Personal jurisdiction found over corporate parent without veil-piercing

Ordinarily, when evaluating the contacts of distinct legal entities, the contacts of parent corporations and subsidiaries are evaluated separately for jurisdictional purposes, unless the corporate veil is pierced.  On first glance, that doesn’t appear to be what happened in Cornerstone Healthcare Group Holding, Inc. v. Nautic Management VI, L.P.  The key to understanding this opinion lies in the nature of the causes of action, and the fact that those causes of action arose before–or concurrent with–the creation of the subsidiary entities that were part of the overall transaction in question.

According to the allegations, several executives of Cornerstone identified Reliant Hospital Partners, LLC as a possible takeover target, and instead of presenting the opportunity to Cornerstone, took the opportunity to Nautic Management VI, a Delaware limited partner, and Nautic Partners, a management advisor that conducts due diligence on potential investments.  Nautic Management ultimately purchased Reliant (Old Reliant) and to facilitate the deal, it set up a chain of wholly-owned subsidiaries beginning with Reliant Holding Company, a Delaware company, which owned Reliant Pledgor, also a Delaware Company, which owned Reliant Opco Holding Corporation, also a Delaware Company. Reliant Pledgor and Reliant Opco owned Reliant Acquisitions, a Delaware company with its principle place of business in Texas.  Reliant Acquisitions purchased Old Reliant.   Following this acquisition, the Cornerstone executives who were involved in the Nautic transaction resigned from Cornerstone and joined Reliant Acquisitions.  Cornerstone brought suit accusing the executives of usurping corporate opportunities, misappropriating confidential information, and breaching fiduciary duties.  Cornerstone alleged that the Nautic entities and employees conspired and tortiously interfered.  Nautic Management and three funds it managed entered special appearances to contest personal jurisdiction.

The trial court granted the funds’ special appearances, but denied Nautic Management’s special appearance.  The court of appeals affirmed as to the funds’ special appearances but reversed as to Nautic Management, holding that Texas lacks jurisdiction.  The Texas Supreme Court granted Cornerstone’s petitions for review and reversed, holding that Texas has jurisdiction over the funds and over Nautic Management.

The supreme court’s opinion acknowledges that Cornerstone was not relying upon any veil-piercing theory to assert jurisdiction.  The opinion also acknowledges that the contacts of a parent and subsidiary  that are distinct entities cannot be attributed to one another.  Even so, the court found jurisdiction because the acquisition of Reliant and the creation of the various entities were all part of a single transaction to which the funds and Nautic Management were parties.  The court held that Cornerstone’s claims arose from the transaction itself which included purposeful contacts with Texas.  The court’s opinion may be found here.

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Mandamus standard over dominant jurisdiction is relaxed

Once upon a time a trial court’s decision on a question of dominant jurisdiction was not subject to mandamus relief unless one court was actively interfering with another court’s exercise of jurisdiction.  The Texas Supreme Court has abrogated that standard in favor of the more flexible standard the court adopted in In re Prudential Insurance Company of America.

The opinion in In re J.B. Hunt Transport, Inc. involves a vehicle accident in Waller County, Texas between a tractor-trailer owned by J.B. Hunt and the occupants of an Isuzu Rodeo.  Following the accident, J.B. Hunt filed suit for property damages against the owners and occupants of the Isuzu seeking damages for the property damage to the tractor-trailer.  Before service was effected, the occupants of the Isuzu sued J.B. Hunt and its driver in Dallas County, Texas.   Defendants in both suits filed pleas in abatement.  The Dallas County district court agreed that the Waller County suit was the first filed, but the court denied the plea in abatement after concluding that an unspecified exception to the rule of dominant jurisdiction applied.

The Waller County district court abated the suit because by that time, J.B. Hunt had filed a petition for writ of mandamus to compel the Dallas County district court to abate the suit.  The Dallas Court of Appeals denied mandamus relief.  J.B. Hunt then sought mandamus relief from the Texas Supreme Court.

The Texas Supreme Court holds that the Dallas district court abused its discretion by denying the plea in abatement.  The court first clarified  language from its 1988 opinion in Wyatt v. Shaw Plumbing Co.  to specify what it meant by the requirement of an inherent interrelation of subject-matter between the two pending suits.  The court then turned its attention to two exceptions to the rule of dominant jurisdiction.

The court held that the inequitable conduct exception was not applicable.  The court held that evidence showing (1) that J.B. Hunt sent claims managers to the hospital to express condolences; (2) that J.B. Hunt offered to pay hotel room expenses; (3) that J.B. Hunt never mentioned its property damage claim; (4) that J.B. Hunt frequently inquired about the injured parties’ health; and (5) that J.B. Hunt sent an e-mail entitled “Williams v. JB Hunt” implying that J.B. Hunt was the defendant–was not evidence that would support the inequitable conduct exception.  This exception requires proof that the second-filer delayed filing as a result of the conduct and was prejudiced.  There was no evidence of delay or prejudice.

The court also rejected the second exception.  If the first filer files suit merely to obtain priority and without a bona fide intent to prosecute the suit, then there is an exception.  The court held that J.B. Hunt’s acts in asking if the opposing counsel would accept service and in contacting counsel about matters involving the investigation of the cause of the accident are evidence of prosecuting the suit.  The court further pointed out that it is not impermissible to intend to secure a favorable venue.  What is impermissible is when that filing of suit is not followed by a bona fide intent to prosecute the suit.

Thus, the court found that the Dallas County district court abused its discretion by denying J.B. Hunt’s plea in abatement.  The court then proceeded to hold that In re Prudential’s more flexible mandamus standard applied and supported the granting of mandamus relief in this case.  The court’s opinion may be found here.

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Court clerks have a duty to file tendered documents

“A clerk has a ‘mandatory, ministerial duty’ to file all documents submitted for filing,” according to a recent opinion issued by the Dallas Court of Appeals.  The court further held that the court, not the clerk, then has the power to decide the propriety of the filing.

In Sanders v. Sanders, No. 05-16-00248-CV, Appellant Pilar Sanders filed an affidavit of indigency with the Collin County District Clerk.  The affidavit contained three separate cause numbers on it.  The District Clerk filed the affidavit only in the first case number.  As a result, the court reporters for the other two cases were unaware of the filing of the affidavit.  The court of appeals later notified those court reporters of the filings, at which point the reporters filed contests to the affidavit.  At the hearing on the contests, the District Clerk testified that there was no timely filing of an affidavit and for that reason, the trial court clerk sustained the contests to the affidavit.

The appellant challenged the trial court’s order on appeal and the court of appeals reversed the order.  Noting that the affidavit was filed when it was put into the hands of the District Clerk, the court held that the District Clerk was required to file the affidavit and that it should have been deemed filed in each of the cases when it was delivered to the clerk.  The court’s opinion may be found here.

Notably, this opinion may be helpful in other circumstances, including supersedeas practice where Appellate Rule 24.1(2) establishes the initial authority to approve a bond with the trial court clerk, with the authority to review the bond resting with the trial court upon motion of any party.  This rule was intended to establish a uniform system for the initial approval of bonds.

 

Context Matters: personal e-mail addresses of government officials are not protected from disclosure requirements

The Texas Public Information Act is intended to provide the public with a window into the business of government and the official acts of public officials.   There are some limited restrictions on the information that may be obtained by a person requesting information.  The Austin Court of Appeals’ opinion in The Austin Bulldog vs. Leffingwell deals with whether an exception to disclosure requirements for e-mail addresses of a member of the public was applicable to elected city officials to the Austin City Council when those city officials used their personal e-mail addresses for communications.

The Austin Bulldog publication had made a request for certain information from the City of Austin.  The City withheld e-mail communications that were responsive due to the fact that the communications involved personal email addresses, albeit the personal email addresses of government officials.  The City requested an opinion from the Attorney General’s office, which advised the City that the email communications could be withheld because they involved the personal emails of a “member of the public.”  The Austin Bulldog filed suit to challenge the ruling.

The court of appeals noted that the Public Information Act does not define “member of the public,” and the court sought to construe the phrase.  The Court noted that the context matters.  In some contexts, the phrase might include government officials, but here, the court observed that the context puts government officials in a category outside of “members of the public” since the whole point of the Act is to provide a window into the workings of those officials by the “members of the public” who are not a part of the government.  Thus, the court held that the city officials’ personal email addresses are not shielded from disclosure and must be disclosed as public information.  The court’s opinion may be found here.

Injunction Law: Back to the Basics

Temporary restraining orders and temporary injunctions are governed by some fairly specific requirements. Failure to follow those black-and-white requirements can result in the court’s order being declared void.  That’s what happened in Medi-Lynx Monitoring, Inc. v. AMI Monitoring, Inc.  Texas Rule of Civil Procedure 683 requires that an order granting a temporary injunction set the cause for trial on the merits.  The injunctive order at issue in the appeal failed to do so.  The Dallas Court of Appeals noted that Rule 683 is mandatory and “a temporary injunction that is noncompliant is subject to being declared void and dissolved.”  Because there was no dispute that the order failed to set the matter for trial, the court of appeals held that the trial court abused its discretion in granting the injunction, and the injunction was ordered dissolved.

The appellants also complained that the trial court had failed to hold a hearing before granting the injunction and that the injunction failed to set a proper amount of bond.  The court of appeals did not address these alleged infirmities because of its conclusion as to the first error.  The court’s opinion may be found here.

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Whistleblowers: Who Ya Gonna Call?

The Texas Whistleblower Act protects a public employee who makes a good faith report of a legal violation by his or her employer “to an appropriate law enforcement authority.” Tex. Gov’t Code  § 554.002(a).   Texas law has generally held that the “appropriate law enforcement authority” must be an authority that has outward-looking powers to investigate, enforce, and prosecute.  But what happens if the agency the employee works for is the agency charged with investigating, enforcing, and prosecuting both within that agency and other agencies?  That’s what happened in McMillen v. Texas Health & Human Services Commission.

McMillen worked for the Texas Health and Human Services Commission’s Office of the Inspector General.  After he made a report of improper collection of payments from certain recipients’ Medicaid benefits to the head of the OIG’s Internal Affairs Division and to the Commission’s Executive Commissioner, he was terminated.  He sued the Commission and its Executive Commissioner under the Whistleblower Act, which waives state immunity for good faith reports made to appropriate law-enforcement authority.

The trial court denied the Commission’s plea to the jurisdiction.  The Austin Court of Appeals reversed after concluding that McMillen did not report to an appropriate law-enforcement authority.  The Supreme Court of Texas reversed the court of appeals judgment.  After noting that the Commission’s OIG was charged with enforcement authority, the Court acknowledged that its authority included internal compliance, but the OIG also has outward-looking powers that go beyond this agency.  Accordingly, the Court held that McMillen had reported to an appropriate law-enforcement authority.  The case was remanded back to the court of appeals for further proceedings.  The Supreme Court’s opinion may be found here: McMillen opinion.

Plaintiffs avoid getting (anti) SLAPPed

Appellate courts in Texas have seen an influx of defamation, business disparagement, and other similar actions since 2011 when the Texas Citizens Participation Act (“TCPA”), Tex. Civ. Prac. & Rem. Code §§ 27.001-27.011 (2015), was signed into law.  The TCPA is an anti-SLAPP statute; SLAPP is an acronym for Strategic Lawsuits Against Public Participation, which is a lawsuit brought with the intent to silence those who exercise their First Amendment rights to speak out on public issues or communicate with the government by intimidating or harassing the critic with the burden and expense of defending a lawsuit.  Thus, the TCPA provides for an expedited dismissal (and interlocutory appeal from a trial court’s denial of a motion to dismiss) of a legal action that is based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association.  The TCPA’s provisions are powerful and broadly interpreted, and plaintiffs have struggled to hold on to their claims when faced with a section 27.003 motion to dismiss.

Shortly before the new year, the Dallas Court of Appeals issued two opinions concerning defamation and the TCPA involving the same set of tragic underlying facts.  Shortly after sustaining a traumatic brain injury from a car accident, Paul Tatum took his own life.  After the death of their son, the Tatums, appellants in both cases, paid the Dallas Morning News (“DMN”) to print an obituary for Paul.  About a month later, DMN reporter, Steve Blow, wrote a column that did not name the Tatums, but quoted from Paul’s obituary, described the events surrounding his death, and criticized people who are dishonest about loved ones’ suicides.

In Tatum v. Dallas Morning News, the Fifth Court of Appeals reversed summary judgment in favor of DMN and Blow on the Tatums’ libel claim.  The Court concluded that the Tatums raised a genuine issue of material fact regarding: (1) whether Blow’s column was about their family; (2) whether the column was capable of defaming the Tatums; and (3) whether the column was neither true nor substantially true.  Read the opinion here for a detailed explanation of defamation law on these issues.

In the second case, Tatum v. Hersh, the Tatums sued Julie Hersh for intentional infliction of emotional distress.  Hersh, author of a book about her personal history with depression and attempted suicide, allegedly met with Blow of the DMN, “promoted Paul’s death and the Obituary . . . as a news story,” “incited Blow to write about suicides in obituaries,” and “encouraged [Blow] to make the Tatum tragedy public.”  Blow’s article quotes Hersh and references both her book and a blog article that she allegedly wrote after reading Paul’s obituary and learning of his suicide.  Hersh filed a motion to dismiss, pursuant to the TCPA, and the trial court granted it.  The Dallas Court of Appeals reversed the trial court’s order granting dismissal, concluding that Hersh failed to establish that the TCPA applied to the Tatums claims because Hersh denied having made the specific statements at issue.  In so holding, the Court relied on one of its earlier TCPA opinions, Pickens v. Cordia.

Appellees in both of the above cases have been granted an extension of time to file a petition for review with the Supreme Court.

No contempt for contractual support

The Dallas Court of Appeals recently held that contempt is not available to enforce contractual spousal support absent decretal language in the divorce decree along with a reference to Chapter 8 of the Texas Family Code and its requirements. Here, the parties entered into an agreement for spousal maintenance. The final divorce decree, however, simply incorporated the agreement by reference and included no decretal language. Moreover, neither the decree nor agreement referenced Chapter 8 and its requirements, or evidenced an intent by the parties that Chapter 8 would govern the support obligations. Consequently, the Court held that the agreement to pay support was merely a contractual debt for which contempt was not an available remedy. Accordingly, the Court affirmed the trial court’s dismissal of the enforcement petition. The Court’s opinion in In the Interest of L.R.P. and H.A.P. can be found here.

Dallas Court of Appeals reinstates $7.25 million verdict on quantum meruit claim

I generally think of quantum meruit claims as merely disposable, add-on claims used in a belt-and-suspenders approach to a contract action.  But after reading the opinion in Shamoun & Norman, LLC v. Albert G. Hill, Jr., I am not going to underestimate the power of a quantum meruit claim. A $7.25 million bonus for negotiating a global settlement over 6 weeks — not too shabby!

From 2007 through 2010, Hill was embroiled in a myriad of lawsuits that became known as the “spider web of litigation.” (Slip Op. at 2). In 2009, Hill hired Shamoun and his firm, S&N, to represent him in two of the lawsuits.  (Id.) In March 2010, Hill and Shamoun discussed Shamoun acting as global settlement negotiations counsel in order to settle the spider web of litigation and provide a unifying voice for Hill and his related parties. (Slip Op. at 3). Shamoun ultimately agreed to act as global settlement counsel, presumably in large part at an “incentive bonus” offered to Shamoun in which he would receive 50% of any settlement above the difference between $55 million (the rejected offer amount) and $73 million (Hill’s highest authorized settlement amount). (Id.).

Hill assured Shamoun multiple times that the incentive bonus was a done deal. (Slip Op. at 4-7).  Shamoun negotiated a global settlement over the next  6 weeks and, by May 4, 2010, had reached an agreement on all material terms of a global settlement. (Slip Op. at 7).  At that point, Hill denied agreeing to the incentive bonus and fired Shamoun. (Slip Op. at 7-8). The settlement was finalized and read into the record on May 5 and  was signed by all parties on May 13. (Slip Op. at 7).  and between March 27, 2010 and May 4, 2010, brokered a global settlement of the spider web. (Slip Op. at 4-7).

Shamoun demanded payment of the bonus, and Hill refused. (Slip Op. at 8). Shamoun filed suit. Only his quantum meruit claim made it to the jury. (Slip Op. at 9).  The jury determined that S&N had provided compensable global settlement services for Hill valued at $7.25 million, but did not award Shamoun fees for prosecuting the claim. (Slip Op. at 9). The trial court granted Hill’s motion to set aside the quantum meruit findings, and Shamoun appealed. (Id.)

The Dallas Court of Appeals reversed and rendered judgment on the quantum meruit verdict. The Court’s lengthy opinion includes multiple holdings addressing many issues, including the enforceability of oral contingency agreements, the evidence necessary to establish compensable services, several waiver arguments, and whether an expert’s testimony is unreliable simply because he disagrees with the defendant’s interpretation of a disputed facts.  The opinion is well worth the time it takes to read.

You can read the opinion here.

First Amendment Speech vs. State Regulation of Health and Safety

The Fifth Circuit Court of Appeals recently issued an opinion addressing First Amendment protections over political speech and First Amendment challenges to the state regulation of psychological services.

In Serafine vs. Branaman, the Texas State Board of Examiners of Psychologists ordered Mary Serafine to stop using the title of “psychologist” on her campaign website and to stop offering or providing psychological services.  Serafine did not have a degree in psychology, but had completed a four-year post-doctoral fellowship in psychology at Yale.  She also taught psychology courses at Yale and Vassar College.  She was not licensed to practice psychology in Texas and was not eligible for a Texas license.  Before running for political office, she taught seminars and provided counseling sessions on personal growth and relationships in Austin.

Serafine brought suit against the State Board of Examiners to challenge the Board’s request that she remove references to the word “psychologist” from her campaign website, and she challenged the Psychologists’ Licensing Act as overbroad.

Judge Jerry Smith authored the opinion for the Fifth Circuit panel.  The opinion holds that a portion of the Psychologists’ Licensing Act was unconstitutional as applied to Serafine.  The opinion drew a distinction between the speech at issue here–political speech–and professional or commercial speech that might be aimed at soliciting clients.  In the political context, the court held that the state’s interest was limited and the First Amendment would not allow the state to regulate Serafine’s political speech.  In fact, the court observed that there was a strong argument that it was not misleading for Serafine to refer to herself as a psychologist, even though she might not be licensed to practice in Texas.

The court also holds that the Psychologists’ Licensing Act is overbroad. The court first observed that the overbreadth doctrine does not apply to commercial speech.  After construing the plain meaning of the Psychologists’ Licensing Act, the court concluded that the Act is so broad that it encompasses life coaches, AA sponsors, weight-loss counselors, and others, which fall outside the parameters of professional psychologists.  The court refused to give the statute an “extra-textual” limiting construction in an attempt to rescue it from unconstitutionality.  Likewise, the court held that it could not uphold an infirm statute merely upon a promise by the government to apply it responsibly.  Thus, the court held that portions of the Act are overbroad and contravene the First Amendment.

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