Osprey Funding, LLC v. J3S Enterprises, LLC et al
Filing
34
ORDER denying 26 Motion for Joinder; denying 26 Motion to Set Aside; denying 26 Motion to Dismiss; denying 26 Motion to Vacate.(Signed by Judge Melinda Harmon) Parties notified.(rhawkins, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
OSPREY FUNDING, LLC,,
§
§
Plaintiff,
§
§
VS.
§
§
J3S ENTERPRISES, LLC, JONATHAN §
GRIFFIN, SR., and MARK LAZARUS,§
§
Defendants.
§
CIVIL ACTION NO. H-13-1172
OPINION AND ORDER
The above referenced action arose out of two agreements
representing
factoring
arrangements1
between
Plaintiff Osprey
Funding, LLC (“Osprey”), a factoring company, and J3S Enterprises,
LLC
(“J3S”), pursuant to which Osprey purchased some accounts
receivable from J3S for sums due or to become due to J3S, based on
a different contract between subcontractor J3S and Facility Site
Contractors, Inc. (“FASCON”),2 which had been awarded a government
1
Black’s Law Dictionary (6th ed. West 1990) defines
“factoring” as follows: “Sale of accounts receivable of a firm
[here J3S] to a factor [here Osprey] at a discounted price. The
purchase of accounts receivable from a business by a factor who
thereby assumes the risk of loss in return for some agreed
discount.” A “factor” is “[a] firm (typically a finance company)
that purchases a firm’s receivables at a discount and is
responsible for processing and collecting the balances of the
accounts.” Id. See also Wickipedia (“Factoring is a financial
transaction and a type of debtor finance in which a business
[here J3S] sells its accounts receivable (i.e., invoices) to a
third party (called a factor)[here, Osprey] at a discount.”.
Factoring may be employed to allow the business seller to meet
its cash needs. Id.
2
Copy of Nov. 1, 2012 Mobilization Funding Contract,
attached to #26, Ex. A. After a dispute arose between FACSON and
J3S, the contracting officer issued a cure notice to FACSON.
FACSON failed to cure the breach, and the government terminated
contract for construction of improvements in military housing and
an integrated warehouse facility for a United States Base at the
Bagram Air Force Base in Afghanistan.
Osprey
alleged against J3S
and Griffin claims for money had and received, fraud in the
inducement, and enforcement of a written personal guaranty from
Jonathan Griffin, Sr. (“Griffin”).
This case was closed by a July
23, 2014 entry of final default judgment against Griffin and J3S
and an August 22, 2013 dismissal without prejudice of Mark Lazarus
(“Lazarus”) (#19), who is in bankruptcy.
Now pending before the Court is Defendants J3S and Griffin’s
motion to vacate and dismiss (#26).
are the following:
Fed.
R.
Civ.
P.
Contained within this document
(1) motion to vacate default judgment under
60(b)
for
lack
of
personal
jurisdiction
or
insufficient service of process; (2) motion to dismiss under Rule
12(b)(5) for insufficient service of process; (3) motion to dismiss
for lack of personal jurisdiction under Rule 12(b)(2); (4) motion
to dismiss for failure to join an indispensable party, FASCON,
under Rules 12(b)(7) and 19(b); and (5) motion to dismiss for
improper venue and forum selection clause under Rules 12(b)(3) and
19.
Applicable Law
Setting Aside a Default Judgment
A district court may set aside an entry of default judgment
the contract with FACSON. As a result of FACSON’s failure to
perform, J3S was unable to perform its funding agreement with
Osprey.
-2-
under Federal Rules of Civil Procedure 55(c) or 60(b) upon a
showing of good cause. Effjohn International Cruise Holdings, Inc.
v. A&L Sales, Inc.. 346 F.3d 552, 563 (5th Cir. 2003).
Defaults are
disfavored and “‘where there are no intervening equities[,] any
doubt should . . . be resolved in favor of the movant to the end of
securing a trial upon the merits.’”
Corp. 227 F.3d 290, 292 (5th Cir. 2000).
Id., quoting Lacy v. Site
Usually a party moving to
set aside a default judgment must show that the outcome of the
action may possibly differ if the case were tried, such as by
demonstrating the existence of a meritorious defense which he had
no opportunity to present.
Seven Elves, Inc. v. Oscines, 635 F.2d
396, 403 (5th Cir. 1981).
Courts usually interpret “good cause” liberally and consider
three nonexclusive factors in deciding if good cause
exists:
vel non
“(1) whether the failure to act was willful; (2) whether
setting the default aside would prejudice the adversary; and (3)
whether a meritorious claim has been presented.”
Id., citing id.
The court may also consider among other factors whether the party
acted promptly and efficiently. Id., citing Dierschke v. O’Cheskey
(In re Dierschke), 975 F.2d 181, 184 (5th Cir. 1992).
“Willful”
is
used
defendant’s actions.
to
consider
the
culpability
of
the
CJC Holdings, Inc. v. Wright & Lato, Inc.,
979 F.2d 60, 64 (5th Cir. 1992).
The Fifth Circuit has recommended
that “willful” should be viewed in terms of the “justifiable
neglect” or “excusable neglect” of Rule 60(b), a “less subjective”
-3-
standard.
Id. ; American Airlines v. Reinis, 21 F.3d 1107, 1994 WL
171403, at *2 and n.10 (5th Cir. 1994)(Rule 60(b) requires a showing
that defendants failed to file a timely answer because of excusable
neglect and that they had a fair probability of success on the
merits); Willis v. Lopez, Civ. A. No. 3:10-CV-154-M, 2010 WL
4877273,
at
*3
(N.D.
Tex.
Dec.
1,
2010)(“When
determining
culpability, the Fifth Circuit instructs district courts to apply
an ‘excusable neglect’ standard, which is satisfied if the movant’s
failure to respond is attributable to his own negligence, and not
to gross carelessness, ignorance of the rules, or ignorance of the
law.
Neglect of a party’s attorney may be treated as neglect of
the party.”) 3.
“Although a lack of notice might under some
circumstances, constitute excusable neglect, there must be some
evidence that a lack of notice actually occurred.” U.S. v. Thomas,
2014 WL 7006001, at *3 (W.D. La. Dec. 8, 2012).
Lack of proper venue is not an adequate reason to set aside a
default judgment.
3
Rogers v. Hartford Life and Acc. Ins. Co., 167
The Fifth Circuit has opined about “excusable neglect”:
In determining whether a late filing was excusable
neglect, the court should take into account the
possible prejudice to the later filer, the length of
the delay and the impact on judicial proceedings, the
reason for delay, including especially if it was within
the reasonable control of the movant, and whether the
movant acted in good faith. Moreover, “the greater the
negligence involved, or the more willful the conduct,
the less ‘excusable’ it is.”
McKenzie v. Principi, 83 Fed. Appx. 642, 644 (5th Cir.
2003)(citations omitted).
-4-
F.3d 933, 942 (5th Cir. 1999), citing Williams v. Life Sav. & Loan,
802 F.2d 1200, 1202 (10th Cir. 1986)(“[I]f a party is in default by
failing to appear . . . defects in venue are waived, and a default
judgment may be validly entered and the judgment cannot be attacked
collaterally for improper venue.”), and 15 Charles A. Wright
al., Federal Practice and Procedure:
et
Jurisdiction § 3829 (2d ed.
1986)(“Venue is waived by a defendant who defaults.”); Action
Tapes, Inc. v. Ebert , No. Civ. A. 3:05CV1239, 2006 WL 305769, *1
n.2 (“improper venue is not sufficient to render a default judgment
void”).
Federal Rule of Civil Procedure 60(b)(4) allows a court to
relieve a party from a final judgment if the judgment is void.
Rule
60(b)(4)
“jurisdictional
applies
error
only
or
on
when
a
the
judgment
violation
of
is
due
based
on
process
deprives a party of notice or the opportunity to be heard.”
a
that
United
Student Aid funds, Inc. v. Espinosa, 559 U.S. 260, 271 (2010).
“If a court lacks jurisdiction over the parties because of
insufficient service of process, the judgment is void and the
district court must set it aside.”
Carimi v. Royal Carribean
Cruise Line, Inc., 959 F.2d 1344, 1346 (5th Cir. 1992).
A valid
service of process gives a defendant notice that failure to file an
answer to the complaint puts him at risk of default judgment.
Fed.
R. Civ. P. 12(a)(1) and 55(a); SUA Ins. Co. v. Buras, 421 Fed.
Appx. 384, 385 (5th Cir. Apr. 6, 2011).
Rule 4(e)(1) provides in
relevant part for service of process on a
-5-
an individual within a
judicial
district
of
provides
otherwise,
the
an
United
States,
individual--other
“Unless
federal
law
than
a minor, an
incompetent person, or a person whose waiver has been filed--may be
served in a judicial district of the United Sates by: (1) following
the state law for serving a summons in an action brought in the
courts of general jurisdiction in the state where the district
court is located or where service is made . . . .”
Section 17.044(b) of the Texas Civil Practice & Remedies Code
permits substituted service on the Secretary of State for nonresident defendants doing business in Texas who do not maintain a
regular place of business in Texas, provided that the relevant
proceeding arises out of business done in Texas and the nonresident
is a party to the suit.
Texas Civil Practice & Remedies Code §
17.042 provides,
In addition to other acts that may constitute doing
business, a nonresident does business in this state if
the nonresident:
(1) contracts by mail or otherwise with a Texas
resident and either party is to perform the
contract in whole or in part in this state;
(2) commits a tort in whole or in part in this
state; or
(3) recruits Texas residents, directly or through
an
intermediary
located
in
this
state
for
employment inside or outside this state.
Furthermore, the plaintiff must strictly comply with the notice
requirements of § 17.045(a):
“If the secretary of state is served
with duplicate copies of process for a nonresident, the documents
shall
contain
a
statement
of
the
-6-
name
and
address
of
the
nonresident’s home or home office . . . .”
Savariego v. Melman,
No. 3:01-CV-1951-M, 2001 WL 1543857, at *1 (N.D. Tex. Dec. 3,
2001).
Personal Jurisdiction
When a defendant files a motion to dismiss for lack of
personal
jurisdiction
under
Federal
Rule
of
Civil
Procedure
12(b)(2), the plaintiff bears the burden of demonstrating that the
court has jurisdiction over the defendant.
Luv N’ Care, Ltd. v.
Insta-Mix, Inc., 438 F.3d 465, 469 (5th Cir. 2006), citing Wyatt v.
Kaplan, 686 F.2d 276, 280 (5th Cir. 1982).4
At the pretrial stage
of litigation, if the district court does not conduct a hearing on
personal jurisdiction, the plaintiff need only present a prima
facie case of personal jurisdiction. Wilson v. Belin, 20 F.3d 644,
648
(5th
Cir.),
cert.
denied,
513
U.S.
930
(1994);
Felch
v.
Transportes Lar-Mex S.A. DE CV, 92 F.3d 320, 325 (5th Cir. 1996);
Johnston v. Multidata Systems Intern. Corp., 523 F.3d 602, 609 (5th
Cir.
2008).
Proof
by
preponderance
4
of
the
evidence
is
not
“Absent any dispute as to the relevant facts, the issue of
whether personal jurisdiction may be exercised over a nonresident
defendant is a question of law . . . .” Ruston Gas Turbines,
Inc. v. Donaldson Co., 9 F.3d 415, 418 (5th Cir. 1993). Where
the facts are disputed, the party seeking to invoke the court’s
jurisdiction bears the burden of establishing sufficient contacts
with the forum state by the nonresident defendant to invoke the
court’s jurisdiction. Bullion v. Gillespie, 895 F.2d 213, 216-17
(5th Cir. 1990).
-7-
required.
Johnston, 523 F.3d at 609.5
When a defendant disputes
factual bases for personal jurisdiction, the district court may
consider
the
record
before
it,
including
“affidavits,
interrogatories, depositions, oral testimony, or any combination of
the recognized methods of discovery.” Quick Technologies, Inc. v.
5
As the Fifth Circuit explained in Walk Haydel &
Associates, Inc. v. Coastal Power Production Co., 517 F.3d 235,
241-42 (5th Cir. 2008),
Ultimately, the plaintiff must show by a preponderance
of the evidence that jurisdiction is proper. Often,
the determination of whether this standard is met is
resolved at trial along with the merits. This is
especially likely when the jurisdiction issue is
intertwined with the merits and therefore can be
determined based on jury fact findings. In this
situation it is often “preferable that [the
jurisdictional] determination be made at trial, where a
plaintiff may present his case in a coherent, orderly
fashion and without the risk of prejudicing his case on
the merits.” But this court has said that after a
pretrial evidentiary hearing confined to the
jurisdictional issue, where both sides have the
opportunity to present their cases fully, the district
court can decide whether the plaintiff has established
jurisdiction by a preponderance of the evidence.
[footnotes omitted]
The panel further opined, id. at 241.
If the court determines that it will receive only
affidavits or affidavits plus discovery materials,
these very limitations dictate that a plaintiff must
make only a prima facie showing of jurisdictional facts
through the submitted materials in order to avoid a
defendant’s motion to dismiss. Any greater burden such
as proof by a preponderance of the evidence would
permit a defendant to obtain a dismissal simply by
controverting the facts established by a plaintiff
through his own affidavit and supporting materials.
-8-
Sage Group PLC, 313 F.3d 338, 344 (5th Cir. 2002)(quoting Thompson
v. Chrysler Motors Corp., 755 F.3d
1162, 1165 (5th Cir. 1985)),
cert. denied, 540 U.S. 814 (2003); Kelly Law Firm, P.C. v. An
Attorney for You, 679 F. Supp. 2d 755, 762 (S.D. Tex. 2009).
The
court has discretion as to the type and amount of discovery it will
allow, but unless there is a full and fair hearing, it should not
act as a factfinder and must construe all disputed facts in favor
of the plaintiff.
dismiss
under
Walk Haydel, 517 F.3d at
Rule
12(b)(2),
241.
uncontroverted
On a motion to
allegations
in
plaintiff’s complaint are taken as true, and conflicts between
facts in the parties’ affidavits must be resolved in plaintiff’s
favor
for
purposes
of
the
prima
facie
case
of
personal
jurisdiction. Johnston, 523 F.3d at 609; Kelly Law Firm, 679 F.
Supp. 2d at 762; Revell v. Lidov, 317 F.3d 467, 469 (5th Cir. 2002).
Nevertheless, the court is not required to credit conclusory
allegations even if they are uncontroverted.
Panda Brandywine
Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 869 (5th Cir. 2001).
Under Rule 12(b)(2) a party may move to dismiss for lack of
personal jurisdiction.
The court must find that it has personal
jurisdiction over that defendant before it makes any decision on
the merits.
Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp.,
549 U.S. 422, 430 (2007); Guidry v. U.S. Tobacco Co., 188 F.3d 619,
623, n.2 (5th Cir. 1999)(“Personal jurisdiction is an essential
element of the jurisdiction of a district court, without which it
-9-
is powerless to proceed to an adjudication.”).
Under the federal rules, except where a federal statute
provides for broader personal jurisdiction, the district court’s
personal jurisdiction is coterminous with that of a court of
general jurisdiction of the state in which the district court sits.
Submersible Sys., Inc. v. Perforadora Cent., S.A. de C.V., 249 F.3d
413, 418 (5th Cir. 2001).
A federal court sitting in diversity may
exercise personal jurisdiction over a nonresident defendant if the
forum state’s long-arm statute confers personal jurisdiction over
that
nonresident
jurisdiction
defendant
satisfies
due
and
if
process
the
exercise
under
the
of
United
personal
States
Constitution. McFadin v. Gerber, 587 F.3d 753, 759 (5th Cir. 2009),
citing Moncrief Oil Int’l, Inc. v. OAO Gasprom, 481 F.3d 309, 311
(5th Cir. 2007).
The Texas long-arm statute, Texas Civil Practice
and Remedies Code §§ 17.0421-.045, extends jurisdiction to the
limits of the federal due process.
Schlobohm v. Schapiro, 784
S.W. 2d 355, 357 (Tex. 1990); Gonzalez v. Bank of America Ins.
Servs., Inc., No. 11-20174, 2011 WL 6156856, at *3 (5th Cir. Dec.
12, 2011), citing Stroman Realty, Inc. v. Antt, 528 F.3d 382, 385
(5th Cir. 2008).
Thus a plaintiff in a diversity action in federal
court in Texas6 need only demonstrate that (1) the defendant
6
See 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.”).
- 10 -
purposely availed himself of the benefits and protections of the
forum state by establishing that the defendant had minimum contacts
with the forum state, and (2) the exercise of personal jurisdiction
over that defendant does not offend traditional notions of fair
play and substantial justice.
Int’l Shoe Co. v. Washington, 326
U.S. 310, 316 (1945); Alpine View Co., Ltd. v. Atlas Copco AB, 205
F.3d 208, 214 (5th Cir. 2000);
Moncrief Oil Int’l, Inc. v. OAO
Gasprom, 481 F.3d 309, 311 (5th Cir. 2007).
The mere fact that a party contracted with a resident of Texas
is insufficient to establish minimum contacts necessary to support
personal jurisdiction.
Moncrief Oil Int’l, Inc. v. OAO Gasprom,
481 F.3d 309, 311 (5th Cir. 2007)(“Merely contracting with a
resident of the forum state does not establish minimum contacts.”);
Cardinal Health Solutions, Inc. v. St. Joseph Hosp. of Port
Charlotte, Fla. Inc., 314 Fed. Appx. 744, 745 (5th Cir. 2009).
Nor
does
and
the
exchange
of
communications
in
the
developing
performing of a contract constitute purposeful availment of the
benefits
and
protections
of
the
laws
of
Texas.
Id.;
id.;
Freudensprung v. Offshore Technical Services, Inc., 379 F.3d 327,
344 (5th Cir. 2004). “[Purchases and related trips, standing alone,
are
not
a
sufficient
jurisdiction.”
basis
for
a
State’s
Helicopteros,
466
U.S.
at
assertion
417.
of
Moreover
jurisdiction may not be based on the fortuity of one party residing
in
the
forum
state.
McFadin,
- 11 -
587
F.3d
at
760.
Mere
foreseeability, by itself, does not create personal jurisdiction.
Moncrief Oil, 481 F.3d at 313.
A choice of law provision may be a relevant factor for
determining purposeful activity directed toward the forum state,
but is not necessarily determinative, and standing alone, it is
insufficient to confer jurisdiction.
Santander Consumer USA, Inc.
v. Shults Ford, Inc., 2011 WL 2601520, at *4 (N.D. Tex. June 30,
2011), citing Petty-Ray Geophysical, 954 F.2d at 1069, and Burger
King, 471 U.S. at 482.
The court must examine the quality and
nature of the defendant’s activities in the forum in their totality
to decide whether the defendant purposely availed itself of the
privileges offered by the forum state.
Id., citing Electrosource,
Inc. v. Horizon Battery Techs., Ltd., 176 F.3d 867, 871 (5th Cir.
1999).
Personal jurisdiction can be waived by an enforceable forum
selection
clause
in
which
the
jurisdiction in a specified forum.
n.14.
parties
consent
to
personal
Burger King, 471 U.S. at 473
Federal law governs the enforceability of forum selection
and choice of law clauses.
Haynesworth v. The Corporation, 121
F.3d 956, 962 (5th Cir. 1997), citing
M/S Bremen v. Zapata Off-
shore Co., 407 U.S. 1 (1972), and Scherck v. Alberto-Culver Co.,
417 U.S. 506, 518-21 (1974).
to be valid.
Forum selection clauses are presumed
M/S Bremen v. Zapata Off-shore Co., 407 U.S. at 9;
Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528,
- 12 -
537-38 (1995).
A party seeking to bar enforcement of a forum
selection clauses bears a heavy burden of demonstrating that the
clause is unreasonable under the circumstances, i.e., “that the
clause results from fraud or overreaching, that it violates a
strong public policy, or that the enforcement of the clause
deprives the plaintiff of his day in court.”.
Bremen, 407 U.S. at
12-13, 15, 18; Mitsui & Co. (USA), Inc. v. MIRA M/V, 111 F.3d 33,
35 (5th Cir. 1997).
Required Joinder of Parties
“The federal rules seek to bring all persons who may have an
interest in the subject of an action together in one forum so that
the lawsuit can be fairly and completely disposed of.”
Pulitzer-
Polster v. Pulitzer, 784 F. 2d 1305, 1308 (5th Cir. 1986), citing
Fed. R. Civ. P. 19 advisory committee note).
Federal Rule of
Civil Procedure 19 (“Required Joinder of Parties”) provides in
relevant part,
(a) Persons Required to Be Joined if Feasible
(1) Required Party.
A person who is subject to
service of process and whose joinder will not
deprive the court of subject-matter jurisdiction
must be joined as a party if:
(A) in that person’s absence, the court cannot
accord complete relief among existing parties;
or
(B) that person claims an interest relating to
the subject matter of the action and is so
situated that disposing of the action in the
person’s absence may:
(i) as a practical matter impair or
impede the person’s ability to protect
the interest; or
- 13 -
(ii) leave an existing party subject to a
substantial risk of incurring double,
multiple,
or
otherwise
inconsistent
obligation because of the interest.
(2) Joinder by Court Order. If a person has not
been joined as required, the court must order that
the person be made a party. A person who refused
to join as a plaintiff may be made either a
defendant or, in a proper case, an involuntary
plaintiff.
(3) Venue. If a joined party objects to venue and
the joinder would make venue improper, the court
must dismiss that party.
(b) When Joinder Is Not Feasible. If a person who is
required to be joined if feasible cannot be joined, the
court must determine whether, in equity and good
conscience, the action should proceed among the existing
parties or should be dismissed.
The factors for the
court to consider include:
(1) the extent to which a judgment rendered in the
person’s absence might prejudice that person or the
existing parties;
(2) the extent to which any prejudice could be
lessened or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person’s
absence would be adequate; and
(4) whether the plaintiff would have an adequate
remedy if the action were dismissed for nonjoinder.7
7
In Schutten v. Shell Oil Company, 421 F.2d 869, 873 (5th
Cir. 1970), the Fifth Circuit opined regarding these four
interests,
The distilled essence of these “criteria” of
subdivision (b) is an attempt to balance the rights of
all concerned. The plaintiff has the right to
“control” his own litigation and to choose his own
forum. This “right” is, however, like all other
rights, “defined” by the rights of others. Thus the
defendant has the right to be safe from needless
multiple litigation and from incurring avoidable
inconsistent obligations. Likewise the interests of
- 14 -
(c) Pleading the Reasons for Nonjoinder. When asserting
a claim for relief, a party must state:
(1) the name, if known, of any person who is
required to be joined if feasible but is not
joined; and
(2) the reasons for not joining that person.
An analysis under Rule 19(a) first requires the court to
decide whether a person should be joined to the action.
If the
person is required to be joined but has not been, the court must
order that person to be made a party.
Fed. R. Civ. P. 19(a)(2).
If the person should be joined but cannot feasibly be joined,
the court can consider the four factors under Rule 19(b) and decide
whether “in equity and good conscience the action should proceed
among the existing parties or be dismissed.”
Rule 19(b).
“‘A
district court may refuse to proceed with the action if prejudice
would result to either the absent party or to parties already
joined.’”
Helia Tec Resources, Inc. v. GE & F Co., Ltd., Civ. A.
No. H-09-1482, 2011 WL 4383085, at *3 (S.D. Tex. Sept. 20, 2011),
quoting Doty v. St. Mary Parish Land Corp., 598 F.2d 885, 887 (5th
Cir. 1979).
If joinder would destroy the court’s subject matter
the outside who cannot be joined must be considered.
Finally there is the public interests and the interest
the court has in seeing that insofar as possible the
litigation will be both effective and expeditious.
Id., citing Provident Bank & Trust C. v.
106-107 (1967).
- 15 -
Patterson,390 U.S. 102,
jurisdiction,8 under Rule 19(b) the court must decide whether to go
forward with the litigation without that party or to dismiss the
action.
HS Resources, Inc. v. Wingate, 327 F.3d 432, 439 (5th Cir.
2003).
“‘The possibility of multiple litigation alone will not
make
party
a
indispensable,
obligations will.’”
but
the
threat
of
inconsistent
Id., quoting Cornhill Ins. PLC v. Valsamis,
Inc., 106 F.3d 80, 84 (5th Cir. 1988).
The party seeking joinder
of another person initially has the burden of demonstrating that
the missing party is required and the nature of the unprotected
interests of that absent party, but after “‘an initial appraisal of
the facts indicates that a possibly necessary party is absent, the
burden of disputing this initial appraisal falls on the party who
opposes joinder.’”
Hood ex rel. Mississippi v. City of Memphis,
Tenn., 570 F.3d 625, 628 (5th Cir. 2009), quoting Pulitzer-Polster,
784 F.2d at 1309; HS Resources, 327 F.3d at 439.
Merger and Modification of a Contract
“‘A
merger
occurs
when
the
same
parties
to
an
earlier
agreement later enter into a written integrated agreement covering
the same subject matter.’”
Westergren v. Nat’l Property Holdings,
LP, 409 S.W. 3d 110, 131 (Tex. App.--Houston [14th Dist.] 2013, pet.
8
This case is predicated on diversity jurisdiction: Osprey
is a Texas limited liability company with its principal place of
business in Harris County, Texas; J3S is a Georgia limited
liability company; Griffin is a resident of Georgia; and alleged
indispensable party FASCON is purportedly a citizen of Maryland.
- 16 -
filed Oct. 4, 2013), quoting Superior Laminate & Supply, Inc. v.
Formica Corp., 93 S.W. 3d 445, 448-49 (Tex. App.--Houston [14th
Dist.] 2002, pet. denied).
“A ‘merger clause’ is a contractual
provision mandating that the written terms of the contract may not
be varied by prior agreements, because all such agreements have
been merged in the new document.”
Id. at 130-31, citing IKON
Office Solutions, Inc. v. Eifert, 125 S.W. 3d 113, 125 & n.6 (Tex.
App.--Houston [14th Dist.] 2003, pet. denied)(concluding statements
that document “constitutes the entire agreement concerning the
subject matter hereof” and “supercedes prior . . .
were merger clauses.).
contract
is
agreements”
“Recitations to the effect that a written
integrated,
that
all
conditions,
promises,
or
representations are contained in the writing . . . are commonly
known as merger or integration clauses.”
11 Samuel Williston and
Richard A. Lord, A Treatise on the Law of Contracts § 33.21 (4th ed.
1999). Furthermore, where a merger clause clearly expresses the
parties’ intent to waive fraudulent inducement claims or disclaims
reliance on representations, it may bar claims of fraudulent
inducement.
Dunbar Medical Systems, Inc. v. Gammex Inc., 216 F.3d
441, 449 (5th Cir. 2000)(where a contract is created in conditions
such
as
that
the
parties
are
represented
by
counsel,
are
knowledgeable about/experienced in negotiation, and bargaining at
arm’s length, a merger clause may limit any challenge to the
contract’s validity on fraudulent inducement grounds),
- 17 -
citing
Schlumberger Tech. Corp. v. Swanson, 959 S.W. 2d 171, 179-80 (Tex.
1997).
See also Forest Oil Corp. v. McAllen, 268 S.W. 3d 51, 60
(Tex. 2008).
Under Texas law, a party to a contract may enter into a
subsequent agreement regarding the subject matter of the first
contract.
Fish v. Tandy Corp., 948 S.W. 2d 886, 898 (Tex. App.--
Fort Worth 1997, writ denied)(merger doctrine applies when same
parties to an earlier agreement intend to and enter into a later
written integrated agreement covering the same subject matter with
terms so inconsistent with the first that both cannot stand; courts
conclusively presume that the first agreement is superseded by the
second).
The two agreements will be considered together, but to
the extent that they conflict, the terms of the later agreement
will control.
Saturn Capital Corp. v. Dorsey, No. 01-04-00626-CV,
2006 WL 1767602, at *4 (Tex. App.--Houston [1st Dist.] 2006, rev.
denied), citing IP Petroleum Co. v. Wevanco Energy, LLC, 116 S.W.
3d 888, 899 (Tex. App.--Houston [1st Dist.] 2003, pet. denied).
A “modification” of a contract is a change in the original
agreement that inserts new or different elements into the details
of the contract, but leaves its general purpose and effect the
same.
Enserch Corp. v. Rebich, 925 S.W. 2d 75 (Tex. App.-Tyler
1996, writ dism’d by agreement), cited for that proposition, Omni
USA, Inc. v. Parker Hannifin Corp., 798 F. supp. 831, 849 (S.D.
Tex. 2011).
See also BACM 2001-1 San Felipe Rd. Ltd. P’ship v.
- 18 -
Trafalgar Holdings I, Ltd., 218 S.W. 3d 137, 146 (Tex. App.-Houston [14th Dist.] 2007, pet. denied)(“A modification alters only
those terms of the original agreement to which it refers, leaving
intact those unmentioned portions of the original agreement that
are not inconsistent with the modification.”). In Hathaway v. Gen.
Mills, Inc., 711 S.W. 2d 227, 228-29 (Tex. 1986), the Texas Supreme
Court wrote,
Parties have the power to modify their contracts.
A
modification must satisfied by elements of a contract:
a meeting of the minds supported by consideration.
Whether a contract is modified depends on the parties’
intentions and is a question of fact.
The burden of
proving modification rests on the party asserting
modification.
Id., quoted by Omni USA, 798 F. Supp. 2d at 849. The party
asserting modification of a contract must show (1) notice of the
change and (2) acceptance of the change.
Omni USA, 798 F. Supp. 2d
at 849, citing Price Pfister, Inc. v. Moore & Kimmey, Inc., 48 S.W.
3d 341, 349-50 (Tex. App.--Houston [14th Dist.] 2001, pet. denied).
A valid modification may be based on new consideration and the same
degree of mutuality as existed for the original contract and all
parties must consent to the modification.
Heritage Resources, Inc., 964
Id., citing Hill v.
S.W. 2d 89, 113-14 (Tex. App.--El
Paso 1997, writ denied), and S&D Group, Inc. v. Talamas, 710 S.W.
2d 680, 683 (Tex. App.--Corpus Christi 1986)(A contract that is
modified by mutual consent constitutes a new agreement and takes
the place of the original)(and cases cited therein).
- 19 -
Under the
Texas
UCC,
Tex.
Bus.
&
Com.
Code
§
2.209(a),
“An
agreement
modifying a contract within this chapter needs no consideration to
be binding.”
“Even if there is no evidence of other valuable
consideration
for
the
modification,
the
continuing
mutual
obligations by the parties may furnish sufficient consideration to
support a binding modified contract.”
at 83.
Enserch Corp., 925 S.W. 2d
One party by itself cannot modify a contract after it has
been entered into, but rather all parties to an agreement must
consent to the modification for the modification to be valid.
Hovas v. O’Brien, 654 S.W. 2d 801, 803 (Tex. App.--Houston [14th
Dist.] 1983, writ ref’d); Mid Plains Reeves, Inc. v. Farmland
Indus., Inc., 768 S.W. 2d 318, 321 (Tex. App.--El Paso 1989, writ
denied); Mandril v. Kasishke, 620 S.W. 2d 238, 244 (Tex. Civ. App.-Amarillo 1981, writ ref’d n.r.e.).
Defendants’ Motion to Vacate and Dismiss (#26)
Defendants Griffin and J3S assert that they were not properly
served in strict compliance with summons as required by Rule 4(e)
and (h)9 and the Texas long-arm statute.
First they contend that
9
Rule 4(h) addresses in relevant part service on a
corporation where a waiver has not been filed and requires
(1) in a judicial district of the United States:
(A) in a manner prescribed by Rule 4(e)(1) for
serving an individual; or
(B) by delivering a copy of the summons of the
complaint to an officer, a managing or general
- 20 -
providing the Secretary of State with the “last known address” of
the defendant does not comply with Texas Civil Practice & Remedies
Code § 17.045(a) requirement of the “name and address of the home
or home office of the nonresident.”
Osprey directed service upon
Griffin to “his place of business.”
The petition states that
service of process should be forwarded to his “last known address.”
J3S’s home office is not located at 3100 Gentian Boulevard (Ex. B),
the address to which the Secretary of State certified it forwarded
the copy of the citation and original petition.
Moreover, the
Secretary of State received return receipts. Instrument #7 (return
of summons executed as to J3S), #8 (return of summons executed as
to Griffin).
World Distribs. v. Knox, 968 S.W. 2d 474, 477 (Tex.
App.--El Paso 1998)(holding that service of process under the longarm statute, § 17.045, was defective because the petition did not
allege, and nothing in the record established, that the address
provided was defendant’s home or home office address and reversing
default).10
Because Plaintiff failed to strictly comply with the
agent, or any other agent authorized by
appointment or by law to receive service of
process and--if the agent is one authorized by
statute and the statute so requires-by also
mailing a copy of each to the defendant.
10
See Wachovia Bank of Delaware, N.A. v. Gilliam, 215 S.W.
3d 848, 849-50 (Tex. 2007)(citing World Distrib., 968 S.W. 2d at
477-78, and opining, “If nothing on the face of the record shows
the forwarding address was the defendant’s “home or home office,”
the court of appeals are unanimous that a default judgment cannot
survive a restricted appeal”)(in a restricted appeal from a
- 21 -
long-arm statute, service on Defendants is defective and the
default judgment is void or, alternatively, should be vacated.
Defendants further urge that under Rule 12(b)(5), because no
proper service of process occurred pursuant to Rule 4(m)(service
must be made on a defendant within 120 days after the complaint is
filed), the Court lacks personal jurisdiction over J3S and Griffin.
Osprey
did
not
serve
these
defendants
properly
under
Rules
4(e)(1)(serving individual following law of state in state where
district
court
is
located
or
where
service
is
made)
or
4(h)(1)(serving corporation as under Rule 4(e)(1) or delivering or
mailing a copy of summons and complaint to an authorized agent) and
the Texas long-arm statute), so service should be quashed, the
default judgment should be vacated, and Defendants should be
dismissed under Rules 12(b)(5) and 12(b)(2).
In addition, Defendants maintain that the agreement from which
the dispute arose contains an irrevocable provision that appoints
the Secretary of the State of Delaware as the Defendants’ agent,
drafted by Osprey and consented to by Defendants. Therefore Osprey
must serve Defendants through the Secretary of State of Delaware
and bring any action in Delaware.
Therefore this Court lacks
jurisdiction over J3S and Griffin.
Despite their delay after
issuance of the default judgment in making this motion due to
default judgment, no presumptions are made in favor of valid
service).
- 22 -
“financial obstacles,” Defendants insist they have the right to
challenge it, at all times having attempted to settle the suit with
Osprey.
Furthermore J3S and Griffin contend that FASCON, a Maryland
corporation, is an indispensable party, but is not subject to the
jurisdiction of this Court.11
Under Rule 12(b)(7), the Court may
dismiss this action for failure to join a required party under Rule
19.
See HS Resources, Inc., 327 F.3d at 438 (“Rule 19 provides for
the joinder of all parties whose presence in a lawsuit is required
for the fair and complete resolution of the dispute at issue.
It
further provides for the dismissal of litigation that should not
proceed in the absence of parties that cannot be joined.”).
The
court must initially decide under Rule 19(a) if the person should
be joined.
If so, and if joinder would destroy the court’s
jurisdiction, the court must decide under Rule 19(b) if the party
is indispensable under the four identified factors: (1) the extent
to which proceeding without the required party would prejudice
either the absent party or the parties to the suit; (2) whether a
judgment can be structured with protective provisions which would
lessen the potential prejudice; (3) whether a judgment in the
11
The Administrative Committee’s note explains that the word
“indispensable” is used “only in the conclusory sense, that is, a
person is ‘regarded as indispensable’ when he cannot be made a
party, and upon consideration of the factors above mentioned, it
is determined that in his absence it would be preferable to
dismiss the action, rather than retain it.”
- 23 -
absence of the necessary party will be adequate; and (4) whether
the plaintiff has a adequate remedy if the lawsuit is dismissed.
HS Res., 327 F.2d at 431.
If the party is indispensable, the court
must dismiss the litigation; if not, the court may proceed with the
case.
Therefore the court must decide whether the court should
proceed without FASCON by considering the four interests, i.e.,
whether FASCON is indispensable.
J3S argues that the judgment
rendered in FASCON’s absence has prejudiced its ability to proceed
against FASCON for invoices owed to J3S.
Because J3S signed over
its right to payment to Osprey, J3S can not proceed against FASCON
in arbitration. Osprey concedes that FASCON is the source of funds
to satisfy the agreements between Osprey and J3S and it retains an
interest in the invoices at issue.
Therefore Osprey can collect
from both J3S and FASCON, individually, and obtain two judgments
from both companies, while leaving J3S exposed to judgment from
both FASCON and Osprey.
Thus insist Defendants, fairness and
justice require that FASCON be joined.
As for the forum-selection clause in the agreement signed by
the parties selecting the State of Delaware to be the forum state,
Osprey has brought suit in Texas in direct contradiction to that
written agreement, an additional reason for the Court to dismiss
this action.
Osprey’s Response (#27)
- 24 -
Osprey’s Response asserts and provides evidence that most of
Defendants’ allegations are not true.
“On a motion to vacate a default judgment based on improper
service of process where the defaulting defendant had actual notice
of the original proceeding but delayed in bringing the motion, the
defendant bears the burden of proof to establish that the purported
service did not occur.”
Burda Media, Inc. v. Viertel, 417 F.3d
292, 299 (2d Cir. 2005).
Furthermore, parties may modify a
contract by adding to or altering its provisions.
Morgan v.
Stower, 511 S.W. 2d 362, 365 (Tex. Civ. App.--Eastland 1974, writ
ref’d n.r.e.).
contract
that
“A modification to a contract creates a new
includes
the
unchanged old provisions.”
new,
modified
provisions
and
the
Boudreaux Civic Ass’n v. Cox, 882 S.W.
2d 543, 547-48 (Tex. Civ. App.--Houston [1st Dist.] 1994, no writ).
In the parties’ second, December 13, 2012 contract, the
parties modified the venue and jurisdiction from Delaware to Texas.
This second agreement, Ex. 1 at p. 12, states the following:
[¶ 13](e) . . . Contractor hereby waives personal service
of any summons, complaint, or other process, and agrees
that service thereof may be made by registered or
certified mail directed to Contractor at Contractor’s
address set forth above or such other address of which
Contractor shall have previously notified Factor by
registered or certified mail. . . .
[¶ 13](i) The undersigned hereby appoints the Secretary
of the State of Texas as his/her/their agent to
effectuate service of process.
Said Appointment is
irrevocable.
- 25 -
The first page of the December 13, 2012 contract lists the address
of J3S as 3100 Gentian Blvd., Columbus, Georgia 31907, the precise
address where the summons and complaint were sent to J3S.12
Griffin’s Affidavit (#26, Ex. B) under oath states that he does not
reside at this address and that J3S moved to an undisclosed address
in November 2012; but it also states that he signed the affidavit
at 3100 Gentian Blvd.
One of the two statements, made under
penalty of perjury, is not true.
Griffin also admitted owing the
money that is the focus of this lawsuit.
Email from Griffin to
John Morris, dated June 13, 2013, Ex. 2, ¶¶ 3-5.
Osprey also shows
in Exhibit 1 that it advanced its last payment of $150,000.00 to
J3S on December 13, 2012 to be used to pay salaries to employees
for the months of December 2012 and January 2013, but as evidenced
by the bankruptcy filings of J3S,13 the salaries were not paid and
are listed as priority claims.
Schedule E, Exhibit 3.
Bankruptcy Schedules of J3S,
Maintaining
that J3S and Griffin were
aware of the default judgment at or near the time it was entered
but did nothing, Osprey issued a post-default-judgment notice of
12
Osprey notes that while Griffin admits that he received
the summons and complaint on J3S, a deposition is necessary to
ascertain whether he received the summons and complaint addressed
to him at the same address. Griffin, however, has failed to
appear for deposition on numerous occasions, as evidenced by
Judge Stacy’s order granting Osprey’s motion for sanctions (#33).
13
The bankruptcy was filed in the Middle District of
Georgia, case number 14-40067.
- 26 -
deposition in Georgia to Griffin and his
appear (Ex. 4).
wife, but they failed to
The United States District Judge in the Middle
District of Georgia, the Honorable Clay D. Land, ordered them to
appear for deposition on January 27, 2012, but Defendants filed
their bankruptcy in that district to avoid the order.
Ex. 5.
After Griffin’s Chapter 13 trustee objected to confirmation of
Griffin’s plan based on a number of deficiencies, including failure
to make payments, failure to disclose property, and lack of good
faith (Ex. 8), the bankruptcy court dismissed the bankruptcy, and
Defendants then filed their motion to vacate the default judgment
here, and Osprey again noticed their depositions, this time for May
7, 2014.
As shown in United States Magistrate Judge Frances
Stacy’s order (#33) denying Osprey’s motion to strike Defendants’
pleadings for failure to appear for deposition, but granting
Osprey’s motion for sanctions, yet they still failed to appear.
As for Griffin’s affidavit averring that 3100 Gentian Blvd.
was not the home office of J3S at the time the complaint was filed,
Osprey points out that under Georgia law Georgia corporations must
continuously maintain “[a] registered office that may be the same
as any of its places of business.”
Ga. Code Ann. § 14-2-501(1).
Throughout its existence, J3S filed three documents with the
Georgia Secretary of State:
a certificate of organization (Ex.
11), an Annual Registration showing its address as 3100 Gentian
Blvd. on June 7, 2012 (Ex. 12), and an Annual Registration on April
- 27 -
7, 2014 (eight days before filing its motion to dismiss) showing it
changed its address to 5820 Veterans Pkwy., Suite 304, Columbus, GA
31904 (Ex. 13).
Thus 3100 Gentian Blvd. was the address on file
with the Georgia Secretary of State when Osprey served J3S on May
20, 2013.
Defendants’
argument
that
the
Court
lacks
personal
jurisdiction over them is based solely on their statement that they
consented to the Delaware Secretary of State’s being their agent
for service of process and Delaware the venue for disputes.
They
fail to mention the second, subsequent agreement in which they
agreed that Texas has jurisdiction and the venue is proper in
Harris County, Texas. Ex. 1, ¶ 13(e).
Defendants also assert that
venue is improper based on a forum selection clause in the first
contract, but ignore the fact that the December contract provided
suit in Texas and for exclusive venue in Harris County.
Osprey also argues that FASCON is not an indispensable party.
J3S does not have the right to collect the invoices from FASCON
because it sold that right to Osprey, so J3S cannot claim it has
been prejudiced by its own decision to sell the invoices. Although
J3S and Griffin argue that “fairness and justice” require joinder
of FASCON, they ignore the UCC.
are cumulative.
The rights of a secured creditor
Del. Code Ann. tit. 6, § 9-601(c); Tex. Bus. &
Com. Code Ann. § 9.601(c).
A factor may pursue its rights
simultaneously or in whatever order it chooses.
- 28 -
Reading Co-op.
Bank v. Suffolk Constr. Co., 464 Mass. 543, 555, 984 N.E. 2d 776,
785 (2013).
Court’s Decision
The threshold issue here is whether the December 13, 2012
agreement (#27, Ex. 1) is a valid modification of the November 1,
2012 agreement (#26, Ex. A) and/or a merger of it and the December
agreement between Osprey (“Factor”) and J3S (“Contractor”).
The
opening paragraph of the December agreement states clearly and
unambiguously,
This Agreement is in furtherance of, and not in novation
of, that one certain Factoring Agreement by and between
Contractor and Factor dated November 1, 2012 (the Prior
Agreement) which governs the terms and conditions of the
purchase and sale of Invoice #1 for the Project (defined
below). This Agreement governs the terms and conditions
of the purchase and sale of Invoice #2 (in the Net
Invoice Amount of $744,033.60 after retainage) for the
Project (hereinafter referred to as the “Receivable”) and
does not supersede the Prior Agreement.
Thus the second agreement supplements the November 2012 agreement
and governs an additional and possible future invoices while
continuing to cover the first.
It provides new consideration for
Invoice #2 (see ¶ 4, “Purchasing Price” and ¶ 5, “Factor Funding
Fee”).
Furthermore Paragraph 13(e) recites in relevant part,
This agreement is deemed made in the State of Texas and
shall be governed, interpreted, and construed in
accordance with the laws of the State of Texas without
regard to the conflict of laws principles. . . . . FACTOR
AND CONTRACTOR HEREBY CONSENT TO THE JURISDICTION OF THE
COURTS OF THE STATE OF TEXAS AND OF ANY FEDERAL COURT IN
- 29 -
SUCH STATE FOR DETERMINATION OF ANY DISPUTE AS TO ANY
SUCH MATTER AND VENUE SHALL BE EXCLUSIVELY IN HARRIS
COUNTY, TEXAS.
In connection therewith, Contractor
hereby waives personal service of any summons, complaint,
or other process, and agrees that service thereof may be
made by registered or certified mail directed to
Contractor at Contractor’s address set forth above or
such other address of which Contractor shall have
previously notified Factor by registered or certified
mail.
Paragraph 13(g), a merger clause, provides,
This agreement is the parties’ complete and final
agreement, reflects the parties’ mutual understanding,
supersedes any prior agreement or understanding between
the parties, and may not be modified or amended orally.
Contractor acknowledges that, but for the promises and
representations expressly contained in this Agreement, no
other promise or representation of any kind has been made
to Contractor to induce Contractor to execute this
Agreement. Furthermore, Contractor acknowledges that if
any such promise or representation has been made,
Contractor has not relied upon it in deciding to enter
into this Agreement, which has been jointly negotiated
and drafted.
The clause clearly merges the two agreements.
Finally, ¶ 13(i) states, “The undersigned hereby appoints the
Secretary of State of the State of Texas as his/her/their agent to
effectuate services of process. Said appointment is irrevocable.”
The Agreement is signed by the managing Member of Osprey, John
H.
Morris, III, and “acknowledged, accepted, and agreed to,” and
signed by, Griffin as President and CEO of J3S on behalf of J3S.
The signatures evidence both parties’ meeting of the minds over the
agreement. The December agreement supersedes the conflicting forum
selection clause of the November agreement.
- 30 -
Texas courts have recognized the right of contracting parties
to create contractual provisions that disclaim any reliance on
prior
contractual
representations
or
promises.
Schlumberger
Technology Corp. v. Swanson, 959 S.W. 2d 171, 179-80 (Tex. 1997).
“Texas courts and the Fifth Circuit have enforced merger clauses
where the contract and the circumstances of its formation evince a
clear
and
specific
representations.”
intent
to
disclaim
reliance
on
prior
LeTournea Tech. Drilling Sys., Inc. v. Nomac
Drilling LLC, 676 F. Supp. 2d 534, 544 (S.D. Tex. 2009).
The
December
2012
agreement
on
its
face
is
clear
and
unambiguous, contains a merger clause merging and integrating it
with the November 2012 agreement.
Furthermore, Griffin and J3S
have not challenged its existence nor its and its provisions’
validity or import.
Nor have Defendants responded to Osprey’s
contentions and evidence that their motion was knowingly deceptive.
Accordingly, the Court
ORDERS the following:
J3s and Griffin’s motion to vacate default judgment is DENIED
because they lacked a meritorious defense and they have failed to
show good cause, i.e., that the outcome of this case would have
been different had the case proceeded to trial.
Osprey would be
prejudiced in money and time were it forced to prosecute a trial
where Defendants had no viable defense.
Defendants’ motion to vacate for lack of personal jurisdiction
- 31 -
and insufficient service of process is also DENIED.
Osprey has
shown that service of process was in accord with ¶ 13(i) of the
December 2012 agreement, as well as the address to which process
was sent, which was also that filed by J3S with the Secretary of
State of Delaware and that provided by Defendants to Osprey.
Moreover ¶ 13(e) expressly waived personal service of process.
Defendants’ motion to dismiss for improper venue and forum is
also DENIED.
Under ¶ 13(e) of the December agreement, Osprey has
shown that Texas was the proper forum and Harris County the
exclusive venue for this action.
Even if venue were improper, as
noted the lack of proper venue as a matter of law will not support
the setting aside of a default judgment.
Rogers, 167 F.3d at 942.
Finally, Defendants’ motion to dismiss for failure to join an
indispensable party, FASCON, is also DENIED. The Court agrees with
Osprey that FASCON is not an indispensable party or even a required
party because J3S sold its rights to collect on the invoices to
Osprey.
SIGNED at Houston, Texas, this
9th
day of
January , 2015.
___________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE
- 32 -
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