Bequest Funds LLC v. Magnolia Financial Group LLC et al

Filing 113

MEMORANDUM OPINION AND ORDER For the foregoing reasons, the Court, DENIES the Rainstars Defendants' Motion to Dismiss (Doc. 31 ) and GRANTS Saenz and Muneio's Motion to Dismiss (Doc. 67 ). The Court DENIES AS MOOT the Agreed Motions for Hearing (Docs. 107 , 108 ). Rainstar's fraud claim against Shawn Muneio and Martin Saenz is DISMISSED WITHOUT PREJUDICE. Muneio and Saenz are hereby dismissed from this case. (Ordered by Judge Jane J Boyle on 11/22/2024) (cfk)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
BEQUEST FUNDS, LLC,
Plaintiff,
v.
MAGNOLIA FINANCIAL GROUP,
LLC; CHRISTOPHER FISHER;
RAINSTAR FINANCIAL GROUP,
LLC; KURT NEDERVELD;
FREDERICK RUFFIN; and BRIAN
DEMARCO
Defendants.
RAINSTAR CAPITAL GROUP, LLC;
KURT NEDERVELD; FREDERICK
RUFFIN,
Counter-Plaintiff/Third-Party Plaintiff,
v.
BEQUEST FUNDS, LLC; SHAWN
MUNEIO; and MARTIN SAENZ
Counter-Defendant and Third-Party
Defendants.

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CIVIL ACTION NO. 3:23-CV-0866-B

MEMORANDUM OPINION AND ORDER
Before the Court is Defendants/Counter Claimants Rainstar Financial Group LLC,
Frederick Ruffin, and Kurt Nederveld (collectively “Rainstar Defendants”)’s Motion to Dismiss for
Lack of Personal Jurisdiction (Doc. 31); Third-Party Defendants Martin Saenz and Shawn
Muneio’s Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 67) and two Agreed Motions
for Hearing (Docs. 107, 108). For the following reasons, the Court DENIES the Rainstar
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Defendants’ Motion to Dismiss and GRANTS Saenz and Muneio’s Motion to Dismiss. The Court
DENIES AS MOOT the Agreed Motions for Hearing (Docs. 107, 108).
I.
BACKGROUND
This case involves a loan agreement between Bequest and Defendant Magnolia Financial
Group, LLC (“Magnolia”). Bequest sought a loan to expand its business. See Doc. 7, Am. Compl.,
¶¶ 15, 27. To that end, Bequest retained Defendant Rainstar Financial Group, LLC (“Rainstar”)
to provide commercial loan brokerage services. Id. ¶¶ 15–16. Rainstar and Bequest entered into an
Engagement Agreement memorializing the parties’ relationship. Id. ¶ 16.
Thereafter, Rainstar informed Bequest that it worked with a Trust that could provide
Bequest with commercial lending services. Id. ¶ 17. Rainstar eventually arranged a meeting
between Bequest and Defendant Brian DeMarco, a purported agent of the Trust. Id. ¶ 21.
Rainstar’s agents, Defendants Ruffin and Nederveld, allegedly “assured Bequest of the legitimacy
of the transaction” as they worked to broker a final deal between Bequest and Magnolia. Id. ¶ 31.
After back-and-forth communications, Magnolia executed a Business Expansion Line of Credit
Agreement (“the LOC”). Id. ¶¶ 32, 37. The LOC provided that Bequest would pay Magnolia
$8,400,000 up front in exchange for Magnolia providing Bequest with a $40,000,000 line of credit.
Doc. 14-1, LOC, § 1.1; see Doc. 7, Am. Compl., ¶¶ 28, 39.
Bequest wired Magnolia $8,400,000. Doc. 7, Am. Compl., ¶ 39. Under the terms of the
LOC, Magnolia was then required to fund the first tranche. Id. ¶ 40. However, Magnolia failed to
fund the loan. Id. ¶ 47. Litigation ensued. Bequest sued Fisher and Magnolia, seeking the return of
its $8,400,000. Doc. 1, Compl., ¶¶ 55–64. Fisher is a Texas citizen. Id. ¶ 2. Bequest later filed an
Amended Complaint joining the Rainstar Defendants: Rainstar, Ruffin, and Nederveld. Doc. 7,
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Am. Compl. Bequest asserted breach of fiduciary duty, negligent misrepresentation, and negligence
claims against the Rainstar Defendants. Id. ¶¶ 94–113.
The Rainstar Defendants filed a Motion to Compel Arbitration. Doc. 14, Mot. Compel
Arb. The Court denied it. Doc. 23, Order. Five months after filing their Motion to Compel
Arbitration, the Rainstar Defendants filed a Motion to Dismiss for Lack of Personal Jurisdiction.
Doc. 31, Mot. Dismiss. They also filed an Answer and Third-Party Complaint in the alternative.
Doc. 33, Answer. Rainstar’s Third-Party Complaint asserted a fraud claim against Muneio and
Saenz, the co-founders of Bequest. Doc. 33, Third-Party Compl., ¶¶ 8, 26–31. Rainstar alleges
that Muneio and Saenz made “untrue statements . . . in connection with [Bequest’s] overall
solvency.” Id. ¶ 27. Muneio and Saenz filed a Motion to Dismiss for Lack of Personal Jurisdiction.
Doc. 67, Mot. Dismiss. Bequest, Muneio, and Saenz are citizens of Florida. Id. ¶¶ 2–4. Rainstar is
a citizen of Michigan. Id. ¶ 1. The Engagement Agreement between Rainstar and Bequest is
governed by Michigan law. Id. ¶ 12. Rainstar only alleges that one in-person meeting occurred with
Muneio and Saenz and it was in Ohio. Id. ¶ 24. Rainstar does not allege any facts in its Third-Party
Complaint discussing dealings or interactions in Texas. In fact, Rainstar does not mention Texas
once in its Complaint. The Court now turns to its decision.
II.
LEGAL STANDARD
When defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack
of personal jurisdiction, the plaintiff “bears the burden of establishing jurisdiction but is required
to present only prima facie evidence.” Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 270 (5th
Cir. 2006). When determining whether the plaintiff establishes a prima facie case, the court “must
accept as true the [p]laintiff’s uncontroverted allegations, and resolve in [its] favor all conflicts
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between the jurisdictional facts contained in the parties’ affidavits and other documentation.”
Pervasive Software Inc. v. Lexware GmbH & Co. KG, 688 F.3d 214, 219–20 (5th Cir. 2012)
(alterations incorporated) (quoting Freudensprung v. Offshore Tech. Servs., Inc., 379 F.3d 327, 343
(5th Cir.2004)). In deciding whether the plaintiff has established personal jurisdiction, “the district
court may consider the contents of the record before the court at the time of the motion.” Quick
Techs., Inc. v. Sage Grp. PLC, 313 F.3d 338, 343–44 (5th Cir. 2002) (citation omitted).
Personal jurisdiction exists when “the state’s long-arm statute extends to the defendant and
exercise of such jurisdiction is consistent with due process.” Sangha v. Navig8 ShipManagement Priv.
Ltd., 882 F.3d 96, 101 (5th Cir. 2018) (citing Johnston v. Multidata Sys. Int'l Corp., 523 F.3d 602,
609 (5th Cir. 2008)). “Because the Texas long-arm statute extends to the limits of federal due
process, the two-step inquiry collapses into one federal due process analysis.” Id. (quoting Johnston,
523 F.3d at 609).
To satisfy due process, two elements must be met: (1) the defendant must have purposefully
availed itself of the benefits and protections of the forum state by establishing “minimum contacts”
with that state such that it would reasonably anticipate being brought to court there; and (2) the
exercise of jurisdiction over the defendant must “comport[] with fair play and substantial justice.”
Jones v. Petty-Ray Geophysical, Geosource, Inc., 954 F.2d 1061, 1068 (5th Cir. 1992) (citations
omitted).
The “minimum contacts” prong of the due process analysis can be met through contacts
that give rise to either general or specific jurisdiction. Gundle Lining Constr. Corp. v. Adams Cnty.
Asphalt, Inc., 85 F.3d 201, 205 (5th Cir. 1996). “General personal jurisdiction is found when the
nonresident defendant’s contacts with the forum state, even if unrelated to the cause of action, are
continuous, systematic, and substantial.” Marathon Oil Co. v. Ruhrgas, 182 F.3d 291, 295 (5th Cir.
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1999). In contrast, specific jurisdiction exists “only when the nonresident defendant’s contacts
with the forum state arise from, or are directly related to, the cause of action.” Gundle, 85 F.3d at
205.
III.
ANALYSIS
A.

Rainstar Defendants Waived Their Personal Jurisdiction Defense by Filing a Motion to Compel
Arbitration.
Rainstar Defendants waived their right to object to personal jurisdiction. A defendant can

assert lack of personal jurisdiction as a defense to suit. FED. R. CIV. P. 12(b)(2). “Because the
requirement of personal jurisdiction represents first of all an individual right, it can, like other such
rights, be waived.” Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 703
(1982).

“[A] defendant waives the right to challenge personal jurisdiction under two

circumstances: first, the right is waived if a defendant files a motion under Rule 12 that asserts
some defenses, but omits an available challenge to personal jurisdiction; second, unless a defendant
either challenges personal jurisdiction by motion, or includes it as a defense in a responsive
pleading, the challenge is waived.” Dell Marketing, L.P. v. Incompass IT, Inc., 771 F. Supp. 2d 648,
652 (W.D. Tex. 2011) (citing FED. R. CIV. P. 12(h)).
A defendant waives the right to challenge personal jurisdiction by making a general
appearance before the Court and engaging in an “affirmative act that impliedly recognizes the
court’s jurisdiction over the parties” to hear the matter. Jones v. Sheehan, Young & Culp, P.C., 82
F.3d 1334, 1340 (5th Cir. 1996). The Fifth Circuit has recognized that a motion to compel
arbitration can qualify as such an affirmative act. See Maiz v. Virani, 311 F.3d 334, 341 (5th Cir.
2002). The Rainstar Defendants actively litigated a motion to compel arbitration without raising a
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personal jurisdiction defense for five months. See Doc. 14, Mot. Compel Arb.; Doc. 31, Mot.
Dismiss. This was an affirmative act that waived a personal jurisdiction defense.
Courts have held that parties may make limited, special appearances without subjecting
themselves to the Court’s jurisdiction. However, such an appearance requires that the “defendants
expressly limited their appearance to the determination of those very issues.” Familia De Boom v.
Arosa Mercantil, S.A., 629 F.2d 1134, 1140 (5th Cir. 1980), abrogated on other grounds by Ins. Corp.
of Ireland, 456 U.S. 694. Motions specifically seeking “a ruling from the trial court [that] confer[s]
a benefit on the [movant]—such as a motion to compel arbitration and stay litigation . . . —have
been held to be ‘affirmative acts recognizing the court’s jurisdiction.’” Gonzales v. Horizontal
Wireline Servs., LLC, No. 5:15-CV-883-DAE, 2017 WL 11068269, at *6 (W.D. Tex. May 30,
2017) (quoting Maiz, 311 F.3d at 341). Federal courts have “cited approvingly to a Texas appellate
case which determined that the filing of a motion to compel arbitration . . . was an affirmative act.”
Maiz, 311 F.3d at 341 (citing to Fridl v. Cook, 908 S.W.2d 507, 515 (Tex. App. El Paso 1995 writ
dismissed w.o.j.).
The Rainstar Defendants did not make a limited, special appearance when they filed their
Motion to Compel Arbitration. Rainstar Defendants cite Halliburton Energy Services, Inc. v.
Ironshore Specialty Insurance Co. to argue that they “only submitted to the Court’s personal
jurisdiction for the ‘limited purpose of compelling arbitration.’” Doc. 39, Defs.’ Reply, 8; 921 F.3d
522, 529 n.2 (5th Cir. 2019). But this case is distinguishable. In Halliburton, the defendants filed a
single motion to dismiss that included not only a request to compel arbitration, but also a defense
for lack of personal jurisdiction. See id. at 529. On appeal, the Fifth Circuit determined that the
defendants did not waive their right to assert their defenses on personal jurisdiction grounds
because they maintained a consistent objection to the court’s jurisdiction. Id. at 541. The Rainstar
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Defendants did not afford themselves the same right. Because they did not similarly maintain an
objection to personal jurisdiction. Despite filing an unsuccessful Motion to Compel Arbitration in
June 2023, the Rainstar Defendants did not raise a personal jurisdiction defense until November
2023. Doc. 14, Mot. Compel Arb.; Doc. 31, Mot. Dismiss. For this reason, the Rainstar Defendants
may not pursue a personal jurisdiction defense because they did not “maintain [their] objection”
or “continuously object[]” to personal jurisdiction. Halliburton, 921 F.3d at 540, 541.
B.

The Court Lacks Personal Jurisdiction Over Saenz and Muneio.
Rainstar has not alleged any facts in its Complaint to suggest that this Court has general or

specific jurisdiction over Saenz and Muneio. “When a nonresident defendant presents a motion to
dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing the district
court’s jurisdiction over the nonresident.” Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985).
Rainstar concedes that the Court does not have general jurisdiction, see Doc. 72, Response,
4, and Rainstar does not allege facts to support a finding of specific jurisdiction. Courts conduct a
three-step inquiry for specific jurisdiction: “(1) whether the defendant has minimum contacts with
the forum state, i.e., whether it purposely directed its activities toward the forum state or
purposefully availed itself of the privileges of conducting activities there; (2) whether the plaintiff’s
cause of action arises out of or results from the defendant’s forum-related contacts; and (3) whether
the exercise of personal jurisdiction is fair and reasonable.” Seiferth, 472 F.3d at 271. The “minimum
contacts” inquiry is fact intensive and no one element is decisive; the touchstone is whether the
defendant’s conduct shows that it “reasonably anticipates being haled into court.” Luv N’ care, Ltd.,
v. Insta-Mix, Inc., 438 F.3d 465, 470 (5th Cir. 2006) (citing World–Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297 (1980)).

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Rainstar does not make any attempt to allege facts to establish specific jurisdiction over
Saenz and Muneio in its Complaint. Instead, Rainstar alleges that it is a citizen of Michigan and
that Saenz and Muneio are residents of Florida. Doc. 33., Third-Party Compl., ¶¶ 1–3. It alleges
that it had one meeting with Saenz and Muneio in Ohio. Id. ¶ 24. It alleges that the Engagement
Agreement is governed by Michigan law. Id. ¶ 12. It does not once mention Texas in its Complaint.
Thus, Saenz and Muneio could not reasonably anticipate being haled into a Texas court for
statements they made in a meeting in Ohio and for entering a contract governed by Michigan law.
In its Response to the Motion to Dismiss, Rainstar included additional allegations to
support a finding of personal jurisdiction, but these fail as well. Rainstar alleges, “To proceed with
the transaction, Muneio and Saenz each became clients of 4Tredici [a Texas LLC] and each
completed a ‘Client Information Summary’, in their individual capacities, as part of 4Tredici’s
onboarding process.” Doc. 72, Resp., 5; see also Doc. 72-2–3, Exs. A–B. The “Client Information
Summary” asked for basic contact information. See Doc. 72-2–3, Exs. A–B. Rainstar argues that
Muneio and Saenz were “doing business with a Texas company . . . to further Bequest’s agreement
with Rainstar that was entered into as a result of [their] false representations.” Doc. 72, Resp., 5.
Rainstar also included in its Response that the loan transaction was to be “completed by Texas
residents,” DeMarco, Fisher, and Magnolia. Id. at 6.
The Court does not find these additional allegations support a finding of minimum contacts
with the forum state that “arise from, or are directly related to, the cause of action.” Gundle, 85
F.3d at 205. This is a fraud claim. Rainstar alleges that Muneio and Saenz made fraudulent
statements about Bequest’s solvency, and that Rainstar suffered injuries “including the loss of its
transaction fee” because of those misrepresentations. Doc. 33, Third-Party Compl., ¶¶ 27, 31.
None of the facts alleged surrounding the fraudulent misrepresentation occurred in Texas. And
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neither did the injury. Rainstar cites McFadin v. Gerber to argue that a nonresident’s actions outside
of the state that cause “tortious injury within the state . . . amount[] to sufficient minimum
contacts.” 587 F.3d 753, 761 (5th Cir. 2009), Doc. 72, Reply, 4. But the alleged injury here—
financial harm to Rainstar—did not occur in Texas as Rainstar is a Michigan citizen. Doc. 33,
Third-Party Compl., ¶ 1.
Meanwhile, the new allegation that Muneio and Saenz did business with a Texas LLC as
part of the transaction is not enough to show minimum contacts. Rainstar fails to allege how a
contact with an LLC that is not a party in this lawsuit is related to its fraud claim. It does not
explain what role the Texas LLC played in the transaction. Instead, Rainstar only shows that
Muneio and Saenz provided basic biographical data such as their addresses and license numbers to
a Texas LLC. See Doc. 72-2–3, Exs. A–B. This information reveals nothing about whether their
alleged dealings with the Texas LLC gives rise to specific jurisdiction for Rainstar’s fraud claim. As
such, Rainstar does not allege enough facts to support a finding of minimum contacts. Finding no
minimum contacts, the Court lacks personal jurisdiction over Muneio and Saenz.
IV.
CONCLUSION
For the foregoing reasons, the Court, DENIES the Rainstars Defendants’ Motion to
Dismiss (Doc. 31) and GRANTS Saenz and Muneio’s Motion to Dismiss (Doc. 67). The Court
DENIES AS MOOT the Agreed Motions for Hearing (Docs. 107, 108). Rainstar’s fraud claim
against Shawn Muneio and Martin Saenz is DISMISSED WITHOUT PREJUDICE. Muneio and
Saenz are hereby dismissed from this case.
SO ORDERED.
SIGNED: November 22, 2024.
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_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE

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