Ryan, LLC v. Inspired Development, LLC
Filing
102
Memorandum Opinion and Order: The Court: denies Defendants' Motion to Dismiss Fifth Amended Complaint (ECF No. 80 ); grants Plaintiff's Motion to Dismiss Counterclaims (ECF No. 85 ); grants Defendant Lisa K. Sloan's Motion to Dismis s Fifth Amended Complaint for lack of personal jurisdiction (ECF No. 87 ); and denies as moot Defendant Lisa K. Sloan's Motion for Protective Order (ECF No. 98 ). Lisa K. Sloan is hereby dismissed from this case for lack of personal jurisdiction. Inspired's and D. Sloan's counterclaims are hereby dismissed with prejudice. (Ordered by Judge Reed C O'Connor on 11/25/2013) (ctf)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
RYAN, LLC f/k/a RYAN & COMPANY,
INC.,
Plaintiff,
v.
INSPIRED DEVELOPMENT, LLC and
DONALD W. SLOAN,
Defendants.
§
§
§
§
§
§
§
§
§
§
§
§
§
Civil Action No. 3:12-cv-02391-O
MEMORANDUM OPINION AND ORDER
Before the Court are: Defendants’ Motion to Dismiss Fifth Amended Complaint, filed
August 21, 2013 (ECF No. 80); Plaintiff’s Motion to Dismiss Counterclaims, filed September 11,
2013 (ECF No. 85); Defendant Lisa K. Sloan’s Motion to Dismiss Fifth Amended Complaint, filed
September 30, 2013 (ECF No. 87); and Defendant Lisa K. Sloan’s Motion for Protective Order, filed
November 11, 2013 (ECF No. 98).
Having considered the motions, responses, replies, pleadings, record and applicable law, and
for the reasons stated below, the Court denies Defendants’ Motion to Dismiss Fifth Amended
Complaint (ECF No. 80); grants Plaintiff’s Motion to Dismiss Counterclaims (ECF No. 85); grants
Defendant Lisa K. Sloan’s Motion to Dismiss Fifth Amended Complaint (ECF No. 87); and denies
as moot Defendant Lisa K. Sloan’s Motion for Protective Order (ECF No. 98).
1
I. Factual and Procedural Background
The following facts are drawn from Plaintiff Ryan’s Fifth Amended Complaint and
Application for Temporary and Permanent Injunctive Relief (ECF No. 70).1
A.
The Parties
Ryan, LLC, f/k/a Ryan & Co., Inc. (“Plaintiff” or “Ryan”) is a leading global tax services
firm headquartered in Dallas, Texas. 5th Am. Compl. ¶ 9, ECF No. 70. Ryan provides “state, local,
federal, and international tax advisory and consulting services to clients throughout the United
States.” Id. Defendant Inspired Development, LLC (“Inspired”) is an Illinois limited liability
company composed of two members—Donald W. Sloan (“D. Sloan”) and Lisa K. Sloan (“L.
Sloan”). Id. ¶ 3.2 Inspired “provides tax incentive, sales order approval, sales support, and
administrative services to retailers” doing business in several states, including Illinois and Texas.
Id. ¶ 10. Under Illinois law, sales taxes are assessed by municipalities in the location where a
purchase order is accepted, rather than where the customer receives the purchased product. Id.
Inspired has entered into sales tax incentive agreements with the cities of Kanakee, Illinois and
Channahon, Illinois, pursuant to which the cities share a portion of their sales tax receipts with
Inspired. Id. In turn, Inspired’s retailer clients have opened sales-processing offices in these towns,
and Inspired shares its sales tax rebates with those clients. Id.
1
In reviewing a Rule 12(b)(6) motion to dismiss, the Court must accept all well-pleaded facts in the
complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mut. Auto.
Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007).
2
On October 31, 2013, counsel for D. Sloan and Inspired notified the Court of Defendant D. Sloan’s
death. See Suggestion of Death (ECF No. 96).
2
B.
The Marketing Agreement
On or about March 1, 2001, Ryan and Inspired entered into a Marketing Agreement, pursuant
to which Ryan agreed to refer its clients to Inspired for assistance in obtaining tax incentives from
the municipalities with which Inspired had contracted. Id. ¶ 11 and Ex. A thereto (Marketing
Agreement, ECF No. 70-1). L. Sloan signed the Marketing Agreement as Managing Member of
Inspired. Marketing Agreement at 7. Under the Marketing Agreement, Ryan and Inspired agreed
“to mutually work to develop the solicitation of municipalities and companies for the purpose of
placing companies within municipalities that are willing to provide a sales tax rebate program for
such companies locating within that municipality and generating sales that are taxable within that
municipality.” Marketing Agreement, Sec. 1. Inspired agreed to enter into separate contracts with
Ryan’s clients and provide services and support to those clients. Id., Sec. 2. Inspired also agreed
to enter into contracts with municipalities, collect tax rebates, and distribute those funds pursuant
to the agreements with the clients and the Marketing Agreement. Id.
As contemplated by the Marketing Agreement, Inspired entered into separate agency
agreements with Ryan’s clients that Ryan referred to Inspired. 5th Am. Compl. ¶ 15. Under the
Marketing Agreement, Inspired agreed to pay Ryan 40% of the amounts remaining after Inspired
paid any Illinois municipality tax rebate amounts to Ryan’s clients pursuant to Inspired’s agreements
with those clients. 5th Am. Compl. ¶ 13; Marketing Agreement, Sec. 3. Inspired agreed to make
the payments required under the Marketing Agreement within thirty days of receiving the funds from
the municipality, along with an accounting of the fees collected and the amounts distributed to the
clients. 5th Am. Compl. ¶ 13; Marketing Agreement, Sec. 3. The Marketing Agreement gave Ryan
3
the right to audit Inspired’s records related to the Marketing Agreement’s program. 5th Am. Compl.
¶ 14; Marketing Agreement, Sec. 15.
On June 26, 2012, Ryan received a call from one of its Texas clients, who advised Ryan that
during a telephone call on that day, Inspired’s principal D. Sloan had responded to the client’s
inquiry about missing payments by telling the client that Ryan had the money owed to the client.
5th Am. Compl. ¶ 16. The information D. Sloan communicated to the client on behalf of Inspired
was “completely false.” Id. Ryan alleges that at the time D. Sloan made the statement, “L. Sloan
was CEO of Inspired and had ultimate responsibility to supervise Inspired representatives.” Id. ¶ 7.
On July 3, 2012, Ryan’s counsel sent a letter to Inspired “to notify Inspired of several
material breaches of the Agreement, to demand that Inspired immediately cure such breaches, and
to demand that Inspired allow Ryan immediately to audit its books and records.” Id. ¶ 18. In
subsequent communications between Ryan and Inspired, D. Sloan “would not agree to provide proof
that Inspired was still holding the money that it was required to pay to Ryan and its clients under the
Marketing Agreement and Inspired’s separate contracts with Ryan’s clients.” Id. ¶ 19. “Nor did D.
Sloan, on behalf of Inspired, agree to pay Ryan and its clients the money that Inspired owed them,
either immediately or at any time in the future[,]” all in breach of the Marketing Agreement. Id.
Ryan estimates that Inspired owes its clients “well over $10 million in rebate payments,” and that
Inspired owes Ryan “over $500,000.” Id. ¶ 17.
C.
Ryan Files Lawsuit Against Inspired
Ryan filed this lawsuit against Inspired on July 17, 2012, asserting claims for breach of the
Marketing Agreement, money had and received, defamation, violation of the Texas Theft Liability
Act (“TTLA’), equitable claims—including unjust enrichment, restitution, disgorgement, imposition
4
of a constructive trust, and accounting—and seeking recovery of attorney’s fees. See Original
Compl. ¶¶ 16–33, ECF No. 1. Ryan sought a temporary restraining order, which the Court denied.
See Minute Entry, July 27, 2012, ECF No. 13. Following entry of a scheduling order, on July 31,
2012, Ryan filed a motion for expedited discovery, seeking to determine whether Inspired had the
disputed funds available and whether Inspired was able to pay a monetary judgment. Following a
Court-ordered conference, Ryan agreed to forego the requests set forth in its motion for expedited
discovery in exchange for Inspired’s agreement to produce, by noon on August 8, 2012,
“documentary evidence . . . that funds received by Inspired from Illinois municipalities pursuant to
the tax rebate agreements that are described in this lawsuit are on deposit and/or are accessible to
Inspired, and have not been dissipated.” See Joint Status Report 2, ECF No. 23. Inspired produced
a document indicating that a company named Companhia Brasileira de Energia Limpia Macroenergia S/A had received $20 million as a “finance loan” from D. Sloan. 5th Am. Compl.
¶ 21and Ex. C thereto (receipt of $20 million by Companhia Brasileira, ECF 70-1).
D.
Amendment to Marketing Agreement and Contingent Settlement Agreement
Section Two of the Marketing Agreement provided that “[i]n the event Inspired fails to
provide such facilities or perform services as required [by the Marketing Agreement], as determined
appropriate by Ryan, Ryan shall, after providing Inspired with notice as required [by the Marketing
Agreement] and subject to a sixty (60) day cure period, have the option of providing such facilities
and services.” 5th Am. Compl. and Ex. A thereto (Marketing Agreement). If Ryan exercised this
option, Inspired agreed “to reimburse Ryan its actual costs incurred in providing such facilities and
services, such reimbursement to be provided immediately upon request by Ryan.” See id.
5
On October 4, 2012, pursuant to Section 2 of the Marketing Agreement, and after the 60-day
notice and cure period, Inspired and Ryan executed an Amendment to the Marketing Agreement in
which Ryan exercised its option to provide the Marketing Agreement services to the clients Ryan
referred to Inspired. 5th Am. Compl. ¶ 12, and Ex. B thereto (Amendment Number One to
Marketing Agreement, ECF No. 70-1). Amendment Number One, in addition to terminating
Inspired’s services under Section 2 of the Marketing Agreement, also deleted Section 6, which had
provided that the parties “will not engage in any business that competes with [the Marketing
Agreement] services[.]” Amendment Number One at 1-2, Secs. 1, 3. The parties agreed that
Amendment Number One “was to modify, and is hereby incorporated into” the Marketing
Agreement. See id. at 1.
Also on October 4, 2012, Defendants D. Sloan and Inspired, “under the supervision of
Inspired’s CEO L. Sloan,” signed a conditional Settlement Agreement contingent on Inspired
funding a custodial account by November 15, 2012, to repay money owed to Ryan and Ryan’s
clients. 5th Am. Compl. ¶¶ 7, 23. After two extensions of time to fund the account and several
continuances of the scheduling order deadlines, Inspired failed to fund the custodial account despite
Defendants’ assurances that they would return the funds from the Brazilian investment and were
merely awaiting regulatory approval. Id. On January 28, 2013, the Court permitted Ryan to file its
Fourth Amended Complaint to add D. Sloan as an additional defendant in this case in light of D.
Sloan’s failure to fund the custodial account in breach of the settlement agreement. See Order, ECF
No. 49.
E.
Ryan’s Fourth Amended Complaint & Motion for Leave to Amend
6
In its Fourth Amended Complaint, Ryan asserted the following causes of action: (1) breach
of contract for (a) the Marketing Agreement and (b) the Settlement Agreement; (2) money had and
received; (3) defamation; (4) violation of the TTLA; (5) equitable claims, including unjust
enrichment, restitution, disgorgement, imposition of a constructive trust, and accounting; (6) tortious
interference with existing contracts; (7) tortious interference with prospective contracts; (8) negligent
misrepresentation; (9) fraud; and (10) attorney’s fees. Defendants moved to dismiss the Fourth
Amended Complaint. While the motion was pending, Ryan sought leave to amend the pleadings to
add L. Sloan as an additional defendant, and add new allegations against all Defendants. See Pl.
Mot. for Leave to File Fifth Am. Compl., ECF No. 67.
F.
The Court’s July 18, 2013 Order
The Court granted Inspired’s and D. Sloan’s respective motions to dismiss Ryan’s claims for
tortious interference with existing contracts (count six), tortious interference with prospective
contracts (count seven), negligent misrepresentation (count eight), and fraud (count nine), finding
the fraud allegations insufficient under Fed. R. Civ. P. 9(b). See July 18, 2013 Order at 8-24, ECF
No. 69. Further, the Court found that Ryan lacked standing to assert claims or seek damages on
behalf of its clients under their separate agency agreements with Inspired. See id. at 26. The Court
determined that Ryan has sufficiently pleaded the following causes of action against Inspired and D.
Sloan: (1) breach of contract3; (2) money had and received; (3) defamation; (4) violation of the
3
The Court granted D. Sloan’s motion to dismiss the breach of Marketing Agreement claim, finding
that Ryan failed to allege sufficient facts to pierce the corporate veil and hold D. Sloan liable for contractual
obligations of Inspired LLC. With regard to breach of the Settlement Agreement, however, noting that D.
Sloan entered into the Settlement Agreement in his individual capacity and allegedly failed to comply with
the terms of the Settlement Agreement, the Court denied D. Sloan’s motion since Ryan was not seeking to
hold D. Sloan liable for the obligations of Inspired LLC under the Settlement Agreement, but for his own
contractual obligations. See July 18, 2013 Order at 21-23, ECF No. 69.
7
TTLA; (5) equitable claims, including unjust enrichment, restitution, disgorgement, imposition of
a constructive trust, and accounting, and (6) attorney’s fees. See id. at 8-24.
In the same Order, the Court granted in part Ryan’s motion for leave to file Fifth Amended
Complaint. See id. at 26-28. Ryan had alleged that recent developments and filings by L. Sloan in
the divorce action between D. Sloan and L. Sloan made it unlikely that Inspired would fund the
settlement, as D. Sloan and L. Sloan had “acted in concert to embezzle funds and convert funds
owing to Ryan.” See Pl. Mot. for Leave to File 5th Am. Compl. at 2, ECF No. 67 (citing Lisa Sloan
v. Donald Sloan, et al., No. 11 D 11864 (Cook County Cir. Ct. County Dept. Domestic Relations
Div.)) (the “Divorce Action”). Recognizing that Ryan only became aware of the facts supporting
its claims against L. Sloan after the deadline to amend pleadings had expired, the Court found good
cause, and allowed Ryan leave to add L. Sloan as a defendant, and also allowed Ryan leave to add
claims for (1) negligence, negligence per se, and gross negligence, (2) conversion, and
(3) conspiracy. See July 18, 2013 Order at 26-28. Finding other proposed amendments futile as they
would not cure the pleading deficiencies in the Fourth Amended Complaint, the Court denied the
remainder of Ryan’s motion for leave to amend:
However, consistent with this Court’s rulings on Defendants’ motions to dismiss the
Fourth Amended Complaint, Plaintiff Ryan, LLC may not assert the following causes
of action against Defendant Inspired Development, LLC or Defendant Donald W.
Sloan: (1) tortious interference with existing contracts, (2) tortious interference with
prospective contracts, (3) negligent misrepresentation, or (4) fraud. Additionally, it
may not assert the following cause of action against Defendant Donald W. Sloan:
(1) breach of the Marketing Agreement.4
4
The Court held that the amended pleading, “does not cure the pleading deficiencies identified in the
Fourth Amended Complaint with respect to piercing the LLC veil on its claim for breach of the Marketing
Agreement against Sloan. Accordingly, the Court finds that it would be futile to allow Ryan to file its
Proposed Fifth Amended Complaint with respect to this cause of action against Sloan.” See July 18, 2013
Order at28, ECF No. 69.
8
Id. at 29 (original emphasis).
G.
Ryan’s Fifth Amended Complaint
In the live pleading, in addition to the allegations previously summarized, Ryan has added
L. Sloan as a defendant, added allegations stemming from recent developments in the Divorce
Action which Ryan alleges show that Defendants acted in concert to embezzle and convert funds
owed to Ryan, deleted causes of action the Court had previously dismissed, and added new
negligence-based causes of action. With regard to the Divorce Action and the addition of L. Sloan
as a party-Defendant, citing to Exhibits it attaches to the Fifth Amended Complaint, Ryan alleges
that:
[In the Divorce Action], L. Sloan recently moved for a Temporary Restraining Order
seeking broad injunctive relief against Inspired and D. Sloan. In the Petition for
Dissolution of Marriage (attached as Exhibit D) and Motion for Temporary
Restraining Order (attached as Exhibit E) and supporting affidavit, L. Sloan swears
that, at least from 2010 forward and while she was CEO of Inspired, D. Sloan
consistently used money from Inspired accounts on personal purchases of a Porsche,
expensive jewelry, houses and “paramours, gambling, investments in night clubs,
movies, movie stars, and cars.” She attaches documents evidencing payment for a
Porsche by D. Sloan with the signature of Efina Levac, an alleged paramour/exotic
dancer. During this time, L. Sloan continued to accept payments from D. Sloan from
the Inspired accounts belonging to Ryan and its clients. Only when D. Sloan no
longer could access Inspired accounts and pay L. Sloan, did she move for injunctive
relief in the Divorce Action, for the first time complaining about D. Sloan’s actions.
5th Am. Compl. ¶ 24 and Ex. D (Petition for Dissolution of Marriage), Ex. E (Emergency Motion
for Temporary Restraining Order and Temporary Relief).
Ryan asserts the following causes of action against Inspired, D. Sloan and L. Sloan: breach
of contract (Count 1); money had and received (Count 2); defamation (Count 3); violation of the
TTLA (Count 4); equitable claims, including unjust enrichment, restitution, disgorgement,
9
imposition of a constructive trust, and accounting (Count 5); negligence, negligence per se, and gross
negligence (Count 6); conversion (Count 7); conspiracy (Count 8); and a request for attorney’s fees
(Count 9).
Defendants Inspired and D. Sloan have moved to dismiss the newly-added causes of action
in the Fifth Amended Complaint, and have also filed an answer and counterclaim against Ryan for
breach of contract and attorney’s fees. See Def. Mot. to Dis., Orig. Ans., and Countercl., ECF No.
80. Ryan has moved to dismiss the counterclaim. See Pl. Mot. to Dis. Countercl., ECF No. 85.
Defendant L. Sloan has moved to dismiss the Fifth Amended Complaint under Fed. R. Civ. P.
12(b)(2), for lack of personal jurisdiction or, alternatively, for failure to state a claim under Fed. R.
Civ. P. 12(b)(6), and has moved for a protective order to stay discovery. See L. Sloan’s Mot. to Dis.
5th Am. Compl., ECF No. 87; L. Sloan Mot. for Prot. Ord., ECF No. 98. All motions have been
fully briefed and are ripe for adjudication.
II.
Defendants’ Motion to Dismiss the Newly-Added Causes of Action
Defendants Inspired and D. Sloan move to dismiss the following causes of action in the Fifth
Amended Complaint – Count Six (negligence, negligence per se, and gross negligence); Count
Seven (conversion); and Count 8 (conspiracy). In support, Inspired and D. Sloan argue that the
economic loss rule bars Ryan’s newly-added tort claims, as the alleged injuries suffered and losses
complained of are the subject matter of the contract between the parties. See Def. Mot. to Dis. at 12; Def. Reply at 9. Alternatively, Inspired and D. Sloan argue that Ryan has failed to satisfy federal
pleading standards. See Def. Mot. to Dis. at 2, 5-6. In response, Ryan argues that the economic loss
rule does not apply, since its losses “go above and beyond damages for breach of the Marketing
Agreement and Defendants’ complete lack of reasonable conduct and care are in the nature of tort
10
rather than merely breach of contract[,]” and that it has satisfied the pleading standards. Ryan Resp.
to Mot. to Dis. at 11.
A.
Standard for Dismissal under Rule 12(b)(6)
Federal Rule of Civil Procedure 8(a) requires a plaintiff’s pleading to include “a short and
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
“[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations,’ but it
demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). If
a plaintiff fails to satisfy Rule 8(a), the defendant may file a motion to dismiss the plaintiff’s claims
under Federal Rule of Civil Procedure 12(b)(6) for “failure to state a claim upon which relief may
be granted.” Fed. R. Civ. P. 12(b)(6).
To defeat a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.”
Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 663 (citing Twombly, 550 U.S. at 556). “The plausibility standard is
not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant
has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). “Where a complaint pleads facts
that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility
and plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557).
In reviewing a Rule 12(b)(6) motion, the Court must accept all well-pleaded facts in the
complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm
11
Mut. Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007). The Court is not bound to accept legal
conclusions as true, and only a complaint that states a plausible claim for relief survives a motion
to dismiss. Iqbal, 556 U.S. at 678. When there are well-pleaded factual allegations, the Court
assumes their veracity and then determines whether they plausibly give rise to an entitlement to
relief. Id. at 678–79.
B.
Analysis
The Court turns first to Inspired’s and D. Sloan’s argument that Ryan’s newly-added causes
of action are barred by the economic loss rule.
Texas law “prohibit[s] tort claims if the parties’ relationship and attendant duties arise from
a contract.” DeFranceschi v. Wells Fargo Bank, N.A., 837 F. Supp. 2d 616, 625 (N.D. Tex 2011)
(Means, J.); Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 493-95 (Tex. 1991) (holding that
plaintiff cannot recover under tort law ‘[w]hen the only loss or damage is the subject matter of the
contract”). In DeLanney, the Supreme Court of Texas considered “whether a cause of action for
negligence is stated by an allegation that a telephone company negligently failed to perform its
contract to publish a Yellow pages advertisement.” DeLanney, 809 S.W.2d at 493. The court held
that because the plaintiff “sought damages for breach of a duty created under the contract, rather than
a duty imposed by law, the claim sounded only in contract.” Id. The court explained its reasoning:
If the defendants’s conduct—such as negligently burning down a house—would give
rise to liability independent of the fact that a contract exists between the parties, the
plaintiff’s claim may also sound in tort. Conversely, if the defendant’s
conduct—such as failing to publish an advertisement—would give rise to liability
only because it breaches the parties’ agreement, the plaintiff’s claim ordinarily
sounds only in contract.
12
Id. The court stated further: “[i]n determining whether the plaintiff may recover on a tort theory, it
is also instructive to examine the nature of plaintiff’s loss.” Id. at 494. “When the only loss or
damage is to the subject matter of the contract, the plaintiff’s action is ordinarily on the contract.”
Id. In Delanney, the court also relied on the following generalizations to aid it in distinguishing
between tort and contract liability:
Prosser and Keeton suggest seven generalizations as helpful in distinguishing
between tort and contract liability. Those which are useful in this case include: (1)
obligations imposed by law are tort obligations; (2) misfeasance or negligent
affirmative conduct in the performance of a promise generally subjects an actor
to tort liability as well as contract liability for physical harm to persons and tangible
things; (3) recovery of intangible economic losses is normally determined by contract
law; and (4) there is no tort liability for nonfeasance, i.e., failing to do what one
promised to do in the absence of a duty to act apart from the promise made.
DeLanney, 809 S.W.2d at 495 (citing with approval W. Keeton, D. Dobbs, R. Keeton & D. Owen,
Prosser and Keeton on the Law of Torts § 92 at 656-57 (5th ed. 1984) (emphasis added)); see also
Riley v. Champion Int’l Corp., 973 F. Supp. 634, 643 and n.7 (E.D. Tex. 1997) (Schell,
J.)(recognizing that cases in this “confusing and complex” area differentiate between “nonfeasance,”
resulting in liability under the contract, and “misfeasance,” which produces tort liability).
Ryan asserts negligence-based claims against D. Sloan and Inspired for their alleged failure
“to observe their duty to Ryan to act in a commercially reasonable and prudent manner by defaming
Ryan and using money belonging to Ryan and its clients for their own personal gain.” 5th Am.
Compl. ¶ 47; id. ¶ 47 (Plaintiff injured by “Defendants [use of] the money which was to be
segregated and paid to Ryan and its clients . . . .”). Referring to recent filings in the Divorce Action,
Ryan asserts that “the funds have been misused and dissipated thereby impairing Ryan’s and its
client’s recovery [and] Ryan should be allowed to recover the funds on alternative theories including
13
conversion, equitable relief, and negligence.” Ryan Resp. to Mot. to Dis. at 12.5 Relying in part on
a 1947 Texas Supreme Court case, Ryan posits that the economic loss rule does not apply since,
“[a]ccompanying every contract is a duty to perform with care, skill, and reasonable expedience the
thing agreed to be done; the negligent failure to observe any of these conditions is a tort as well as
a breach of contract.” See Pl. Resp. at 9 (citing Montgomery Ward & Co. v. Scharrenbeck, 204
S.W.2d 508, 510 (Tex. 1947)).
Having considered the parties’ arguments, case law, and pleadings, the Court concludes that
Ryan has sufficiently alleged a tort based on “misfeasance” and “negligent affirmative conduct”
such that the economic loss doctrine does not bar its negligence-based claims. See DeLanney, 809
S.W.2d at 495 (citation omitted). As alleged in the Fifth Amended Complaint and attached Exhibits,
including Ex. D (Petition for Dissolution of Marriage) and Ex. E (Emergency Motion for Temporary
Restraining Order and Temporary Relief), Defendants have dissipated the funds at issue on personal
expenditures, even after D. Sloan agreed to fund a settlement account. In her motion for temporary
restraining order, L. Sloan swears that D. Sloan “has taken the funds of Inspired Development, LLC
and used them for his own purpose such as gambling at casinos throughout the nation[]” and that D.
Sloan consistently used money from Inspired accounts on personal purchases of a Porsche, expensive
jewelry, houses and “paramours, gambling, investments in night clubs, movies, movie stars, and
5
Ryan points out that the Court has already held that Ryan’s other tort and equitable claims should
not be dismissed. Id. (citing Order, ECF No. 69, p. 11 (Money Had and Received), p. 12 (Unjust
Enrichment), p. 12 (Restitution, Disgorgement, Imposition of Constructive Trust), pp. 13, 21 (Defamation),
pp. 23-24 (Money Had and Received, Violation of TTLA, and Equitable Claims)). The Court allowed these
equitable claims to remain in the case recognizing the possibility that the “contract will not be considered
valid and enforceable once all the evidence is gathered. If the evidence shows that there is no valid
agreement, Ryan should not be barred from bringing its [equitable claims] as an alternative theory of relief.”
Order, ECF No. 69, p. 11.
14
cars.” See Ex. E to 5th Am. Compl. L. Sloan attaches documents to her motion for temporary
restraining order evidencing payment in full for a Porsche in the amount of $107,573.85 by D. Sloan
with the signature of Efina Levac, an alleged paramour/exotic dancer, with whom D. Sloan was
having an adulterous affair. See id. Further, Ryan alleges that during this time, L. Sloan continued
to accept payments from D. Sloan from the Inspired accounts belonging to Ryan and its clients. 5th
Am. Comp. ¶ 24. Only when D. Sloan no longer could access Inspired accounts and pay L. Sloan,
did she move for injunctive relief in the Divorce Action, for the first time complaining about D.
Sloan’s actions. Id.
These allegations of misfeasance and negligent affirmative conduct, and the alleged harm
resulting from dissipation of funds, as well as injury to Ryan’s client relations through alleged
defamatory statements, is above and beyond breach of contract damages.6 Further, the Court agrees
with Ryan that the Groham case relied upon by Inspired and D. Sloan to support application of the
economic loss rule is distinguishable. See Def. Mot. to Dis. Countercl. at 2 (citing Groham v.
Kahlig, 318 S.W.3d 882, 889 (Tex. 2010)). In Groham, Groham sued her ex-husband Kahlig for
breach of a security agreement that was part of their divorce settlement. Groham, 318 S.W.3d at
884. Under the divorce agreement, Kahlig executed a promissory note and pledged a majority of his
6
Defendants are correct that the “practical import” of the language used in Scharrenbeck, which Ryan
cites, has been “restricted” by subsequent Texas decisions, though certainly not overruled. See Def. Reply
at 7 (citing Prendes v. Select Portfolio Services, Inc., 2012 WL 6913511, at *7 (N.D. Tex. Dec. 28, 2012)
(in turn quoting Riley v. Champion Int’l Corp., 973 F. Supp. 634, 644 (E.D. Tex. 1997) (“Although the
language used in Scharrenbeck could be broadly construed, the [Texas Supreme Court in Delanney]
“severely restricted the practical import of Scharrenbeck by holding that if defendant’s negligent conduct
gives rise to liability independent of the fact that a contract exists between the parties, the plaintiff’s claim
may also sound in tort;” but if it gives “rise to liability only because it breaches the parties’ agreement, the
plaintiff’s claim ordinarily sounds only in contract.”)(internal punctuation omitted)). Even with this
restriction, the misfeasance and negligent affirmative conduct alleged in the pleadings regarding personal
use of the funds at issue sufficiently states a claim sounding in tort, and not just in contract.
15
stock in two corporations as collateral. Id. The security agreement provided that the collateral could
not be transferred, disposed of or destroyed. Id. at 885. Kahlig thereafter converted the corporations
into limited partnerships, for which Groham sued him for breach of contract, and for negligence,
alleging Kahlig breached a duty not to injure her secured interest in collateral, and damages for that
conversion. Id. at 886. The court held that the security agreement was never breached because the
collateral was never transferred, disposed of, or destroyed but merely changed form. Id. at 888. The
court further found that because Gorham’s action was in contract alone, the trial court did not err in
refusing to submit her negligence claim to the jury. Id. at 889. The Gorham case is distinguished
on its facts. As stated by Ryan: “the alleged claims in Groham did not result in any damages as the
collateral was not transferred and the security interest in that case was not impaired. That is, the
monies at issue were not lost. Here [. . . ] the funds have been misused and dissipated thereby
impairing Ryan’s and its clients’ recovery.” See Pl. Resp. at 12.
For these reasons, the Court concludes that the economic loss doctrine does not bar Ryan’s
claims for negligence, negligence per se, and gross negligence (Count 6), conversion (Count 7), and
conspiracy (Count 8).
Further, the Court concludes that as to Counts Six through Eight, Ryan has plead “enough
facts to state a claim to relief that is plausible on its face.” See Twombly, 550 U.S. at 570. “A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 663
(citing Twombly, 550 U.S. at 556). The allegations in the Fifth Amended Complaint, as detailed
fully above, have facial plausibility and allow the Court to draw the reasonable inference of
negligence, gross negligence, negligence per se, conversion and conspiracy. Accordingly, the Court
16
rejects Inspired’s and D. Sloan’s alternate argument that dismissal of Counts Six, Seven and Eight
is required for failure to state a claim.7
In sum, the Court denies Inspired’s and D. Sloan’s motion to dismiss Counts Six, Seven and
Eight of Plaintiff’s Fifth Amended Complaint. The economic loss rule does not bar Ryan’s
negligence-based claims. Further, Counts Six, Seven and Eight state a claim sufficient to withstand
Defendants’ motion to dismiss under Fed. R. Civ. P. 12(b)(6).
III.
Ryan’s Motion to Dismiss Counterclaim
Ryan has filed a motion to dismiss Inspired’s and D. Sloan’s counterclaim for breach of
contract and attorney’s fees. See Pl. Mot. to Dis. Countercl., ECF No. 85. Prior to analyzing the
merits of the motion, the Court summarizes the allegations in the counterclaim, accepting all wellpleaded facts in the counterclaim as true and viewing them in the light most favorable to Inspired
and D. Sloan. See Sonnier, 509 F.3d at 675.
A.
The Counterclaim
In their counterclaim (see ECF No. 80), Counter-Plaintiffs allege Ryan failed to meet its
express contractual obligations under the Marketing Agreement to honor its duty to avoid a conflict
of interest in violation of Section 10 of the Marketing Agreement. See Countercl. ¶¶ 97-99, 110,
112, 114-19. Counter-Plaintiffs summarize the counterclaim as follows: “[T]he true essence of the
counterclaims is that Plaintiff egregiously violated the conflict-of-interest provision by ceasing
7
With regard to Inspired’s and D. Sloan’s argument in support of dismissal of Count 8 (conspiracy)
that “Plaintiffs have failed to allege a single fact demonstrating a meeting of the minds[,]” see Def. Mot. to
Dismiss at 6, the Court notes that an agreement to conspire “need not be formal, the understanding may be
a tacit one[.]” Wackman v. Rubsamen, 602 F.3d 391, 409 (5th Cir. 2010) (citation omitted). The allegations
of conspiracy in the Fifth Amended Complaint, viewed a whole, sufficiently allege a course of conduct that
satisfies the “meeting of the minds” notice pleading standard. See, e.g., 5th Am. Compl. ¶ 24.
17
lobbying efforts while recovering a significant sum - $50 million - through no-look refunds.” Resp.
to Ryan Mot. to Dis. Countercl. at 7.8 Counter-Plaintiffs allege that Ryan spearheaded a legislative
challenge to legislation unfavorable to Inspired’s tax consulting business in 2003; when similarly
unfavorable new legislation was proposed in 2011, Ryan again undertook responsibility for
challenging the legislative proposal; Ryan failed to successfully lobby against the legislative proposal
at the direction of Brint Ryan; and at or about the same time Ryan ceased lobbying efforts, Brint
Ryan boasted about recovering $50 million through “no-look refunds” for its clients. Id. ¶¶ 105-108;
see also Resp. to Ryan Mot. to Dis. Countercl. at 6 (summarizing allegations).
B.
Analysis
In support of its motion to dismiss the counterclaim, Ryan argues that the counterclaim must
be dismissed because: (1) the breach of contract counterclaim is the subject of a release by the parties
contained in a December 15, 2011 Termination Agreement; (2) no language in the Marketing
Agreement supports a duty “to endlessly lobby against any and all tax-reform legislation, and thus,
there cannot be any breach as a matter of law”; (3) any failure by Ryan to “single-handedly
successfully defeat passage of tax-return legislation would be excused by impossibility of
performance”; (4) any such requirement would be “unenforceable and void as a matter of public
policy”; and (5) Counter-Plaintiffs’ “threadbare ‘breach of contract’ allegations made ‘on
information and belief’ are insufficient to survive a motion to dismiss.” See Ryan Mot. to Dis.
Countercl. at 1-2. Ryan also moves to dismiss Counter-Plaintiffs’ claim for attorney’s fees as a
matter of law, since recovery of attorney’s fees cannot be had absent breach of contract. Id. at 2.
8
The counterclaim alleges that a “no-look refund” is “a sales tax refund provided by a state or local
taxing authority without the full application of the authority’s own policies and requirements or applicable
law.” Countercl. ¶ 108 (ECF No. 80).
18
In response, Inspired and D. Sloan argue that: (1) the Court cannot consider the December
2011 Termination Agreement since it is outside the pleadings, and even were the Court to consider
it, the Termination Agreement does not operate as a release of the counterclaims; (2) the “true
essence [of the counterclaim] is that [Ryan] egregiously violated the conflict-of-interest provision
by ceasing lobbying efforts while recovering a significant sum – $50 million – through no-look
refunds[,]” which states a cause of action for breach of the Marketing Agreement under Rule 8 and
Iqbal; and (3) the counterclaim is not unenforceable as against public policy, nor excused based on
impossibility of performance. See Resp. to Ryan Mot. to Dis. Countercl. at 3-7. The Court examines
Ryan’s arguments in support of dismissal in turn.
Ryan first urges the Court to consider a December 15, 2011 Termination Agreement that it
attaches as an exhibit to its motion to dismiss, see Ex. A to Pl. Mot. to Dis. Countercl. (“Termination
Agreement”), arguing that Counter-Plaintiffs’ breach of contract claim is barred as a matter of law
due to a release contained therein. See Ryan Mot. to Dis. Countercl. at 3. In opposition, Inspired
and D. Sloan argue that the Court cannot consider the December 2011 Termination Agreement since
it is outside the pleadings, and even were the Court to consider it, the Termination Agreement does
not operate as a release of the counterclaims. Resp. to Ryan Mot. to Dis. Countercl. at 1-3. Further,
Counter-Plaintiffs contend the Termination Agreement is not central to the counterclaims, and they
do not stipulate to its authenticity. The Court agrees with Counter-Plaintiffs that it may not consider
the Termination Agreement.
“Generally, a court ruling on a 12(b)(6) motion may rely on the complaint, its proper
attachments, documents incorporated into the complaint by reference, and matters of which a court
may take judicial notice.” Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 763 (5th Cir.
19
2011) (citations and internal quotation marks omitted). When matters outside the pleadings are
considered by a district court on a motion to dismiss, Rule 12(b) requires the court to treat the motion
as one for summary judgment and to dispose of it as required by Rule 56. See Fed. R. Civ. P. 12(b);
Carter v. Stanton, 405 U.S. 669, 671 (1972). Although a district court may not consider matters
“outside the pleadings,” there is one limited exception. A court may consider documents that a
defendant attaches to a motion to dismiss if they are referred to in the plaintiff’s complaint and are
central to the plaintiff’s claims. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498–99 (5th
Cir. 2000). “Documents found outside of the complaint that are central to the plaintiff’s claims,
however, must also be undisputed to merit consideration by the Court.” Columbia Hosp. at Medical
City Dallas Subsidiary, L.P. v. Legend Asset Mgmt. Corp., 2004 WL 769253, at *2 (N.D. Tex. April
9, 2004) (Fish, C.J.) (original emphasis) (citing Brock v. Baskin-Robbins USA Co., 113 F. Supp. 2d
1078, 1092 (E.D. Tex. 2000) (stating that a court may consider “an undisputably authentic
document” that a defendant attaches as an exhibit to a motion to dismiss)); Holmes v. National
Football League, 939 F. Supp. 2d 517, 520 n.2 (N.D. Tex. 1996) (finding that document whose
authenticity no party questions may be considered in ruling on a motion to dismiss). “‘Undisputed’
in this context means that the authenticity of the document is not challenged.” Columbia Hosp.,
2004 WL 769253, at *2 (quoting Horsely v. Feldt, 304 F.3d 1125, 1134 (11th Cir. 2002)).
In response to Ryan’s motion to dismiss, Counter-Plaintiffs state: “Inspired does not stipulate
to the authenticity of the Termination Agreement as attached to Plaintiff’s Motion to Dismiss.” See
Resp. to Ryan Mot. to Dis. Countercl. at 3. In reply, Ryan contends that this “frivolous objection
to authenticity” should be ignored by the Court. See Ryan Reply at 6. According to Ryan: “A
stipulation regarding authenticity is not required. Rather the Court may rely on an ‘undisputably’
20
authentic document . . . Here, the authenticity of the Termination Agreement is ‘undisputably’
authentic because Donald Sloan signed both the Amended Marketing Agreement and the
Termination Agreement and the signatures are nearly identical[.]” See id. The Court disagrees, and
determines that Counter-Plaintiffs have sufficiently challenged the authenticity of the Termination
Agreement. See, e.g., Walker v. DB3 Holdings, Inc., 2007 WL 3287128, at *1 n.2 (N.D. Tex. Nov.
6, 2007) (Fitzwater, J.) (refusing to apply limited exception for “undisputably authentic documents
that a defendant attaches as an exhibit to a motion to dismiss” where “the authenticity of defendant’s
exhibit[] is challenged.”).
In sum, as Counter-Plaintiffs have challenged the authenticity of the Termination Agreement,
the Court cannot consider the release in the Termination Agreement in evaluating Ryan’s motion to
dismiss the counterclaim.
Next, Ryan argues that the counterclaim fails to state a claim for breach of the Marketing
Agreement. The Court agrees. Amendment Number One, in addition to terminating Inspired’s
services under Section 2 of the Marketing Agreement, also deleted Section 6, which had provided
that the parties “will not engage in any business that competes with [the Marketing Agreement]
services[.]” 5th Am. Compl. ¶ 12, and Ex. B thereto (Amendment Number One to Marketing
Agreement at 1-2, Secs. 1, 3). The parties also agreed that Amendment Number One “was to
modify, and is hereby incorporated into” the Marketing Agreement. See id. at 1. Thus, the sole
remaining provision upon which Counter-Plaintiffs can rely is Section 10, entitled “Conflicts of
Interest” which places an affirmative duty on Ryan and Inspired to “refrain from any action during
the Term of this Agreement which would conflict with or impair an unbiased performance of the
21
Services or other duties under this Agreement.” See 5th Am. Compl and Ex. A thereto (Marketing
Agreement).
In a nutshell, the breach of contract counterclaim alleges that Ryan breached the Marketing
Agreement by failing to vigorously oppose tax reform legislation relating to a tax savings program
among Inspired, Ryan and the City of Sachse, Texas. Even taking all allegations as true, the
counterclaim fails to state a plausible claim for relief under Section 10 of the Marketing Agreement
sufficient to satisfy Rule 8 and Iqbal. Ceasing lobbying efforts (assuming the Marketing Agreement
even imposed a duty to lobby and continue lobbying), while allegedly recovering a $50 million
through “no look refunds,” does not state a plausible claim for relief that Ryan engaged in action
“which would conflict with or impair an unbiased performance of the Services or other duties under
this Agreement.” See Marketing Agreement, Sec. 10. See generally Iqbal, 556 U.S. at 663 (citing
Twombly, 550 U.S. at 556) ( “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.”).
Alternatively, the Court agrees with Ryan that any failure by Ryan to “single-handedly
successfully defeat passage of tax-return legislation would be excused by impossibility of
performance[.]” See Ryan Mot. to Dis. Countercl. at 6-7 (citing Restatement (Second) of Contracts
§ 266(1) (1981) (excusing defendant’s performance if the contract is impossible to perform from the
outset based on facts unknown to the defendant)). The Court also agrees with Ryan that even were
it able to predict proposed tax reform legislation, there can be no contractual obligation to control
state politics and constituencies seeking legislative changes. See id. at 7 (citing Centex Corp. v.
22
Dalton, 840 S.W.2d 952, 954 (Tex. 1992) (defendant’s contractual performance excused due to
uncontrollable change in regulations)).
Further, a requirement to provide successful lobbying related to the 2011 proposed tax reform
legislation would effectively limit governmental authority and would be “unenforceable and void
as a matter of public policy[.]” See City of Corpus Christi v. Taylor, 126 S.W.3d 712, 719 (Tex.
App.— Corpus Christi 2004, pet. dism’d) (contract provision limiting city’s right to initiate
condemnation proceedings was void against public policy because it affected city’s free exercise of
governmental authority)).
Counter-Plaintiff also sought attorney’s fees based on Tex. Civ. Prac. & Rem Code §
38.001(8). Because the Court is dismissing the counterclaim for breach of contract, CounterPlaintiffs cannot recover attorney’s fees under section 38.001(8). See Ashford Partners v. Eco. Res.,
Inc., 401 S.W.3d 35, 40-41 (Tex. 2012). In sum, pursuant to Fed. R. Civ. P. 12(b)(6), the Court
grants Ryan’s motion to dismiss the counterclaim asserted by Inspired and D. Sloan for breach of
contract and the request for attorney’s fees.
IV.
L. Sloan’s Motion to Dismiss and Motion for Protective Order
L. Sloan has moved to dismiss the Fifth Amended Complaint under Fed. R. Civ. P. 12(b)(2)
arguing that the Court lacks personal jurisdiction over her or, alternatively, for failure to state a claim
under Fed. R. Civ. P. 12(b)(6). See L. Sloan Mot. to Dis. She has also moved for a protective order
to stay the deadline for her to respond to discovery propounded by Ryan on October 25, 2013
pending the Court’s resolution of her motion to dismiss. See L. Sloan Mot. for Prot. Ord. The Court
turns first to L. Sloan’s motion to dismiss for lack of in personam jurisdiction.
A.
Legal Standard for Dismissal under Rule 12(b)(2)
23
Federal Rule of Civil Procedure 12(b)(2) allows for dismissal of an action where the Court
lacks personal jurisdiction over a defendant. On a motion to dismiss for lack of personal jurisdiction,
the plaintiff bears the burden of establishing a prima facie case for the court’s jurisdiction over a
nonresident defendant. See Ham v. La Cienega Music Co., 4 F.3d 413, 415 (5th Cir. 1993); Stuart
v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). When the court rules on the motion without an
evidentiary hearing, the plaintiff may establish personal jurisdiction by presenting a prima facie case
that personal jurisdiction is proper, id.; proof by a preponderance of the evidence is not required.
International Truck and Engine Corp. v. Quintana, 259 F. Supp. 2d 553, 556 (N.D. Tex. 2003)
(citing WNS, Inc. v. Farrow, 884 F.2d 200, 203 (5th Cir. 1989)). The court may determine the
jurisdictional issue by receiving affidavits, interrogatories, depositions, oral testimony, or any
combination of the recognized methods of discovery. Stuart, 772 F.2d at 1192. Uncontroverted
allegations in a plaintiff’s complaint must be taken as true, and conflicts between the facts contained
in the parties’ affidavits must be resolved in favor of the plaintiff. Bullion v. Gillespie, 895 F.2d 213,
217 (5th Cir. 1990). After a plaintiff makes his prima facie case, the burden then shifts to the
defendant to present “a compelling case that the presence of some other consideration would render
jurisdiction unreasonable.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985).
A federal court has jurisdiction over a nonresident defendant if the state long-arm statute
confers personal jurisdiction over that defendant, and if the exercise of jurisdiction is consistent with
due process under the United States Constitution. Ruston Gas Turbines, Inc. v. Donaldson Co., Inc.,
9 F.3d 415, 418 (5th Cir. 1993). Because the Texas long-arm statute extends to the limits of federal
due process, Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990), the court must determine
whether (1) the defendants have established “minimum contacts” with the forum state; and, (2)
24
whether the exercise of personal jurisdiction over the defendants would offend “traditional notions
of fair play and substantial justice.” Ruston Gas, 9 F.3d at 418 (citing International Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)).
The “minimum contacts” prong is satisfied when a defendant “purposefully avails itself of
the privilege of conducting activities within the forum state, thus invoking the benefits and
protections of its laws.” Burger King, 471 U.S. at 475. The nonresident defendant’s availment must
be such that the defendant “should reasonably anticipate being haled into court” in the forum state.
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). This test “ensures that a
defendant will not be haled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or
‘attenuated’ contacts, or of the ‘unilateral activity of another party or a third person.’” Burger King,
471 U.S. at 475 (citations omitted). The “minimum contacts” prong of the inquiry may be
subdivided into contacts that give rise to “specific” personal jurisdiction and those that give rise to
“general” personal jurisdiction. Marathon Oil Co. v. A.G. Ruhrgas, 182 F.3d 291, 295 (5th Cir.
1999). Specific jurisdiction is only appropriate when the nonresident defendant’s contacts with the
forum state arise from, or are directly related to, the cause of action. Helicopteros Nacionales de
Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984). The exercise of general personal jurisdiction
is proper when the nonresident defendant’s contacts with the forum state, even if unrelated to the
cause of action, are continuous, systematic, and substantial. Id. at 414 n.9.
In evaluating the second prong of the due process test, the court must examine a number of
factors in order to determine fairness and reasonableness, including: (1) the defendant’s burden; (2)
the forum state’s interests; (3) the plaintiff’s interest in convenient and effective relief; (4) the
judicial system’s interest in efficient resolution of controversies; and (5) the state’s shared interest
25
in furthering social policies. Asahi Metals Indus. Co. v. Superior Court, 480 U.S. 102, 112 (1987).
As noted above, “once minimum contacts are established, a defendant must present ‘a compelling
case that the presence of some consideration would render jurisdiction unreasonable.’” Enviro
Petroleum, Inc. v. Kondur Petroleum, 79 F. Supp.2d 720, 725 (S.D. Tex. 1999) (quoting Burger
King, 471 U.S. at 277). In fact, “[o]nly in rare cases . . . will the exercise of jurisdiction not comport
with fair play and substantial justice when the nonresident defendant has purposefully established
minimum contacts with the forum state.” Id. (quoting Guardian Royal Exch. Assurance, Ltd. v.
English China Clays, P.L.C., 815 S.W.2d 223, 231 (Tex. 1991)). The court must consider each of
plaintiff’s claims individually when determining whether specific jurisdiction over a defendant
exists. Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 274 (5th Cir. 2006) (“A plaintiff
bringing multiple claims that arise out of different forum contacts of the defendant must establish
specific jurisdiction for each claim.”).
B.
Analysis
L. Sloan contends that Ryan has failed to establish a prima facie case for the Court’s exercise
of personal jurisdiction over her. She has submitted a Declaration in support stating that she is an
Illinois resident, does not own property in Texas, has not traveled to Texas within the last ten years,
does not have a Texas driver’s license or a Texas telephone number, is not the CEO of Inspired, does
not have a financial interest in any business in Texas, and since approximately 2003, has had little
or no involvement with Inspired including little to no involvement with the management and the dayto-day operations of the company. Ex. A to L. Sloan Mot. to Dis. (Declar. of L. Sloan).
In response, Ryan states that “L. Sloan has clearly committed intentional torts against Ryan,
in her personal capacity, purposefully directed at Texas.” See Ryan Resp. at 1-2. Relying on the
26
Fifth Amended Complaint and Exhibits from the Divorce Action attached to it, Ryan contends that
“L. Sloan is subject to personal jurisdiction in Texas because with L. Sloan’s cooperation, D. Sloan,
as a principal and member of Inspired, committed the tort of defamation by making a false statement
of fact to a representative of a company based in Texas during a phone call in which the third party
was in Texas, and where the defamatory statement was targeted at Ryan, which has its principal
place of business in Texas. At the time he made the statement, L. Sloan was CEO of Inspired and
had ultimate responsibility to supervise Inspired’s representatives. Instead she looked the other way
so she could continue being personally paid.” Id. at 5. Relying on pleadings, Ryan asserts that L.
Sloan accepted money from D. Sloan, “despite knowledge that D. Sloan was dissipating funds from
Inspired accounts that were owned by Ryan and its clients” in breach of the Marketing Agreement.
Id. at 6. According to Ryan, “[t]he Sloans were, or should have been, aware that any harm to Ryan
from a defamatory statement and breach of the Marketing Agreement would be felt by Ryan in
Texas, and it was reasonably foreseeable that they would be haled into court in Texas as a result of
such conduct.” Id. In opposition to L. Sloan’s motion, Ryan argues that “this Court has specific
jurisdiction over [L.Sloan] because the present case results from injuries that Ryan has sustained that
arise out of or relate to L. Sloan’s contacts with Texas. Because L. Sloan is responsible for her own
torts, the fiduciary shield does not apply.” Id.
Ryan also contends that minimum contacts arise because “D. Sloan and Inspired, under the
supervision of Inspired’s CEO L. Sloan, signed a settlement agreement with Ryan that contained a
Texas choice of law provision and venue provision in settlement of this action pending in Texas [and
therefore the Sloans] purposefully availed themselves of the benefits and protections of the State of
Texas by establishing minimum contacts with Texas[.]” Id. at 7.
27
Summing up its opposition, Ryan states that the “Court’s assumption of jurisdiction over L.
Sloan will be consistent with the constitutional requirements of due process because it is evident
from L. Sloan’s own verified pleadings and affidavit that she has derived great personal financial
benefit from doing business with Ryan in Texas and has enjoyed the benefits of the laws of Texas.”
Id.
In its July 18, 2013 Order, the Court found that Ryan had stated a defamation claim against
D. Sloan, recognizing that an employee “is personally liable for his own fraudulent or tortious acts,
even when acting within the course and scope of his employment.” ECF No. 69, Order at 21 (citing
Sanchez v. Mulvaney, 274 S.W.3d 708, 712 (Tex. App.—San Antonio 2008, no pet.) (in turn citing
Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002)). In the amended pleadings, Ryan does not allege
that L. Sloan made the alleged defamatory statement, but rather that D. Sloan made the statement,
and that L. Sloan committed the tort of defamation by virtue of being CEO of Inspired. See 5th Am.
Compl. ¶ 7 (“At the time [D. Sloan] made the [defamatory] statement, L. Sloan was CEO of Inspired
and had ultimate responsibility to supervise Inspired representatives.”); Ryan Resp. to L. Sloan Mot.
to Dis. at 5 (“L. Sloan is subject to personal jurisdiction in Texas because with L. Sloan’s
cooperation, D. Sloan, as a principal and member of Inspired, committed the tort of defamation by
making a false statement of fact to a representative of a company based in Texas during a phone call
in which the third party was in Texas, and where the defamatory statement was targeted at Ryan
which has its principal place of business in Texas.”) Absent more, the Court will not impute D.
Sloan’s alleged defamatory statement to L. Sloan, or find purposeful availment based on the
unilateral activities of D. Sloan directed at Texas. See Burger King, 471 U.S. at 475 (purposeful
availment must be such that a defendant “should reasonably anticipate being haled into court” in the
28
forum state, ensuring that a defendant will not be haled into a jurisdiction based on the “unilateral
activity of another party or a third person.”) (citations and internal punctuation omitted).
Other than the claim for defamation, which is an intentional tort, Ryan’s claims against L.
Sloan arise from her role as the CEO of Inspired and/or arise from allegations that she received
money through D. Sloan from Inspired. These allegations do not state a claim for specific tortious
conduct committed by L. Sloan that were directed at the State of Texas such that she would
anticipate being haled into court in the State of Texas. See, e.g., 5th Am. Compl. ¶ 7 (“[F]or several
years Inspired and Ryan received sales tax rebates pursuant to their Marketing Agreement, which
was signed by L. Sloan on behalf of Inspired.”); id. (“[O]n or about October 4, 2012, D. Sloan and
Inspired, under the supervision of Inspired’s CEO L. Sloan, signed a conditional settlement
agreement with Ryan that contained a Texas choice of law provision[.]”). The Court agrees with L.
Sloan’s argument that “[t]hese allegations cannot be construed as Lisa Sloan acting in her personal
capacity, and jurisdiction cannot be predicated on any contacts she may have had with Texas as a
representative of Inspired.” See L. Sloan Reply in Supp. of Mot. to Dis. at 4; see generally Stuart,
772 F.2d at 1197 (“an individual’s transaction of business within the state solely as a corporate
officer does not create personal jurisdiction over that individual though the state has personal
jurisdiction over the corporation[.]”).
Further, to the extent Ryan points to L. Sloan’s alleged acceptance of ill-gotten payments
from her former husband D. Sloan as a source of minimum contacts with the State of Texas, as the
Court has already stated, purposeful availment cannot be premised on “unilateral activity of another
party or a third person.” See Burger King, 471 U.S. at 475 (citations and internal punctuation
omitted). Even were L. Sloan to foresee injury to Ryan by accepting these ill-gotten gains,
29
“[f]oreseeable injury alone is not sufficient to confer specific jurisdiction absent the direction of
specific acts toward” the forum state. See Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 212 (5th
Cir. 1999).
In short, having considered L. Sloan’s uncontroverted sworn declaration, the pleadings and
legal arguments, the Court concludes that Ryan has failed to meet its burden of establishing a prima
facie case for the Court’s jurisdiction over nonresident Defendant L. Sloan. See Ham, 4 F.3d at 415;
Stuart, 772 F.2d at 1192.9 Ryan has failed to establish that L. Sloan had “minimum contacts” with
the State of Texas, or that she “purposefully avail[ed] [herself] of the privilege of conducting
activities within the forum state, thus invoking the benefits and protections of its laws.” Burger
King, 471 U.S. at 475. Further, given the attenuated link between her accepting allegedly ill-gotten
gains from ex-husband D. Sloan in Illinois and D. Sloan’s alleged personal use of funds he had
promised to segregate for eventual repayment to Ryan, it cannot be said that L. Sloan “should
reasonably anticipate being haled into court” in Texas. World-Wide Volkswagen, 444 U.S. at 297;
see also Burger King, 471 U.S. at 475 (citations omitted) (the test for minimum contacts “ensures
that a defendant will not be haled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or
‘attenuated’ contacts, or of the ‘unilateral activity of another party or a third person.’”)
The Court further determines that it may not exercise general jurisdiction over L. Sloan. The
exercise of general personal jurisdiction is proper when the nonresident defendant’s contacts with
the forum state, even if unrelated to the cause of action, are continuous, systematic, and substantial.
9
The Court notes that Ryan has not sought any continuances or requested that the Court allow limited
discovery pertaining to jurisdictional facts underlying its claims against L. Sloan. While Ryan did propound
discovery on L. Sloan on October 25, 2013 (which is the subject of L. Sloan’s motion for protective order),
Ryan does not argue that the Court should delay ruling on the pending dispositive motions while it conducts
jurisdictional discovery.
30
Helicopteros Nacionales, 466 U.S. at 414 n. 9. “Cases involving general jurisdiction suggest that
the threshold contacts required for assertion of such jurisdiction are very substantial.” Davis v.
Billick, 2002 WL 1398560, *3 (N.D. Tex. June 26, 2002) (citing Helicopteros Nacionales, 466 U.S.
at 416-19); Dalton v. R&W Marine, Inc., 897 F.2d 1359, 1362-63 (5th Cir. 1990); Bearry v. Beech
Aircraft Corp., 818 F.2d 370, 376 (5th Cir. 1987). Based on L. Sloan’s uncontroverted sworn
declaration summarized above, the Court determines that there are no “continuous, systematic, and
substantial” contacts required for a finding of general jurisdiction.
For the reasons stated above, the Court determines that it lacks in personam jurisdiction over
L. Sloan, and accordingly grants L. Sloan’s motion to dismiss. In light of this ruling, the Court
denies as moot L. Sloan’s Motion for Protective Order.
V.
Conclusion
Based on the foregoing, the Court: denies Defendants’ Motion to Dismiss Fifth Amended
Complaint (ECF No. 80); grants Plaintiff’s Motion to Dismiss Counterclaims (ECF No. 85); grants
Defendant Lisa K. Sloan’s Motion to Dismiss Fifth Amended Complaint for lack of personal
jurisdiction (ECF No. 87); and denies as moot Defendant Lisa K. Sloan’s Motion for Protective
Order (ECF No. 98). Lisa K. Sloan is hereby dismissed from this case for lack of personal
jurisdiction. Inspired’s and D. Sloan’s counterclaims are hereby dismissed with prejudice.
SO ORDERED on this 25th day of November, 2013.
_____________________________________
Reed O’Connor
UNITED STATES DISTRICT JUDGE
31
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?