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TMX Finance Holdings, Inc. v. Wellshire Financial Services, LLC

Court of Appeals of Texas, First District

March 23, 2017

TMX FINANCE HOLDINGS, INC., Appellant
v.
WELLSHIRE FINANCIAL SERVICES, LLC D/B/A LOANSTAR TITLE LOANS D/B/A MONEYMAX TITLE LOANS AND D/B/A LOANMAX; MEADOWWOOD FINANCIAL SERVICES, LLC D/B/A LOANSTAR TITLE LOANS AND D/B/A MONEYMAX TITLE LOANS; AND INTEGRITY TEXAS FUNDING, LP, Appellees

         On Appeal from the 152nd District Court Harris County, Texas Trial Court Case No. 2013-33584.

          Panel consists of Justices Keyes, Brown, and Huddle.

         DISSENT FROM DENIAL OF REHEARING

          Evelyn V. Keyes Justice

         On rehearing, I disagree with the majority's holding reversing the trial court's denial of TMX-Holdings' special appearance. In my view, the majority misconstrues controlling law, established by the Texas Supreme Court in PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163 (Tex. 2007), and it misapplies the PHC-Minden factors used to determine personal jurisdiction over a corporation on an alter-ego theory. The majority therefore dismisses the financial center of a single fused corporate entity from this suit for misappropriation of trade secrets and tortious interference with contract. It thus countenances misuse of the corporate form to insulate a corporation from potential damages in tort. Therefore, I respectfully dissent.

         The parties in this case are competitors in the automobile title loan market. Wellshire Financial Services, LLC, Meadowwood Financial Services, LLC, and Integrity Texas Funding, LP (collectively, "Wellshire") sued TMX Finance Holdings, Inc. ("TMX-Holdings") and TMX-Finance, LLC ("TMX-Finance"), as well as other "TMX entities" not parties to this appeal, for misappropriation of trade secrets and tortious interference with existing contracts and prospective business relations. Wellshire alleged that the TMX entities collected the license plate numbers of the customers in Wellshire's parking lot and used that information to contact and solicit those customers.

         TMX-Holdings filed a special appearance, which the trial court denied. The court found that TMX-Holdings was the alter ego of its subsidiary, TMX-Finance, which has consented to personal jurisdiction in Texas, and that the Texas courts' exercise of jurisdiction over TMX-Finance comports with constitutional requirements of fair play and substantial justice. TMX-Holdings filed this interlocutory appeal.

         The panel reversed and dismissed TMX-Holdings from the suit. It concluded that Wellshire did not establish that TMX-Holdings exerts such an "abnormal" or "atypical" degree of control over TMX-Finance's internal policies and practices that the two entities can be fused for jurisdictional purposes. See TMX Fin. Holdings, Inc. v. Wellshire Fin. Servs., LLC, __ S.W.3d __, No. 01-16-00044-CV, 2016 WL 5920776, at *8 (Tex. App.-Houston [1st Dist.] Oct. 11, 2016, no pet. h.). Wellshire moved for rehearing and en banc reconsideration of the panel opinion.

         As Wellshire points out, the evidence establishes that Tracy Young, the President and CEO of both TMX-Holdings and TMX-Finance, owns 100% of the shares of TMX-Holdings; he exerts virtually total control over the operations of both entities; the entities share common ownership, directorship, and headquarters; and the entities do not observe corporate formalities. In other words, the evidence shows that all of the PHC-Minden factors for the exercise of personal jurisdiction over TMX-Holdings are satisfied.

         I would hold that the trial court correctly determined that TMX-Holdings is an alter ego of TMX-Finance. I would also hold that the Texas courts' exercise of jurisdiction over TMX-Finance comports with constitutional requirements of fair play and substantial justice. Therefore, I would grant rehearing and affirm the trial court's order denying TMX-Holdings' special appearance.

         Personal Jurisdiction

         A. Standard of Review

         Whether a court can exercise personal jurisdiction over a nonresident defendant is a question of law, and we therefore review de novo a trial court's determination of a special appearance. Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 657 (Tex. 2010) (citing Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007)). "When [as here] a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied." Id. (quoting BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002)). When the appellate record includes both the reporter's record and the clerk's record, the trial court's implied findings are not conclusive and may be challenged on appeal for legal and factual sufficiency. BMC Software, 83 S.W.3d at 795.

         B. Alter Ego Theory of Jurisdiction over a Corporate Entity

         1. Controlling Law

         Texas law presumes that two separate corporations are distinct entities. PHC-Minden, 235 S.W.3d at 173. However, Texas courts may exercise personal jurisdiction over a nonresident parent corporation if the parent's relationship with its subsidiary that does business in Texas is one that would allow the court to impute the subsidiary's "doing business" in Texas to the parent. Cappuccitti v. Gulf Indus. Prods., Inc., 222 S.W.3d 468, 482 (Tex. App.-Houston [1st Dist.] 2007, no pet.). Thus, the party "seeking to ascribe one corporation's actions to another" must prove that "the parent corporation exerts such domination and control over its subsidiary that they do not in reality constitute separate and distinct corporate entities but are one and the same corporation for purposes of jurisdiction." PHC-Minden, 235 S.W.3d at 173 (quoting BMC Software, 83 S.W.3d at 798); Conner v. ContiCarriers & Terminals, Inc., 944 S.W.2d 405, 418 (Tex. App.-Houston [14th Dist.] 1997, no writ) (stating that burden is on plaintiffs to prove existence of alter-ego relationship).

         The Texas Supreme Court has outlined the factors relevant for "jurisdictional veil-piercing" on a "single business enterprise" theory:

To "fuse" the parent company and its subsidiary for jurisdictional purposes, the plaintiffs must prove the parent controls the internal business operations and affairs of the subsidiary. But the degree of control the parent exercises must be greater than that normally associated with common ownership and directorship; the evidence must show that the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice.

PHC-Minden, 235 S.W.3d at 175 (quoting BMC Software, 83 S.W.3d at 799); seealso El Puerto de Liverpool, S.A. de C.V. v. Servi Mundo Llantero S.A. de C.V., 82 S.W.3d 622, 634 (Tex. App.-Corpus Christi 2002, pet. dism'd w.o.j.) (noting that jurisdictional veil-piercing involves different analysis from that used when "determining whether separate corporate entities should be treated as one for liability purposes"). Courts will not regard a subsidiary corporation as the alter ego of its parent "merely because of stock ownership, a duplication of some or all of the directors or officers, or an exercise of the control that stock ownership gives to stockholders." PHC-Minden, 235 S.W.3d at 175 (quoting Gentry v. Credit PlanCorp. of Houston, 528 S.W.2d 571, 573 (Tex. 1975)) (emphasis added). Rather, courts should consider all of the relevant facts and circumstances surrounding the operations of the parent and subsidiary to determine whether two separate and distinct corporate entities ...


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