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M&F Worldwide Corp. v. Pepsi-Cola Metropolitan Bottling Co., Inc.

Supreme Court of Texas

March 3, 2017

M&F Worldwide Corp., MCG Intermediate Holdings Inc., Mafco Worldwide Corp., Mafco Consolidated Group LLC, and PCT International Holdings Inc., Petitioners,
Pepsi-Cola Metropolitan Bottling Company, Inc., Respondent

          Argued October 3, 2016

         On Petition for Review from the Court of Appeals for the Fourteenth District of Texas



         In this case involving issues of personal jurisdiction, we consider the trial court's denial of special appearances filed by several related nonresident corporate defendants that entered into an agreement with Texas companies to settle a New York lawsuit. The nonresident plaintiff in this suit alleges that, by virtue of the settlement agreement, the parties to the agreement tortiously interfered with another nonresident company's indemnity obligations to the plaintiff. To support Texas's specific jurisdiction over the nonresident defendants, the plaintiff alleges that the agreement was partially negotiated in Texas, both during in-person meetings and by communications directed to Texas, and that the agreement was substantially performed in Texas. The trial court and court of appeals concluded that Texas has specific jurisdiction over the nonresident defendants. We disagree and reverse the court of appeals' judgment.

         I. Background

         A. Overview

         We will attempt to distill the complex facts of the underlying lawsuit to those necessary to resolve the special appearances under review. The plaintiff is Pepsi-Cola Metropolitan Bottling Company, Inc. (Pepsi), a New Jersey company with its principal place of business in New York. Pepsi sued two groups of defendants: the Cooper defendants, [1] which are either based or have operations in Texas and are not parties to this interlocutory appeal, and the Mafco defendants. The Mafco defendants, all related Delaware companies with principal places of business in either New York or New Jersey, include M&F Worldwide Corp. (M&F Worldwide), MCG Intermediate Holdings, Inc. (Intermediate Holdings), Mafco Worldwide Corp. (Mafco Worldwide), Mafco Consolidated Group LLC (Mafco Consolidated), and PCT International Holdings, Inc. (International Holdings). The Cooper and Mafco defendants have no corporate relationship with each other.

         In this suit, Pepsi complains about the effect of a 2011 settlement agreement, along with several associated ancillary agreements, that resolved a New York lawsuit filed by Pneumo Abex, LLC, a then-subsidiary of International Holdings, against the Cooper defendants and an unrelated entity. As discussed further below, the New York lawsuit arose from alleged disputes over indemnity obligations that some of the Cooper and Mafco defendants owed Pneumo Abex for asbestos-related claims. Pneumo Abex in turn had asbestos-related indemnity obligations to Pepsi, and Pepsi claims that the settlement agreement interfered with those obligations. The Mafco defendants' corporate relationship immediately before execution of the settlement agreement is illustrated below[2]:

         IMAGE OMITTED.[3]

         B. Development of the Parties' Indemnity Obligations

         Pursuant to a 1988 stock-purchase agreement between Pepsi's and Pneumo Abex's predecessors, Pneumo Abex agreed to indemnify Pepsi for certain product-liability claims, including asbestos-related claims (Product Claims).[4] In 1995, Pneumo Abex became a wholly owned subsidiary of International Holdings (itself a subsidiary of M&F Worldwide). As part of this transaction, newly created Intermediate Holdings (a subsidiary of Mafco Consolidated) began managing a subset of the Product Claims brought against Pneumo Abex. Under various unrelated transactions and agreements, both Cooper Industries, LLC (Cooper) and International Holdings subsidiary Mafco Worldwide assumed indemnity obligations to Pneumo Abex covering the same Product Claims for which Pneumo Abex owed indemnity to Pepsi. Cooper assumed its indemnity obligations under a 1994 guaranty agreement executed when Cooper's subsidiary purchased Pneumo Abex's friction-products business, and Mafco Worldwide assumed separate indemnity obligations during a 2004 corporate restructuring for Product Claims arising from aerospace products.[5] Mafco Worldwide also agreed to advance funds that were owed, but not yet paid, to Pneumo Abex by third-party indemnitors or insurers for Product Claims. Cooper's indemnity obligations to Pneumo Abex were administered separately from Mafco Worldwide's. Since 2004, Pneumo Abex has conducted no business operations and owns no assets other than the indemnity rights and obligations related to the Product Claims.

         C. The Rise of "Plan C"

         For several years before Pneumo Abex filed the New York lawsuit in 2010, representatives of the Cooper and Mafco defendants had discussions about their respective obligations with respect to Pneumo Abex's liabilities. Between December 2007 and March 2010, MacAndrews, Mafco Consolidated, Pneumo Abex, M&F Worldwide, and Mafco Worldwide entered into a series of tolling agreements with the Cooper defendants regarding their potential claims against each other. The parties to this suit characterize the ongoing discussions during this time period quite differently. According to the Mafco defendants, the discussions arose out of concerns about Pneumo Abex's ongoing reliance on other entities to manage and fund its liabilities, as well as disputes between the Mafco and Cooper defendants over the allocation and management of those liabilities. Pepsi counters that the defendants engaged in a "joint scheme to rid themselves" of their indemnity obligations that culminated in the filing and settlement of the New York lawsuit.

         In early 2008, the Mafco and Cooper defendants began general discussions about what was informally called Plan C, which at that time generally referenced attempts to resolve the Pneumo Abex indemnity issues.[6] One of the early Plan C proposals involved the creation of a trust to assume ownership of Pneumo Abex, with asset contributions to be made to the trust by International Holdings (Pneumo Abex's parent company) and Cooper.

         In February 2009, representatives of the Mafco defendants traveled to Houston to meet with Texas-based Cooper representatives "about Plan C." In a subsequent e-mail exchange, a Cooper executive wrote to Steven Fasman, who was authorized to represent all the Mafco defendants, that "we will need an IRS private letter ruling to do this deal." In July 2009, five months after the Houston meeting, M&F Worldwide sent a letter to the Internal Revenue Service regarding Mafco Worldwide's intent to submit a request for a ruling on the tax implications of a proposed transaction-the then-embodiment of Plan C-involving the creation of a trust intended to qualify under IRS regulations as a "qualified settlement fund." According to the letter, the trust would be part of the settlement of disputed claims between Pneumo Abex and Cooper regarding Cooper's indemnity obligations for the Product Claims. The transaction contemplated that Pneumo Abex and Cooper would assert their claims against each other "in an appropriate court" and obtain court approval of the settlement. The proposal involved payments to the trust by Cooper, mutual releases of the disputed claims and a release of Cooper's indemnity obligations, and International Holdings' assignment to the trust of all its interest in Pneumo Abex, resulting in the trust's being primarily liable for the Product Claims.

         In November 2009, Fasman traveled to Texas to meet with Cooper representatives and an attorney hired by Cooper's board to serve as an independent advisor regarding Plan C. The meeting took place in the attorney's Dallas office, and the meeting's purpose was "a discussion with this lawyer about his opinions regarding Plan C." According to Fasman, the discussion primarily involved the attorney's suggestion that the parties resolve their disputes by placing Pneumo Abex into bankruptcy, a suggestion the parties rejected on account of the company's solvency. Fasman testified that Plan C was discussed during "breaks in the meeting."

         In January 2010, M&F Worldwide submitted to the IRS-on behalf of itself, International Holdings, and Pneumo Abex-the contemplated formal request for a ruling regarding the tax implications of the proposed transaction described in the July 2009 letter. In addition to the transaction terms outlined in that letter, the request explained that the parties intended Pneumo Abex and Cooper to assert their disputed claims against each other in a Texas court. Further, the parties contemplated payments to the proposed trust by both International Holdings and Cooper, as well as the appointment of a management company to administer the Product Claims.

         D. The New York Lawsuit and Settlement Agreement

         According to Fasman, the parties never reached a formal agreement on the proposals outlined in the IRS ruling request, "the discussions lapsed, " and the ruling request was withdrawn. Instead, in May 2010, Pneumo Abex filed the New York lawsuit against the Cooper defendants and an unrelated company, Danaher Corporation.[7] In that lawsuit, Pneumo Abex sought to enjoin a proposed joint venture between Cooper and Danaher, which Pneumo Abex alleged was part of a fraudulent scheme that would strip Cooper of its assets and impair its ability to fulfill its indemnity obligations to Pneumo Abex. Notes from a "courtesy" discussion between a Mafco representative and Cooper's CEO the day the lawsuit was filed reflect the Mafco defendants' communication that the lawsuit had been filed "reluctantly" in order to "protect Pneumo Abex's ability to rely on its guarantor [Cooper] for decades to come, " and that "[o]ne reason that we made the decision to sue now is that we are no longer optimistic that Plan C, or any other long-term solution, is possible." However, the notes also state that "we continue to believe that Plan C (a Cooper-funded trust that would own Pneumo Abex and would release and indemnify both Cooper and [Mafco Worldwide]) is the better way to go."

         Shortly after the New York lawsuit was filed and the court denied Pneumo Abex's request for a temporary injunction, the parties commenced settlement negotiations. Although the Mafco defendants were not parties to that suit, they all took part in those negotiations (with the exception of Intermediate Holdings) because of the potential for the assertion of cross-claims against them. The settlement discussions focused fairly quickly on Plan C, with drafts of a "Plan C Settlement Agreement" exchanged as early as July 2010. The negotiations continued throughout 2010 and into 2011. The parties never conducted in-person discussions in Texas, and Fasman testified that "the majority of the negotiations were carried out by individuals located in New York and Washington, D.C. at the times that they were negotiating." However, the discussions involved numerous phone calls and e-mail exchanges between Mafco representatives and Texas-based Cooper representatives.

         The New York lawsuit was resolved by a settlement agreement executed on February 1, 2011 and several associated agreements executed on April 5, 2011. The parties to the settlement agreement were Pneumo Abex, the Cooper defendants, and all Mafco defendants except Intermediate Holdings (although the agreement did bind Intermediate Holdings as a Mafco Worldwide subsidiary). The New York court approved the settlement ...

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