Datatreasury Corporation v. Wells Fargo & Company et al

Filing 540

REPLY to Response to Motion re #84 MOTION to Dismiss for Lack of Jurisdiction or in the Alternative, for Failure to State a Claim or for a More Definite Statement First Citizens BancShares, Inc.'s Reply to Plaintiff's Amended Response to Defendant First Citizens BancShares, Inc.'s Motion to Dismiss for Lack of Personal Jurisdiction filed by First Citizens Bancshares, Inc., First Citizens Bank & Trust Company. (Attachments: #1 Exhibit A - Supplemental Declaration of John Gray)(Carlson, Larry)

Case 2:06-cv-00072-DF-CMC

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UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS MARSHALL DIVISION

DATATRASURY CORPORATION
Plaintiff

CIVIL ACTION NO. 2:06- CV- 72JURY TRIAL DEMANDED
WELLS FARGO & COMPANY, et al.
Defendants.

FIRST CITIZENS BANCSHARES, INC. S REPLY TO PLAINTIFF' S AMENDED RESPONSE TO DEFENDANT FIRST CITIZENS BANCSHARES, INC.'S

MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
First Citizens BancShares, Inc. ("BancShares ) submits its reply to DataTreasury

Corporation s Amended Response to Defendant First Citizens BaneS hares , Inco's Motion to

Dismiss for Lack of Personal Jursdiction ("Amended Response
In its Amended Response, DataTreasury fails to establish any facts or legal theories that

warant asserting jurisdiction over BancShares.

Relying solely on specific jurisdiction

DataTreasury presents no evidence that BancShares engaged in any activity in Texas from which
DataTreasury
s claims arise. This

failure is fatal to DataTreasury s jurisdictional argument.

DataTreasury also relies on the doctrine of alter ego in an attempt to attribute the conduct of
BancShares ' subsidiaries to BancShares. But it falls woefully short of overcoming the heavy
presumption towards upholding the corporate form.
DataTreasury is left

arguing that

BancShares waived its jurisdictional defense by signing a Stipulation that led this Court to stay
the lawsuit as to the Ballard Patents. This waiver argument , however, is factually and legally
baseless. In the end, DataTreasury s effort to hale BancShares into this Court fails.

Dockets.Justia.co

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BancShares is not subject to specific jurisdiction in Texas.

BancShares has negated all jurisdictional grounds.

Contrar to DataTreasur

s assertion,

BancShares has negated the four general grounds

on which DataTreasur bases its jurisdictional argument. DataTreasury generally contends that
specific jurisdiction exists because Bancshares has provided or sold accused services directly or
indirectly in Texas. See

Amended Response at 3 (sumarizing the four al1eged grounds for
BancShares filed with its Motion to Dismiss unambiguously

jurisdiction). The declaration that

states that BancShares "has not and does not, on behalf of itself, its subsidiares, or any other
persons or entities,
offer for sale, sell

, advertise or provide any document, receipt ,
See

or check

imaging or processing services to any customers in the state of Texas or elsewhere.

Motion

to Dismiss at Ex. A

3. Given

that BancShares offers no services

or products in Texas

BancShares cannot be engaging in any allegedly- infriging
necessarily defeats a claim of specific jursdiction.

activity within the State ,

which

See 3D Sys., Inc. y. Aarotech Labs., Inc.. 160

F.3d 1373 ,

1380 (Fed. Cir. 1998) (noting that the jurisdictional inquiry ends in a case where the

defendant directs no allegedly infrnging activity toward the forum jurisdiction).

DataTreasury in its original Response wrongful1y argued that BancShares ' Motion to
Dismiss is "devoid
House
Response

of discussion about (BancShares

J relationship with SVPCo/The Clearing

at 4, which is one of DataTreasury s jurisdictional grounds. But Mr. Gray

declaration fied with the Motion to Dismiss negated any

possible allegation of infringing
any

activities in Texas that relate to the check imaging or processing products and services of

third pary, which would include SVPCo or CHPCo. In any event , BancShares' supplemental

declaration fied with its original Reply (Docket No. 167 (July 7 , 2006)), and resubmitted with
I DataTreasury in its Amended Response asserts only specific jurisdiction over

BancShares. See Amended Response at 2. By omission, DataTreasury concedes that this Court lacks general jurisdiction over BancShares.

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this brief,

reinforces Mr. Gray

s first declaration

by specifically noting that BancShares has
See

engaged in no activity involving SVPCo or CHPCo.

Ex. A, Supplemental Declaration of

John Gray in Support of Defendant First Citizens BancShares, Inc. s Motion to Dismiss for Lack
of Personal Jursdiction ("Supp.

Dec. ) at ~~ 4, 5.

DataTreasur s attempt to challenge Mr. Gray s declarations do not controvert his sworn
statements. DataTreasury argues

that the Cour should disregard Mr. Gray s first declaration
and his second declaration

because he did not type the document, Amended Response at 4-5,

because it was fied with BancShares' Reply. Amended Response at 4.

Not surprisingly,

DataTreasury provides no authority for these novel propositions. No authority holds that a
declaration warants less weight because
the declarant did not type the document.

And

DataTreasury ignores the fact that Mr. Gray testified in his deposition that he reviewed the first
declaration before signing it and participated in its editing. See

Amended Response at Ex. 4
suggested that a Court should

(Gray Dep.) at 57:3- , 112:22- 113:1.

Similarly, no cour has

ignore declarations fied with reply briefs. In fact, this Court' s local rules expressly allow parties
to submit supporting evidence with reply briefs. See

L.R. 7(a)(2) (noting that the page limit for a
DataTreasury also had the

reply brief does not include the length of any attached exhibits).

opportunity, but chose not to question Mr. Gray about his second declaration in his deposition.

DataTreasur also unsuccessfully challenges Mr. Gray s first declaration as inconsistent
with BancShares'
public filings. See

Amended Response at 5- 9. In making this argument

DataTreasur mischaracterizes those public filings and presents statements out of context to
indicate erroneously that they present information solely about B anc

Shares. In actuality, the

public fiings expressly

state that they present consolidated information , which "is a common

business practice, which the (IRS), the SEC, and generally accepted accounting principles

.,

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recommend. BMC Software Belgium, N V. v. Marchand 83 S.

3d 789 , 799- 800

(Tex. 2002).

For example, DataTreasury cites to deposition testimony regarding a BancShares 10-Q that states

BancShares and its subsidiaries invest in furniture and equipment. Amended Response at 6

(citing Ex. 4 (Gray

Dep.) at 179:1 - 184:23).

DataTreasury incorrectly characterizes

the

statement as evidencing conduct by BancShares in Texas , even though the statement states that it

refers to "BancShares and its subsidiaries. " Amended Response at Ex. 4 (Gray Dep. )

at 181 :1-

(quoting 10-Q in the question). The sentence in no maner contradicts Mr. Gray s statement that

BancShares engages in no activity in Texas. In fact , Mr. Gray s deposition testimony is wholly

consistent with his two declarations. DataTreasur has failed to demonstrate any inaccuracy in
those declarations or any inconsistency between them and Mr. Gray s testimony.
DataTreasury relies on irrelevant alleged contacts with Texas.

By relying solely on the doctrine of specific jurisdiction , DataTreasury must show that its

claims "result() from alleged injuries that arise out of or relate to " BancShares' alleged contacts
with Texas.

See Akro Corp. v. Luker

45 F.3d 1541 ,

1545 (Fed. Cir. 1995) (citation omitted).

This principle is critical because the alleged contacts with Texas on which DataTreasury relies

have nothing to do with the bankng services that DataTreasur alleges infringe its patents.
These alleged contacts include:

BancShares sending a check to a Texas address for KPMG services provided solely in

Nort

Carolina. Amended Response at 5;

see also id.

at Ex. 4 (Gray Dep. ) at 201:18-

202:12 (explaining that no contact with KPMG occured in Texas).

BancShares paying a photograph company in
Amended Response at 5.

Texas for

photography services.

BancShares "investing in branches and subsidiaries. Amended Response at 6.

fuiture " on a consolidated

basis with its

2 While DataTreasury also states that Mr. Gray was " confused" about his first declaration , Amended Response at 5, the testimony cited for this argument affords no such constrction. ld. at Ex. 4 (Gray Dep. ) at 56: 11-57:23.

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BancShares signing an insurance policy that covers "First Citizens BancShares, Inc. and its direct and indirect subsidiaries." Amended Response at 6; see also Amended Response at Ex. 4 (Gray Dep.) at 32:14-24) (noting that the named insured is "First Citizens BancShares, Inc. and its direct and indirect subsidiares
First Citizens Ban & Trust Company offering its clients an investment that involves a note held by BancShares. Amended Response at 5; see also Amended Response at Ex. 4 (Gray Dep.) at 152:11- 153:2 (explaining the Master Note program).
Whether or not these activities constitute contacts with Texas, it is undisputed that DataTreasury

alleges no cause of action that arises from or relates to these alleged contacts. As a result , these
activities are irrelevant as to whether specific jurisdiction exists.

DataTreasury s reliance on the alter ego doctrine fails.

DataTreasur in its Amended Response also asks this Court to cast aside the corporate
form and attribute to BancShares the activity of its subsidiaries in Texas. But DataTreasury in its

Amended Complaint pleads absolutely
alleged bases for personal jurisdiction.

no allegations of alter ego.

Plaintiffs must plead all
Deposit Co.,

See VBFSB Holding Corp.

v.

Fidelity

No.

CA3:95- CV- 00693-

, 1997 WL 527308 , *10 (N.D. Tex. Aug. 19, 1997) (the plaintiff failed to

satisfy the pleading requirements of FRCP 8(a); "Texas law requires that a plaintiff suing under
an alter ego theory must separately plead each basis for disregarding the corporate fiction

Even if DataTreasury had pled alter ego , it has failed to present any evidence supporting
this theory.

4 The

Federal Circuit, Fifth Circuit, and the Supreme Cour of Texas have advised
and uphold the

cours to recognize

corporate form,

and to cast

it aside only in unusual

3 DataTreasury

s assertions also are factuaJly unsupported. For example, Mr. Gray confirmed that BancShares did
at 180:1-

not invest in branches or furniture, Amended Response at Ex. 4 (Gray Dep. )
sold to any customer in Texas an interet in the Master Notes. ld.

, and has never offered or

4 DataTreasury has fied a Motion to Compel claiming that it requires stiJ more discovery in its futile effort to find

at 157: I 0-

, 159: 17-24.

evidence supporting its jurisdictional claim. BancShares has presented a corporate representative for deposition s interrogatories and requests for admissions. BancShares strongly disagrees that any additional discovery is required, and wil fie its response to the Motion to Compel within
produced documents, and responded to DataTreasury

the time aJlotted by this Court' s

local rules.

)).

...
Filed 02/23/2007 Page 6 of 11

Case 2:06-cv-00072-DF-CMC

Document 540

circumstances :
Federal Circuit: 3D Systems, Inc. v.

Aarotech Labs. ,

Inc. 160 F.3d 1373 , 1380-

81 (Fed. Cir. 1998) (citations omitted).

We have stated that the corporate form is not to be lightly cast aside. The court. . . must ' star from the general rule that the corporate entity should be recognized and upheld, uness specific, unusual circumstances call for an exception ' ... (or J unless there is at least' specific intent escape liabilty for a specific tort....
Fifth Circuit: Gardemal v. Westin Hotel Co.,

186 F.3d 588 ,
v.

593-594 (5th Cir.
2d 926 ,

Roy E. Thomas Construction Co. (Tex. App. -- Fort Worth 1985 , writ refd n.r.e.
1999) (quoting

Arbs 692 S.

938

It is not possible to more emphatically express the necessity for a plaintiff to prove that he wil suffer some type of harm or injustice by adhering to
the corporate fiction before the corporate veil wil be pierced.

Supreme Court of Texas:

BMC Software Belgium, N. V.

v.

Marchand 83 S.

3d 789

798- 799 (Tex. 2002).

Texas law presumes that two separate corporations are indeed distinct
entities. . .

. To "fuse"

the parent

jursdictional purses , the plaintiffs must prove the parent controls the
internal business operations and affairs of the subsidiar. (citation omitted)

company and its subsidiar for

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.

DataTreasury fails to identify any unusual circumstances that justify disregarding the corporate
form of BancShares and its subsidiaries. DataTreasury relies on the fact that BancShares and its

subsidiaries have overlapping boards and officers, that BancShares owns its direct subsidiaries
that BancShares fies consolidated infonnation in its public filings , that BancShares has provided
capital infsions to one of its subsidiaries , and that

some individuals perform services for
But case law,

BancShares and its subsidiares.

See

Amended Response at 9- 11.

including one

5 Federal Circuit law governs personal jurisdiction
Halberstadt 148 F. 3d
1355 ,
of the regional circuit applies.

in patent cases. Red Wing Shoe Co., Inc. v. Hockerson1358 (Fed. Cir. 1998). But when the plaintiff relies on the theory ofalter ego, the law lnsituform Technologies, Inc. v.

CAT Contracting, Inc. 385 F.3d 1360 ,

(Fed. Cir. 2004). In cases arising out of Texas ,

1380- 1381

the Fifth Circuit applies Texas law.

See Gardemal 186 F.3d at 593.

,"
Case 2:06-cv-00072-DF-CMC Document 540 Filed 02/23/2007 Page 7 of 11

on which DataTreasur relies, demonstrates that these facts
typical corporate relationship between a parent and subsidiar"
corporate veil.

revealD nothing more than a
that cannot justify piercing the

Gardemal 186 F. 3d at 594 (cited by DataTreasur, Amended Response at 13);
v.

see also Commonwealth General Corp.

York 177 S.

3d 923 925 (Tex. 2005) (finding that a
not warrant piercing the corporate

parent company s complete ownership of its subsidiar did
veil);

BMC Software Belgium, N v., 83 S.W.3d at 789 (concluding that a finding of alter ego was
despite evidence that the parent used consolidated statements , offered a stock

unwaranted ,

option plan to its subsidiaries' employees , and had its employees at times in its subsidiares
offces). DataTreasur
also fails to contest the statements in

BancShares'

first declaration

demonstrating that BancShares and its subsidiaries maintain books and ban accounts separate

from one another,

and that all of BancShares '
See

operating subsidiaries operate with suffcient

capital to conduct day-to-day operations.

Motion to Dismiss at Ex. A , ~ 3.

One document on which DataTreasury heavily relies actually confirms that BancShares
properly maintains corporate formalities. Data Treasury argues

that BancShares ' 10- K for 2005

shows that BancShares operates branches in Texas. But the very sentence which DataTreasury
quotes expressly notes that

ftJthrough its subsidiary financial institutions BancShares operated

branch offices at 392 locations" in various states, including Texas. Amended Response at Ex. I
p. 6 (emphasis

added).

This statement confirms that BancShares ' subsidiares - and not
In addition , the same 10-K

BancShares - operate branch offices.

wars that

investing in

BancShares ' stock will involve some
BancShares, engage in banking activities:

level of risk because

its banking subsidiaries,

not

To the extent we are dependent on our baning

subsidiares ' lending and deposit gathering functions to generate income , shareholders are also
exposed to (risks). " Amended Response at
Ex. 1

, p. 6.

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DataTreasury also makes no attempt to show that BancShares has used the corporate
form. to escape liabilty for a specific tort. This

omission alone defeats DataTreasury s reliance

on the alter ego theory.

Gardemal 186 F.3d at 593- 594 ("It is not possible to more emphatically

express the necessity for a plaintiff to prove that he wil suffer some type of har or injustice by
adhering to the corporate fiction before the corporate veil will be pierced. "
This Court' s
(quotation omitted)).

exertion of personal jurisdiction over SVPCo does not render BancShares subject to personal jurisdiction.
DataTreasur argues ,

incorrectly, that the Court' s

exertion of personal jurisdiction over

SVPCo creates jurisdiction over B anc

Shares. But the Court' s decision regarding

SVPCo is

inapposite. The Cour determined that "SVPCo potentially performs infringing activities with
P. Morgan Chase Ban , who is a defendant currently subject to personal jurisdiction and venue
in this district. . ..
Opinion

at 11. The Cour also stated that "SVPCo may have a commercial

relationship with the Federal Reserve Ban that includes potentially infringing activities. . . .
Id.

at 12. Based on these findings ,

the Court found suffcient evidence that SVPCo purosefully

directed its activities at Texas and, thus, that the Court had specific jurisdiction over SVPCo.

In stark contras , BancShares does not perform any allegedly infringing activities with
any third pary, be it an operating ban , SVPCo itself, or the Federal Reserve Bank. Motion to

Dismiss at Ex. A, ~ 4. Unlike SVPCo, BancShares is a holding company that simply holds stock
in other companies. Id.

~ 3. And

unlike SVPCo, it does not own or operate a check image

exchange program. Ex. A (Supp. Dec.)

at ~ 4. The fact that SVPCo is subject to this Court'

jurisdiction does not support asserting jurisdiction over BancShares.

The "source of strength" doctrine and 12 U. C. bearing on the question of personal jurisdiction.

1841(a)(1) have no

DataTreasur in its Amended Response continues to cite 12 V.

C.

1841(a)(I) and the

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source of strength" doctrine as creating jurisdiction over BancShares. Amended Response at 8
12. But

neither citation is relevant to the jurisdictional analysis. Section 1841(a)(I), which

defines a "ban

holding company" for purses of federal statutory and regulatory oversight, is
s statutory scheme governing the country
s banking industr. See

par of Congress

Gordon M.
469

Bava Regulation and Structure of Traditonal Bank Holding Company Activites,
PLI/Corn 261 ,

269 (1988). The statute defines a "ban holding company"

as " any

company

which has control over any bank," with "control" meaning simple ownership of "25 per centum

or more of any class of voting securities of the bank.

12 U.

C. 9 1841 (a)(2)(A). But

this

simple ownership is not the "control" that allows a Court to cast aside the corporate form to
create jurisdiction.

See 3D Systems 160 F.3d at 1380-81;

Hargrave

v.

Fibreboard Corp" 710

F.2d 1154,

1160 (5th Cir. 1983) ("The degree of control exercised by the parent must be greater

than that normally associated with common ownership and directorship. "

DataTreasury

source-of-strengt argument relies

on a single

demonstrably

distinguishable case. Amended Response at 12 (citing
U.S.,

Branch olblo Maine National Bank
decision does not discuss the source of

69 F.3d 1571

(Fed. Cir. 1995)). The

Branch

strength doctrine in the context of personal jurisdictional. DataTreasury quotes

Branch but uses

ellpses to omit a crucial portion of the sentence:

"Through

the ' source of strength' policy, the
a bank

(Federal ReserveJ Board asserted its authority to pierce the corporate veil between

holding company and its affliated banks so that a bank holding company could be required to

inject capital into a troubled

subsidiary bank. "

Id

at 1581 (italicized portions left out by

DataTreasury), The text that DataTreasury omits reveals that the doctrine applies to prevent
underfuding of operating ban subsidiaries, not to establish personal jurisdiction.

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II.

BancShares has not waived its jurisdictional defense.

Unable to show contacts by BancShares that subject it to

jursdiction in Texas

DataTreasury argues falsely that BancShares has waived its jurisdictional defense by signing the
Stipulation that resulted in the

Cour staying this lawsuit as to the Ballard Patents. For this

proposition , DataTreasury relies solely on two Third Circuit decisions that turned on procedural
events that are non-existent in this case. See Amended Response at 13 (citing

Bel-Ray
v.

Co.

Chemrite LId

181 F.3d 435 (3rd Cir. 1999);

Wyrough

Loser, Inc.

Pelmor Lab., Inc. , 376

2d 543 (3rd Cir. 1967)). In

Bel-Ray Co.

the defendant fied a

summar judgment motion and
Wyrough the non-resident

suffered an adverse ruling before filing its jurisdictional defense. In

party defended itself in a preliminar injunction hearng and raised its jurisdictional defense only

after the Cour orally stated its intention to enter a preliminar injunction. In stark contrast
these cases,

not only did BancShares file it Motion to Dismiss long before any party sought a

stay in this lawsuit,

BancShares also has sought no affrmative relief from this Court, and its

acceptance of the stay in no

maner can be interpreted as
See Rates Tech. Inc. v.

affirmative relief.

Under these
399 F.3d

circumstances , no waiver occurred.

Nortel Networks Corp.

1302 , 1309 (Fed. Cir. 2005) (waiver of persona:! jursdiction

occurs "by extensively paricipating

in the litigation without timely seeking dismissal" ).

DataTreasury

s argument also is contrar to

the purpose and effect of the stay, which is to conserve

judicial resources by precluding the

parties from prosecuting their claims and defenses during the re-examination.
analysis leads to the

DataTreasury

uneasonable result that a pary disputing jurisdiction must continue
defense,

litigating to avoid waiving its jurisdictional
jurisdiction may wait for the stay to lift.

while a par that did not contest

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Dated: Februar 23 , 2007.

Respectfully submitted

Isl

Larr D. Carlson

Larry D. Carlson, Attorney- in- Charge Texas State BarNo. 03814500 Mail: lar.carlson bakerbotts. com Fernando Rodriguez, Jr. Texas State Bar No. 24005048
Mail: fernando.rodriguezefbakerbotts. com

David O. Taylor Texas State Bar No. 24042010 Mail: david. taylor bakerbotts. com BAKER BOTTS L.L.P. 2001 Ross Avenue , Suite 600 Dallas , Texas 75201 Telephone: [phone] Facsimile: (214) 953- 6503

Donalt J. Eglinton
Mail: djeefwardandsmith. com WARD AND SMITH, P. Post Offce Box 867 New Bern, North Carolina 28563 Telephone: [phone] Facsimile: (252) 672- 5477

ATTORNEYS FOR DEFENDANTS FIRSTCITIZENS BANK & TRUST COMPANY AND FIRST CITIZENS BANCSHARES , INC.

CERTIFICATE OF SERVICE

I certify that on February 23, 2007 , all counsel who are deemed to have consented to electronic service are being served with a copy of this document via electronic transmission.

Isl

Lary D. Carlson

Larr D. Carlson