Dontos et al v. Vendomation NZ Limited et al
Filing
128
Memorandum Opinion and Order: This case is dismissed for lack of personal jurisdiction as to all remaining Defendants. The Court need not address any alternative grounds for dismissal, nor any other pending motions. (Ordered by Judge Ed Kinkeade on 8/27/2012) (ctf)
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
JORDAN and JENNIFER DONTOS and §
CRAVE, LLC,
§
§
Plaintiffs,
§
§
v.
§
§
VENDOMATION NZ LIMITED., et al., §
§
Defendants.
§
Civil Action No. 3:11-CV-0553-K
MEMORANDUM OPINION AND ORDER
Before the Court are: (1) Defendants John Halpern and George Parkman Denny,
III’s, Motion to Dismiss the [Fourth] Amended Complaint for Lack of Personal
Jurisdiction under Fed. R. Civ. P. 12(b)(2) and, in the Alternative, Failure to State a
Claim under Fed. R. Civ. P. 12(b)(6) and Fed. R. Civ. P. 9(b) (Doc. No. 94); (2)
Defendant Vendomation, LLC’s Motion to Dismiss [Fourth] Amended Complaint
Pursuant to Fed. R. Civ. P. 9(b), 12(b)(2), and 12(b)(6) (Doc. No. 96); (3) Defendant
Vendomation Securities Limited’s Motion to Dismiss [Fourth] Amended Complaint
Pursuant to Fed. R. Civ. P. 9(b), 12(b)(2), and 12(b)(6) (Doc. No. 99); and (4)
Defendant Vendomation NZ Limited’s Motion to Dismiss [Fourth] Amended Complaint
Pursuant to Fed. R. Civ. P. 9(b), 12(b)(2), and 12(b)(6) (Doc. No. 40). (Pursuant to an
order from this Court, Plaintiffs filed their Fourth Amended Complaint (Doc. No. 124)
after Defendants’ filed their motions to dismiss the third amended complaint. With no
ORDER – PAGE 1
objection from Defendants, the Court will treat their pending motions to dismiss as
pertaining to Plaintiffs’ Fourth Amended Complaint, rather than the Third Amended
Complaint as originally styled.)
The Court has carefully considered the motions,
responsive briefing, appendices, and applicable law. For the following reasons, the Court
GRANTS each of the motions on the grounds that the Court cannot exercise personal
jurisdiction over any of these Defendants.
I.
Factual and Procedural Background
The Court was forced to compile a factual background based on conclusory and
often times confusing factual allegations made by the Plaintiffs. Thus, it is important to
note that this factual background is in no way a definitive statement of the facts in this
case; instead, this is the result of the Court’s generous construction of the complaint for
purposes of this motion. As is required under the standard for motions to dismiss, this
Court gave deference to the Plaintiffs’ factual allegations at every opportunity.
Plaintiffs Jordan and Jennifer Dontos formed Crave LLC (collectively “Plaintiffs”)
to operate a franchise of vending machines. In 2007, Plaintiffs entered into a franchise
deposit agreement with 24Seven Vending (USA) Limited (“24Seven”), upon the
assurance Plaintiffs would receive two specific profitable and established routes in the
Dallas area. 24Seven was either the parent or sister company of the VTL Group Limited
and Vending Technology Limited (collectively “VTL Group”), both New Zealand
companies. Relying on this promise, Plaintiffs deposited the money per the agreement,
moved to Texas, and ultimately entered into a franchise agreement with 24Seven, paying
ORDER – PAGE 2
franchise fees. Despite the earlier promise, 24Seven never tendered the preferred routes
to Plaintiffs and, instead, attempted to induce them to accept other inferior routes. It is
unclear from the record which routes Plaintiffs ultimately accepted and/or received.
In August 2007, the VTL Group went into receivership in New Zealand. Plaintiffs
contend their franchise agreement, including the franchise deposit and fees, was “switched
briefly” to a newly formed company, Bacon Whitney. Defendants John Halpern and
George Parkman Denny, III (“Halpern” and “Denny”, respectively) were both managing
members and majority interest owners in this company. Plaintiffs allege Bacon Whitney
began operating under the name 24/Seven and purchased all but two or three of the Texas
franchises previously owned by 24Seven and/or the VTL Group. Moreover, in November
2007, non-party Mark Bruno (“Bruno”), acting as Bacon Whitney’s spokesman, held a
meeting in Dallas with the Texas franchisees, including Plaintiffs, to discuss being a Bacon
Whitney franchisee. Soon after the meeting with Bruno, Plaintiffs were rejected as Bacon
Whitney franchisees.
Plaintiffs then filed suit in Texas state court against several parties, including Mark
Bruno, the VTL Group and Bacon W hitney. The Texas trial court sustained Bruno’s
special appearance and dismissed all claims against him, which was affirmed on appeal.
Plaintiffs contend they ultimately succeeded in securing a judgment of $6 million against
the VTL Group and Bacon Whitney.
At some point thereafter, Bacon Whitney went into receivership in Massachusetts,
and its assets, which included five Texas franchises, were transferred to a newly formed
ORDER – PAGE 3
company, Intellivend.
The assets were purchased for a $1.25 million note which,
Plaintiffs aver, was then transferred by the Bacon Whitney receiver to Defendants
Halpern and Denny without sufficient consideration. At some later point, Intellivend
filed for bankruptcy protection. According to Plaintiffs, Vendomation Defendants NZ
Limited, Vendomation, LLC, and Vendomation Securities Limited (collectively
“Vendomation Defendants”) were one of Intellivend’s biggest creditors.
Plaintiffs contend that while these assets were being transferred to various
companies, Lisle McErlane (a named defendant in this case who has since been dismissed)
telephoned Plaintiffs in January 2009, offering “to settle all differences between them and
the ‘VTL Group’” for a $500,000 payment. Although Plaintiffs accepted the offer later
that month, the $500,000 settlement of the $6 million judgment never came to fruition.
Plaintiffs filed suit in this Court on March 17, 2011, on diversity grounds, asserting
claims
for
fraudulent
transfer,
fraud,
negligent
misrepresentation,
and
civil
conspiracy/aiding and abetting. Before any Defendant had answered, Plaintiffs filed an
amended complaint the very next day on March 18th. Defendants then filed motions to
dismiss the complaint on various grounds, and Plaintiffs moved for leave to file a Second
Amended Complaint. The Court granted Plaintiffs’ motion for leave to amend and,
therefore, denied Defendants’ motions to dismiss. Plaintiffs filed their Second Amended
Complaint. Upon review, the Court determined Plaintiffs had failed to properly allege
the citizenship of Defendant Vendomation, LLC, and Plaintiff Crave, LLC, and ordered
Plaintiffs to file a Third Amended Complaint with this required information. Plaintiffs
ORDER – PAGE 4
filed a Third Amended Complaint, and Defendants again filed motions to dismiss. The
Court’s review of the Third Amended Complaint revealed Plaintiffs still had not properly
alleged the citizenship of Defendant Vendomantion, LLC. Once again, the Court ordered
Plaintiffs to file an amended complaint only as to the citizenship of Defendant
Vendomation, LLC, and notified the Defendants it would convert their pending motions
to dismiss the Third Amended Complaint as motions to dismiss the Fourth Amended
Complaint (absent any objection from a defendant).
Plaintiffs filed their Fourth
Amended Complaint, and no Defendant filed an objection.
The Plaintiffs’ Fourth
Amended Complaint is now the subject of these pending motions.
II.
Motion to Dismiss
A.
Legal Standard
When a nonresident defendant moves to dismiss for lack of personal jurisdiction,
the plaintiff bears the burden of establishing the district court’s jurisdiction over the
nonresident. Gardemal v. Westin Hotel Co., 186 F.3d 588, 592 (5th Cir. 1999); Wilson v.
Belin, 20 F.3d 644, 648 (5th Cir. 1994). When there is no evidentiary hearing, the
plaintiff may establish personal jurisdiction by presenting a prima facie case that personal
jurisdiction exists; proof by a preponderance of the evidence is not required. Int’l Truck
& Engine Corp. v. Quintana, 259 F.Supp.2d 553, 556 (N.D. Tex. 2003)(Lindsay, J.)(citing
WNS, Inc. v. Farrow, 884 F.2d 200, 203 (5th Cir. 1989)). The plaintiff satisfies her
burden by producing admissible evidence which, if believed, would support the existence
of personal jurisdiction. WNS, 884 F.2d at 203-04. In making its determination, the
ORDER – PAGE 5
court may consider affidavits, interrogatories, depositions, oral testimony, or any
combination of recognized discovery methods. Allred v. Moore & Peterson, 117 F.3d 278,
281 (5th Cir. 1997). The court will take the allegations of the complaint as true, except
where they are controverted by opposing affidavits, and all factual conflicts are resolved
in favor of the plaintiff. Gardemal, 186 F.3d at 592; Wilson, 20 F.3d at 648. While this
is a liberal standard, it “does not require the court to credit conclusory allegations, even
if uncontroverted.” Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 869
(5th Cir. 2001).
In considering whether the court has personal jurisdiction over a nonresident
defendant, the court must consider: (1) whether the long-arm statute of the state in
which it sits confers personal jurisdiction over the defendant; and, if so, (2) whether the
exercise of personal jurisdiction is consistent with due process under the United State
Constitution.
Mink v. AAAA Dev. LLC, 190 F.3d 333, 335 (5th Cir. 1999).
The
Supreme Court of Texas has interpreted the state’s long-arm statute “to reach as far as the
federal constitution permits.” Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990).
Therefore, this Court need only address whether the exercise of personal jurisdiction over
the nonresident defendant would be consistent with the Due Process Clause of the
Fourteenth Amendment. Mink, 190 F.3d at 335-36.
A court may exercise personal jurisdiction over a nonresident defendant under the
Due Process Clause “when (1) that defendant has purposefully availed himself of the
benefits and protections of the forum state by establishing ‘minimum contacts’ with the
ORDER – PAGE 6
forum state; and (2) the exercise of jurisdiction over that defendant does not offend
‘traditional notions of fair play and substantial justice.’” Latshaw v. Johnston, 167 F.3d
208, 211 (5th Cir. 1999)(quoting Int’l Shoe Co. v. State of Washington, 326 U.S. 310, 316
(1945)).
A nonresident defendant’s “minimum contacts” can give rise to general or specific
personal jurisdiction.
Mink, 190 F.3d at 336.
When the nonresident defendant’s
contacts with the forum state are unrelated to the plaintiff’s cause of action but are,
instead, “continuous and systematic”, there is general personal jurisdiction.
Helicopteros
Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 9 (1984); see Mink, 190 F.3d at
336. In contrast, when the cause of action either arises from or is directly related to the
nonresident defendant’s contacts with the forum state, there is specific personal
jurisdiction. Helicopteros, 466 U.S. at 414 n. 8. The nonresident defendant’s availment
of the benefits and protections of the forum state must be such that the defendant
“should reasonably anticipate being haled into court” there. World-Wide Volkswagen Corp.
v. Woodson, 444 U.S. 286, 297 (1980). This requirement of purposeful availment acts
to ensure that a defendant’s “‘random, fortuitous, or attentuated’ contacts” or the
“unilateral activity of another party or a third person” will not result in the defendant
being haled into a jurisdiction.
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475
(1985)(internal citations omitted).
As for the second question of whether the traditional notions of fair play and
substantial justice would be offended, the court considers:
ORDER – PAGE 7
(1) the burden of the
defendant; (2) any interests of the forum state; (3) the plaintiff’s interest in convenient
and effective relief; (4) the judicial system’s concern and interest in efficiently resolving
controversies; and (5) the shared interest of the states in advancing fundamental
substantive social policies. Asahi Metal Indus. Co., Ltd. v. Superior Court of California, Solano
County, 480 U.S. 102, 113 (1987).
A.
Lack of Personal Jurisdiction
In their Fourth Amended Complaint, Plaintiffs assert these nonresident Defendants
“have made both general and specific contacts with the State of Texas and have thereby
conferred jurisdiction over their persons in a Texas court.”
1.
Conspiracy Jurisdiction
At the outset, the Court must reject Plaintiffs’ “conspiracy jurisdiction” argument.
In their responsive briefing, Plaintiffs make a generalized argument that each Defendant
acted “through agents and co-conspirators, in the state of Texas;” therefore, “conspiracy
jurisdiction” permits the co-conspirator’s contacts with the forum state to be attributed
to the nonresident defendant for purposes of personal jurisdiction. In support of this
argument, Plaintiffs cite the Court to two district court opinions from the District of
Columbia. First, Plaintiffs make no specific argument as it relates to this case; there is no
identification of who exactly the co-conspirators are, which specific actions these coconspirators took, and to which Defendants their actions are attributable. Even so, the
Fifth Circuit does not recognize any such conspiracy jurisdiction. The Fifth Circuit has
held that a plaintiff must establish each defendant individually, not simply as part of a
ORDER – PAGE 8
conspiracy, had minimum contacts with the forum state. Guidry v. United States Tobacco
Co., 188 F.3d 619, 625 (5th Cir. 1999); see Delta Brands Inc. v. Danieli Corp., 99
Fed.Appx. 1, at *5 (5th Cir. 2004). Likewise, this Court has issued recent opinions
following this binding precedent, as well as citing the Texas Supreme Court, to conclude
that each defendant’s contacts must be analyzed individually, outside of any alleged
conspiracy, to determine if personal jurisdiction exists. See Eagle Metal Products, LLC v.
Keymark Enterprises, LLC, 651 F.Supp.2d 577, 593 (N.D. Tex. 2009)(Lynn, J.); Weinberg
v. Nat’l Football League Players Ass’n, 3:06-CV-2332-B, 2008 WL 4808920, at *5 (Nov.
5, 2008)(Boyle, J.)(citing Nat’l Indus. Sand Ass’n v. Gibson, 897 S.W.2d 769, 773 (Tex.
1995)). Therefore, the Court rejects Plaintiffs’ argument that each Defendant can be
subject to specific jurisdiction solely because they participated in an alleged conspiracy
in which a co-conspirator had contacts with Texas.
2.
Contacts through Agency Relationship
The Court now turns to Plaintiffs’ attempt to impute a third-party’s forum contacts
to these non-resident Defendants for the purpose of establishing jurisdiction. Plaintiffs
argue Lisle McErlane, Brad Camac, Mark Bruno, and Erica Hannam were the agents of
some or all of the Defendants, so any contacts these other parties had with Texas can be
imputed to the Defendants. Because this case is before the Court on diversity grounds,
the Court looks to Texas law on agency. It is well established in Texas that “[a]gency is
the consensual relationship between two parties when one, the agent, acts on behalf of
the other, the principal, and is subject to the principal’s control.” Happy Indus. Corp. v.
ORDER – PAGE 9
Am. Specialities, Inc., 983 S.W.2d 844, 852 (Tex. App.—Corpus Christi1998, pet. dism’d
w.o.j.) (citing Schultz v. Rural/Metro Corp., 956 S.W.2d 757, 760 (Tex. App.— Houston
[14th Dist.] 1997, no pet.)). The Texas Supreme Court held that “Texas law does not
presume agency, and the party who alleges it has the burden of proving it.” IRA Res., Inc.
v. Griego, 221 S.W.3d 592, 597 (Tex. 2007). To establish agency, the plaintiff must
establish that “the principal has both the right: (1) to assign the agent’s task; and (2) to
control the means and details of the process by which the agent will accomplish the task.”
Happy Indus., 983 S.W.2d at 852.
First, Plaintiffs argue that McErlane “upon information and belief” was acting all
along as an agent for each Defendant, although “his principal was undisclosed at the
time.” Plaintiffs argue any contacts McErlane had with Texas should be imputed to all
these Defendants. Plaintiffs do not, however, specify which forum contacts McErlane
made as an agent which should be imputed to the Defendants. Nevertheless, the Court’s
thorough review of the record reveals possible contacts could include McErlane’s January
2009 phone call to and follow-up “correspondence” with Plaintiffs, as well as his emails,
phone calls, invoices, and in-person meetings in Texas with the five Texas franchisees.
Even were the Court to assume Plaintiffs seek to impute all of McErlane’s conduct or
activity, Plaintiffs entirely fail to meet their burden of proving agency.
Plaintiffs’
complaint simply alleges McErlane was an agent for all the Defendants; “his principal was
undisclosed but, upon information and belief, it was all the Defendants acting in concert
and conspiracy.” No other factual allegation is made in an attempt to show an actual
ORDER – PAGE 10
agency relationship existed between McErlane and any of the Defendants; certainly
nothing to show any Defendant was the principal and that McErlane was subject to their
control.
Plaintiffs do not direct or cite the Court to any evidence of agency; but, the Court
has reviewed the entire record and concludes that, at most, the only possible supporting
evidence comes from the sworn affidavit of Christopher Rollins, former Chief
Development Officer for Bacon Whitney and former President of Intellivend, submitted
by Plaintiffs’ in their appendix. Rollins testified that McErlane, “purporting to be an
agent and employee of the Vendomation [Defendants] Companies,” traveled to Dallas
at least twice and was told to conduct at least two meetings with the Texas franchisees
“pursuant to [ ] instructions of Halpern and Denny.” Although admittedly more than a
mere allegation of “upon information and belief” as found in the complaint, this affidavit
falls far short of establishing an agency relationship between McErlane and any
Defendant. This is nothing more than Mr. Rollins’ statement that McErlane traveled to
Texas “purporting to be an agent and employee of” Vendomation Defendants and that
McErlane conducted two meetings with the Texas franchisees “pursuant to [ ] instructions
of Halpern and Denny.” See Panda Brandywine, 253 F.3d at 869 (the court is not required
“to credit conclusory allegations, even if uncontroverted.”). Mr. Rollins’ affidavit fails to
establish there was a relationship in which any of the Defendants were the principal and
McErlane was the agent, or that any Defendant had the right to assign McErlane a task
and to control the means and details of the process by which McErlane was to accomplish
ORDER – PAGE 11
the task. See Happy Indus., 983 S.W.2d at 852. To find Plaintiffs sufficiently established
agency as to McErlane and any Defendant would require this Court to presume agency,
which it will not and cannot do. See IRA Res., 221 S.W.3d at 597. Plaintiffs have failed
to meet their burden to establish that McErlane was an agent of any of these Defendants.
These actions, then, would be those of a third-party, McErlane, claiming to have a
relationship with one or more of the Defendants. The Supreme Court has held, “The
unilateral activity of those who claim some relationship with a nonresident defendant
cannot satisfy the requirement of contact with the forum State.” Hanson v. Denckla, 357
U.S. 235, 253 (1958); see Helicopteros, 466 U.S. at 417 (“Such unilateral activity of
another party or a third person is not an appropriate consideration when determining
whether a defendant has sufficient contacts with a forum State to justify an assertion of
jurisdiction.”).
Plaintiffs also allege Mark Bruno and Brad Camac were “agents, servants and
employees” of Defendants who performed fraudulent actions in Texas as part of the
conspiracy to defraud Plaintiffs.
Plaintiffs claim Brad Camac used the names of
Defendants Halpern and Denny to “bolster the financial credibility” of the VTL Group.
Plaintiffs claim Mark Bruno, as a spokesman for Bacon Whitney, assured Plaintiffs during
a meeting in Dallas that Bacon Whitney was a financially sound company and “had the
backing and management of [Defendants] Halpern and Denny.”
Other than these
conclusory allegations, Plaintiffs provided absolutely no evidence to establish agency on
the part of either man as to any Defendant. See Happy Indus., 983 S.W.2d at 852. While
ORDER – PAGE 12
the Court must take the allegations of the complaint as true, the Court does not have to
credit conclusory allegations. See Panda Brandywine, 253 F.3d at 869. Plaintiffs failed to
meet their burden to establish agency as to Brad Camac or Mark Bruno and any of the
Defendants.
More importantly, as to Mark Bruno (“Bruno”), a Texas state court has already
concluded it could not exercise personal jurisdiction over him. As previously mentioned,
Plaintiffs filed suit in Texas state court against Bacon Whitney, the VTL Group, and
Bruno among others. The basis of their state court claims against Bruno involve the same
conduct Plaintiffs attribute to him in this case. Bruno specially appeared in the Texas
court case, objecting to the court’s exercise of personal jurisdiction over him. The court
conducted a hearing, granted his special appearance and dismissed the claims against him.
Plaintiffs appealed the trial court’s jurisdictional ruling. The appellate court affirmed the
trial court’s ruling, determining there was no support for the exercise of personal
jurisdiction over Bruno.
See Dontos et al. v. Bruno, 339 S.W.3d 777, 780-81 (Tex.
App—Dallas 2011, no pet.). The Fifth Circuit has held a Texas state court’s dismissal for
lack of personal jurisdiction precludes the relitigation of this same issue in federal court
under the doctrine of collateral estoppel. Deckert v. Wachovia Student Fin. Services, Inc., 963
F.2d 816, 818-19 (5th Cir. 1992). While Plaintiffs did not name Bruno as a defendant
in this case, they seek to impute his contacts with Texas to any and all of these
Defendants via agency to support the exercise of personal jurisdiction over them. These
contacts are the same as a Texas state court has already determined were insufficient to
ORDER – PAGE 13
support the exercise of personal jurisdiction over Bruno. As a corollary then, this Court
concludes that collateral estoppel would preclude what is in essence the relitigation of the
sufficiency of Bruno’s contacts with Texas to support personal jurisdiction, albeit as
imputed to another party. See id.
Lastly, Plaintiffs’ did not make any specific argument that the alleged contacts of
Erica Hannam, manager of the Vendomation Defendants, should be imputed to any or
all of the Vendomation Defendants through agency. However, even if Plaintiffs had, the
Court has thoroughly examined the record and this argument would fail as well.
For the foregoing reasons, the Court finds Plaintiffs did not meet their burden of
establishing agency as to McErlane, Bruno, or Camac, and any of the Defendants.
Additionally, collateral estoppel would preclude this Court from considering Bruno and
his contacts as a Texas state court has found him not to be amenable to suit in Texas
based on those same contacts.
3.
General Jurisdiction
When the nonresident defendant’s contacts with the forum state are unrelated to
the plaintiff’s cause of action but are, instead, “continuous and systematic”, there is
general personal jurisdiction.
Helicopteros, 466 U.S. at 414 n. 9; see Johnston v. Multidata
Sys. Int’l Corp., 523 F.3d 602, 609 (5th Cir. 2008)(“non-resident defendant’s contacts
with the forum state are substantial, continuous, and systematic.”). This requires the
plaintiff to produce evidence of extensive contacts between the nonresident defendant
and the forum state. Johnston, 523 F.3d at 609 (“[V]ague and overgeneralized assertions
ORDER – PAGE 14
that give no indication as to the extent, duration, or frequency of contacts are insufficient
to support general jurisdiction.”). Plaintiffs have fallen far short of satisfying this difficult
test. Id. at 611-13 (reviewing case history to show difficultly of establishing general
jurisdiction, comparing Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 447-49 (1952)
with Helicopteros, 466 U.S. at 418-19). At best, Plaintiffs’ allegations are vague and
overgeneralized.
Plaintiffs fail to specifically identify for the Court contacts any
Defendant had with Texas which were “substantial, continuous, and systematic” so they
would confer general jurisdiction. There is no evidence, let alone sufficient evidence, of
extensive contacts any Defendant had with Texas. See Johnston, 523 F.3d at 609.
Moreover, any contacts with Texas, as identified by the Court, stem from the
actions of McErlane, Hannam, Bruno, and Camac, and not the Defendants themselves.
The Court has already concluded Plaintiffs failed to establish agency as to any of these
third-parties and the Defendants; so none of their forum contacts can establish general
jurisdiction over these Defendants. But, even if agency had been established, these
contacts are not substantial enough in nature, nor are they sufficiently systematic or
continuous to confer general jurisdiction. Johnston, 523 F.3d at 609 (plaintiffs must
adduce evidence of extensive contacts between the nonresident defendant and the forum
state).
In Helicopteros, the Supreme Court found that Texas courts has no general
jurisdiction over a defendant even when the defendant had purchased numerous
helicopters (almost 80% of its fleet) and more than $4 million of helicopter parts from a
Texas-based company, sent company employees and prospective pilots to Texas for
ORDER – PAGE 15
training and consultation several times, received over $5 million in payments from a
Texas bank, and sent its agents to Texas to negotiate contracts. Helicopteros, 466 U.S. at
1870-74. Plaintiffs have not presented any contacts which even come close to those
found inadequate in Helicopteros.
In their responsive briefing, Plaintiffs allege for the first time that all three
Vendomation Defendants own five franchises in Texas, including the franchise
agreements and vending machines. Plaintiffs do not clearly argue this supports the
exercise of general jurisdiction over the Vendomation Defendants, but the Court will
address this as a basis for doing so in an abundance of caution. First, Plaintiffs do not
distinguish between any of the three Vendomation entities as to ownership. The record
establishes, however, that Defendant Vendomation Securities Limited’s (“VSL”) which
came into possession of numerous franchises, including five located in Texas, in December
2010, after taking back its security interests from a bankruptcy trustee. Other than
referring to the ownership of these franchises as a Texas contact, Plaintiffs make no
further argument and present no evidence establishing how this franchise ownership alone
would support the exercise of general jurisdiction over Defendants VSL. Nor do Plaintiffs
argue how this ownership could be imputed to the other two Vendomation Defendant
entities. Again, Plaintiffs fall far short of showing extensive contacts between any of the
three Vendomation Defendants and Texas to satisfy the difficult “continuous and
systematic” contacts test to support general jurisdiction. See Johnston, 523 F.3d at 610-13.
The Court holds it cannot exercise general jurisdiction over any of the Defendants.
ORDER – PAGE 16
4.
Specific Jurisdiction
When a nonresident defendant has “purposefully directed” its activities at residents
of the forum state and the plaintiff’s claims “arise out of ir relate to” those activities, a
court may exercise specific jurisdiction.
Burger King Corp., 471 U.S. at 472.
In
determining whether to exercise specific jurisdiction, the Court applies a three part test:
(1) did the defendant have minimum contacts with the forum state, in other words,
purposely direct its activities toward the forum state or purposely avail itself of the
privilege of conducting activities there; (2) does the plaintiff’s cause of action arise out of
or result from the defendant’s forum-related contacts; (3) would the exercise of personal
jurisdiction be fair and reasonable. See Guidry, 188 F.3d at 624-25 (internal citations
omitted). If it creates a “substantial connection” with the forum state, “even a single act
can support jurisdiction.” Burger King Corp., 471 U.S. at 476 n. 18 (quoting McGee v. Int’l
Life Ins. Co., 355 U.S. 220, 223 (1957)). But the contact cannot be simply “‘random,’
‘fortuitous,’ or ‘attenuated’” as that is not sufficient to establish minimum contacts.
Burger King, 471 U.S. at 475. When a plaintiff asserts multiple causes of actions arising
out of different contacts multiple defendants had with the forum, the plaintiff must
establish specific jurisdiction as to each defendant and as to each claim. See Calder v.
Jones, 465 U.S. 783, 790 (1984)(multiple defendants); Sieferth v. Helicopteros Atuneros, Inc.,
472 F.3d 266, 275 (5th Cir. 2006)(multiple causes of action).
Plaintiffs assert claims against all Defendants for fraudulent transfer, fraud,
negligent misrepresentation, and conspiracy.
ORDER – PAGE 17
Plaintiffs must show that the alleged
fraudulent transfer, alleged fraud, alleged negligent misrepresentation, and alleged
conspiracy arose out of each individual Defendant’s contacts with Texas. See Guidry, 188
F.3d at 625; Delta Brands, 99 Fed.Appx 1, at *5. Because Plaintiffs do not differentiate
between the activities/conduct of Defendants Halpern and Denny, the Court will address
them together. Likewise, Plaintiffs group the three Vendomation Defendant entities
together in their allegations, so the Court will address those three Defendants together
as well.
The Court notes that Plaintiffs’ complaint is often unclear and confusing, leaving
the Court to generously construe it. Additionally, Plaintiffs make no clear indication as
to what factual allegations support each claim, instead incorporating all prior factual
allegations.
a.
Fraudulent Transfer
Plaintiffs’ first claim is fraudulent transfer involving each Defendant. Plaintiffs
make the following allegations as to their fraudulent transfer claim: “[T]he assets of Bacon
Whitney have been sold and/or transferred to Halpern and Denny and Vendomation
whose officers, directors and shareholders were also officers, directors and shareholders
of the VTL Group and Bacon Whitney and, obviously insiders for less than equivalent
value thus rendering the VTL Group and Bacon Whitney insolvent and unable to pay its
creditor.” Plaintiffs allege that after they received a $6 million judgment against Bacon
Whitney and “various of the VTL Group component companies,” Bacon Whitney went
into receivership in Massachusetts. Pls. Fourth Amd. Compl. at p. 4. The assets of
ORDER – PAGE 18
“Bacon Whitney and/or the VTL Group” were then transferred to another company,
Intellivend, for a $1.25 million note “which was then transferred by the receiver (with,
apparently [sic] no consideration) to Halpern and Denny.”
Id. (emphasis added).
Plaintiffs then allege Intellivend filed for bankruptcy, and the Vendomation Defendants,
seemingly as one unit, “was one of the biggest creditors and so. . . Defendants went, in
the person of McErlane and Erica Hannam, by letters, emails, invoices and in person to
(among other states) Texas to convince the (five in the DFW area) franchisees that
Vendomation owned their franchise agreements and vending machines!” Id. In addition,
McErlane initiated a phone call to Plaintiffs, offering to settle their judgment against the
VTL Group for $500,000, and this was followed up with other correspondence. Id.
Despite McErlane’s offer to settle the judgment, Plaintiffs allege he was merely acting in
conspiracy with and as an agent for all the other Defendants so they could strip Bacon
Whitney and/or the VTL Group of their assets before Plaintiffs could satisfy their
judgment. Id. at 4-5.
Although never clarified to the Court, as best the Court can discern from Plaintiffs’
factual allegations of the fraudulent transfer, as well as their responsive briefing, the
fraudulent transfer claim centers on the purchase of Bacon Whitney’s assets by
Intellivend for a $1.25 million note which was subsequently transferred to Defendants
Halpern and Denny without sufficient consideration.
In their complaint, Plaintiffs list the elements of a fraudulent transfer claim,
although incorrectly, but fail to cite the statute under which the cause of action arises.
ORDER – PAGE 19
Presumably, Plaintiffs rely on section 24.005(a) of Texas Uniform Fraudulent Transfer
Act (“TUFTA) which provides:
A transfer made or obligation incurred by a debtor is fraudulent as
to a creditor, whether the creditor’s claim arose before or within a
reasonable time after the transfer was made or the obligation was incurred,
if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the
debtor; or
(2) without receiving a reasonably equivalent value in exchange for
the transfer or obligation, and the debtor:
(A) was engaged or was about to engage in a business or
transaction for which the remaining assets of the debtor were unreasonably
small in relation to the business or transaction; or
(B) intended to incur, or believed or reasonably should have
believed that the debtor would incur, debts beyond the debtor’s ability to
pay as they became due.
T EX. B US. & C OM . C ODE A NN . § 24.005(a)(West 2009). The Court will address each of
the Defendants contacts as they relate to this claim.
1)
Defendants Halpern and Denny
The Court cannot conclude that any Texas contacts gave rise to this fraudulent
transfer claim. Plaintiffs do not provide any evidence of contacts Defendants Halpern
and Denny themselves had with Texas which would give rise to this claim. Nor do
Plaintiffs allege the fraudulent transfer occurred in Texas. Again, Plaintiffs rely on the
forum contacts of McErlane, through agency, to be imputed to these Defendants . The
Court has already concluded that Plaintiffs did not meet their burden of establishing
McErlane was the agent of Defendants Halpern and Denny.
ORDER – PAGE 20
Moreover, the Court could not conclude that McErlane’s contacts–the phone call
and other “correspondence” with Plaintiffs, as well as his communications and meetings
with the five Dallas-Fort W orth franchisees–could give rise to Plaintiffs’ fraudulent
transfer claim.
The Court finds Defendants Halpern and Denny did not have sufficient minimum
contacts with Texas, nor would any alleged contacts have given rise to this claim that
would make Defendants Halpern and Denny subject to suit in Texas for fraudulent
transfer.
2)
Vendomation Defendants
Plaintiffs allege the Vendomation Defendants participated as “insiders” to this
fraudulent transfer. However, the record calls into question whether the fraudulent
transfer claim could have even involved the Vendomation Defendants. According to
Plaintiffs’ own recitation of the facts in their complaint and supporting evidence, the
fraudulent transfer allegedly first began around January 2009, when McErlane initially
offered Plaintiffs a chance to “settle their differences” with the VTL Group in his phone
call. In their complaint, Plaintiffs allege that the Vendomation Defendants were not
formed until or after December 2010. Without any further explanation from Plaintiffs,
the Court does not see how the Vendomation Defendants, formed around December
2010, participated in a fraudulent transfer which began in January 2009. The Court finds
Plaintiffs’ own evidence calls into question whether any of the Vendomation Defendants
could have been party to the actual transfer.
ORDER – PAGE 21
Even if the Court were to assume these Defendants could have participated,
Plaintiffs have failed to submit evidence that the Vendomation Defendants had sufficient
contacts with Texas or any contacts which would have given rise to this claim. Again,
Plaintiffs argue agency, as to McErlane, satisfies the contacts and supports specific
jurisdiction.
This argument fails for the same reasons as the Court has repeatedly
stated–Plaintiffs failed to establish agency, and none of the contacts, even if imputed, give
rise to a fraudulent transfer claim. Although Plaintiffs do make this specific argument,
the actions of Erica Hannam, a manager for all three Vendomation entities, also cannot
support jurisdiction. As the Court already found, Plaintiffs did not establish agency as
to Hannam and any of the Vendomation Defendants. Moreover, Plaintiffs do not specify
exactly what contacts she had with Texas residents; Plaintiffs merely lump her with
McErlane in their allegations that they both sent invoices and emails. There is also no
allegation as to the content of either the invoices or the emails. Although a single act can
support specific jurisdiction, it must create a “substantial connection” with the forum
state.” Burger King Corp., 471 U.S. at 476 n. 18 (quoting McGee, 355 U.S. at 223). As
presented by Plaintiffs, these invoices and emails do not create a substantial connection
with Texas. See id. Furthermore, none of these contacts could even arguably give rise to
Plaintiffs’ fraudulent transfer claim as none of Hannam’s contacts could satisfy any
element of a fraudulent transfer claim.
The Court finds the Vendomation Defendants did not have sufficient minimum
contacts with Texas, nor would any possible contacts have given rise to this claim such
ORDER – PAGE 22
that the Vendomation Defendants should be subject to suit in Texas for fraudulent
transfer.
b.
Fraud
Plaintiffs allege all Defendants participated in fraud because the “agreement” was
a “ruse” to keep Plaintiffs from collecting their state court judgments against VTL Group
and Bacon Whitney while those assets were fraudulently transferred. Plaintiffs further
contend “[t]he entire scheme from the sale of the franchise to Plaintiffs by 24Seven to
this day constitutes a fraud which was participated in by Halpern and Denny and the
Vendomation companies, as detailed above, causing damages to Plaintiffs.”
Plaintiffs fail to set forth what type of fraud they allege, statutory or common-law.
In order to address jurisdiction, the Court will construe Plaintiffs’ complaint as alleging
a common law fraud claim since Plaintiffs make absolutely no mention of any particular
statute which Defendants may have violated. As set forth by the Texas Supreme Court,
the elements of fraud are: (1) a material misrepresentation was made; (2) the
representation was false; (3) when the representation was made, the person making it
knew it was false or made it recklessly without any knowledge of the truth and as a
positive assertion; (4) the person made it with the intent that the other party should act
upon it; (5) the party acted in reliance on the representation; and (6) the party then
suffered injury. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of America, 341 S.W.3d
323, 337 (Tex. 2011).
ORDER – PAGE 23
The only specific activity Plaintiffs rely upon in alleging fraud involves McErlane’s
phone call offering Plaintiffs a $500,000 settlement, as well as the follow-up
correspondence. Plaintiffs allege this was a “ruse” to keep them from collecting on their
state court judgments against Bacon Whitney and/or the VTL Group while those assets
were transferred.
McErlane’s action is insufficient to support this Court exercising
personal jurisdiction over any of these Defendants. The Court has already concluded
Plaintiffs wholly failed to establish agency, so none of McErlane’s activity or conduct in
or directed at Texas can be imputed to any of the Defendants for jurisdictional purposes.
Plaintiffs do not provide evidence or even allege any of the Defendants had any activity
in or directed at Texas which would give rise to this fraud claim.
Along with their specific claim related to the settlement offer, Plaintiffs also make
a general allegation that “[t]he entire scheme . . . was a fraud which was participated in
by Halpern and Denny and the Vendomation companies, as detailed above.” Plaintiffs
make no attempt to tie any specific activity or conduct possibly giving rise to this general
allegation; just a blanket incorporation of the entire factual allegations. Although the
Court has been generous with its liberal construction of Plaintiffs’ complaint, the Court
will not indulge this second allegation within Plaintiffs’ fraud claim. The facts alleged are
simply insufficient for this Court to determine whether any activity directed at or in Texas
gave rise to this claim such that the Court can exercise personal jurisdiction over these
Defendants.
ORDER – PAGE 24
The Court finds none of the Defendants had sufficient minimum contacts with
Texas, nor would any possible contacts have given rise to this claim such that any of the
Defendants should be subject to suit in Texas for fraud.
c.
Negligent Misrepresentation
Plaintiffs allege all their factual allegations amount to negligent misrepresentation
by all the Defendants which caused Plaintiffs damages. Plaintiffs point the Court to no
specific contact any Defendant had with Texas which gave rise to this cause of action.
Instead, Plaintiffs simply assert that “all of the above
constitutes negligent
misrepresentation.”
Again, Plaintiffs fail to set forth any elements of this cause of action as well as fail
to indicate what conduct forms the basis of this claim. The elements of a negligent
misrepresentation claim under Texas law are as follows: (1) the defendant provided
information in the course of his business, or in a transaction in which he had a pecuniary
interest; (2) the information given was false; (3) the defendant did not exercise reasonable
care or competence in obtaining or communicating the information; (4) the plaintiff
justifiably relied on the information; and (5) the plaintiff suffered damages proximately
caused by the reliance. Fed. Land Bank Ass’n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991).
Plaintiffs bear the burden of establishing specific jurisdiction as to each of these
Defendants and as to each claim. See Calder, 465 U.S. at 790 (multiple defendants);
Siefeth, 472 F.3d at 275 (multiple causes of action). In this instance, Plaintiffs fail to
carry their burden. Plaintiffs’ complaint does not specify which activity or conduct forms
ORDER – PAGE 25
the basis of this claim, and Plaintiffs responsive briefing offers no more insight. The
Court generously sifted through the complaint to locate any contacts which could have
given rise to this claim, even though Plaintiffs bore the burden of providing this
information in the first place.
As previously discussed at length, no contacts of a third-party which Plaintiffs seek
to impute through agency can be imputed to any Defendant. Again, forced to give a very
generous and liberal construction to the complaint, the Court concludes the only possible
activity related to this negligent misrepresentation claim involves Defendants Halpern
and Denny. Plaintiffs allege Defendants Halpern and Denny distributed or caused to be
distributed a Uniform Franchise Offering Circular (“UFOC”) containing their names and
false disclosures which was circulated in Texas. This activity, however, falls far short for
several reasons.
First, Plaintiffs submit no evidence sufficiently establishing that
Defendants Halpern and Denny themselves knowingly inserted their names in this UFOC
and that this was not the action of a third-party.
See Hanson, 357 U.S. 253 (“The
unilateral activity of those who claim some relationship with a nonresident defendant
cannot satisfy the requirement of contact with the forum State.”); see also Helicopteros, 466
U.S. at 417 (“Such unilateral activity of another party or a third person is not an
appropriate consideration when determining whether a defendant has sufficient contacts
with a forum State to justify an assertion of jurisdiction.”). Accordingly, the Court would
be hard-pressed to conclude that this activity was a sufficient contact with Texas.
Furthermore, Plaintiffs do not identify for the Court what specific information was false.
ORDER – PAGE 26
In fact, Plaintiffs do not even produce this UFOC. Plaintiffs also make no allegations or
provide any evidence that they actually relied upon this UFOC and the information
contained therein, a required element of negligent misrepresentation.
There is no
allegation Plaintiffs saw this UFOC before they entered into their franchise agreement.
Nothing related to this UFOC as alleged and presented by Plaintiffs establishes that this
action would give rise to negligent misrepresentation.
As for the Vendomation Defendants, even giving a liberal construction to the
complaint, there are no allegations directly tying the Vendomation Defendants to any
negligent misrepresentation in any way.
The Court finds none of the Defendants had sufficient contacts with Texas, nor
any possible contacts which would have given rise to this claim such that any of the
Defendants should be subject to suit in Texas for negligent misrepresentation.
d)
Civil Conspiracy and Aiding and Abetting
Plaintiffs allege all their factual allegations constitute a civil conspiracy to commit
the fraudulent transfer and fraud by all the Defendants, as well as establishing aiding and
abetting by all or some of the Defendants. Once more, Plaintiffs fail to allege any specific
conduct which constitutes the conspiracy and/or aiding and abetting; they assert simply
incorporate “all of the above” factual allegations as substantiation of their claim.
Plaintiffs again fail to set forth any elements of either claim. Texas law is wellestablished that civil conspiracy is a derivative claim and there is no independent liability;
the plaintiff must show the defendant’s liability for an underlying tort. See Four Bros. Boat
ORDER – PAGE 27
Works, Inc. v. Tesoro Petroleum Companies, Inc., 217 S.W.3d 653, 668 (Tex. App.—Houston
[14th Dist.] 2006, no pet.)(citing Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996)).
Accordingly, if the underlying tort claim fails, the conspiracy claim must also fail as a
matter of law. Brewer v. Capital Cities/ABC, Inc., 986 S.W.2d 636, 642 (Tex. App.—Fort
Worth 1998, no pet.).
The Court has found that personal jurisdiction cannot be
exercised as to any of these Defendants for the underlying tort claims of fraudulent
transfer, fraud, or negligent misrepresentation. Accordingly, the Court cannot exercise
personal jurisdiction over these Defendants for the civil conspiracy claim as a matter of
law. See id.
As for aiding and abetting, the Texas Supreme Court is undecided as to whether
such a claim is viable in Texas. Juhl v. Airington, 936 S.W.2d 640, 643 (Tex. 1996); see
also Span Enterprises v. Wood, 274 S.W.3d 854, 859 (Tex. App.—Houston [1st Dist.]
2008, no pet.)(“[I]t is not settled whether ‘Knowing Participation/Aiding and Abetting’
fraud is a viable cause of action in Texas.”). Even if it were a viable claim, there is no
indication from the Texas Supreme Court that it would not also be a derivative claim.
The Court finds that as a matter of law it may not exercise personal jurisdiction
over any of these Defendants on the claim of civil conspiracy/aiding and abetting.
In response to all of Defendants’ motions, Plaintiffs argue that because this Court
has denied Defendants’ prior motions to dismiss, the Court has already ruled on the
merits of these arguments and they are, in effect, “moot.” This argument is absolutely
incongruous, and finding any merit in it would mean this Court could never revisit its
ORDER – PAGE 28
prior rulings. It also ignores Fifth Circuit opinions which hold that a judgment entered
without personal jurisdiction is void, therefore a district court has a duty to ensure it has
the power to enter a valid judgment, and commits no error in raising that issue sua sponte.
See Sys. Pipe & Supply, Inc. v. M/V Viktor Kurnatovskiy, 242 F.3d 322, 324 (5th Cir. 2001);
Broadcast Music, Inc. v. M.T.S. Enterprises, Inc., 811 F.2d 278, 281 (5 Cir. 1987).
In conclusion, this Court cannot exercise personal jurisdiction, general or specific,
as to Defendant Halpern, Defendant Denny, Defendant VSL, Defendant Vendomation,
LLC, or Defendant Vendomation NZ, Limited.
B.
Jurisdictional Discovery
Within their response to the motions to dismiss, Plaintiffs move for jurisdictional
discovery and an evidentiary hearing. The Court denies Plaintiffs’ request to conduct
jurisdictional discovery and for a hearing. This Court has broad discretion in deciding
whether to allow a party to conduct jurisdictional discovery. See Wyatt v. Kaplan, 686
F.2d 276, 283 (5th Cir. 1982). A plaintiff must first make a “preliminary showing of
jurisdiction” to be entitled to conduct jurisdictional discovery. Fielding v. Hubert Burda
Media, Inc., 415 F.3d 419, 429 (5th Cir. 2005); see Freeman v. US, 556 F.3d 326, 341 (5th
Cir.), cert. denied, — U.S. —, 130 S.Ct. 154, (2009) (“The party seeking discovery bears
the burden of showing its necessity.”). The plaintiff must put forward what facts she
believes discovery would reveal and how those facts would support personal jurisdiction.
Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 855 (5th Cir. 2000). “When the
lack of personal jurisdiction is clear, discovery would serve no purpose and should not be
ORDER – PAGE 29
permitted.” Wyatt, 686 F.2d at 284. The Fifth Circuit has upheld a district court’s
denial of jurisdictional discovery when such discovery “could not have added any
significant facts.” Id.
Despite several opportunities to replead, the Court concludes Plaintiffs failed to
make a preliminary showing of jurisdiction as required to be entitled to jurisdictional
discovery. See Fielding, 415 F.3d at 429. As previously discussed at length, Plaintiffs did
not provide evidence that any Defendant had sufficient minimum contacts with Texas to
establish specific personal jurisdiction, and general jurisdiction does not exist either.
Moreover, Plaintiffs wholly failed to make any showing of what facts they believe
discovery would reveal and how those facts would support the exercise of personal
jurisdiction of any of the Defendants. Plaintiffs make the following statement in support
of their request: “Because of the complex and convoluted nature of Moving Defendants’
actions to cover up their wrong doing, Plaintiffs move for appropriate jurisdictional
discovery and an evidentiary hearing in the event that Plaintiff’s response and [Fourth]
Amended [Complaint] are not sufficient to defeat defendants’ motions.” This statement
is accompanied by citations to a Tenth Circuit case and a Connecticut district court case.
At best, this statement is nothing more than vague or conclusory assertions for the need
for jurisdictional discovery. See Reese v. Anderson, 926 F.2d 494, 499 n. 5 (5th Cir.
1991)(“Vague assertions of the need for additional discovery are as unavailing as vague
responses on the merits.”); see also Marine Geotechnics, LLC v. Williams, No. H-07-3499,
2009 WL 2144358, at *5 (S.D. Tex. July 13, 2009)(internal citation omitted)(court
ORDER – PAGE 30
should grant plaintiff the right to conduct jurisdictional discovery where plaintiff
“presents factual allegations that suggest ‘with reasonable particularity’ the possibly
existence of the requisite ‘contacts between [the party] and the forum state’”.) Here.
Plaintiffs failed to put forth the facts they believed discovery would reveal and how those
facts would support personal jurisdiction as to these Defendants. See Kelly, 213 F.3d at
855. Based upon the record, the Court concludes the lack of personal jurisdiction is clear,
and discovery would not add any significant facts. See Wyatt, 686 F.2d at 284.
C.
Conclusion
For the foregoing reasons, the Court finds it cannot exercise personal jurisdiction
over any remaining Defendant in this case. There is no support for exercising general
jurisdiction or specific jurisdiction as to Defendant Halpern, Defendant Denny,
Defendant Vendomation LLC, Defendant VSL, or Defendant Vendomation NZ. This
case is dismissed for lack of personal jurisdiction as to all remaining Defendants.
The Court need not address any alternative grounds for dismissal, nor any other pending
motions.
SO ORDERED.
Signed August 27 th, 2012.
______________________________________
ED KINKEADE
UNITED STATES DISTRICT JUDGE
ORDER – PAGE 31
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