestern
has a Sidney, Nebraska address.
4
....
. . . [Jason] knew what he was wanting to do and he just [sat]
down and wrote everything out. And he said, . . . I’m going to write
this out, I need you to start gathering the cattle, bring[] them into this
set of pens, we’re going to have trucks, we’re going to start sending
all this stuff to Nebraska to Jeff’s Northwest Cattle Feeders, and
we’re going to let it all wash itself out in Nebraska. And I said, that’s
fine.
....
. . . I signed off because [the cattle were] supposed to be
going to Nebraska. If he would have said, we’re going to send them
to here and there and yonder, I would not have signed off . . . .
For the next several days, Jason managed the seizure of all of the cattle—
approximately 900 head—from Lyon Farms and moved them away from there.
The 554 steers that Northwest had bought from Midwestern and that Cox had
believed to be at Tony’s property were not among the cattle that Midwestern
seized. While the cattle were still being seized from Lyons Farms, Cox arrived
there and confronted Tony about the steers; Tony said that he had sold them to
another party. Midwestern eventually sold most of the cattle that it seized; it
transferred forty-one of them to Northwest.
To repay the overdraft to Points West, the O’Connells signed a note on
behalf of Midwestern and in their individual capacities.2 They informed Points
West that they intended to use proceeds from the sales of the seized cattle to
help repay the overdraft.
2
The record indicates that Points West had personal guarantees from
Jason and from Tom on Midwestern’s checking account.
5
Northwest and Riley sued several parties, including Midwestern and Tony.
In their original petition, among other causes of action, they pleaded for a
constructive trust over proceeds from sales of cattle seized by Midwestern;
alleged that Midwestern had committed fraud and had unjustly enriched itself;
alleged that Midwestern had breached its contract for the sale of the steers;
pleaded that upon seizing cattle from Tony, Midwestern had committed
conversion; and alleged that Tony had committed fraud for which Midwestern
was liable because Tony was Midwestern’s agent. They further pleaded that the
O’Connells, acting for Midwestern, had seized 892 cattle from Tony while
representing to Cox that the “seized cattle would be used to try to ‘make whole’
both Cox and Midwestern Cattle.” They alleged that Midwestern had delivered
only 41 of the cattle to Northwest, had sold the remaining cattle, and had retained
the proceeds.
Midwestern filed a special appearance, alleging that Northwest and Riley’s
pleading did not establish personal jurisdiction over Midwestern. After Northwest
and Riley filed a response to the special appearance, the trial court denied it.
Midwestern joined Cox as a third-party defendant,3 pleading for a
declaratory judgment that Midwestern had delivered the steers under its contract
with Northwest, that Cox had formed a partnership with Tony for the steers to
graze on Tony’s property, and that Cox was liable for any damages incurred by
3
See Tex. R. Civ. P. 38(a).
6
Northwest for the loss of the steers. Cox answered Midwestern’s claims against
him and brought counterclaims under the Texas Theft Liability Act, for breach of
contract, and for quantum meruit. Additionally, he pleaded that because Jason
and Tom had denuded Midwestern of its corporate assets, they were individually
and derivatively responsible for any liability upon Midwestern.
Northwest and Riley amended their petition multiple times. In their third
amended petition, they added the O’Connells as defendants.4 They pleaded that
the O’Connells had sufficient contacts with Texas to support personal jurisdiction
and that jurisdiction over them would not offend traditional notions of fair play and
substantial justice. They also alleged that the claims they asserted against the
O’Connells arose out of transactions that had occurred in Texas.
More specifically, with respect to the events that occurred upon the
O’Connells’ discovery of Tony’s fraudulent check-kiting scheme, Northwest and
Riley pleaded the following:
Jeff Cox was told by representatives of [Midwestern] that “we have a
problem” in Texas. . . .
In several conversations that followed, Jeff Cox was led to
believe by Jason O’Connell that efforts were underway to collect any
4
Northwest and Riley joined together as plaintiffs in their third amended
petition. Although some of the claims in the third amended petition designate
only Northwest as the claimant, for simplicity, we will generally refer to the claims
included in the third amended petition as “Northwest and Riley’s” claims.
Northwest and Riley also sued O’Connell Cattle Company, LLC; OC Cattle
Brokers, LLC; and Points West. The claims against those defendants are not at
issue in this appeal.
7
cattle found in the possession of Lyon Farms in Texas, and that the
cattle collected would be used to help try to make all those impacted
by Tony Lyon’s fraudulent scheme whole, including [Northwest].
Specifically, Jeff Cox was led to believe that [Midwestern],
[Northwest,] and other victims would be acting together as a “team”
in order to recover any losses from the fraudulent scheme . . . .
In reliance upon the representations by Jason O’Connell, Jeff
Cox (at all times acting as [Northwest and Riley’s] representative)
refrained from taking any direct action to take possession of cattle
found at Lyon Farms. Instead, acting consistently with what Jeff Cox
was told by Jason O’Connell, [Northwest] accepted shipment of
approximately 41 head of cattle taken from Lyon Farms for feeding
and care. [Northwest] cared for the cattle, incurring approximately
$16,193.11 in costs. After finish out, the cattle were sold . . . . The
net proceeds paid were $61,268.20. In compliance with the
representations of Jason O’Connell that the cattle seized were for
the mutual benefit of [Northwest and Midwestern], Jeff Cox directed
that the checks issued by [the buyer] be made payable to both
[Northwest and Midwestern].
However, as it turns out, Jason O’Connell was not acting for
the mutual benefit of [Northwest and Midwestern]. Instead, Jason
O’Connell headed to Texas following a late June meeting with [Tom]
and their bankers at Points West Community Bank. As a result of
this meeting, Jason O’Connell [went] to Texas to confront Tony
Lyon. His actions confirm that Jason O’Connell [and] Tom O’Connell
. . . intended to take any cattle found in the possession of Lyon
Farms for the exclusive benefit of [Midwestern].
By July 1, 2015, Jason O’Connell was in Texas . . . taking
inventory of the cattle found in the possession of Lyon Farms. Jason
O’Connell then drafted a document for signature by . . . Tony Lyon in
order to “confirm” ownership of approximately 850 head of cattle
found on Lyon Farms. . . .
....
. . . After the initial shipment of the 41 head of cattle [to
Northwest], the remaining cattle were dispatched to various locations
in North Texas and sold over the course of July, August,
September[,] and October. According to [Midwestern],
approximately 585 head of the seized cattle were sold for
8
approximately $907,769.98, and this sum was applied to the
overdraft . . . .
....
When the fraudulent scheme unraveled, rather than take care
of [Midwestern’s] customers victimized by the scheme, Jason
O’Connell and Tom O’Connell sought to protect [Midwestern] first,
which caused further harm to victimized customers such as
[Northwest]. Through fraudulent representations and other wrongful
conduct, Jason O’Connell and Tom O’Connell, with the help of
others, have caused further damages to [Northwest] beyond the
initial harms resulting from the fraudulent conduct of [Midwestern’s]
agent – Tony Lyon.
From these facts, Northwest and Riley pleaded a fraud claim against
Jason, alleging that he had falsely represented that “[Northwest and Riley] would
receive a share of the proceeds from the cattle seized from Lyon Farms . . . and
that [Midwestern] and [Jason] would act in the joint interest of [Midwestern] and
[Northwest] as a ‘team’ with respect to [recovering losses with] the seized cattle.”
Northwest and Riley also pleaded a claim of fraud by nondisclosure against
Jason and Tom, alleging that they had a duty to disclose facts related to the
seizure of cattle from Lyon Farms, that they did not disclose the facts, and that
their failure to disclose “induced [Northwest] to refrain from taking any action with
respect to the cattle in the possession of Lyon Farms so that” Midwestern, Jason,
Tom, and Points West “would receive the exclusive benefit of proceeds from
selling the seized cattle.”
Northwest and Riley also pleaded that Tom was liable for such fraud by
nondisclosure because he retained benefits of the fraud and therefore ratified it.
9
Further, they pleaded a claim of civil conspiracy to commit fraud against Jason
and Tom, a claim of negligent undertaking against Jason, a claim of breach of
fiduciary duty against Jason and of knowing participation in a breach of fiduciary
duty against Tom, and claims of interference with prospective business relations
and of money had and received against Jason and Tom. Finally, like Cox,
Northwest and Riley pleaded that Jason and Tom were derivatively responsible
for Midwestern’s liabilities because they had denuded Midwestern of its corporate
assets.
The O’Connells filed a special appearance, arguing that all of appellants’
claims against them should be dismissed for lack of personal jurisdiction. The
O’Connells argued that they were out-of-state residents “with virtually no contacts
with the State of Texas.” They asserted their sole contact with Texas had been
through Midwestern and that they had never acted in Texas in their individual
capacities.
Supporting their special appearance, the O’Connells each filed sworn
statements. Jason swore that he has never resided in Texas and has not owned
property here. He stated that any business that he had conducted in Texas,
including the seizure of cattle from Lyon Farms, was as a representative of
Midwestern. Finally, he swore that travelling to Texas to defend against
appellants’ claims would be burdensome to his business responsibilities. Tom
swore to similar facts.
10
After considering the parties’ written and oral arguments, the trial court
granted the O’Connells’ special appearance and dismissed appellants’ claims
against them for lack of personal jurisdiction. The court made the following
findings and conclusions:
FINDINGS OF FACT
1. Jason . . . was at all pertinent times a resident of Colorado
or Arizona.
2. Any business Jason . . . conducted in Texas within the last
seven years has been conducted as a representative of
[Midwestern].
3. Jason . . . has not, on his own behalf, conducted business
or had contact with [Tony], . . . [Northwest], [Riley], or . . . Cox in
Texas.
4. Tom . . . is a Nebraska resident.
5. Any business Tom . . . conducted in Texas within the last
seven years has been conducted as a representative of
[Midwestern].
6. Tom . . . has not, on his own behalf, conducted business or
had contact with [Tony], . . . [Northwest], [Riley], or . . . Cox in Texas.
....
CONCLUSIONS OF LAW
11. [Appellants] did not allege or prove that general jurisdiction
exists for claims asserted against [the O’Connells].
12. [Appellants] failed to establish that the Court has specific
jurisdiction over Jason . . . because: (1) Jason . . . has not
committed a tort in Texas in his individual capacity; and (2) the
causes of action asserted by [appellants] do not arise from, and are
not substantially related to, purposeful contacts made by Jason . . .
in his individual capacity with Texas.
11
13. [Appellants] failed to establish that the Court has specific
jurisdiction over Tom . . . because: (1) Tom . . . has not committed a
tort in Texas in his individual capacity; and (2) the causes of action
asserted by [appellants] do not arise from, and are not substantially
related to, purposeful contacts made by Tom . . . in his individual
capacity with Texas.
Appellants brought this interlocutory appeal.5
Personal Jurisdiction
Appellants raise four issues on appeal, principally arguing that on a theory
of specific jurisdiction, the record sufficiently establishes the requisites of
personal jurisdiction over the O’Connells.6
The constitutional contours of personal jurisdiction
The concept of personal jurisdiction flows from the Due Process Clause of
the Fourteenth Amendment and refers to a court’s power to bind a nonresident
party to a judgment. CSR Ltd. v. Link, 925 S.W.2d 591, 594 (Tex. 1996); see
U.S. Const. amend. XIV, § 1. The personal-jurisdiction requirement recognizes
an individual liberty interest in that it protects a defendant against the burdens of
litigating in a distant forum. See Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites
de Guinee, 456 U.S. 694, 702 n.10, 102 S. Ct. 2099, 2104 n.10 (1982).
The Texas long-arm statute, which sets the limits of personal jurisdiction in
this state, reaches as far as due process allows. CSR Ltd., 925 S.W.2d at 594;
5
See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(7) (West Supp. 2017).
6
Appellants do not argue that the O’Connells are subject to the trial court’s
jurisdiction on a theory of general jurisdiction.
12
see Tex. Civ. Prac. & Rem. Code Ann. § 17.042 (West 2015); see also Zinc
Nacional, S.A. v. Bouche Trucking, Inc., 308 S.W.3d 395, 397 (Tex. 2010)
(recognizing that section 17.042’s broad language extends jurisdiction to the
limits of due process). Accordingly, a Texas court may exercise personal
jurisdiction over a nonresident defendant if the defendant has minimum contacts
with Texas and the exercise of jurisdiction comports with traditional notions of fair
play and substantial justice. M & F Worldwide Corp. v. Pepsi-Cola Metro.
Bottling Co., 512 S.W.3d 878, 885 (Tex. 2017); Rubinstein v. Lucchese, Inc., 497
S.W.3d 615, 623 (Tex. App.—Fort Worth 2016, no pet.) (citing Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158 (1945)).
The touchstone of a minimum-contacts analysis is purposeful availment:
the defendant must purposefully avail itself of the privilege of conducting
activities within the forum state, thus invoking the benefits and protections of its
laws. Cornerstone Healthcare Grp. Holding, Inc. v. Nautic Mgmt. VI, 493 S.W.3d
65, 70 (Tex. 2016). Three principles govern our consideration of a defendant’s
purposeful availment: (1) only the defendant’s contacts with the forum are
relevant, not the unilateral activity of another party or third person; (2) the
defendant’s acts must be purposeful and not random or fortuitous; and (3) the
defendant must seek some benefit, advantage, or profit by availing itself of the
jurisdiction such that it impliedly consents to suit there. M & F Worldwide Corp.,
512 S.W.3d at 886.
13
A plaintiff may establish a defendant’s “minimum contacts” on bases of
general jurisdiction or specific jurisdiction. Rubinstein, 497 S.W.3d at 623.
General jurisdiction over a nonresident defendant exists when the defendant’s
affiliations with the forum state are so continuous and systematic as to render it
“essentially at home” there. Searcy v. Parex Res., Inc., 496 S.W.3d 58, 72 (Tex.
2016). General jurisdiction involves a court’s ability to exercise jurisdiction over a
nonresident defendant based on any claim, including claims unrelated to the
defendant’s contacts with the state. M & F Worldwide Corp., 512 S.W.3d at 885.
Specific jurisdiction, on the other hand, exists when the defendant’s
activities in the forum state, even if isolated or sporadic, beget the liability sued
on; it arises when the plaintiff’s claims link to the defendant’s contacts with the
forum. Searcy, 496 S.W.3d at 67; TV Azteca v. Ruiz, 490 S.W.3d 29, 37 (Tex.
2016), cert. denied, 137 S. Ct. 2290 (2017). In a specific-jurisdiction analysis, we
consider “the relationship between the defendant, the forum state, and the
litigation”; for jurisdiction to attach, the “defendant’s contacts with the forum state
[must be] substantially connected to the alleged operative facts of the case.”
Searcy, 496 S.W.3d at 67, 70; see also Guidry v. U.S. Tobacco Co., 188 F.3d
619, 628 (5th Cir. 1999) (“When a nonresident defendant commits a tort within
the state, . . . that tortious conduct amounts to sufficient minimum contacts with
the state by the defendant to constitutionally permit courts within that state . . . to
exercise personal adjudicative jurisdiction over the tortfeasor and the causes of
actions arising from its offenses or quasi-offenses.”). A plaintiff must establish
14
specific jurisdiction on a claim-by-claim basis unless all the asserted claims arise
from the same forum contacts. M & F Worldwide Corp., 512 S.W.3d at 886.
Once a plaintiff establishes a nonresident defendant’s “minimum contacts”
through general jurisdiction or specific jurisdiction, it is a “rare case when the
exercise of jurisdiction over that defendant does not comport with traditional
notions of fair play and substantial justice.” MasterGuard L.P. v. Eco Techs. Int’l
LLC, 441 S.W.3d 367, 381 (Tex. App.—Dallas 2013, no pet.). To show that
jurisdiction does not comport with fair play and substantial justice in such a case,
the defendant must present a compelling case that the presence of some
consideration would render jurisdiction unreasonable. Guardian Royal Exch.
Assur. v. English China Clays, P.L.C., 815 S.W.2d 223, 231 (Tex. 1991).
The parties’ burdens and our standard of review
The plaintiff and the defendant have shifting burdens in a challenge to
personal jurisdiction. Kelly v. Gen. Interior Constr., 301 S.W.3d 653, 658 (Tex.
2010); see Tex. R. Civ. P. 120a. The plaintiff bears the initial burden of pleading
sufficient facts to establish jurisdiction. See Rubinstein, 497 S.W.3d at 623. The
specially-appearing defendant must then negate all bases of personal jurisdiction
that the plaintiff has pleaded. Id. The defendant may do so by presenting
evidence that it has no contacts with Texas or by showing that even if the facts
alleged by the plaintiff are true, they are legally insufficient to establish the
15
propriety of jurisdiction over the defendant.7 See OZO Capital, Inc. v. Syphers,
No. 02-17-00131-CV, 2018 WL 1531444, at *4 (Tex. App.—Fort Worth Mar. 29,
2018, no pet. h.) (mem. op.). The plaintiff may respond to any evidence
presented by the defendant by presenting evidence that affirms its jurisdictional
allegations. Id. (citing Kelly, 301 S.W.3d at 659).
“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.” Kelly, 301 S.W.3d at 658. Whether a trial court has
personal jurisdiction over a defendant is a question of law that we review de
novo. M & F Worldwide Corp., 512 S.W.3d at 885.
Northwest and Riley’s direct claims against Jason – minimum contacts
Appellants argue in their first and second issues that the trial court has
specific jurisdiction over Jason because their claims against him “arise out of his
contacts directed at Texas—the seizure of the cattle from Lyon Farms and the
misrepresentations to” Cox. In Northwest and Riley’s third amended petition—
their live pleading—they segregate their claims related to the 554 steers and their
claims related to the seized cattle. Their direct claims against Jason relate only
7
In this appeal, we construe the parties’ briefs as principally arguing about
the jurisdictional significance of facts, not as arguing about any resolution by the
trial court of conflicting, disputed facts. The record does not indicate that the trial
court based its decision on the resolution of conflicting facts, so we will conduct a
matter-of-law review of the facts as pleaded and proved. See Knight Corp. v.
Knight, 367 S.W.3d 715, 724–25 (Tex. App.—Houston [14th Dist.] 2012, no pet.).
16
to the seized cattle.8 Although those claims have varying legal bases, the
essential factual allegations for the claims are the same: Jason knew that
Northwest and Midwestern were each victims of Tony’s fraud; he represented
that Midwestern would seize the cattle for the benefit of Northwest and
Midwestern with the purpose of helping them both recover from that fraud;
contrary to the representation, he planned to use proceeds from the sale of the
seized cattle only for remediating Midwestern’s losses and for repaying the
overdraft from Points West; he induced Tony to execute a document to give
Midwestern all rights to the cattle; he intended for Northwest to rely on his
representation by refraining to take its own actions to recover its losses, and
Northwest did so; and his representation was false because Midwestern did not
share proceeds derived from sales of the seized cattle.
Supporting these allegations, Northwest and Riley presented
circumstantial evidence indicating a shared understanding in Texas between
Cox, Tony, Jason, and Tim Correll that Northwest and Midwestern would work
together to manage the seized cattle and to share proceeds from sales.
Northwest also presented evidence that Cox acted according to, and therefore
relied upon, that understanding.
8
Thus, we reject Jason’s argument on appeal that in “this case, the subject
matter of the litigation is [Midwestern’s] sale of 554 steers to Northwest.” We
also reject Jason’s unexplained assertion that Northwest and Riley’s claims
against him cannot be “stand alone claims.”
17
As explained above, Tony testified that when he signed the document that
Jason presented to him after Jason arrived in Perrin, he understood that the
cattle would be moved to Northwest’s property in Nebraska. Cox testified that
when he arrived at Lyon Farms after the exposure of Tony’s fraud, Tony “said . . .
he was going to . . . turn all of his inventory over to us, which would be
Midwestern and myself, and you know, just go from there and . . . try to work this
out.” Cox also testified, “Jason and I and [Tim Correll] talked that we would move
all the cattle to Nebraska to Northwest.” He later testified,
Jason and Tim . . . who represent Midwestern . . . were here a few
days prior to me in July [2015]. . . . [W]e were going to take [the
cattle] to Nebraska, just get them out of here. Well, that wasn’t
going to work. It’s too hot, different kind of cattle, it wasn’t going to
work. They sent 37 bred cows and 4 open cows to my feed yard. In
turn, we kept them there, fed them, calved out what we could. What
these reflect are the sales of [those] cattle, the cows and calves and
then the opens that didn’t have calves and so these checks, when I
took them to the sale barn, we have brand laws in our state that
whose cattle are these? Well, I have a vested interest in them and
so does Midwestern, so I had the checks made out to Northwest and
Midwestern and I’ve retained them in my possession.
....
. . . I got out and talked to Tim and said, you know, where are
these cattle, what are you guys finding? You know, they were
around there, had been there for a couple days, three or four days,
and they were -- we had spoke[n] every day, Jason and Tony and --
not Tony, but Tim and I had spoke[n] every day while they were
down there trying to find what they could. I talked to Tim about
where they were moving them, . . . what we were going to do with
them as a group. . . . You know, we talked on the phone a couple
days previous about our plan of action to get them . . . off of the
property and -- not that Texas is a bad place, but we wanted them in
Nebraska, just to get them out of here. [Emphases added.]
18
The pleadings and evidence, considered together, establish that the
shared essence of Northwest and Riley’s direct claims9 against Jason is that he
drove to Texas, made (by himself or through his agent Tim Correll)10
representations in Texas about cattle in Texas, and seized the cattle in Texas
with the intent of acting contrary to the representations.11 Accordingly, we hold
that the pleadings and evidence establish sufficient minimum contacts between
Jason and Texas for the exercise of personal jurisdiction on a theory of specific
jurisdiction, as the claims against Jason arise out his contacts with this state.
See Guidry, 188 F.3d at 628; Searcy, 496 S.W.3d at 67; see also Trois v. Apple
Tree Auction Ctr., 882 F.3d 485, 487–88, 490–91 (5th Cir. 2018) (recognizing the
existence of specific jurisdiction over an Ohio defendant for a fraud claim when
the defendant allegedly made misrepresentations through phone calls to the
9
We discuss appellants’ derivative denuding claims against Jason below.
10
“[T]he actions of an agent may establish minimum contacts over a
principal.” McFadin v. Gerber, 587 F.3d 753, 761 (5th Cir. 2009), cert. denied,
562 U.S. 827 (2010). Further, we note that fraud may occur when a defendant
transmits a misrepresentation to a plaintiff through a third party as long as the
defendant intended for the misrepresentation to reach the plaintiff and intended
to induce the plaintiff’s reliance. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co.,
51 S.W.3d 573, 578 (Tex. 2001).
11
We recognize, as the O’Connells argue, that in a February 2016
deposition, Cox testified that he was not accusing the O’Connells of making false
representations. In Northwest and Riley’s response to the O’Connells’ special
appearance, they alleged that discovery in their suit against Midwestern had
revealed “previously undisclosed actions of [the O’Connells] related to the
seizure of the cattle.” Considering Cox’s statement in his deposition cumulatively
with the remaining evidence in the record, we conclude that the statement does
not negate the trial court’s specific jurisdiction over Jason.
19
plaintiff, who lived in Texas); Patel v. Pate, No. 02-16-00313-CV, 2017 WL
2871684, at *5 (Tex. App.—Fort Worth July 6, 2017, no pet.) (mem. op.) (“A
nonresident who, while physically present in the State of Texas, either makes
statements alleged to be fraudulent or fails to disclose material information that
he is under a duty to disclose is subject to specific jurisdiction in Texas in a
subsequent action arising from the statement or nondisclosure.”).
Citing Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 573 (Tex.
2007), Jason argues that his alleged misrepresentation cannot support specific
jurisdiction because it is “ancillary” to the litigation. We cannot agree that this
case is analogous to Moki Mac, in which the supreme court held that Texas’s
connection to litigation was too attenuated when the litigation would principally
focus on an alleged wrongful death that occurred in Arizona after the decedent’s
mother read representations from a company’s brochures and websites while in
Texas. See id. at 573, 585–88. Here, the litigation by Northwest and Riley
against Jason will principally focus on his alleged misrepresentation, an event
that occurred in Texas.
The trial court did not find that Jason did not have sufficient minimum
contacts with Texas in a literal sense; rather, the court appeared to predicate its
ruling on its finding that he made any such contacts only as Midwestern’s
representative, not in his individual capacity. In a hearing on the O’Connells’
special appearance, they relied, in part, on the fiduciary shield doctrine to
contend they could not be individually liable for acts on Midwestern’s behalf.
20
Appellants, however, argue that an agent who knowingly participates in a
tortious or fraudulent act may be held individually liable to third persons even
though he performed the act as an agent of the corporation. This is the law in
Texas. See Nwokedi v. Unlimited Restoration Specialists, Inc., 428 S.W.3d 191,
201 (Tex. App.—Houston [1st Dist.] 2014, pet. denied). And although the
fiduciary shield doctrine protects corporate officers in some circumstances from
being subject to jurisdiction on a general jurisdiction theory, it “does not protect a
corporate officer from specific personal jurisdiction as to intentional torts or
fraudulent acts for which he may be held individually liable.” Steamboat Capital
Mgmt. v. Lowry, No. 01-16-00956-CV, 2017 WL 5623414, at *10 (Tex. App.—
Houston [1st Dist.] Nov. 21, 2017, no pet.) (mem. op.); see Trois, 882 F.3d at 492
(holding that the “fact that the court ha[d] personal jurisdiction over [the individual
defendant was] an issue separate from his personal liability for the conduct of the
corporation, which if relevant, would be more appropriately determined on the
merits at a later stage of th[e] litigation”); Nev. Nat’l Advert., Inc. v. Silverleaf
Resorts, Inc., No. 05-16-00694-CV, 2017 WL 655949, at *11 (Tex. App.—Dallas
Feb. 17, 2017, no pet.) (mem. op.) (holding that the “fiduciary shield doctrine [did]
not protect [an individual defendant] from the exercise of specific jurisdiction,
even if all of his contacts with Texas were performed in a corporate capacity”);
Esse v. BP Am. Prod. Co., No. 01-04-00567-CV, 2006 WL 1227724, at *8 (Tex.
App.—Houston [1st Dist.] May 4, 2006, no pet.) (mem. op.) (explaining that
“Texas courts applying the fiduciary shield doctrine have expressly limited its
21
application to attempts to exercise general jurisdiction over a nonresident
defendant”). Therefore, we reject the trial court’s conclusion that it did not have
jurisdiction over Jason because he did not act in his individual capacity in Texas.
In the part of Jason’s briefing in which he discusses minimum contacts, he
challenges Northwest’s claims of money had and received, tortious interference
with prospective business relations, and negligent undertaking on grounds that
Northwest did not “plead sufficient facts to impose liability” for those claims. He
also argues that Northwest’s fraud by nondisclosure claim fails because he did
not have a duty to disclose information to Northwest. In their reply brief,
appellants contend that these “arguments are better suited for summary
judgment.”
We “do not address the merits of the tort claims in reviewing the special
appearance; rather, we . . . analyze the quality and nature of . . . contacts in light
of [the] pleaded tort claims.” OZO Capital, 2018 WL 1531444, at *6 n.9;
Richardson v. MH Outdoor Media, LLC, No. 14-16-00041-CV, 2016 WL
4921104, at *8 (Tex. App.—Houston [14th Dist.] Sept. 15, 2016, no pet.) (mem.
op.) (declining to address an argument that there was no duty to disclose with
respect to a fraud claim because the argument was “not appropriate at the
special-appearance stage”) (citing Dresser-Rand Grp. v. Centauro Capital,
S.L.U., 448 S.W.3d 577, 584 (Tex. App.—Houston [14th Dist.] 2014, no pet.));
see also Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 790–91
(Tex. 2005) (explaining that a nonresident should not be able to “defeat
22
jurisdiction by proving there was no tort” and that the relevant question is
“contacts” rather than “culpability”); In re Cho, No. 02-17-00254-CV, 2017 WL
3911002, at *2 (Tex. App.—Fort Worth Sept. 7, 2017, orig. proceeding) (mem.
op.) (“A court should not reach the merits of the case when deciding a special
appearance.”). We decline to address Jason’s merit-based challenges to the
claims against him.
For all of these reasons, we conclude that on a theory of specific
jurisdiction, Jason has sufficient minimum contacts with this state for our courts
to exercise jurisdiction over him with regard to Northwest and Riley’s direct
claims.12 See M & F Worldwide Corp., 512 S.W.3d at 885; Searcy, 496 S.W.3d
at 67. To that extent, we sustain appellants’ first and second issues, which relate
to the trial court’s jurisdiction over Jason on the basis of his minimum contacts.
Northwest and Riley’s direct claims against Jason – fair play and
substantial justice
The trial court did not explicitly find whether jurisdiction over Jason would
comport with notions of fair play and substantial justice, the second part of our
jurisdictional inquiry.13 See M & F Worldwide Corp., 512 S.W.3d at 885;
12
When we hold that a trial court has jurisdiction over a nonresident
defendant on the basis of specific jurisdiction, we need not analyze whether
personal jurisdiction exists on a theory of general jurisdiction. See Spir Star AG
v. Kimich, 310 S.W.3d 868, 872 (Tex. 2010).
13
In part of their fourth issue, appellants contend that the trial court erred
by failing to make findings and conclusions concerning whether jurisdiction over
the O’Connells comports with fair play and substantial justice. We decline to
address that part of appellants’ fourth issue because its resolution does not affect
23
Rubinstein, 497 S.W.3d at 623. As explained above, when a nonresident has
sufficient minimum contacts for a forum state to exercise jurisdiction, it usually
follows that jurisdiction does not offend notions of fair play and substantial justice.
See MasterGuard L.P., 441 S.W.3d at 381. In analyzing whether jurisdiction
comports with fair play and substantial justice, we consider, among other factors,
the burden on the defendant, the interests of the forum in adjudicating the
dispute, and the plaintiff’s interest in obtaining convenient and effective relief. TV
Azteca, 490 S.W.3d at 55.
In part of their fourth issue, appellants contend that because the claims by
Northwest and Riley against Midwestern will be heard in Texas, “it would be
more efficient to adjudicate the entire case in the same place.” In accordance
with that argument, our supreme court has noted that adjudicating a plaintiff’s
claims “against all defendants in one proceeding provides the most efficient
means for resolving [the] disputes.” Id. at 56; see Spir Star AG, 310 S.W.3d at
879 (“[I]t would be more efficient to adjudicate the entire case in the same
place.”). Thus, we conclude that Northwest and Riley’s interests in adjudicating
their claims against all of the defendants in the same forum weigh in favor of
Texas’s jurisdiction over Jason. Further, although Jason swore in the trial court
that appearing in Texas to defend against this suit would be burdensome to his
our disposition of the appeal. See Tex. R. App. P. 47.1 (“The court of appeals
must hand down a written opinion that is as brief as practicable but that
addresses every issue raised and necessary to final disposition of the appeal.”).
24
business responsibilities, we note that Midwestern litigated its own suit against
Tony through a jury trial in Texas and that Jason testified at that trial, indicating
that the burden upon him to participate in litigation in Texas is not onerous.14
Jason argues that litigation in Nebraska would be more sensible for the
parties, but our review of his arguments and of the record reveals no compelling
reason why jurisdiction over Northwest and Riley’s claims against him in Texas is
unreasonable. See Guardian Royal Exch. Assur., 815 S.W.2d at 231. The fact
that the claims might be fairly litigated in another forum does not mean that
jurisdiction is inappropriate in this one. See Conner v. ContiCarriers & Terminals,
Inc., 944 S.W.2d 405, 420 (Tex. App.—Houston [14th Dist.] 1997, no writ)
(plurality op.) (explaining that “inconvenience is not sufficient to overcome
jurisdiction”); see also Sarieddine v. Moussa, 820 S.W.2d 837, 844 (Tex. App.—
Dallas 1991, writ denied) (stating, in the context of discussing the doctrine of
forum non conveniens, that a trial court “may not dismiss simply because it
determines that another forum is superior to that chosen by the plaintiff”).
For these reasons, we conclude that Texas’s jurisdiction over Jason
comports with notions of fair play and substantial justice.15 See Guardian Royal
14
Midwestern obtained a money judgment against Tony.
15
Under the same rationale, we conclude that as to appellants’ derivative
claims against Tom that are based on his alleged denuding of Midwestern’s
corporate assets, jurisdiction over him comports with notions of fair play and
substantial justice. We will discuss the issue of minimum contacts for those
claims below.
25
Exch. Assur., 815 S.W.2d at 231. To that extent, we sustain Northwest’s fourth
issue.
Northwest and Riley’s direct claims against Tom – no minimum contacts
In appellants’ third issue, they contend that the trial court erred by granting
Tom’s special appearance. They assert in briefing that the trial court has specific
jurisdiction over Tom because he participated (along with Jason and Points
West) in a plan to seize cattle from Lyon Farms to repay the $1.3 million
overdraft and personally benefited from the seizure of the cattle. They contend in
their brief that to “negate specific jurisdiction, [Tom] must show that [appellants’]
claims do not arise out of the seizure of the cattle.”
As conceded by appellants in oral argument, however, their claims with
respect to the seized cattle cannot substantially arise from their mere seizure
unconnected with Jason’s alleged misrepresentation about them. See Moki Mac,
221 S.W.3d at 585 (“[F]or 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.”). Rather, as
appellants have acknowledged, their direct claims against the O’Connells must
principally arise from Jason’s alleged misrepresentation relating to the seized
cattle and Cox’s alleged reliance, to his detriment, upon the misrepresentation.
In oral argument in this court, appellants’ counsel conceded that absent
the alleged misrepresentation, Northwest had “no more and no less of a right to
[the cattle] that were on [Tony’s] property . . . than [Midwestern] did. . . . But by
26
defrauding us, they were able to move themselves ahead of the line . . . .”
[Emphasis added.] Counsel further acknowledged that absent Jason’s alleged
misrepresentation, a claim could not arise from “two independent creditors
competing to get the same assets.” Counsel also asserted that the dual
operative facts of appellants’ claims relating to the seized cattle were their
seizure and Jason’s misrepresentation about them. And in their reply brief,
appellants acknowledge that their direct claims against Jason “arise from [his] trip
to Texas to seize and sell cattle while representing to Northwest that any cattle
found on Lyon Farms . . . would be used for the benefit of all the victims of the
fraudulent cattle scheme,” and their direct claims against Tom require his
direction of or participation in a tortious or fraudulent act. [Emphasis added.]
Appellants’ arguments on appeal do not explain Tom’s factual connection
to any misrepresentation. Although Northwest and Riley pleaded in the trial court
in a conclusory fashion that Tom could be liable for claims that required his
knowledge or participation in the alleged misrepresentation,16 they did not plead
16
Northwest and Riley pleaded a fraud by nondisclosure claim against
Tom, but they predicated Tom’s alleged duty to disclose on a “special
relationship” formed through Jason’s alleged misrepresentation or a false
impression that flowed from the alleged misrepresentation. Similarly, Northwest
and Riley pleaded that Tom was liable for engaging in a conspiracy but
predicated the conspiracy on the conspirators’ intent to “induce [Northwest] to
refrain from taking any action to recover losses from cattle found on Lyon
Farms.”
Northwest and Riley also pleaded that Tom could be liable for aiding and
abetting fraud, for ratifying fraud, and for knowingly participating in Jason’s
breach of a fiduciary duty, but those theories of liability require Tom’s knowledge
27
facts specifying how Tom encouraged, knew about, or was involved in the
alleged misrepresentation in Texas that Jason made to Cox about the seized
cattle.17 Cf. Abdulhussein v. Rezz Invs. Ltd., No. 01-17-00096-CV, 2018 WL
769306, at *1 (Tex. App.—Houston [1st Dist.] Feb. 8, 2018, no pet.) (“[T]he
plaintiff bears the initial burden to plead factual allegations sufficient to confer
personal jurisdiction over the defendant . . . .”); Haferkamp v. Grunstein, No. 11-
10-00194-CV, 2012 WL 1632009, at *6 (Tex. App.—Eastland May 10, 2012, pet.
denied) (mem. op.) (holding that a plaintiff did not plead sufficient jurisdictional
allegations when the plaintiff’s petition was vague and conclusory). Further, our
review of the evidence presented by the parties does not indicate Tom’s role in
Jason’s alleged misrepresentation.
Thus, we conclude that with regard to their direct claims against Tom,
Northwest and Riley did not meet their initial burden of pleading sufficient
of the alleged misrepresentation. See W. Fork Advisors, LLC v. SunGard
Consulting Servs., 437 S.W.3d 917, 921 (Tex. App.—Dallas 2014, pet. denied)
(explaining that aiding and abetting claims “require the actor, with unlawful intent,
to give substantial assistance and encouragement to a wrongdoer in a tortious
act”); FDIC/Manager Fund v. Larsen, No. 05-88-00137-CV, 1993 WL 37380, at
*7 & n.6 (Tex. App.—Dallas Feb. 11, 1993, writ denied) (op. on remand, not
designated for publication) (discussing ratification). Finally, Northwest pleaded
claims of interference with prospective business relations and of money had and
received against Tom, but Northwest based those claims on Jason’s alleged
unlawful misrepresentations.
17
In the “Factual Background” portion of their third amended petition,
Northwest and Riley pleaded that Tom “intended to take any cattle found in the
possession of Lyon Farms for the exclusive benefit of Midwestern Cattle” but did
not plead how Tom was involved in Jason’s alleged misrepresentation to Cox.
28
allegations to bring Tom within the provisions of the Texas long-arm statute for
specific personal jurisdiction. See Rubinstein, 497 S.W.3d at 623. Even if the
petition alleges and the evidence shows, as appellants assert, that Tom has
some connection with Texas because he participated in a plan for Jason to drive
to Texas to seize cattle, the mere plan to seize and the actual seizure of the
cattle cannot support specific jurisdiction against Tom because those acts do not
comprise the operative facts of Northwest and Riley’s direct claims against him.
See Moki Mac, 221 S.W.3d at 585. We overrule appellants’ third issue except to
the extent of appellants’ derivative denuding claims against Tom.
Denuding claims against Jason and Tom
Finally, as we explained above, after Midwestern brought a third-party
claim against Cox, Cox brought a counterclaim against Midwestern that sought
money for services that Cox pleaded he had rendered for Midwestern. In the
same pleading, Cox pleaded that Jason and Tom had denuded Midwestern of its
corporate assets, and he pleaded that Jason and Tom were liable for
Midwestern’s obligations to him under a denuding theory. More specifically, Cox
pleaded that the O’Connells had transferred Midwestern’s corporate assets to
other business ventures that they owned. Cox also pleaded that the new
business ventures “continue[d] to operate in the same manner and, in fact, in the
same facility . . . as Midwestern . . . [had] operated. The O’Connells . . . simply
changed the names of the operation in an effort to avoid obligations to creditors
of Midwestern . . . .” Similarly, Northwest and Riley relied on a denuding theory
29
in their live pleading to assert that the O’Connells should be liable for
Midwestern’s debts and obligations. On appeal, the O’Connells contend that no
jurisdiction exists with respect to these denuding claims only because if
“denuding occurred[,] . . . there is no suggestion it happened in Texas or caused
a harm in Texas.”18
The “denuding” theory allows for a defendant’s personal liability for the
obligations of a corporation when the defendant has stripped the corporation of
its assets that the corporation could have used to pay a creditor or a claimant.
See World Broad. Sys., Inc. v. Bass, 328 S.W.2d 863, 866 (Tex. 1959); Francis
v. Beaudry, 733 S.W.2d 331, 335 (Tex. App.—Dallas 1987, writ ref’d n.r.e.).
Under the denuding theory, liability on the individual defendant is derivative of the
corporation’s liability for some obligation. See Francis, 733 S.W.2d at 335;
Fagan v. La Gloria Oil & Gas Co., 494 S.W.2d 624, 632 (Tex. Civ. App.—
Houston [14th Dist.] 1973, no writ).
18
We emphasize that on appeal, the O’Connells contest jurisdiction over
appellants’ denuding claims against them based only on pleadings; they do not
argue that the record contains insufficient evidence of denuding or provide any
analysis of the evidence in the record related to denuding. Similarly, we cannot
locate any part of the record in which the O’Connells contested jurisdiction over
appellants’ denuding claims on the basis that appellants did not provide sufficient
evidence to prove that denuding occurred. Without the benefit of briefing from
the O’Connells, we decline to undertake our own review of the lengthy record for
evidence related to denuding. See Tex. R. App. P. 38.1(i) (stating that a brief
must contain “a clear and concise argument for the contentions made, with
appropriate citations to authorities and to the record”).
30
The O’Connells do not argue in this appeal that Midwestern does not have
sufficient jurisdictional contacts with Texas to establish personal jurisdiction.
Because the O’Connells’ liability under a denuding theory, if any, derives from
Midwestern’s liability, we conclude that Midwestern’s jurisdictional contacts with
Texas may be imputed to them. See Karaa v. Aramoonie, No. 05-17-00571-CV,
2018 WL 1373958, at *4 (Tex. App.—Dallas Mar. 19, 2018, no pet.) (mem. op.)
(explaining that under the alter ego theory of corporate owner liability, the
corporation’s jurisdictional contacts may be imputed to the owner); Davey v.
Shaw, 225 S.W.3d 843, 854 (Tex. App.—Dallas 2007, no pet.) (stating the
same); see also Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 (5th
Cir. 2002) (“[F]ederal courts have consistently acknowledged that it is compatible
with due process for a court to exercise personal jurisdiction over an individual or
a corporation that would not ordinarily be subject to personal jurisdiction in that
court when the individual or corporation is an alter ego or successor of a
corporation that would be subject to personal jurisdiction in that court.”). And
because we have already held that jurisdiction over Jason and Tom does not
offend notions of fair play and substantial justice, we conclude that the trial court
erred to the extent that it dismissed appellants’ denuding claims against Jason
and Tom. We sustain appellants’ first through fourth issues to that extent.
31
Conclusion
Having sustained appellants’ first and second issues and dispositive
portions of its fourth issue, we hold that the trial court erred by concluding that it
does not have jurisdiction over Jason. We reverse the trial court’s “Order
Granting Newly Added Defendants’ Special Appearance” to the extent that the
order grants Jason’s special appearance and dismisses appellants’ claims
against him. Having overruled appellants’ third issue in part, we hold that the trial
court did not err by concluding that it does not have jurisdiction over Tom for
Northwest and Riley’s direct claims against him. We affirm the trial court’s order
to the extent that it dismisses Northwest and Riley’s direct claims against Tom:
fraud by nondisclosure, civil conspiracy, knowing participation in a breach of
fiduciary duty, interference with prospective business relations, and money had
and received.
But having sustained appellants’ third issue in part and having held that
jurisdiction over Tom does not offend traditional notions of fair play and
substantial justice as argued by appellants in their fourth issue to the extent of
appellants’ denuding claim against him, we reverse the trial court’s order to the
extent that it dismisses appellants’ denuding claim against Tom. We remand this
case to the trial court for further proceedings consistent with this opinion.19
19
We emphasize that we do not intend for any part of our analysis to
express an opinion on the merits of the causes of action at issue. See
Rubinstein, 497 S.W.3d at 624 (“The issue in question is whether the trial court
can exercise personal jurisdiction over Rubinstein given his contacts with Texas,
32
/s/ Wade Birdwell
WADE BIRDWELL
JUSTICE
PANEL: WALKER, MEIER, and BIRDWELL, JJ.
DELIVERED: June 14, 2018
not whether Lucchese has a viable cause of action against him. Personal
jurisdiction may exist even if the plaintiff ultimately loses his suit or has less than
a certain claim.”).
33