Anadarko E & P Onshore, LLC v. Mary Marshall Smith Trust Under Will Dated October 24, 1977, FBO Katharine M. Marshall, Wells Fargo Bank, N.A., Trustee et al
Filing
49
OPINION AND ORDER OF DISMISSAL granting 30 Amended MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM.(Signed by Judge Melinda Harmon) Parties notified.(rhawkins)
United States District Court
Southern District of Texas
ENTERED
August 12, 2016
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
§
§
Plaintiff,
§
§
VS.
§
§
MARY MARSHALL SMITH TRUST UNDER§
WILL DATED OCTOBER 24, 1977,
§
FBO KATHARINE M. MARSHALL,
§
WELLS FARGO BANK, N.A.,
§
TRUSTEE; MARY MARSHALL SMITH
§
TRUST UNDER WILL DATED OCTOBER §
24, 1977, FBO MARGARET MURDOCH,§
WELLS FARGO BANK, N.A.,
§
TRUSTEE; MARY MARSHALL SMITH
§
TRUST UNDER WILL DATED OCTOBER §
24, 1977, WELLS FARGO BANK,
§
N.A., TRUSTEE; PETE AND SALLY §
SMITH FOUNDATION; and MICHIGAN §
4-H FOUNDATION,
§
§
Defendants.
§
David J. Bradley, Clerk
ANADARKO E&P ONSHORE, LLC,
Civ. A. H-14-3168
OPINION AND ORDER OF DISMISSAL
Pending before the Court in the above referenced cause,
alleging
breach
of
contract,
money
had
and
received,
and
fraudulent transfer under Texas Uniform Fraudulent Transfer Act
(“TUFTA” or “UFTA”), Texas Business & Commerce Code §§ 24.005 and
24.006(a), or, alternatively, under South Carolina Code Ann. § 2723-10,1
and
seeking
to
recover
mistaken
payments
of
mineral
royalties to the Trust Defendants2 and organizations, is Defendant
1
Anadarko asserts all four claims against Michigan 4-H,
among other Defendants.
2
The “Trust Defendants” are the Mary Marshall Smith
Trust Under Will Dated October 24, 1977, FBO Katherine M.
Marshall, Wells Fargo Bank, N.A., Trustee, and the Mary Marshall
Smith Trust Under Will Dated October 24, 1977, FBO Margaret
-1-
Michigan 4-H Foundation’s (“Michigan 4-H’s”) amended motion to
dismiss all claims against it in Plaintiff Anadarko E&P Onshore’s
(“Anadarko’s”) Second Amended Complaint3 for lack of personal
jurisdiction4 under Federal Rule of Civil Procedure 12(b)(2), and,
alternatively, dismissal of the breach of contract cause of action
for failure to state a claim upon which relief can be granted
under Fed. R. of Civ. P. 12(b)(6)(instrument #30).
Michigan 4-H, a Michigan charity with its principal
place
of
business
in
Michigan
(Affidavit
of
Cheryl
Howell
(“Howell”), Executive Director of Michigan 4-H, #30, Ex. A, ¶ 3),
states that Anadarko concedes that it made the mistaken payments
to the Trust Defendants, but not to Michigan 4-H.
It further
maintains that its only connection to the payments, if any, is
that it participated in a South Carolina litigation with two South
Carolina entities, in which the Trust Defendants paid Michigan 4-H
$2.25 million in cash and a 33.33252 percent portion of a royalty
interest in mineral leases5 in Dimmit County, Texas as part of the
settlement of the case.
Michigan 4-H contends that it is not
subject to specific or general personal jurisdiction in Texas.
Murdoch, Wells Fargo Bank, N.A.
3
4
Instrument #25.
Anadarko does
jurisdiction exists here.
not
5
claim
that
general
personal
“Under Texas law, an interest in an oil and gas lease
is an interest in the minerals in the ground,” and therefore is
real property. In re Jones, 77 B.R. 541, 544-45 (Bankr. N.D. Tex.
1987), citing Phillips Petroleum Co. v. Adams, 513 F.2d 355, 363
(5th Cir. 1975)(“Texas law provides that oil and gas are realty
when in place and personalty when severed from the land by
production.”), cert. denied, 423 U.S. 930 (1975).
-2-
While it admits that, as a result of the South Carolina settlement
agreement, it now owns a fractional share of a Texas mineral
interest, its only contact with Texas, Michigan 4-H did not
receive that interest until after Anadarko made the mistaken
payments to the Trust Defendants.
Michigan 4-H further states
that Anadarko’s new allegation that Michigan 4-H hired Texas legal
counsel to evaluate the mineral interests before the settlement of
the South Carolina case is not true.
Ex. A, Howell Affidavit at
¶ 16.
Moreover, for the first time, in its Second Amended
Complaint, Anadarko now conclusorily asserts that Michigan 4-H in
some way “adopted” the Trust Defendants’ division orders6 with
6
Black’s Law Dictionary (6th ed. 1990) defines a
division order as “[a] direction and authorization to purchaser of
oil to distribute purchase price in specified manner; its purpose
is to assure that purchaser pays only those parties who are
entitled to payment.” In Louisiana Land and Exploration Co. v.
Pennzoil Exploration and Production Co., 962 F. Supp. 908, 913
(E.D. La. 1997), the district court defined the term as
“essentially a contract that confirms the division of interest
among all the parties who own the product obtained from a well and
establishes the proportions in which each party is entitled to
share proceeds from a well.”
In Texas, “a division order
constitutes a contract between the interest owners and the
pipeline purchasers.” Bankers Life Ins. Co. of Neb. v. Scurlock
Oil Co., 447 F. 2d 997, 1002 (5th Cir. 1971), The panel continued,
id. at 1003,
[T]he division order under which a pipeline
purchaser
buys
oil
is
a
singularly
significant instrument in the pipeline
purchasing business.
It is uncontradicted
that when a pipeline purchaser pumps oil
from a Tank to which a particular division
order number is assigned, the pipeline
purchaser has no way of knowing (other than
to rely on the division order) where that oil
came from. Thus, if the oil is pumped from a
particular tank to which a particular
division order number has been assigned, that
-3-
Anadarko, and that the breach of contract claim against Michigan
4-H “arises out of” Anadarko’s division orders with the Trust
Defendants.
Michigan
4-H
objects
that
the
record
clearly
demonstrates that there was no such contract between Anadarko and
Michigan 4-H and that the terms of the division orders do not
apply to Michigan 4-H because it never availed itself of anything
in
Texas
that
relates
to
Anadarko’s
claimed
prior
mistaken
payments to the Trust Defendants.
If the Court does not dismiss the claims for lack of
personal jurisdiction, alternatively Michigan 4-H urges the Court
to dismiss the breach of contract claim against Michigan 4-H for
failure to state a claim.
Standards of Review
Fed. R. Civ. P. 12(b)(2)
When a defendant files a motion to dismiss for lack of
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).
“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 . . .
fact, and that fact alone, signifies that
payment must be made in accordance with the
particular division order.
The pipeline
purchaser must therefore rely on the operator
to run the right oil into the right tank, and
on its own gauger to enter the correct
division order number on the run tickets.
-4-
.”
Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 418
(5th Cir. 1993).
to
invoke
the
Where the facts are disputed, the party seeking
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).
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 of the evidence is not required. Johnston, 523 F.3d
at 609.7
When a defendant disputes factual bases for personal
7
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
-5-
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. 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.
Haydel, 517 F.3d at
241.
Walk
On a motion to dismiss under Rule
12(b)(2), uncontroverted 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
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.
-6-
at 609; Kelly Law Firm, 679 F. Supp. 2d at 762; Revell v. Lidov,
317 F.3d 467, 469 (5th Cir. 2002).
required
to
credit
uncontroverted.
conclusory
Nevertheless, the court is not
allegations
even
if
they
are
Panda Brandywine Corp. v. Potomac Elec. Power
Co., 253 F.3d 865, 869 (5th Cir. 2001).
A 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 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, as is the case in this action, may exercise personal
jurisdiction over a nonresident defendant if the forum state’s
long-arm
statute
confers
personal
jurisdiction
over
that
nonresident defendant and if the exercise of personal jurisdiction
satisfies due process under the United States Constitution.
McFadin v. Gerber, 587 F.3d 753, 759 (5th Cir. 2009), citing
Moncrief Oil Int’l, Inc. v. OAO Gazprom, 481 F.3d 309, 311 (5th
Cir. 2007).
The Texas long-arm statute, Texas Civil Practice and
-7-
Remedies Code §§ 17.0421-.045,8 extends jurisdiction to the limits
of 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 *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 Texas9
need only demonstrate that (1) the defendant 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 Gazprom,
481 F.3d 309, 311 (5th Cir. 2007).
Personal jurisdiction can be either specific or general
jurisdiction.
8
Mink v. AAAA Develop., LLC., 190 F.3d 333, 336 (5th
Section 17.042 provides in relevant part,
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.
9
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.”).
-8-
Cir. 1999). “Where a defendant ‘has continuous and systematic
general business contracts’ with the forum state, the court may
exercise ‘general jurisdiction over any action brought against the
defendant [regardless of whether the action is related to the
forum
contacts].”
Luv
N’
Care,
438
F.3d
at
469,
citing
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408,
415 (1984).
See also Access Telecom, Inc. v. MCI Telecomms.
Corp., 197 F.3d 694, 717 (5th Cir. 1999)(“General jurisdiction can
be assessed by evaluating contacts of the defendant with the forum
over a reasonable number of years, up to the date the suit was
filed.”), cert. denied, 531 U.S. 917 (2000).
“[T]he minimum
contacts inquiry is broader and more demanding when general
jurisdiction
is
alleged,
requiring
activities in the forum state.
a
showing
of
substantial
Jones v. Petty-Ray Geophysical
Geosource, Inc., 954 F.2d 1061, 1068 (5th Cir.), cert. denied, 506
U.S. 867 (1992). “[V]ague and overgeneralized assertions that give
no indication as to the extent, duration, or frequency of contacts
are insufficient to support general jurisdiction.”
Johnston, 523
F.3d at 610.10
10
In Johnston, the Fifth Circuit discussed how extremely
difficult it is to establish general jurisdiction over a
nonresident defendant. 523 F.3d at 610-11. The panel examined
the Supreme Court’s ruling in Helicopteros, 466 U.S. at 418-19, in
which it found that defendant’s contacts with Texas purchasing
helicopters, spare parts, and accessories for more than $4 million
over a six-year period from a Texas company, sending management
and maintenance personnel to Texas for technical consultations and
prospective pilots to Texas for training, and receiving a check
for more than $5 million drawn on a Texas bank were insufficient
to support personal jurisdiction. Among other cases from this
Circuit, Johnston cited Cent. Freight Lines, Inc. v. APA Transp.
Corp., 322 F.3d 376, 381 (5th Cir. 2003), in which the Fifth
Circuit concluded that general jurisdiction did not exist even
-9-
If the defendant has relatively few contacts, the court
may still exercise specific personal jurisdiction over that party
if the suit “‘arises out of’ or is related to the defendant’s
contacts with the forum.”
Furthermore
the
Fifth
Helicopteros, 466 U.S. at 414 & n.8.
Circuit
has
concluded
jurisdiction is “a claim-specific inquiry:
that
specific
‘A plaintiff bringing
multiple claims that arise out of different forum contacts of the
defendant must establish specific jurisdiction for each claim.’“
McFadin,
587
F.3d
at
759,
quoting
Seiferth
v.
Atuneros, Inc., 472 F.3d 266, 271 (5th Cir. 2006).
Helicopteros
Where all the
claims arise from the same forum contacts, however, a court does
not have to examine jurisdictional contacts on a claim-by-claim
basis.
Moncrief Oil Inter., Inc. v. OAO Gazprom, 414 S.W. 3d 142.
150-51 (Tex. 2013).
though the defendant regularly arranged and received interline
shipments to and from Texas and sent sales people to Texas to
develop business, negotiate contracts and service national
accounts; Wilson v. Belin, 20 F.3d 644, 651 (5th Cir. 1994)(“Even
if [the defendant’s] contacts with Texas via his short-lived
malpractice insurance arrangement through a Texas law firm and his
multi-year pro bono association with the historical society were
arguably continuous, we hold that they were not substantial enough
to warrant the imposition of general personal jurisdiction over
him.”); Access Telecom, 197 F.3d at 717 (in order to confer
general jurisdiction it is not sufficient that a corporation do
business in Texas; it must have a business presence in Texas);
Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 218 (5th Cir.
2000)(holding that general jurisdiction did not exist where the
defendant occasionally sold products to entities in Texas that
used the defendant’s products for projects in Texas and the
defendant’s employees made field visits to Texas between December
1992 and December 1993). Johnston, 523 F.3d at 610-12 (concluding
that Multidata’s sale of approximately $140,000 worth of goods
over a five-year period to Texas customers and its employees’
occasional travels to Texas to service equipment or attend trade
conventions did not support general jurisdiction over Multidata).
-10-
Furthermore, the Fifth Circuit has established a threestep
analysis
for
determining
whether
specific
jurisdiction
exists: “‘(1) whether the defendant has minimum contacts with the
forum state, i.e., whether it purposely directed its activities
toward
the
privileges
forum
of
state
conducting
or
purposely
activities
availed
there11;
itself
the
whether
(2)
of
the
plaintiff’s cause of action arises out of or results from the
defendant’s forum-related contacts12; and (3) whether the exercise
of personal jurisdiction is fair and reasonable.’”
Seiferth, 472
F.3d at 271, quoting Nuovo Pignone, SpA v. STORMAN ASIA M/V, 310
F.3d 374, 378 (5th Cir. 2002).
beyond
a
particular
While a court may examine “conduct
business
transaction”
in
the
purposeful
availment analysis, “purposeful availment alone will not support
an
exercise
of
specific
jurisdiction
unless
the
defendant’s
liability arises from or relates to the forum contacts.”
Retamco
Operating, Inc. v. Republic Drilling Co., 278 S.W. 3d 33, 341
(Tex. 2009).
The minimum contacts review is fact-intensive, and
no single contact is decisive; “the touchstone is whether the
defendant’s conduct shows that it ‘reasonably anticipates being
11
Purposeful availment requires a defendant to seek some
benefit, advantage or profit by “availing” itself of the
jurisdiction. Michiana Easy Livin’ Country, Inc. v. Holten, 168
S.W. 3d 777, 785 (Tex. 2005).
12
The litigation must also “result from the alleged
injuries that ‘arise out of or relate’ to those activities.”
Guardian Royal Exch. Assurance Ltd. v. English China Clays,
P.L.C., 815 S.W. 2d 223, 228 (Tex. 1991), citing Burger King, 471
U.S. at 472.
For specific jurisdiction, there “must be a
substantial connection” between the nonresident defendant’s
contacts with the forum state and the “operative facts of the
litigation.” Guardian Royal, 815 S.W. 2d at 229-33.
-11-
haled into court’ in that jurisdiction.
The defendant ‘must 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 third party.’”
McFadin, 587 F.3d at
759, citing Luv N’ Care, 438 F.3d at 470 (citing World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)), and
Electrosource, Inc. v. Horizon Battery Tech., Ltd., 176 F.3d 867,
871-72 (5th Cir. 1999)(quoting Burger King Corp. v. Rudzewicz, 471
U.S. 462 (1985)).
Thus specific jurisdiction may not be based
upon the mere fortuity that a plaintiff is a Texas resident.
Santander Consumer USA, Inc. v. Shults Ford, Inc., Civ. A. No.
3:11-CV-614-L, 2011 WL 2601520, *4 (N.D. Tex. June 30, 2011),
citing Holt Oil & Gas Corp. v. Harvey, 801 F.2d 773, 778 (5th Cir.
1986).
Once the plaintiff has established that the defendant
has minimum contacts with the forum state, the burden shifts to
the defendant to show that assertion of jurisdiction would be
unfair.
exercise
Walk Haydel, 517 F.3d at 245. In determining whether the
of
jurisdiction
examines five factors:
is
fair
and
reasonable,
the
court
“‘(1) the burden on the nonresident
defendant, (2) the forum state’s interests, (3) the plaintiff’s
interest in securing relief, (4) the interest of the interstate
judicial system in the efficient administration of justice, and
(5) the shared interest of the several states in furthering
fundamental social policies.’”
McFadin, 587 F,3d at 759-60,
quoting Luv N’ Care, 438 F.3d at 473.
If the plaintiff fails to
establish the existence of minimum contacts with the forum state,
-12-
the
court
need
not
reach
the
question
of
whether
personal
jurisdiction would offend traditional notions of fair play and
substantial justice.
Renoir v. Hantman’s Associates, Inc., 230
Fed. Appx. 357, 360(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
Gazprom, 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 the exchange of communications in the developing
and 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).
“[P]urchases and related trips, standing
alone, are not a sufficient basis for a State’s assertion of
jurisdiction.”
Helicopteros,
466
U.S.
at
417.
Moreover
jurisdiction may not be based on the fortuity of one party
residing in the forum state.
McFadin, 587 F.3d at 760.
Mere
foreseeability, by itself, does not create personal jurisdiction.
Moncrief Oil, 481 F.3d at 313.
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).
-13-
The question whether a court has personal jurisdiction
over a nonresident defendant is a question of law.
Moncrief Oil
Inter. v. OAO Gazprom, 414 S.W. 3d 142, 150 (Tex. 2012).
Fed. Rule of Civ. P. 12(b)(6)
When a district court reviews a motion to dismiss
pursuant to Fed. R. Civ. P. 12(b)(6), it must construe the
complaint in favor of the plaintiff and take all well-pleaded
facts as true. Randall D. Wolcott, MD, PA v. Sebelius, 635 F.3d
757, 763 (5th Cir. 2011), citing Gonzalez v. Kay, 577 F.3d 600, 603
(5th Cir. 2009).
The plaintiff’s legal conclusions are not
entitled to the same assumption. Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009)(“The tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal
conclusions.”), citing Bell Atlantic Corp. v. Twombly, 556 U.S.
662, 678 (2007); Hinojosa v. U.S. Bureau of Prisons, 506 Fed.
Appx. 280, 283 (5th Cir. Jan. 7, 2012).
“While a complaint attacked by a Rule 12(b)(6) motion to
dismiss does not need detailed factual allegations, . . . a
plaintiff’s
obligation
‘entitle[ment]
to
to
relief’
provide
the
requires
more
‘grounds’
than
of
his
labels
and
conclusions, and a formulaic recitation of the elements of a cause
of action will not do . . . .”
Bell Atlantic Corp. v. Twombly,
127 S. Ct. 1955, 1964-65 (2007)(citations omitted).
“Factual
allegations must be enough to raise a right to relief above the
speculative level.”
Id. at 1965, citing 5 C. Wright & A. Miller,
Federal Practice and Procedure
§ 1216, pp. 235-236 (3d ed.
2004)(“[T]he pleading must contain something more . . . than . .
-14-
.
a statement of facts that merely creates a suspicion [of] a
legally cognizable right of action”). “Twombly jettisoned the
minimum notice pleading requirement of Conley v. Gibson, 355 U.S.
41 . . . (1957)[“a complaint should not be dismissed for failure
to state a claim unless it appears beyond doubt that the plaintiff
can prove no set of facts in support of his claim which would
entitle him to relief”], and instead required that a complaint
allege enough facts to state a claim that is plausible on its
face.”
St. Germain v. Howard,556 F.3d 261, 263 n.2 (5th Cir.
2009), citing In re Katrina Canal Breaches Litig., 495 F.3d 191,
205 (5th Cir. 2007)(“To survive a Rule 12(b)(6) motion to dismiss,
the plaintiff must plead ‘enough facts to state a claim to relief
that is plausible on its face.’”), citing Twombly, 127 S. Ct. at
1974). “‘A claim has facial plausibility when the pleaded factual
content allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.’”
Montoya v.
FedEx Ground Package System, Inc., 614 F.3d 145, 148 (5th Cir.
2010), quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The
plausibility standard is not akin to a “probability requirement,”
but asks for more than a “possibility that a defendant has acted
unlawfully.”
Twombly, 550 U.S. at 556.
Dismissal is appropriate
when the plaintiff fails to allege “‘enough facts to state a claim
to relief that is plausible on its face’” and therefore fails to
“‘raise a right to relief above the speculative level.’” Montoya,
614 F.3d at 148, quoting Twombly, 550 U.S. at 555, 570.
In Ashcroft v. Iqbal, 556 U.S. at 679, the Supreme Court
stated that “only a complaint that states a plausible claim for
-15-
relief survives a motion to dismiss,” a determination involving “a
context-specific task that requires the reviewing court to draw on
its judicial experience and common sense.” “[T]hreadbare recitals
of the elements of a cause of action, supported by mere conclusory
statements do not suffice” under Rule 12(b).
1949.
Iqbal, 129 S. Ct. at
The plaintiff must plead specific facts, not merely
conclusory allegations, to avoid dismissal.
Collins v. Morgan
Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000). “Dismissal
is proper if the complaint lacks an allegation regarding a
required element necessary to obtain relief . . . .“
Rios v. City
of Del Rio, Texas, 444 F.3d 417, 421 (5th Cir. 2006), cert. denied,
549 U.S. 825 (2006).
Dismissal under Rule 12(b)(6) is proper not only where
the plaintiff fails to plead sufficient facts to support a
cognizable legal theory, but also where the plaintiff fails to
allege a cognizable legal theory.
Kjellvander v. Citicorp, 156
F.R.D. 138, 140 (S.D. Tex. 1994), citing Garrett v. Commonwealth
Mortgage Corp., 938 F.2d 591, 594 (5th Cir. 1991); ASARCO LLC v.
Americas Min. Corp., 832 B.R. 49, 57 (S.D. Tex. 2007).
“A
complaint lacks an ‘arguable basis in law’ if it is based on an
indisputedly meritless legal theory’ or a violation of a legal
interest that does not exist.”
Ross v. State of Texas, Civ. A.
No. H-10-2008, 2011 WL 5978029, at *8 (S.D. Tex. Nov. 29, 2011).
When a plaintiff’s complaint fails to state a claim, the
court should generally give the plaintiff at least one chance to
amend the complaint under Rule 15(a) before dismissing the action
with prejudice.
Great Plains Trust Co v. Morgan Stanley Dean
-16-
Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002)(“District courts
often afford plaintiffs at least one opportunity to cure pleading
deficiencies before dismissing a case, unless it is clear that the
defects are incurable or the plaintiffs advise the court that they
are unwilling or unable to amend in a manner that will avoid
dismissal.”); United States ex rel. Adrian v. Regents of the Univ.
of Cal., 363 F.3d 398, 403 (5th Cir. 2004)(“Leave to amend should
be freely given, and outright refusal to grant leave to amend
without
a
justification
.
.
.
is
considered
an
abuse
of
discretion. [citations omitted]”). The court should deny leave to
amend if it determines that “the proposed change clearly is
frivolous
or
advances
a
claim
insufficient on its face . . . .”
or
defense
that
is
legally
6 Charles A. Wright, Arthur R.
Miller & Mary Kay Kane, Federal Practice and Proc. § 1487 (2d ed.
1990).
“Rule 12(b)(6) is not a procedure for resolving contests
about the facts or the merits of a case.”
Gallentine v. Housing
Authority of City of Port Arthur, Tex., 919 F. Supp. 2d 787, 794
(E.D. Tex. Jan. 22, 2012), citing 5A Charles A. Wright & Arthur R.
Miller, Federal Practice and Procedure:
Civil 2d § 1356, at 294
(1990).
As noted, on a Rule 12(b)(6) review, although generally
the court may not look beyond the pleadings, the Court may examine
the complaint, documents attached to the complaint, and documents
attached to the motion to dismiss to which the complaint refers
and which are central to the plaintiff’s claim(s), as well as
matters of public record.
Lone Star Fund V (U.S.), L.P. v.
-17-
Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010), citing
Collins, 224 F.3d at 498-99; Cinel v. Connick, 15 F.3d 1338, 1341,
1343 n.6 (5th Cir. 1994).
See also United States ex rel. Willard
v. Humana Health Plan of Tex., Inc., 336 F.3d 375, 379 (5th Cir.
2003)(“the court may consider . . . matters of which judicial
notice may be taken”).
Taking judicial notice of public records
directly relevant to the issue in dispute is proper on a Rule
12(b)(6) review and does not transform the motion into one for
summary judgment.
Funk v. Stryker Corp., 631 F.3d 777, 780 (5th
Cir. 2011). “A judicially noticed fact must be one not subject to
reasonable dispute in that it is either (1) generally known within
the territorial jurisdiction of the trial court or (2) capable of
accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned.”
Fed. R. Evid. 201(b).
Factual Background According to Second Amended Complaint
The factual background giving rise to this case is
complex.
According to the Second Amended Complaint, after Donavan
D. Smith, known also as “Pete” Smith, passed away, his widow, Mary
Marshall Smith, also called “Sally” Smith, died in 1992.
Her
will, dated October 24, 1977, and a codicil, dated August 24,
1987, created a residuary trust, the “Mary Marshall Smith Trust,”
and the trust assets were distributed into two jointly managed
“Beneficiary Trusts,” i.e., the “Mary Marshall Smith Trust for the
benefit of Katharine M. Marshall” for the lifetime of her sister
Katharine, and the “Mary Marshall Smith Trust for the benefit of
Margaret Murdoch,” for the lifetime benefit of her other sister,
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Margaret.
After the deaths of these two sisters, the remaining
principal and undistributed income in the Beneficiary Trusts were
combined into the “Mary Marshall Smith Trust,” which, according to
terms of the Will, was to be known as the “Pete and Sally Smith
Foundation.”
Marshall
Thus all these entities are identities of the Mary
Smith
Trust
at
different
times,
according
conditions and accounting requirements in the Will.
to
the
At all
relevant times, Wells Fargo Bank, N.A. served as Trustee or CoTrustee of these entities.
During her life, Margaret Murdoch, who was co-Trustee
with Wells Fargo of her Beneficiary Trust, purportedly decided to
name the Michigan 4-H Foundation and Michigan State University13
as the final beneficiaries of the Mary Marshall Smith Trust after
she died.
When she passed away in 2009, the Beneficiary Trusts
terminated, and Wells Fargo became the sole Trustee of the Trusts,
now to be known as the “Pete and Sally Smith Foundation.”
The
Trustee then authorized the trust assets to be distributed within
three
years
organizations.
by
charitable
gifts
Alternatively,
to
the
qualifying
Will
nonprofit
permitted
the
incorporation of the Pete and Sally Smith Foundation as a private
charitable foundation, with the remaining assets transferred to it
and with distributions from it to be effected within three years.
While the Beneficiary Trusts were still in existence,
the Mary Marshall Smith Trust held mineral interests on property
13
Ultimately Michigan State University assigned its
interest to Michigan 4-H. #35, Ex. 2, Michigan 4-H’s Answer to
Petition in South Carolina litigation.
-19-
in Dimmit County, Texas, located on Lots Two, Three, Six and Seven
in Block 184, Subdivision “L” in the Taft-Catarina Properties
Subdivision, comprised of approximately 308.24 acres known as the
“Briscoe Friday Smith” tract (hereinafter “the Smith Tract”).
In
2010 Anadarko obtained an oil and gas lease of the Trusts’ mineral
interest in the Smith Tract from Wells Fargo, which executed the
lease as Trustee of the Mary K. Marshall Smith Trust FBO Katharine
M. Marshall and FBO Margaret M. Murdoch.
Since Margaret Murdoch,
the last of the two sister beneficiaries, had died the year
before, however, the Beneficiary Trusts should have terminated
before Anadarko leased the property.
Surrounding the Smith Tract is a 5,468.90 acre tract
known as the “Briscoe Family Ranch” (hereinafter the “Ranch”), in
which the Beneficiary Trustees had no mineral or royalty interests
and in which unrelated third parties hold the mineral interests.
Anadarko’s first oil well was drilled on the Ranch.
In error
Anadarko sent division orders for that well to Wells Fargo as
Trustee of the Beneficiary Trusts.
Anadarko claims that Wells
Fargo knew that the Beneficiary Trusts owned no mineral interest
in the Ranch, but Wells Fargo nevertheless signed these division
orders and represented to Anadarko that the Beneficiary Trusts did
hold the title to the Ranch property.
Several more wells were
drilled on the Ranch property and fell under these original
division orders, and Anadarko provided notice of each subsequent
well in accounting statements sent out along with royalty checks
to royalty recipients, including, erroneously, the Beneficiary
Trusts.
Anadarko’s mistaken royalty payments to the Beneficiary
-20-
Trusts for wells located on the Ranch were made from March 25,
2011 through December 31, 2013.
Subsequently Anadarko drilled three wells on the Smith
Tract.
Anadarko
properly
computed
the
Beneficiary
Trusts’
interests in this tract and made correct royalty payments to them,
but also continued the erroneous payments to them for the wells on
the Ranch.
The multiple mistaken checks sent to Wells Fargo as
Trustee of the Mary Marshal Smith Trust FBO Katharine Marshall for
production from wells located on the Ranch totaled $1,238,143.59,
while those for the Mary Marshal Smith Trust Fund FBO Margaret
Murdoch amounted to $412,716.03.
The Trustee endorsed and cashed
the checks and kept the funds despite the fact that the Trusts
lacked any title to any mineral interest in the Ranch and were not
entitled to the proceeds of any production from the Ranch.
Anadarko asserts that each division order executed by
Wells Fargo as Trustee included agreements that the Beneficiary
Trusts
would
“indemnify
and
reimburse
[Anadarko]
any
amount
attributable to an interest to which the undersigned is not
entitled.”
Once Anadarko discovered its mistake, it made payments
to the correct, third-party royalty interest owners on the Ranch
to make them whole.
On or around April 14, 2014, Anadarko
notified Trust Asset Manager Jonathan Johnson, an employee of
Wells
Fargo
Bank,
N.A.,
of
the
erroneous
payments
to
the
Beneficiary Trusts and asked that Wells Fargo return the funds,
but Wells Fargo has refused to repay Anadarko.
-21-
Meanwhile, after the Beneficiary Trusts were united into
the Mary Marshall Smith Trust (a/k/a the Pete and Sally Smith
Foundation, before its incorporation), the erroneous payments were
placed in that Trust by operation of law.
Trustee Wells Fargo
purportedly did not know of Margaret Murdoch’s attempts to name
the Michigan 4-H Foundation as the beneficiary of her Trust and
disputed Michigan 4-H’s claims, moved to retain all the assets,
and sought to incorporate the Trust as the Pete and Sally Smith
Foundation, which could continue into perpetuity.
Michigan 4-H,
on the other hand, tried to obtain all of the trust assets as a
charitable gift to itself from Mrs. Murdoch.
On August 29, 2011,
the Trustee filed suit against the Michigan 4-H Foundation,
Michigan State University, and the State of South Carolina, in a
Greenville County, South Carolina state court, where Mary Marshall
Smith’s will was probated.
Anadarko alleges that besides the
State of South Carolina, none of the parties was a South Carolina
resident.
Although the litigation went on for a couple of years,
the parties never informed Anadarko about its existence.
During
its pendency, Wells Fargo never raised the issue of whether any
party held title to royalties from the Ranch property.
After
approximately two years, the parties began to talk settlement.
Anadarko claims, but Michigan 4-H denies, that Michigan 4-H hired
a Texas attorney to evaluate the Texas mineral interests, the
Anadarko leases on them, the future royalty potential, the amounts
already received by the Pete and Sally Smith Foundation, and the
impact of accepting Texas real property in settlement of the
litigation.
-22-
On December 12, 2013 the parties settled the claims
arising
among
themselves,
which
included
the
payment
and
conveyance of $2.25 million in Trust assets and a 33.33252 percent
portion
of
the
not-yet-incorporated
Pete
and
Sally
Smith
Foundations’s Dimmit County, Texas oil, gas and mineral interests
in the Smith Tract to Michigan 4-H.
To fund the $2.25 million
cash payment accepted by the Michigan 4-H Foundation as part of
the settlement, the Trustee used some of Anadarko’s mistaken
royalty payments from the Ranch oil and gas wells and leases.
Anadarko charges that the Michigan 4-H Foundation “knowingly”
accepted the title and ownership of the Texas real property on the
Ranch and royalty payments even though it knew they were subject
to Anadarko’s Texas leases and division orders.14
14
In addition the
This Court observes that the Second Amended Complaint
fails to state any facts to support this conclusory allegation.
Moreover Michigan 4-H could not actually have accepted title and
ownership to the oil and gas interests on the Ranch when the
Trusts did not own the Ranch and thus could not have given title
and ownership to Michigan 4-H. What is at issue is not title to
the Ranch property, but some royalties that should have gone to
the real owners but were allegedly mistakenly transferred to the
Trustee and then to the Trusts and ultimately some to Michigan 4H.
The Fifth Circuit opined in S.E.C. v. Resource
Development Intern., LLC, 487 F.3d 295, 301 (5th Cir. 2007),
“‘[T]he transferees’ knowing participation is irrelevant [to the
determination of whether the transfer was made with intent to
delay or defraud a debtor] under the statute’ for purposes of
establishing the premise of (as opposed to liability for) a
fraudulent transfer. . . . The statute requires only a finding of
fraudulent intent on the part of the “debtor.” Anadarko’s Second
Amended Complaint, ¶ 48, alleges that the debtor, “Wells Fargo as
Trustee of the Beneficiary Trusts, the Mary Marshall Smith Trust,
and/or the Pete & Sally Smith Foundation (prior to incorporation)
transferred $2.25 million to the [transferee] Michigan 4-H
Foundation without receiving a reasonably equivalent value in
exchange for the transfer, leaving the debtor insolvent as a
result of the transfer in violation of Section 24.006(a) of the
Texas Business and Commerce Code.” See also Quilling v. Schonsky,
-23-
Mary Marshall Smith Trust and the Pete and Sally Smith Foundation
were reformed and incorporated into the Pete and Sally Smith
Foundation in perpetuity, and the remaining assets of the Mary
Marshall Smith Trust were formally gifted to the incorporated
foundation, with Wells Fargo named the Trustee and awarded past
and future pay for its services as Trustee.
The parties then
released all claims against each other.
In early 2014 the Beneficiary Trusts informed Anadarko
that the Trusts had executed quit claim deeds regarding the
minerals owned by the Trusts in the Smith Tract to the Michigan 4H Foundation and the Pete and Sally Smith Foundation. Not knowing
about the South Carolina litigation or the reason for the quit
claim deeds, Anadarko, in reliance on the signed division orders
and
in
accordance
with
existing
title
opinions,
began
and
continued to pay the Pete and Sally Smith Foundation and the
Michigan
4-H
Foundation
royalty
payments
relating
to
their
proportionate shares of the Smith Tract in Texas.
Applicable Substantive Law
As
the
Honorable
Sim
Lake
in
Pemex
Exploracion
y
Produccion v. BASF Corp., Civ A. Nos. H-10-1997 and H-11-2019,
2013 WL 5514944, at *6-7 (S.D. Tex. Oct. 1, 2013), explains about
money
had
and
received,
a
cause
of
action
which
conceptually to the doctrine of unjust enrichment,”
An action for restitution for money had and
received “seeks to restore money where equity
and good conscience require restitution. . .
it is not premised on wrongdoing, but seeks
247 Fed. Appx. 583, 584 (5th Cir. Sept. 18, 2007).
-24-
“belongs
to determine to which party, in equity,
justice, and law, the money belongs,
[Edwards
v.
Mid-Continent
Office
Distributors, LP, 252 S.W. 3d 833, 837 (Tex.
App.-Dallas 2008, pet. denied)], citing
Staats v. Miller, 150 Tex. 581, 243 S.W. 2d
686, 687 (Tex. 1951)). Such claims seek “to
prevent unconscionable loss to the payor and
unjust enrichment to the payee.” Id. at 837
(citing Bryan v. Citizens National Bank in
Abilene, 628 S.W. 2d 761, 763 (Tex. 1982)).
As these broad and general descriptions
demonstrate, a cause of action for money had
and received is “less restricted and fettered
by technical rules and formalities than any
other from of action.
It aims at the
abstract justice of the case, and looks
solely to the inquiry, whether the defendant
holds money, which belongs to the plaintiff.”
[Id., quoting Staats, 243 S.W. 2d at 687-88.]
Anadarko, which has its principal place of business in
Texas, maintains that Texas law applies to the transfers to the
Foundations because the transfers are connected to title to
mineral interests in Texas and to division orders that are Texas
contracts that establish the obligation to repay Anadarko, a Texas
resident, with performance occurring in Texas.
It notes that the
Pete and Sally Smith Foundation claimed that Texas statutes
governed their mineral interests when their counsel communicated
with Anadarko in the middle of 2014.
Michigan
4-H
hired
Texas
counsel
Lastly, Anadarko submits,
to
evaluate
Texas
mineral
interests which were subject to the existing Anadarko mineral
leases and division orders before Michigan 4-H agreed to accept
ownership of those interests.15
15
Because the parties disagree about the hiring of Texas
counsel and because there has been no hearing held, the Court
should not act as a factfinder and must construe all disputed
facts in favor of the plaintiff, Anadarko Walk Haydel, 517 F.3d
at 241. Nevertheless, the Court finds the fact that Michigan 4-H
-25-
Section 24.005(a) of TUFTA states, “A transfer made or
an obligation incurred by a debtor is fraudulent as to a creditor,
whether the creditor’s claim arose before or within a reasonable
time after the transfer was made or the obligation incurred, if
the debtor made the transfer or incurred the obligation: (1) with
actual intent to hinder, delay, or defraud any creditor of the
debtor.”
Section 24.005(b) lists a number of factors the Court
may consider in determining “actual intent” under subsection
(a)(1).
TUFTA covers the fraudulent transfer of funds, as well
as of property; “[a] TUFTA plaintiff seeks to recover “judgment
for the value of the asset transferred, not the specific asset
itself” so spending transferred funds “does not shield a recipient
of fraudulently-transferred funds from liability.”
Janvey v.
Alguire, 846 F. Supp. 2d 662, 672 (N.D. Tex. 2011).
Walker
v.
Anderson,
232
S.W.
3d
899
(Tex.
See also
App.--Dallas
2007)(shareholder fraudulently transferred funds from company to
himself in violation of TUFTA).
The Second Amended Complaint, #28 at ¶¶ 47-49, alleges
the following fraudulent transfers under TUFTA § 24.006(a)(“A
transfer made . . . by a debtor is fraudulent to a creditor whose
claim arose before the transfer was made . . . if the debtor made
the transfer . . . without receiving a reasonably equivalent value
in exchange for the transfer . . . and the debtor was insolvent at
hired a Texas lawyer to evaluate the Smith Tract issue irrelevant
to whether Texas law applies here.
-26-
that time or the debtor became insolvent as a result of the
transfer.”):
47.
Anadarko mistakenly made royalty
payments to Wells Fargo as Trustee of the
Beneficiary Trusts associated with mineral
interests to which the Beneficiary Trusts did
not have title.
Therefore, Wells Fargo as
Trustee of the Beneficiary Trusts, the Mary
Marshall Smith Trust and/or the Pete & Sally
Smith Foundation (prior to incorporation) was
a debtor to its creditor Anadarko in the
amount of funds mistakenly transferred to
Wells Fargo. [citation omitted]
48. Thereafter, Wells Fargo as Trustee
of the Beneficiary Trusts, the Mary Marshall
Smith Trust and/or the Pete & Sally Smith
Foundation
(prior
to
incorporation)
transferred $2.25 million to the Michigan 4-H
Foundation without receiving a reasonably
equivalent value in exchange for the transfer
leaving the debtor insolvent as a result of
the
transfer
in
violation
of
Section
24.006(a) of the Texas Business and Commerce
Code.
49.
Additionally, Wells Fargo as
Trustee of the Beneficiary Trusts, the Mary
Marshall Smith Trust and/or the Pete & Sally
Smith Foundation (prior to incorporation)
transferred at least $2,200,115.75 in cash
and at least $4,000,000.00 in mutual funds
and other assets to Wells Fargo as Trustee of
the Pete & Sally Smith Foundation (after
incorporation as a private foundation)
without receiving a reasonably equivalent
value in exchange for the transfers and
leaving the debtor insolvent as a result of
the
transfer
in
violation
of
Section
24.006(a) of the Texas Business and Commerce
Code.
Anadarko alternatively pleads that if the Court were to
hold that South Carolina law applies rather than Texas law, South
-27-
Carolina Code § 27-23-10(A)16 governs fraudulent conveyances and
invalidates fraudulent conveyances:
Every gift, alienation, bargain, transfer and
conveyance
of
lands,
tenements,
or
hereditaments, goods and chattels or any of
them, or of any lease, rent, commons, or
other profit or charge out of the same, by
writing or otherwise, and every bond, suit,
judgment, and execution which may be had or
made to or for any intent or purpose to
delay, hinder, or defraud creditors and
others of their just and lawful actions,
suits, debts, accounts, damages, penalties,
and forfeitures must be deemed and taken
(only as against that person or persons, his
or their heirs, successors, executors,
administrators and assigns, and every one of
them whose actions, suits, debts, accounts,
damages,
penalties
and
forfeitures
by
guileful, covinous [defined by
Black’s
Dictionary (6th ed. West, 1990) as “deceitful”
or “fraudulent”], or fraudulent devices and
practices are, must, or might be in any ways
disturbed, hindered, delayed, or defrauded)
to be clearly and utterly void, frustrated
and of no effect, any pretense, color,
feigned consideration, expressing of use, or
any other matter or thing to the contrary
notwithstanding.
South
Carolina
law
makes
key
distinctions
between
existing creditors and subsequent creditors, and between transfers
made without consideration and transfers made for valuable, but
substantially insufficient consideration.
F. Supp. 2d at 560.
Audio Investments, 203
There are two circumstances in which a
conveyance may be set aside for existing creditors:
16
(1) a
Also known as the “Elizabeth Statute” because the
original version of the law was enacted during the reign of Queen
Elizabeth I. Audio Investments v. Robertson, 203 F. Supp. 2d 555,
566 (D.S.C. 2002), aff’d, 67 F. Appx. 795 (4th Cir. 2003).
Anadarko’s Second Amended Complaint, #25 at p. 17 n.3, states,
“South Carolina is the only U.S. state to follow the Statute of
Elizabeth.”
-28-
transfer, made for valuable consideration, will be set aside if
(a) it was made by the grantor with actual intent to defraud his
creditors, (b) the grantor was indebted at the time of the
transfer, and (c) the grantor’s intent is imputable to the
grantee; or (2) where the transfer was not made for a valuable
consideration, if (a) the grantor was indebted to the plaintiff at
the time of the transfer, (b) the conveyance was voluntary (i.e.,
made without valuable consideration), and (c) the grantor failed
to retain sufficient property to pay the indebtedness to the
plaintiff in full--not merely at the time of the transfer, but
when the creditor seeks to collect his debt.
Mathis v. Burton,
460 S.E. 2d 606, 408 (S.C. Ct. App. 1995).
“Subsequent creditors may have conveyances set aside
when (1) the conveyance was ‘voluntary,’ . . . and (2) it was made
with a view to future indebtedness or with an actual fraudulent
intent on the part of the grantor to defraud creditors.”
Id.
“Although there is a conflict of authority as to whether
or not [the Statute of Elizabeth] applies to personal property,’
37 C.J.S. Fraudulent Conveyances § 199,” a South Carolina district
court, observing that “[r]esearch revealed no South Carolina case
addressing this issue,” has held that cash transfers are voidable
as fraudulent conveyances under the Statute of Elizabeth. Fabrica
la Estrella S.A. de C.V. Banda, 6:06-466-HMH, 2007 WL 39428, *3
(D.S.C. Jan. 4, 2007)(“Based on the broad language and equitable
nature of the Statute . . . the transfer of funds . . . is a
‘transfer’ under the broad and plain language of “section 27-2310(A).”
In accord, PSC Nitrogen, Inc. v. Ross Development Corp.,
-29-
127 F. Supp. 3d 568, 592 (D.S.C. 2015)(quoting Fabrica, and citing
three South Carolina decisions voiding cash transfers under the
statute and Smith v. Mutual Life Ins. Co. of New York, 158 F. 365,
366 (C.C.D. Mass. 1907)(“A fraudulent transfer of money is within
the Statute of Elizabeth as well as a fraudulent transfer of land
or goods.”)).
The Second Amended Complaint, ¶¶ 54-57, alleges the
following under the Statute of Elizabeth:
54. Anadarko is the “creditor” of the Mary
Marshall Smith Trust and the Beneficiary
Trusts as that term is understood in the
Statute of Elizabeth because the trusts owed
Anadarko for the mistaken royalty payments;
the trusts are understood as debtors for the
same reasons. See Royal Z. Lanes, Inc. [v.
Collins Holding Corp., 337 S.C. 592, 594 S.E.
2d 621, 622 (S.C. 1999)]. Anadarko’s claims
arose at the time of each mistaken royalty
payment.
55. After receiving the mistaken payments,
the Mary Marshall Smith Trust transferred
funds
and
real
property
(the
mineral
interests) to the Michigan 4-H Foundation and
the Pete and Sally Smith Foundation (the
“Foundations”) without receiving valuable
consideration in exchange for the transfers
and was insolvent or became insolvent as a
result of the transfers. Settlement of the
South Carolina litigation was not valid
consideration for either transfer. In order
for a compromise to serve as consideration
for a settlement, there must be some matter
of doubt as to whether a legal obligation
exists or not. The Mary Marshall Smith Trust
had no legal obligation to make a gift to
either Foundation.
And the Michigan 4-H
Foundation
and
Pete
and
Sally
Smith
Foundation--would-be gift recipients from the
Marry Marshall Smith Trust--possessed no
legal right to a gift from the Trust.
Compromise where no legal obligation exists
cannot
serve
as
consideration
for
a
settlement.
56. Because Anadarko’s claims pre-dated
the transfers to the Michigan 4-H Foundation
-30-
and the Pete and Sally Smith Foundation, the
transfers violated the Statute of Elizabeth.
Mathis, 460 S.E. 2d 406 at 408 [sic]. In the
complained-of
transfers,
no
valuable
consideration passed from the Foundations to
the Mary Marshall Smith Trust.
57. Anadarko sustained actual damages
of
$1,650,859.62
associated
with
the
fraudulent transfers to the Foundations.
Under the Statute of Elizabeth, the first
transferees, Michigan 4-H Foundation and the
Pete and Sally Smith Foundation, are liable
to Anadarko for the amount necessary to
satisfy its claim and Anadarko is entitled to
avoidance of transfers to the Foundations to
the extent of that amount.
Michigan 4-H’s Motion to Dismiss (#30)
Michigan 4-H addresses the four claims against it to
determine if specific personal jurisdiction over it in Texas
exists for each of the claims.
First it argues that the fraudulent transfer and money
had and received claims do not arise out of or relate to any
alleged Michigan 4-H contact with Texas.
The essence of each is
that the Trust Defendants received purportedly erroneous royalty
payments arising from and related to oil and gas wells and leases
on the Ranch and then used a portion of them to fund the South
Carolina cash settlement payment to Michigan 4-H.
Complaint (#25) at ¶ 27.
Sec. Am.
Anadarko does not dispute that it did
not make any of the allegedly mistaken payments to Michigan 4-H.
Id., ¶¶ 16 and 18.
Because Michigan 4-H acquired its mineral
interest in the Smith tract only after the time of the allegedly
mistaken payments, these claims against Michigan 4-H cannot have
arisen from or relate to Michigan 4-H’s later ownership.
When
Michigan 4-H received these mineral interests, it contracted with
-31-
an out-of-state entity to settle an out-of-state lawsuit at a time
when Michigan 4-H had no knowledge, either actual or alleged, nor
any alleged claim in connection with the mineral interests because
no claim had been made.
¶¶ 11, 15.
#25, ¶¶ 26-27, 21; Ex. A, Howell Affid.,
The South Carolina settlement had no connection to
Texas and cannot serve as the basis for personal jurisdiction in
Texas over Michigan 4-H; the fraudulent transfer and money had and
received claims against Michigan 4-H were based on its receipt of
cash from out-of-state Trust Defendants under a South Carolina
settlement agreement.
Waller Marine, Inc. v. Magie, 463 S.W. 3d
614, 622 (Tex. App.--Houston [14th Dist.] 2015, no pet.)(concluding
no personal jurisdiction over nonresident defendants where claims
for unjust enrichment were based on payments plaintiffs made to
Texas
resident
defendants
who
subsequently
made
payment
to
nonresident defendants under a separate consulting agreement);
Barrow v. Sutton, Civ. A. No. H-14-200, 2014 WL 3485188, *4 (S.D.
Tex.
July
11,
2014)(holding
that
court
lacked
personal
jurisdiction over nonresident defendant for claims of money had
and received where the defendant did not reach out to plaintiff in
Texas
for
business
(conversations
and
and
a
the
record
single
email)
showed
few
between
interactions
plaintiff
and
defendant); Prosperity Bank v. Balboa Music Festival, LLC, Civ. A.
No. 4:13-CV-00288, 2014 WL 1023935, *3 (S.D. Tex. Mar. 13,
2014)(holding that a substantial part of the events giving rise to
the money had and received claim occurred where the money was
received).
(whether
In the two-prong analysis for specific jurisdiction
the
defendant
“purposefully
-32-
availed
itself”
of
the
privilege of conducting activities in Texas and whether the
defendant’s liability arises from or relates to forum contacts),
“purposeful availment alone will not support an exercise of
specific jurisdiction unless the defendant’s liability arises from
or relates to the forum contacts.”
Retamco, 278 S.W. 3d at 341.
Thus Anadarko’s supplemental factual allegations that Anadarko
hired Texas counsel to evaluate the mineral interests and its
subsequent acceptance of the undisputedly correct royalty payments
do
not
support
a
finding
of
personal
jurisdiction
because
Anadarko’s claims do not arise from those contacts.
Michigan 4-H further claims that the breach of contract
claim, which notably was not asserted in Anadarko’s first two
pleadings, fails because there is no contract between Anadarko and
Michigan 4-H.
Furthermore, the contract that Anadarko seems to
allege (that Michigan 4-H “knowingly adopted the division orders
[contract] signed by the Beneficiary Trusts when [it] informed
Anadarko of [its] new ownership in the Smith tract and accepted
royalty payments premised upon obligations in the division orders
(#25 ¶ 32)), even if applied to Michigan 4-H, does not arise out
of the mistaken payment allegations.
contends
that
statement
is
Moreover Michigan 4-H
conclusory,
untrue,
and
jurisdictionally irrelevant in light of the terms of the alleged
contract.
Finally,
Michigan
4-H
insists
that
it
did
not
sign
the
purposefully avail itself jurisdictionally in Texas.
Michigan
4-H
emphasizes
that
it
did
not
division orders on which Anadarko bases its claim (#25, ¶ 31-32).
The Texas Natural Resource Code § 91.401(3) defines a division
-33-
order as “a agreement signed by the payee directing distribution
of proceeds from the sale of oil, gas, casing head gas, or other
related hydrocarbons.”
Under this statute’s definition, there is
no division order applicable to Michigan 4-H in this dispute.
Michigan 4-H also argues that it did not “knowingly
adopt” the division orders signed by the Trust Defendants-–it was
not aware of any orders applicable to the mineral interest until
Anadarko alleged the breach of contract claim in its Second
Amended Complaint.
Ex. A, Howell Affid. ¶ 17.
The division
orders are related to the Ranch property, a separate interest that
Michigan 4-H never owned nor from which it received any royalties.
Ex. B, Division Orders for Ranch Property, produced by Anadarko;
#25, Sec. Am. Compl., ¶¶ 15-17.
The division of interest stated
in the division order is not the division or interest properly
attributed to the Smith Tract mineral interests and is not the
rate at which Michigan 4-H or its predecessors have been paid.
While Anadarko claims that in the indemnity provision in
the division orders the Trust Defendants “agreed to indemnify and
repay Anadarko for any amounts Anadarko mistakenly paid to them
which were attributable to interests to which they were not
entitled (#25, ¶ 31),” the actual language in those orders is
different:
“Owner agrees to indemnify and reimburse Payor for
payments made to Owner in accordance with this DO if Owner does
not have merchantable title to the oil and gas attributable to the
Owner. [emphasis added by Michigan 4-H]”
-34-
Ex. B, p. 2, ¶ 4 and p.
4, ¶ 4.17
Michigan 4-H maintains that, as discussed supra, it
never received any payments “in accordance with the division
order.” Even if the Court accepts Anadarko’s allegations as true,
the division order could only activate the indemnity obligation
for mistaken payments made by Anadarko to Michigan 4-H, of which
there were none since all payments were made to the Trustee and
then to the Trusts.
Thus Anadarko has not and cannot establish
any contract right on which it can assert a claim for breach of
contract.
Nor was there any purposeful availment of the privilege
of conducting activities within the forum state by Michigan 4-H.
It is black letter law that an individual’s contract with an outof-state party by itself cannot establish sufficient minimum
contacts in the other party’s home state; instead, the court must
examine “prior negotiations, contemplated future consequences,
along with the terms of the contract and the parties’ actual
course of dealing.”
Pervasive Software, Inc. v. Lexware GmbH &
Co. KG, 688 F.3d 214, 222-23 (5th Cor. 2012), citing Burger King,
471 U.S. at 478; Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir.
1999).
Even if there were a contract between Anadarko and
Michigan 4-H, Anadarko has not alleged there were any prior
negotiations or course of dealing between the two or any other
facts that would support the claim of purposeful availment.
17
Even
As the Court has noted, neither Michigan 4-H nor
Trustee Wells Fargo nor the Trusts were owners of the minerals in
the Ranch, so this provision in the division orders, which were
contracts between Anadarko and the third-party owners of those
minerals, does not apply to any of them.
-35-
if there were a division order applicable to Michigan 4-H, such an
order
is
a
boilerplate
agreement
that
obligates
a
certain
percentage of royalties to be paid to the mineral owner; it would
not be interactive or involve anything other than the receipt of
a royalty check in Michigan by Michigan 4-H. Michigan 4-H did not
reach out to Texas to acquire the mineral interests, did not
negotiate or even contact Anadarko before it received them, and
has barely had contact with Anadarko since obtaining them.
Even if the Court finds that Michigan 4-H’s minimal
contacts were sufficient to subject it to personal jurisdiction in
Texas,
Michigan
4-H
insists
that
the
exercise
of
personal
jurisdiction over it would offend traditional notions of fair play
and substantial justice. Having to defend itself in litigation in
Texas seeking to interfere with a settlement approved by the South
Carolina court and the South Carolina Attorney General would
substantially
burden
residing in Michigan.
Michigan
4-H,
a
charitable
foundation
None of the witnesses with knowledge of
Michigan 4-H or its settlement are in Texas.
The interests of
Texas in vindicating Anadarko’s purported mistaken payments are
not enough to counterbalance the burden it would impose on
Michigan 4-H.
In sum, urges Michigan 4-H, Anadarko has failed to
establish a prima facie case for Texas to exercise personal
jurisdiction over it.
Michigan 4-H requests that the Court
dismiss the case pursuant to Rule 12(b)(2).
Alternatively,
Michigan 4-H asks the Court to dismiss Anadarko’s breach of
contract claim against it under Rule 12(b)(6).
-36-
Anadarko’s Response (#35)
Court’s Discussion of Key Case
Central to Anadarko’s argument that this Court has
personal jurisdiction over Michigan 4-H here is Retamco Operating,
Inc. v. Republic Drilling Co., 278 S.W. 3d 333, 339-40 (Tex.
2009), and progeny, both in accord and in distinguishing facts in
other cases.
The Court briefly summarizes the facts and the
holding of Retamco.
In Retamco, Retamco Operating, Inc. (“ROI”), a Texas
corporation, after obtaining an interlocutory default judgment
against
another
Texas
corporation,
Paradigm
Oil,
Inc.
(“Paradigm”), for unpaid royalties in oil and gas leases on
property located in a few Texas counties, amended its petition to
add a claim for fraudulent transfer under the TUFTA, Texas
Business & Commerce Code § 24.001-.013, against a new Defendant,
Republic Drilling Company (“Republic”), a California corporation.
ROI asserted that while the case was pending against Paradigm,
Paradigm fraudulently assigned to Republic a 72% interest in
Paradigm’s oil and gas wells and leases in Fayette County, Texas
and a 72% interest in an option to obtain an interest in a lease
in Dimmit and Webb Counties, Texas.
ROI claimed that these
fraudulent transfers left Paradigm insolvent and thus unable to
pay damages for ROI’s claims against it.
Making a special appearance, Republic answered and
argued it lacked minimum contacts with Texas, but that even if it
had them, that ROI’s claim did not arise from nor is it related to
those contacts, and that the assignment occurred in California,
-37-
not Texas.
Even if Republic did have sufficient minimal contacts
with Texas, moreover, Republic contended that the exercise of
personal jurisdiction over it in Texas would offend traditional
notions of fair play and substantial justice.
After a hearing,
the district court denied Republic a special appearance without
findings of fact or conclusions of law, the court of appeals
reversed, holding that Republic was not subject to personal
jurisdiction in Texas, and the case was appealed to the Texas
Supreme Court, which reversed the appellate court.
ROI argued that as a fraudulent transferee of oil and
gas interests, i.e., considered real property in Texas, Republic
is subject to personal jurisdiction in Texas.
The Texas Supreme
Court observed that in deciding if a defendant purposefully
availed itself of the benefits and privileges of conducting
business in Texas it must consider the following factors:
(1)
only the defendant’s contacts with Texas were relevant; (2) the
asserted contacts were purposeful and not random, fortuitous or
attenuated; and (3) the defendants sought some benefit, advantage
or profit by availing itself of jurisdiction in the forum state.
278 S.W. 3d at 338-39, citing Moki Mac River Expeditions v. Drugg,
221 S.W. 3d 569, 575 (Tex. 2007).
The high court further noted
that the “quality and nature of the defendant’s contacts rather
than their number” should be the court’s focus.
Id. at 339.
Finding that Republic’s contacts with Texas were purposeful, the
Supreme Court
opined,
Republic was aware that the oil and gas
interests it received were located in
Fayette, Dimmit, and Webb Counties, Texas.
-38-
Thus, Republic purposefully took assignment
of Texas real property. And while Republic
may not have actually entered the state to
purchase this real property, “[j]urisdiction
. . . may not be avoided merely because the
defendant did not physically enter the forum
state.” Burger King, 471 U.S. at 476 . . . .
(“So long as a commercial actor’s efforts are
‘purposefully directed’ toward residents of
another state, we have consistently rejected
the notion that an absence of physical
contacts can defeat personal jurisdiction
there.”). Republic, by taking assignment of
Texas real property, reached out and created
a continuing relationship in Texas.
Under
the assignment, it is liable for obligations
and expenses related to the interests. This
ownership also allows Republic to “enjoy . .
. the benefits and protections of [Texas
laws].
[Michiana Easy Livin’ Country, Inc.
v. Holten, 168 S.W. 3d 777, 787 (Tex.
2005)(citing International Shoe Co. v.
Washington, 326 U.S. 310. 319 (1945)).]
Unlike personal property, Republic’s real
property will always be in Texas, which
leaves
no
doubt
of
the
continuing
relationship that this ownership creates.
Id. at 339.
Although the Court observed that sometimes “a single
contract may meet the purposeful-availment standard, but not when
it involves a single contact taking place outside the forum
state,”18 in contrast “the purchase and ownership of real property
could ‘involve[] many contacts over along period of time,’ which
would carry with it certain continuing obligations”:
e.g.,
valuation and tax issues, and potential expenses of maintaining
their interest.” Id. “[T]he location of the transferred asset is
not fortuitous; the property’s location is fixed in this state.”
Id.
Thus it is obvious “how Republic would benefit from the
process and protections of Texas law.”
18
Id. at 339-40.
Citing Michiana, 168 S.W. 3d at 787.
-39-
Moreover
if Republic decides to enforce rights in its interests in the oil
and gas leases and wells, it must necessarily do so in Texas.
Id.
at 340.
The Texas Supreme Court further found that Republic’s
contacts with the forum state were not based on unilateral actions
of a third party, but on its own conduct because Republic was a
“willing participant in a transaction with an affiliated Texas
company to purchase Texas real property.”
Id.
Noting that
Republic “went well beyond answering a phone call from a Texas
resident or shipping goods to Texas,” which acts “may be random or
fortuitous,” the Texas Supreme Court distinguished such conduct
from the purposeful purchase of Texas real property in which “the
location matters.”
Id.
Finally the high court emphasized that Republic pursued
a “‘benefit, advantage or profit’ in Texas” and “by purchasing
Texas real property, has purposefully availed itself of the
privilege of conducting activities in Texas”:
“valuable
assets
in
Texas,
including
the
it obtained
right
to
enforce
warranties and covenants related to the real property,” it “reaped
benefits from the property in the amount of approximately $1.2
million in revenues, and [it] has sold some of the property.” Id.
By itself, purposeful availment will not uphold specific
personal jurisdiction if the defendant’s liability does not arise
from or relate to the forum contacts, i.e., there must be “a
‘substantial connection between the defendant’s contacts with the
forum and the operative facts of the litigation,’” the latter
necessitating consideration of the claims asserted in the case.
-40-
Id.
The court found that in this fraudulent transfer case, “the
UFTA not only creates liability against ‘the person for whose
benefit the transfer was made, such as the debtor, but also
against ‘the first transferee of the asset,’ or any ‘subsequent
transferee.’”
Id. at 341.
Republic argued that the emphasis in
the litigation should be on the assignment, which occurred in
California, since the operative facts “will be whether reasonably
equivalent value was given for the property and whether the leases
were
taken
in
good
faith.”19
The
Supreme
Court
agreed
the
assignment was a significant operative fact, but additionally
found that
the real property itself will also be an
operative fact, or at the very least, will
have
a
substantial
connection
to
the
operative facts.
Without an asset, no
fraudulent transfer can occur under the UFTA.
See id. § 24.002(12)(“‘Transfer’ means . . .
disposing or parting with an asset or an
interest in an asset . . . .”)(emphasis
added). Here the Texas oil and gas interests
are the assets. Proof that these assets were
transferred and an assessment of their value
will be essential to the UFTA analysis;
without that proof, the UFTA claim fails.
The UFTA states, “A transfer . . . is fraudulent . . . if the
debtor made the transfer . . . with actual intent to hinder,
delay, or defraud any creditor of the debtor; or without receiving
a reasonably equivalent value in exchange for the transfer or
obligation.”
Id. at 341, citing Tex. Bus. & Com. Code §§
24.005(a)(1),
(2).
That
Republic
purportedly
“received
the
transfer of Texas real property from a Texas resident, during the
19
Citing Tex. Bus. & Com. Code §§ 24.005(a)(2), .006,
.009.
-41-
pendency of a Texas suit, for the purpose of defrauding a Texas
Resident” are minimum contacts sufficient to show that an alleged
tort at least in part occurred in Texas.
Code §
Tex. Civ. Prac. & Rem.
17.042 (“a nonresident does business in this state if the
nonresident . . . commits a tort in whole or in part in this
state”); see also In re Tex. Am. Express, Inc., 190 S.W. 3d 720,
725 (Tex. App.--Dallas, no pet.)(a fraudulent transfer under the
UFTA is a tort).
Finally, the Texas Supreme Court concluded that the
assertion of jurisdiction over Republic comported with traditional
notions of fair play and substantial justice after it considered
the five factors set out in Guardian Royal Exchange Assur., Ltd.
v. English China Clays, PLC, 815 S.W. 2d 223, 228 (Tex. 1991),
citing World-Wide Volkswagen, 444 U.S. at 292, Burger King, 471
U.S. at 477, and Asahi Metal Indus. Co. v. Superior Court, 480
U.S. 102, 113 (1987), and found that they weighed heavily in favor
ROI: “(1) ‘the burden on the defendant,’ (2) the interests of the
forum state in adjudicating the dispute, (3) ‘the plaintiff’s
interest in obtaining convenient and effective relief,’ (4) ‘the
interstate
judicial
efficient
resolution
interest
of
the
system’s
of
interest
in
controversies,’
several
States
substantive social policies.”
in
obtaining
and
(5)
furthering
the
‘the
most
shared
fundamental
Specifically the Court found that
ROI has an interest in resolving this
controversy in Texas because that is where
the litigation began, Texas has an interest
in resolving controversies involving real
property within its borders and, given that
the
prior
litigation
deals
with
this
property, it is most efficient to continue to
-42-
use Texas as the forum to resolve the
dispute. Moreover, California has much less
of an interest in resolving Texas real
property disputes than does Texas. Republic
may be burdened by litigation outside its
home state, but these other factors weigh
heavily against this burden.
It therefore reversed the appellate court and “remand[ed] to
the
trial court for further proceeding consistent with this opinion.”
Id. at 342.
Anadarko’s Response
Anadarko maintains that to prevail on its motion to
dismiss under Rule 12(b)(2), Michigan 4-H must negate all of the
bases of jurisdiction alleged by Anadarko.
American Type Culture
Collection, Inc. v. Coleman, 83 S.W. 3d 801, 807 (Tex. 2002).
Despite Michigan 4-H’s objection that it did not participate in
the South Carolina litigation nor obtain the Texas property until
after the mistaken payment of royalties to the Smith Trusts based
on wells on the Ranch tract (in which Michigan 4-H never had an
interest)
were
made,
Anadarko
argues
that
Michigan
4-H’s
negotiation for and receipt of the ownership of Texas real
property are sufficient to sustain the exercise of personal
jurisdiction by this Court because Anadarko’s claims of personal
jurisdiction are based on Michigan 4-H’s ownership of that Texas
real property.
Michigan 4-H has failed to negate this basis for
personal jurisdiction. Anadarko claims that specific jurisdiction
is appropriate when the litigation relates to real property owned
or assigned to the defendant.
Tabacinic v. Frazier, 372 S.W. 3d
-43-
658, 667 (Tex. App.--Dallas 2012, no pet.)(In Retamco,20 the Texas
Supreme Court opined that “the purchase of real property in Texas
does not establish a single contact . . . .
Rather, the purchase
and ownership of real property could ‘involve[] many contacts over
a
long
period
continuing
of
time,’
obligations,
which
e.g.,
would
carry
valuation
and
with
tax
it
certain
issues
and
potential expenses of maintaining the interest . . . . . Unlike
personal property, real property will always be in Texas ‘which
leaves no doubt of the continuing relationship that this ownership
creates.’”).
To support its argument, Anadarko turns to Michigan 4H's evidence, the affidavit of Cheryl Howell attached to its
motion, and points out that Howell concedes that Michigan 4-H does
own “a 33.33151 percent share of the oil/gas/mineral interest in
Dimmit County, Texas” (¶ 6), that Michigan 4-H, along with the
South Carolina Attorney General and the Trusts, negotiated and
settled the North Carolina lawsuit (¶11), and that pursuant to
that settlement Michigan 4-H accepted a cash payment and the
33.33151 percent share of the interest in the property related to
the
Trust’s
assets
(¶
12).21
According
to
Anadarko,
it
is
20
Citing Retamco, 278 S.W. 3d at 339 (Republic Drilling
Company, “aware that the oil and gas interests it received were
located in . . . Texas,” “by taking assignment of Texas real
property, reached out and created a continuing relationship with
Texas. Under the assignment it is liable for obligations and
expenses related to the interests. This ownership also allows
Republic to ‘enjoy . . . the benefits and protection of [Texas
laws].’”).
21
As noted, “[u]nder Texas law, an interest in an oil
and gas lease is an interest in the minerals in the ground,” and
therefore is real property.
In re Jones, 77 B.R. at 544-45,
-44-
irrelevant and contrary to documents produced by Michigan 4-H that
Michigan 4-H did not “seek to obtain previous royalties from the
Texas Mineral Interests” during the 2013 lawsuit negotiations
because it clearly intended to establish a relationship with Texas
when in entered into negotiations with Margaret M. Murdoch in 2007
for Trust assets by assignment upon her death and in the following
years consistently litigated alleged ownership rights related
those negotiations. Howell’s affidavit does not negate this fact.
Moreover
during
the
2013
settlement
negotiations,
the
Trust
specifically informed Michigan 4-H, and thus it knew, that the
Trust’s cash assets included oil & gas royalty payments to the
Trust related to the Dimmit County property that had accumulated
during the South Carolina litigation.
#35, Ex. 1, Jan. 29, 2013
correspondence between counsel for the Smith Trust and Michigan 4H (showing royalty payments to the Smith Trust in December 2012 of
$172,554.83 and production tax payments of $53,842.48).
Because Michigan 4-H failed to negate all the bases of
personal jurisdiction pled by Anadarko, Anadarko claims the motion
for dismissal must be denied.
Alternatively, if the Court finds
that Michigan 4-H did negate those bases, Anadarko maintains that
it can show that Michigan 4-H purposely availed itself of the
Texas forum and that the exercise of jurisdiction comports with
citing Phillips Petroleum Co. v. Adams, 513 F.2d at 363 (“Texas
law provides that oil and gas are realty when in place and
personalty when severed from the land by production.”). Anadarko
cites the latter case for also holding that unaccrued royalty
payments are also deemed to be realty until the oil and gas are
severed from the ground. Id.
-45-
traditional notions of fair play and substantial justice for the
following reasons.
Anadarko
asserts
that
in
2007
representatives
of
Michigan 4-H met with Margaret Murdoch, then Co-Trustee of the
Mary Marshall Smith Trust, in South Carolina, to negotiate for and
receive an assignment of the proceeds and corpus of the Smith
Trust upon her death.
#35, Ex. 2 Michigan 4-H’s Answer to Smith
Trust’s South Carolina Petition at ¶ 28, admitting to ¶ 28 in Ex.
3, Smith Trust’s South Carolina Petition.
Murdoch
owned
many
assets,
including
oil,
At that time Mrs.
gas,
and
mineral
interests in Dimmit County, Texas, and understood that the assets
she would assign to Michigan 4-H would include Texas mineral
interests.
Ex. 4, three-year Oil and Gas Leases signed by
Margaret Murdoch as Co-Trustee of Smith Trust on June 30, 2006;
Ex. 5, five-year term Oil, Gas, and Mineral Lease, signed on May
19, 1997.
On May 30, 2007 she and Michigan 4-H entered into an
Endowment Agreement (copies at #35–2 and #37-2), in which she
agreed to distribute the assets of the Trust to Michigan 4-H at
the time of her death and Michigan 4-H agreed to accept those
assets and their accompanying obligations.
After Margaret Murdoch died in 2009, on May 2, 2011 the
Mary Marshall Smith Trust and its Trustee sued Michigan 4-H in a
South Carolina court and asked the court to determine whether
Michigan 4-H was entitled to the Smith Trust assets under the
Endowment
Agreement.
The
litigation
was
contentious
until
Michigan 4-H settled the suit and received the final assignment of
the Trust assets, including the Texas mineral interests. Anadarko
-46-
asserts that the period of the litigation corresponds to the time
during which the mistaken royalty payments were being made by
Anadarko to the Trust. Anadarko charges that in 2007 Michigan 4-H
purposefully availed itself of the Texas forum by entering into
the Endowment Agreement to receive assignment of Texas real
property (the mineral interests and unaccrued royalty payments)
from the Smith Trust).
Retamco, 278 S.W. 3d at 339 (in accepting
the assignment of real property in Texas, Michigan 4-H created a
continuing relationship with the State of Texas and contacts
supporting personal jurisdiction in the forum state); id. at 340
(“when purchasing real property, the location matters”).
In sum, since it entered into the Endowment Agreement in
2007, Michigan 4-H has persistently claimed that the Endowment
Agreement contract entitled it to ownership of Texas real property
and the proceeds of it after the death of Mrs. Murdoch, negotiated
for that real property, and finally received it in the settlement
of
the
South
Carolina
suit,
thereby
establishing
sufficient
contacts to warrant the exercise of personal jurisdiction over
Michigan 4-H in Texas.
Retamco, 278 S.W. 3d at 339-40.
Furthermore the royalty payments relate to Michigan 4H’s ownership of the Texas real property.
From the time it
entered into the Endowment Agreement until the settlement of the
South Carolina litigation, Michigan 4-H understood that it was
seeking a “benefit, advantage, or profit” from the receipt of that
Texas real property, including unaccrued royalty payments for the
oil and gas in place, which was still real property
-47-
because it
was unsevered, still in place on the property.22 Retamco, 278 S.W.
3d at 340; Phillips Petroleum, 513 F.3d at 363.
Anadarko
payments
“related
argues
to”
the
that
it
Texas
erroneously
mineral
made
interests
royalty
to
Michigan 4-H claimed right under the Endowment Agreement.
which
Even
though final title to the Texas real property did not transfer to
Michigan 4-H until 2013, it had claimed such right to the real
property sufficiently to support the minimum contact analysis
since Margaret Murdoch’s death in 2009, throughout the period
during which the erroneous payments were made.
Thus the forum
state has personal jurisdiction over Michigan 4-H.
Therefore, contends Anadarko, all its claims arise out
of the same forum contact, i.e., Michigan 4-H’s pursuit of and
ultimate receipt of the Smith Trust’s Texas real property assets.
22
The Endowment Agreement, Ex. 7, at p.1 expressly
stated that Michigan 4-H sought “proceeds from” the Smith Trust.
Upon severance, the oil became “proceeds” of the real property.
Royalty payments are deemed “proceeds” from the oil and gas real
property interests. Commissioner of Internal Revenue v. Wilson,
76 F.2s 766, 769-70 (5th Cir. 1995). They have a quasi property
character after they are severed from the land while held by the
Trust. Moore v. Vines, 474 S.W. 2d 437, 439 (Tex. 1971)(royalties
derived from real property held by a trust are, like real property
itself, part of the corpus of the trust because they represent
depletion of the real property.) Whittington v. Whittingon, 608
So.2d 1274, 1280 (Miss. 1992)(“A royalty is payment for minerals
withdrawn from the land and represents the principal or corpus. .
. . As a general rule, ‘a life tenant is entitled only to the
interest from any investment of such funds where the lease is
executed after the execution of the instrument creation the life
estate.’”) citing 2 Williams and Myers, Oil and Gas Law § 512.2,
pp. 643-44 (1989)(“This view is based on the theory that the
royalties are a substituted corpus and must be preserved for the
benefit of the owner of the future interest until it becomes
possessory.”).
-48-
As for the second part of the analysis, i.e., whether
the exercise of personal jurisdiction over Michigan 4-H offends
traditional notions of fair plan and substantial justice, the
burden of proof shifts to Michigan 4-H to show that it would be
unreasonable here.
Addressing the five factors for consideration
in the determination, Michigan 4-H argues that the burden on it to
litigate in Texas would be substantial. Anadarko responds that if
it had to bring suit in another state, it would chose South
Carolina, which would have personal jurisdiction over all the
involved parties, but where the burden on nonresident Michigan 4-H
would be no less than it is in Texas.
Furthermore, Michigan 4-H
still owns the real property and has received over $500,000 in
royalty payments since the beginning of 2014.
It also would have
to come to Texas to institute litigation to enforce its Dimmit
County property interests, so traditional notions of fair play and
justice would not be offended in asking it to bear the burden of
litigating in Texas, where it continues to seek the benefits and
protection related to its ownership of Texas real property.
In addition, insists Anadarko, the factors favoring
personal jurisdiction in Texas outweigh any burden of doing so for
Michigan 4-H.
Texas has a substantial interest in protecting
Texas resident creditors from any fraudulent transfer of funds to
which they have a superior claim. As noted, Anadarko is a citizen
of Texas since its principal place of business is here.
-49-
Texas
also has a strong interest in adjudicating matters involving real
property within its borders.23
Anadarko maintains that it has presented a prima facie
case of personal jurisdiction with sufficient contacts in Michigan
4-H’s negotiation for, pursuit of, and ultimately assignment of
Texas real property and the resulting royalties.
It has also
satisfied International Shoe’s requirement that the exercise of
such jurisdiction comport with traditional notions of fair play
and
substantial
justice
because
of
Texas’
concern
for
and
protection relating to claims concerning Texas real property,
23
In Shaffer v. Heitner, 433 U.S. 186, 207-08 (1977),
the Supreme Court wrote,
“[T]he presence of property in a State may
bear on the existence of jurisdiction by
providing contacts among the forum State, the
defendant, and the litigation. For example,
when claims to the property itself are the
source of the underlying controversy between
the plaintiff and the defendant, it would be
unusual for the State where the property is
located not to have jurisdiction.
In such
cases, the defendant’s claim to the property
located in the state would normally indicate
that he expected to benefit from the Sate’s
protection of his interest.
The State’s
strong
interests
in
assuring
the
marketability of property within its borders
and in providing a procedure for peaceful
resolution of disputes about the possession
of that property would
also support
jurisdiction, as would the likelihood that
important records and witnesses will be found
in the State. The presence of property may
also favor jurisdiction in cases such as
suits for injury suffered on the land of an
absentee
owner,
where
the
defendant’s
ownership of the property is conceded because
the cause of action is otherwise related to
rights and duties growing out of that
ownership.
-50-
while the burden of litigating in Texas would be negligible given
Michigan 4-H’s continuing relationship with the forum based on its
real property.
As
326 U.S. at 316.
for
Anadarko’s
breach
of
contract
claim,
the
contracts at issue are the oil and gas leases on the Dimmit County
real property signed by the Smith Trust and the division orders
mandated in the lease and signed by the Trustee for the Smith
Trust, the lessor.
Anadarko’s Second Amended Complaint pled that
Smith Trust assigned the Texas real property subject to the lease,
which
mandated
the
payment
of
royalties
division orders, to Michigan 4-H.
premised
on
signed
The lease governed that
property and all of Anadarko’s rights and responsibilities were
transferred by the Smith Trust to Michigan 4-H, which also became
subject to the same obligations upon that assignment. See Exhibit
10, Oil and Gas Lease (Paid UP) between Anadarko and the Smith
Trust, ¶ 3(I) (“Lessee [Anadarko] is unconditionally obligated to
Lessor to make the payment of royalties hereunder . . . provided
Lessor has executed the State of Texas statutory form division
order.”).
See id. at ¶ 9 (“The rights of either party hereto may
be assigned in whole or in part (except that oil rights shall
never be severed from gas rights).
The provisions hereof shall
extend to the heirs, successors and assigns of the parties hereto,
but no change or division in ownership of land, rentals or
royalties, however accomplished, shall operate to enlarge the
obligations or diminish the rights of Lessee [Anadarko].”).
Anadarko further alleged that it performed under the lease and the
division orders when it paid Michigan 4-H royalty payments related
-51-
to the Dimmit Count wells and that Michigan 4-H accepted the
tender of royalty payments and cashed royalty checks worth more
that a million dollars, thereby acknowledging the lease and the
division orders.
Finally Anadarko asserts that Michigan 4-H
breached its obligation under the contracts when it refused to
return the erroneous royalty payments to which it had no right and
by which it had damaged Anadarko.
Anadarko contends that it has
satisfied the requirements of Rule 12(b)(6) and the case law
interpreting it.
If the Court finds its pleadings deficient, Anadarko
asks the Court to allow it to amend under Rule 15(a).
Anadarko’s Supplemental Response (#37)
Despite Michigan 4-H’s argument to the contrary (Reply,
#36 at p.2), Anadarko claims that it has discovered from its
business records that Michigan 4-H did own the Smith Tract during
the period when the erroneous royalty payments relating to that
property were made and that ownership of the Smith Tract supports
the exercise of personal jurisdiction over Michigan 4-H for claims
relating to that property.
The Settlement Agreement that ended
the South Carolina litigation was effective December 13, 2013.
#
35-9, Ex. 9, ¶ 18; #37, Ex. 1, Dec. 23, 2013 Court order approving
settlement. Before the court approved the settlement, on December
20, 2013 the Trust quitclaimed their Texas mineral interests to
Michigan 4-H.
#35, Ex. 8, Quitclaim Deeds to Michigan 4-H.
Therefore, as of either December 20 or 23, 2012, Michigan 4-H was
the owner of all right, title, and interest in the Texas property
at issue.
#35, Ex. 8.
-52-
Anadarko made over $34,000 in mistaken royalty checks
related to the Texas mineral interests just acquired by Michigan
4-H. Anadarko identifies each check, its date, the total royalty,
the mistaken royalty portion (for wells on the Ranch),24 and the
exhibit number (2, 3, 4, and 5).
#37, pp. 3-4.
All the checks
were cashed; none was voided or returned to Anadarko. #37, Ex. 6.
After Anadarko was informed in February 2014 that Michigan 4-H now
owned the Texas mineral interests, Anadarko made correct payments
directly to Michigan 4-H and adjusted credits and debits to its
account for the oil and gas produced before it owned the property.
Since it became the owner, Michigan 4-H has received and accepted
$16,664.79 in net royalties for the period from August 1, 2012
through November 30, 3013, for the period before it owned the
property.
Anadarko submits a chart summarizing its adjustment of
credits and debts for oil and gas produced before Michigan 4-H
became the owner of the mineral interests in Texas.
#37 at pp. 5-
6.
Thus according to Anadarko it is clear that Michigan 4H’s ownership of real property in Texas establishes a continuing
relationship with Texas, that it was the owner when Anadarko made
some of the erroneous payments, and it is proper for Texas to
exercise personal jurisdiction over Michigan 4-H.
Retamco, 278
S.W. 3d at 339-40.
24
Anadarko explains that the four checks that included
the erroneous payments were made out to the Trusts because at that
time no one had told Anadarko of the transfer of ownership.
-53-
Furthermore,
Michigan
4-H
received
direct
royalty
payments from Anadarko and cashed them before it owned the Texas
property.
Exercising personal jurisdiction over a party is
permissible when that party availed itself of the protections and
benefits of the forum.
Burger King, 471 U.S. at 476-78.
Michigan 4-H’s Reply to #37
Michigan 4-H insists Anadarko has not given and does not
have a meritorious answer to the jurisdictional issue here,
including in its Supplemental Response:
“From what
purposeful
Texas contact by Michigan 4-H does Anadarko’s claim against
Michigan 4-H arise?”
The two allegedly erroneous payments that
Anadarko identifies in its Supplemental Response, like the others
at issue in this case, were made to the Trusts, not to Michigan 4H.
So now Anadarko is trying to recover from Michigan 4-H money
it paid to the Trusts, not to Michigan 4-H.
Thus the basis for
specific personal jurisdiction cannot and does not arise from
Anadarko’s payment of money from Texas to Michigan 4-H, which did
not occur.
Furthermore
the
December
2013
payments
relate
to
property that Michigan 4-H does not own and never owned. (#25, p.
7, ¶¶ 16 and 18: “Anadarko mistakenly paid the Beneficiary Trusts
royalty payments for wells located on the Ranch . . . . Wells
Fargo, as Trustee[,] . . . retained the funds despite the fact
that the Trusts did not have title to any mineral interest in the
Ranch and were not entitled to the proceeds of any production from
the Ranch.”).
Specific personal jurisdiction as to Michigan 4-H
does not arise from payments made to some other party on property
-54-
Michigan 4-H did not own and has never owned.
3d
at
339
(for
“purposeful
availment”
only
Retamco, 278 S.W.
the
defendant’s
contacts with the forum are relevant, not the unilateral activity
of another party or third person); Mullins v. TestAmerica, Inc.,
564 S.W. 3d 333, 339 (Tex. 2009)(explaining that, in the absence
of knowledge by that transferee of the transferor’s scheme to
defraud, the Fifth Circuit is “doubtful that personal jurisdiction
exists over the recipient of a fraudulent transfer anywhere a
complaining creditor files suit simply by virtue of the creditor’s
residence in that forum.”).
Anadarko’s debiting or crediting of Michigan 4-H’s
account
for
analysis.
pre-ownership
time
periods
does
not
change
the
Not only does Anadarko fail to cite any authority for
its theory of retroactive acceptance of benefits, but it does not
claim these to be mistaken royalty payments and Anadarko’s claims
do not arise from those payments.
Moki Mac River Expeditions v.
Drugg, 221 S.W. 3d 569, 579 (Tex. 2007)(the “arise from or relate
to”
requirement
defines
the
key
required
nexus
among
nonresident, defendant, the litigation, and the forum).
the
Michigan
4-H insists that the 2014 and 2015 payments have no relation to
any of Anadarko’s claims in this suit; they arise out of the South
Carolina settlement with the foreign Trust Defendants. Thus these
claims should be dismissed for lack of personal jurisdiction.
Court’s Decision
Which state’s law applies to a lawsuit is usually a
question of law.
Minnesota Mining and Mfg. Co. v. Nishika Ltd.,
955 S.W. 2d 853, 856 (Tex. 1996). In contract disputes, choice of
-55-
law issues are determined by which state has the most significant
relationship to the transaction and the parties by considering the
following:
the place of contracting; the place of negotiation;
the place of performance; the location of the contract’s subject
matter; and the parties’ domicile, residence, nationality, place
of incorporation, and place of business.
Minnesota Mining and
Mfg. Co. v. Nishika Ltd., 953 S.W. 733, 735 (Tex. 1997).
In this case there is disagreement about which contract
with whom is controlling what and why, all of which are relevant,
as will be discussed.
The division orders on which Anadarko
relies do not contain a choice-of law provision, nor have the
parties claimed any relevant statute controls, so the Court must
determine which state has the most significant relationship to the
issue presented.
Reddy Ice Corp. v. Travelers Lloyds Ins. Co.,
145 S.W. 3d 337, (Tex. App.--Houston [14th Dist.] 2004, rev.
denied), citing Maxus Exploration Co. v. Moran Bros., Inc., 817
S.W. 2d 50, 53 (Tex. 1991), and Restatement (Second) of Conflicts
of Laws §§ 6 (“A court, subject to constitutional restrictions,
will follow a statutory directive of its own state on choice of
law.”) and 8 (not relevant here); Grant Thornton LP v. Sun trust
Bank,
133
S.W.
3d
342,
358
(Tex.
App.-Dallas
2004,
pet.
denied)(“In determining choice-of-law issues, Texas courts apply
the
most-significant
relationship
test
as
set
out
in
the
Restatement (Second) of Conflict of laws. The general test is set
out in section 6 of the Restatement.”).
The subject matter in this case is the royalty payments
and the mineral interests in two Texas real properties, the Smith
-56-
Tract and the Ranch, and the place of performance is Texas.
Plaintiff Anadarko’s principal place of business is in Texas and
it has chosen to sue in Texas.
Furthermore Anadarko has made a
persuasive argument that Texas law applies to the transfers to the
Foundations because the transfers are connected to title to
mineral interests in Texas and to division orders that are Texas
contracts that establish the obligation to repay Anadarko, a Texas
resident, with performance occurring in Texas.
The Court agrees
and concludes that Texas law governs this action. The Court would
further point out that Michigan H-4 addresses the issue only under
Texas law.
The Court agrees with Michigan 4-H that the Court lacks
specific personal jurisdiction over Michigan 4-H.
specific
personal
jurisdiction
over
Michigan
4-H
There is no
unless
its
liability arises from or relates to its minimum contacts with the
forum state.
Anadarko has conflated and obscured both the two
discrete Texas real properties, the Smith Tract in which the
Trusts and, ultimately by assignment and settlement of the South
Carolina litigation, Michigan 4-H hold property interests, and the
Ranch, in which they never owned an interest, as well as the
royalty payments from both, thereby confusing the question of
Michigan
4-H’s
distinguished,
minimum
contacts
Anadarko’s
with
arguments25
25
Texas.
are
Once
these
irrelevant
to
are
the
That “the purchase and ownership of real property [in
Texas] could ‘involve[] many contacts over along period of time,’
which would carry with it certain continuing obligations”: e.g.,
valuation and tax issues, and potential expenses of maintaining
their interest” and that if Republic decides to enforce rights in
its interests in the oil and gas leases and wells, it must
-57-
jurisdiction issue because Michigan 4-H’s alleged minimum contacts
do not relate to the property giving rise to the erroneous
payments, i.e., the Ranch.
Retamco, 278 S.W. 3d at 340.
Not only
did the Mary Marshal Smith Trust, the Beneficiary Trusts, and,
subsequently, the Pete and Sally Smith Foundation never own
mineral interests in the Ranch, but the division orders, the
contracts in dispute which Michigan 4-H never signed and was in no
way a party to, were between Anadarko and the unrelated thirdparty owners of the oil and gas wells and leases on the Ranch and
related to the royalties derived from those properties on the
Ranch.
The royalty payments at issue were generated from those
mineral interests in the Ranch.
That Anadarko erroneously made
some of those payments to the Trustee and the Trusts does not
establish minimum contacts with Texas by any of the Defendants in
this action because they did not own the Ranch property.
Any
minimum contacts with Texas that Michigan 4-H established when it
pursued and obtained the Smith Tract’s interests, which the Trusts
and part of which ultimately Michigan 4-H did own, did not give
rise to the claims in this suit to recover the royalties owed to
third-party owners of the mineral interests in the Ranch. Indeed,
that Anadarko erroneously sent the royalty payments governed by
the division orders to Wells Fargo as Trustee of the Beneficiary
Funds in no way involved Michigan 4-H.
Moreover
even
Michigan
4-H’s
link
to
the
funds
constituting a small portion of these mistaken payments that it
necessarily do so in Texas.
-58-
received pursuant to the settlement is far too attenuated to serve
as a purposeful minimum contact with Texas. Not only did Anadarko
not make erroneous payments Michigan 4-H’s status, but Michigan 4H received the small portion of them not based on ownership of the
Texas Ranch or the division orders governing distribution of the
royalties of the oil and gas wells and leases on the Ranch, but
pursuant to a settlement of a lawsuit in South Carolina over
Michigan’s alleged status as an assignee of Margaret Murdoch, a
South Carolina resident, pursuant to the Endowment Agreement
between Murdoch and Michigan 4-H.
Because Anadarko fails to establish that Michigan 4-H
has minimum contacts with Texas, this Court does not address
whether the exercise of personal jurisdiction over Michigan 4-H
would offend traditional notions of fair play and substantial
justice.
Renoir, 230 Fed. Appx. at 360)
For the reasons stated, the Court
ORDERS that Michigan 4-H’s motion to dismiss for lack of
personal jurisdiction under Rule 12(b)(1)(#30) is GRANTED without
prejudice to Anadarko’s right to sue Michigan 4-H where Michigan
H-4 would be subject to the court’s jurisdiction.
Because the
Court lacks jurisdiction to rule on the merits of Michigan 4-H’s
motion to dismiss the breach of contract claim under Rule
SIGNED at Houston, Texas, this
12th
day of
August ,
2016.
___________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE
-59-
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