Garcia et al v. Peterson et al

Filing 59

ORDER Denying as moot 33 Motion for Discovery; Granting 49 Motion for Discovery. The court further instructs the parties to meet and confer in light of this order and submit a joint scheduling order on or before November 17, 2017. (Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)

Case 4:17-cv-01601 Document 59 Filed in TXSD on 11/08/17 Page 1 of 5
United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JOSE GARCIA, et al.,
Plaintiffs,
v.
VASILIA a/k/a “VAUNA” PETERSON, et al.,
Defendants.

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November 08, 2017
David J. Bradley, Clerk

CIVIL ACTION H-17-1601

ORDER
Pending before the court are a motion for jurisdictional discovery and an opposed motion for
discovery filed by the plaintiffs. Dkts. 33, 49. Having considered the motions, related briefing, and
the applicable law, the court is of the opinion that original motion for jurisdictional discovery
(Dkt. 33) should be DENIED AS MOOT, and the second motion for discovery (Dkt. 49) should be
GRANTED.
I. BACKGROUND
This is a Fair Labor Standards Act (“FLSA”) case filed by numerous plaintiffs on behalf of
themselves and those similarly situated. Dkt. 29. Defendant MidCap Financial Trust, f/k/a MidCap
Financial, LLC, filed a motion to dismiss for lack of personal jurisdiction and failure to state a claim
on July 26, 2017. Dkt. 12. On August 31, 2017, after receiving an extension on the deadline for
filing a response, the plaintiffs filed a response to the motion to dismiss, an amended complaint, and
a motion for leave to conduct jurisdictional discovery. Dkts. 29, 31, 33. On September 20, 2017,
the court denied MidCap Financial Trust, f/k/a MidCap Financial, LLC’s motion to dismiss as moot
in light of the amended complaint. Dkt. 40. On September 29, 2017, defendants MidCap Financial
Trust, f/k/a MidCap Financial, LLC, and MidCap Funding X Trust (collectively, “MidCap”) filed

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a new motion to dismiss. Dkt. 41. On October 20, 2017, the plaintiffs filed a response to the second
motion to dismiss along with a second motion for discovery. Dkts. 47, 49. MidCap filed a response
in which it requested the court to disregard the second motion for leave and instead rule on the initial
motion. Dkt. 50. MidCap adopted by reference the arguments in its first response. Id.
The plaintiffs seek jurisdictional discovery into MidCap’s minimum contacts with Texas.
Dkt. 49. The plaintiffs point out that they merely must make a preliminary showing of jurisdiction
in order to satisfy their burden of showing jurisdictional discovery is needed. Id. They assert that
their jurisdictional allegations indicate that MidCap has conspired with its Texas-based codefendants, including the Graebel entities, to defraud the plaintiffs or that the Texas actors are
MidCap’s agents or alter-egos. Id. (setting forth the allegations in the complaint that support the
conspiracy, alter-ego, and agency theories of jurisdiction).
MidCap contends that the plaintiffs have not made a preliminary showing that MidCap has
sufficient contacts with Texas to be subject to the court’s personal jurisdiction. Dkt. 43. It assserts
that a bare allegation of conspiracy will not support the court’s exercise of jurisdiction and that there
must be an allegation that each alleged conspirator had minimum contacts with Texas. Id. Thus,
according to MidCap, the plaintiffs must allege that MidCap purposefully directed its efforts at
Texas residents and knew that a Texas resident would suffer. Id. Additionally, MidCap argues that
the plaintiffs must “‘clearly establish the singular intent to defraud by each party [and] the common
knowledge by all parties that each has such intent.’” Id. MidCap contends that the mere fact that
some of the plaintiffs are Texas residents is not enough to show that MidCap specifically directed
its alleged tortious activity at Texas. Id.
As far as the agency theory, MidCap argues that the plaintiffs fail to make the requisite
showing that MidCap directed an agent to take any action with respect to Texas. Id. It asserts that
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there are no allegations as to who, when, or how MidCap directed Texas defendants to engage in
tortious conduct. Id. With regard to the alter ego contentions, MidCap argues that the plaintiffs only
alter ego allegation is that MidCap gained complete control and ownership over the Graebel entities
by calling its note and acted as the alter ego of the Graebel entities from then on. Id. MidCap
contends that calling a note is not a legally cognizable basis for alter-ego liability and that the
amended complaint lacks factual allegations that MidCap and the Graebel entities disregarded
corporate formalities or that the two businesses were otherwise indistinct. Id.
II. LEGAL STANDARD
In order to obtain jurisdictional discovery, a plaintiff must make “a preliminary showing of
jurisdiction.” Fielding v. Hubert Bura Media, Inc., 415 F.3d 419, 429 (5th Cir. 2005). A
preliminary showing does not require proof that personal jurisdiction exists, but it does require
“factual allegations that suggest with reasonable particularity the possible existence of the requisite
contacts.” Id. (quoting Toys “R” Us, Inc. v. Step Two, S.A., 318 F.3d 446, 456 (3d Cir.2003)
(internal citations omitted)). Discovery of jurisdictional facts is appropriate when the existing record
is inadequate to support personal jurisdiction and the record shows that the requested discovery is
likely to produce facts needed to withstand a motion to dismiss. Monkton Ins. Servs., Ltd. v. Ritter,
768 F.3d 429, 434 (5th Cir. 2014).
III. ANALYSIS
The court finds that the allegations in the complaint are sufficient to merit jurisdictional
discovery. The court agrees with MidCap that, under Fifth Circuit law, the plaintiff must establish
that the MidCap defendants, individually and not merely as part of a conspiracy, had minimum
contacts with Texas. See Delta Brands, Inc. v. Danieli Corp., 99 F. App’x 1, 6 (5th Cir. 2004);
Guidry v. United States Tobacco Co., 188 F.3d 619, 625 (5th Cir. 1999); Logan Int’l Inc. v. 1556311
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Alberta Ltd., 929 F. Supp. 2d 625, 630–31 (S.D. Tex. 2012) (Atlas, J.) (“Each defendant’s contacts
with the forum must be analyzed individually, and a defendant cannot be subject to personal
jurisdiction solely because he [or she] participated in an alleged conspiracy with a co-conspirator
who had contacts with Texas.”). If conspiracy were the only way the amended complaint tied
MidCap to Texas, there would likely not be even a preliminary showing of jurisdiction. However,
“it is compatible with due process for a court to exercise personal jurisdiction over an individual or
corporation that would not ordinarily be subject to personal jurisdiction in that court when the
individual or corporation is the alter ego or successor of a corporation that would be subject to
personal jurisdiction in that court.” Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 (5th
Cir. 2002). The court finds that there are sufficient allegations of alter ego on the amended
complaint to justify jurisdictional discovery.1 The plaintiffs allege that the credit and security
agreement between MidCap and the Graebel entities gave MidCap “virtual control over all of the
Graebel Entities.” Dkt. 29 at 18. They contend that MidCap “leveraged the threat of exercising its

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To determine if an alter ego relationship is established, the court must consider whether:
(1) distinct and adequately capitalized financial units are incorporated
and maintained; (2) daily operations of the two corporations are
separate; (3) formal barriers between management of the two entities
are erected, with each functioning in its own best interests; and
(4) those with whom the corporations come in contact are apprised of
their separate identity. Other factors deemed important by the
commentators and Texas courts are: (1) common stock ownership;
(2) the method and degree of financing of the subsidiary by the
parent; (3) common directors or officers; (4) separate books and
accounts; (5) common business departments; (6) extent to which
contracts between parent and subsidiary favor one over the other; and
(7) connection of parent’s employee, officer or director to
subsidiary’s tort or contract giving rise to suit.

Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1162–63 (5th Cir. 1983) (quoting Miles v. Am. Tel.
& Tel. Co., 703 F.2d 193 (5th Cir. 1983)).
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default remedies (which would give MidCap complete control) to exert substantial leverage on the
Graebel Entities and gain management control over them.” Id. The plaintiffs also allege that
“MidCap, either on its own or through it[s] agent, Mackinac Partners, directed the Graebel Entities
to cut costs, and that included cutting the Graebel Drivers’ pay. Eventually, at MidCap’s direction,
the Graebel Entities stopped paying [the] drivers at all.” Id. at 20–21. The plaintiffs contend that
“MidCap seized control of the Graebel Drivers’ assets, it made the decision when and how to pay
the Graebel Drivers, and ultimately, not to pay them at all.” Id. at 24. While not meeting every
factor courts consider when determining alter ego status, these allegations meet the preliminary
showing requirement.
IV. CONCLUSION
The plaintiffs’ second motion for jurisdictional discovery (Dkt. 49) is GRANTED. The
plaintiffs may conduct jurisdictional discovery as to MidCap. This discovery must be complete by
January 5, 2018. The plaintiffs may file a supplemental response to MidCap’s pending motion to
dismiss after the completion of jurisdictional discovery, but this response must be filed no later than
January 19, 2018. MidCap may file a reply to the supplemental response, which must be filed no
later than January 26, 2018. The court will defer ruling on MidCap’s motion to dismiss until on or
after January 26, 2018.
The plaintiffs’ first motion for jurisdictional discovery (Dkt. 33) is DENIED AS MOOT.
The court further instructs the parties to meet and confer in light of this order and submit a
joint scheduling order on or before November 17, 2017.
Signed at Houston, Texas on November 8, 2017.

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Gray H. Miller
United States District Judge
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