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Fried, Frank, Harris, Shriver & Jacobson LLP v. Millennium Chemicals Inc.

Court of Appeals of Texas, Fifth District, Dallas

July 31, 2017

FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP AND RICHARD A. WOLFE, Appellants
v.
MILLENNIUM CHEMICALS INC., MILLENNIUM AMERICA HOLDINGS, LLC AND MILLENNIUM HOLDINGS, LLC, Appellees

         On Appeal from the 116th Judicial District Court Dallas County, Texas, Trial Court Cause No. DC-12-13422

          Before Justices Lang, Myers, and Stoddart.

          MEMORANDUM OPINION

          DOUGLAS S. LANG JUSTICE.

         In this interlocutory appeal, the law firm of Fried, Frank, Harris, Shriver & Jacobson LLP ("Fried Frank") and attorney Richard A. Wolfe (collectively, "appellants" or "defendants") challenge the trial court's order denying their special appearance. In twelve issues on appeal, appellants contend this Court should reverse the trial court's order and render judgment dismissing this case because the trial court lacked specific jurisdiction over them and, alternatively, they "are immune from suit and personal jurisdiction under the longstanding doctrine of attorney immunity."[1]

         We decide in favor of appellants on their first and twelfth issues. We need not reach appellants' remaining issues. We reverse the trial court's order denying appellants' special appearance and render judgment dismissing the claims of appellees Millennium Chemicals Inc.; Millennium America Holdings, LLC; and Millennium Holdings, LLC (collectively, "Millennium" or "plaintiffs") against appellants for lack of personal jurisdiction.

         I. FACTUAL AND PROCEDURAL CONTEXT

         Millennium filed this lawsuit against appellants and Millennium's former corporate parent, Hanson, [2] in November 2012. In its live petition at the time of the order complained of, Millennium stated in part that Wolfe is a tax partner at Fried Frank and the principal business offices of both appellants are located in New York. According to Millennium's petition, prior to 1996, Hanson and Millennium were "part of the same corporate family, " for which Wolfe and others at Fried Frank performed legal services. In approximately September 1996, Hanson completed a "demerger transaction" (the "Demerger") in which it "divided itself into four parts by business line" and "spun off each line into a separate company." Millennium, which was based in New Jersey at that time, was one of those separate companies. As part of the Demerger, Wolfe drafted a "tax sharing agreement" (the "Agreement"), which was executed in September 1996 and "allocated tax responsibilities between the companies for pre-and post-Demerger years." According to the petition, (1) "[o]ver the next decade, Wolfe served as Millennium's principal outside tax advisor and provided advice concerning Millennium's rights under the [Agreement]" and (2) "Millennium never terminated its relationship with Fried Frank and Wolfe."

         During 2002, the IRS audited Millennium's pre-Demerger tax returns, disallowed use of $65 million in tax deductions relating to certain environmental expenses incurred by Millennium prior to the Demerger, and determined that those deductions could be claimed by Hanson in later years as related insurance proceeds were received. Consequently, pursuant to the Agreement, Hanson was obligated to pay Millennium for the tax benefit obtained from Hanson's post-Demerger use of the $65-million tax deduction. Millennium stated that "following Wolfe's advice, " the head of Millennium's tax department, Corey Siegel, "demanded payment from Hanson, " but "Hanson, after also consulting with Wolfe . . ., refused and provided disingenuous reasons for not paying." (emphasis original). According to Millennium, (1) Hanson "instead promised that it would make payment in the future" if Millennium entered into a "clarifying" amendment to the Agreement respecting tax benefits (the "TBA"); (2) again relying on Wolfe's advice, "Siegel was duped into signing the TBA, " which was drafted by Wolfe; and (3) although Wolfe had advised Millennium that "the TBA would create 'certainty' that Hanson would make the tax benefit payment, " Hanson and Wolfe "used the agreement to avoid paying Millennium for over a decade."

         In 2004, Millennium was acquired by a Houston-based company and Millennium's ongoing business activities were "transitioned" to Houston, where they currently remain. Also, according to Millennium, "Hanson's headquarters moved from New Jersey to Dallas in 2006, where it has remained."

         Millennium alleged that "[a]fter the execution of the TBA, Millennium believed that payment from Hanson would be forthcoming in short order, and it continued to rely on Wolfe for advice concerning the issue." In 2005, the IRS began an audit of certain post-Demerger tax returns of Hanson. Pursuant to that audit, and consistent with its 2002 determinations described above, the IRS issued a report that permitted Hanson to use the $65-million expenditures described above to exclude several specified insurance payments from income. At that time, Millennium again demanded payment. However, according to Millennium, "Hanson chose to again manufacture excuses for not paying, with Hanson (after consulting with Wolfe and Wolfe participating in crafting the message to Millennium) instead promising that payment would be made at the conclusion of any appeal." Millennium stated (1) in 2006, "Hanson and Wolfe" appealed the 2005 adjustments by the IRS described above (the "Appeal") and (2) "[t]hrough the substantial majority of the Appeal, Hanson was located in Texas, Wolfe frequently communicated with Hanson's employees, and Wolfe sent his invoices to Texas."

         In November 2008, a settlement agreement was executed respecting the Appeal and Hanson subsequently notified Millennium of that settlement (the "IRS Settlement"). However, according to Millennium, (1) "Hanson, at Wolfe's direction, refused to provide Millennium with complete settlement documentation"; (2) Wolfe "directed" John Hutchinson, "Hanson's head of tax, located in Dallas, " to "refuse all requests for a call, withhold additional documents and information, and provide deceptive answers concerning the IRS Settlement" in the hope that Millennium "would not suspect" that Hanson "had used the $65M Expenditures to obtain a tax benefit" and thus had a payment obligation to Millennium; and (3) "[i]n the course of this cover-up, Wolfe repeatedly ghostwrote and approved misleading emails for Hutchinson (located in Texas) to send [Millennium]."

         In 2009, the IRS commenced another audit of Hanson, this time focused on its 2002- 2003 tax returns (the "2009 Audit"). According to Millennium, "Wolfe again represented Hanson during this audit, despite the clear conflict with Millennium, and continued to take positions that were adverse to Millennium's interests." Specifically, Millennium stated, (1) "Wolfe participated in a telephone conference with IRS officials in Dallas where he provided misleading factual information that blamed Millennium's prior tax director (Frank Lloyd) for wrongfully failing to include all four of the [insurance payments] into income on Millennium's 1995 tax return, rather than taking positions that would enable Millennium to be paid under the [Agreement and TBA], " and (2) after Hanson appealed the proposed adjustment resulting from the 2009 Audit, Wolfe attended a June 2010 meeting with "IRS Appeals" and Hanson in Dallas, where Wolfe "continued to advance these arguments concerning Millennium's prior alleged misconduct, failed to acknowledge or utilize the $65M Expenditures (which he knew Millennium wanted in order to secure the tax benefit payment), and failed to disclose relevant information and documents from the prior audits." Further, Millennium alleged that "[b]y continuing to represent Hanson and take these positions before the IRS, Wolfe directly violated fiduciary obligations that he owed to Millennium."

         In approximately summer 2010, Millennium retained Jasper G. Taylor III, a tax lawyer at a Houston law firm, to "represent its interests in the 2009 Audit." Millennium stated (1) "Taylor reached out to Wolfe to gather information and documents and had several calls with Wolfe in the summer of 2010"; (2) during the course of those communications, "many of which Wolfe instigated, " Wolfe "repeatedly made false representations and omitted material facts to Taylor and other Millennium representatives (all located in Texas), " "refused to share material information and documents, " and "steadfastly refused to take any steps that would assist Millennium-his longstanding client-in learning what had happened during the Hanson audits or gain the long owed tax benefit payment." Shortly thereafter, Fried Frank withdrew from its representation of Hanson in the 2009 audit. Following the resolution of that audit, Hanson "continued to refuse to pay Millennium" and "[a]s a consequence, Millennium filed this suit." Millennium asserted claims against appellants for breach of fiduciary duty, tortious interference with a contract, fraud, conspiracy, and legal malpractice.

         In its claim for breach of fiduciary duty, Millennium stated in part, (1) "Fried Frank and Wolfe acted as legal counsel for Millennium in connection with the negotiation and execution of both the [Agreement] and TBA, and advised Millennium concerning its right to payment from Hanson after the IRS Adjustment"; (2) "[a]s a result, Fried Frank and Wolfe owed Millennium fiduciary duties"; and (3) "Wolfe and Fried Frank breached these fiduciary duties through extensive contacts with Texas, including Wolfe's June 2010 meeting with the IRS, Wolfe directing Hanson's Texas representatives to take steps that would harm and deceive Millennium, and through deceptive communications with Millennium's Texas representatives either directly or by ghostwriting or approving them for Hanson's Texas representatives to send." Additionally, Millennium stated in part that Fried Frank and Wolfe breached their fiduciary duties owed to Millennium when they "represented Hanson during the 2005 and 2009 audits" and "took positions in the 2005 and 2009 Audits that were adverse to Millennium's interests."

         As to its claim for tortious interference with a contract, Millennium asserted "Fried Frank and Wolfe knew of the [Agreement] and TBA (indeed, Wolfe drafted them), and intentionally caused Hanson to breach its obligations under those agreements by, among other things: (1) advising Hanson to delay making required payments to Millennium; (2) orchestrating the IRS Settlement; (3) directing a cover up concerning the details of the IRS Settlement to enable Hanson to delay making required payments to Millennium; (4) advising Hanson to withhold material documents and information from Millennium, in violation of the [Agreement]; and (5) making false representations and omissions to Millennium concerning the IRS Settlement and relevant Hanson audits."

         In its fraud claim, Millennium contended in part "[d]efendants made false, material representations and/or omissions to Millennium, " including falsely representing to Millennium "(1) the details of the 2005 Audit and IRS Settlement; (2) that the $65M Expenditures were not utilized as part of that settlement; (3) that IRS Appeals was responsible for reversing the exclusion of the 1998 and 2001 [insurance] Payments from income during the IRS Settlement; and (4) that Millennium had received all material documents and information relating to the IRS Settlement." Also, according to Millennium, "[d]efendants repeatedly failed to disclose material facts to Millennium, " including "facts concerning the details of the 2005 Audit and IRS Settlement, " "the fact that IRS Appeals had utilized the $65M Expenditures in reaching the IRS Settlement, " and "material facts during a meeting with the IRS in Dallas in June 2010 during the 2009 Audit."

         As to its conspiracy claim, Millennium alleged in part that defendants conspired with Hanson respecting the three claims described above and "took unlawful, overt acts during this conspiracy to harm Millennium including through false and deceptive communications with Millennium, representing Hanson during the 2005 and 2009 Audits, and directing Hanson's longstanding efforts to dodge and delay making required tax benefit payments to Millennium."

         Finally, as to its legal malpractice claim, Millennium stated in part that Fried Frank and Wolfe "were, at all relevant times, in an attorney-client relationship with Millennium" and "committed legal malpractice by misrepresenting to Millennium the purpose of the TBA, and omitting material facts, to induce Millennium to enter into that agreement in order to . . . lay the groundwork to subsequently deprive Millennium of its tax benefit recovery rights under the TSA" and benefit Hanson. Additionally, Millennium asserted Fried Frank and Wolfe "committed legal malpractice by representing Hanson in the IRS Settlement with the IRS which deprived Millennium of the tax benefit recovery to which it was entitled under the [Agreement] and TBA."

         Defendants filed a verified special appearance with supporting evidence[3] and briefs. Plaintiffs filed a response and opposing brief [4] supported by evidence.[5] Additionally, defendants filed "Objections to Plaintiffs' Declarations and Exhibits." After a hearing, the trial court denied defendants' special appearance, ordered that defendants are subject to specific jurisdiction, and overruled defendants' objections to plaintiffs' declarations and exhibits. This interlocutory appeal timely followed. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(7) (West Supp. 2016).

         II. DENIAL OF SPECIAL APPEARANCE

         A. Standard of Review

         Whether a court can exercise jurisdiction over a nonresident is a question of law. See, e.g., Univ. of Ala. v. Suder Found., No. 05-16-00691-CV, 2017 WL 655948, at *2 (Tex. App.- Dallas Feb. 17, 2017, no pet.) (mem. op.) (citing Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 657 (Tex. 2010)). Thus, we review de novo a trial court's order granting or denying a special appearance. Id. (citing Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007)).

         However, the exercise of personal jurisdiction requires the trial court to resolve any factual disputes before applying the jurisdictional formula. Id. at *3 (citing Am. Type Culture Collection, Inc., v. Coleman, 83 S.W.3d 801, 805-06 (Tex. 2002)). When, as here, the trial court does not file findings of fact and conclusions of law in support of its special appearance ruling, we infer all facts necessary to support the judgment and supported by the evidence. Id.; accord O'Daire v. Rowand Recovery, LLC, No. 05-16-01097-CV, 2017 WL 930036, at *2 (Tex. App.- Dallas Mar. 9, 2017, no pet.) (mem. op.); see also Hotel Partners v. Craig, 993 S.W.2d 116, 121 (Tex. App.-Dallas 1994, pet. denied) ("Absent findings of fact, we presume that any factual disputes were resolved in support of the trial court's order."). When the appellate record includes the reporter's record and clerk's record, these implied findings are not conclusive and may be challenged for legal and factual sufficiency. See, e.g., Friend v. Acadia Holding Corp., No. 05-16-00286-CV, 2017 WL 1536503, at *3 (Tex. App.-Dallas Apr. 27, 2017, no pet.) (mem. op.) (citing BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002)). A legal sufficiency challenge to a finding of fact fails if there is more than scintilla of evidence to support the finding. Ahrens & DeAngeli, P.L.L.C. v. Flinn, 318 S.W.3d 474, 479 (Tex. App.- Dallas 2010, pet. denied).

         B. Applicable Law

         Texas courts may exercise personal jurisdiction over a nonresident defendant only if (1) the Texas long-arm statute permits the exercise of jurisdiction and (2) the jurisdiction satisfies constitutional due-process guarantees. Suder Found., 2017 WL 655948, at *3 (citing Am. Type Culture, 83 S.W.3d at 806). Our long-arm statute allows jurisdiction over a nonresident that does business in Texas. Id. (citing Tex. Civ. Prac. & Rem. Code Ann. § 17.042 (West 2015)). That statute includes a list of acts that may constitute doing business in this state, including committing a tort in whole or in part in Texas. Id. (citing Civ. Prac. & Rem. Code § 17.042(2)).

         The "broad doing-business language allows the statute to reach as far as the federal constitutional requirements of due process will allow." Id. (quoting Moki Mac, 221 S.W.3d at 575). Constitutional due process permits a state to exercise jurisdiction only when a nonresident defendant has sufficient minimum, purposeful contact with the state, and the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. Id. (citing Stull v. LaPlant, 411 S.W.3d 129, 133 (Tex. App.-Dallas 2013, no pet.)).

         We focus on two prongs when considering specific jurisdiction: (1) purposeful availment and (2) relatedness. Suder Found., 2017 WL 655948, at *3 (citing Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338 (Tex. 2009)). The purposeful availment prong analyzes (1) the defendant's own actions, but not the unilateral activity of another party; (2) whether the defendant's actions were purposeful rather than random, isolated, or fortuitous; and (3) whether the defendant sought some benefit, advantage, or profit by availing itself of the privilege of doing business in Texas. Id.; see also Jani-King Franchising Inc. v. Falco Franchising, S.A., No. 05-15-00335-CV, 2016 WL 2609314, at *3 (Tex. App.-Dallas May 5, 2016, no pet.) (mem. op.) (citing Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 785 (Tex. 2005)). It is "essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Suder Found., 2017 WL 655948, at *3 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)). Further, the defendant's activities must justify a conclusion that the defendant could reasonably anticipate being called into a Texas court. Id. The "quality and nature of the defendant's contacts, rather than their number" governs the inquiry in the minimum contacts analysis. Id. (citing Am. Type Culture, 83 S.W.3d at 806).

         The "relatedness" prong analyzes the relationship among the defendant, the forum, and the litigation. Id. at *4 (citing Searcy v. Parex Res., Inc., 496 S.W.3d 58, 67 (Tex. 2016)). Courts may exercise specific jurisdiction when the defendant's forum contacts are "isolated or sporadic" only if the plaintiff's cause of action arises from or relates to those contacts. Id. (citing TV Azteca v. Ruiz, 490 S.W.3d 29, 37 (Tex. 2016); Moncrief Oil Int'l Inc. v. OAO Gazprom, 414 S.W.3d 142, 150 (Tex. 2013)). Thus, for a nonresident defendant's forum contacts to support an exercise of specific jurisdiction, there must be a "substantial connection between those contacts and the operative facts of the litigation." Id. (quoting Cornerstone Healthcare Grp. v. Nautic Mgmt. VI, L.P., 493 S.W.3d 65, 73-74 (Tex. 2016)). "The operative facts are those on which the trial will focus to prove the liability of the defendant who is challenging jurisdiction." Id. (quoting Leonard v. Salinas Concrete, LP, 470 S.W.3d 178, 188 (Tex. App.-Dallas 2015, no pet.)).

         "Telephone calls and correspondence as activities directed at the forum state" are "generally insufficient" to demonstrate purposeful availment. Ahrens, 318 S.W.3d at 484; accord KC Smash 01, LLC v. Gerdes, Hendrichson, Ltd., L.L.P., 384 S.W.3d 389, 393-94 (Tex. App.-Dallas 2012, no pet.) (contacts "through telephone and email communications" do not "constitute a contact demonstrating purposeful availment"); see also O'Daire, 2017 WL 930036, at *3-4. Further, "[s]pecific jurisdiction is not established merely by allegations or evidence that a nonresident committed a tort in the forum state or 'directed a tort' at the forum state." Ahrens, 318 S.W.3d at 478; accord Searcy, 496 S.W.3d at 69. "Even if a nonresident defendant knows that the effects of its actions will be felt by a resident, that knowledge alone is insufficient to confer personal jurisdiction over the nonresident." Searcy, 496 S.W.3d at 69 (emphasis original).

         Texas special appearance law dictates that the plaintiff and the defendant bear shifting burdens of proof in a personal jurisdiction challenge. Kelly, 301 S.W.3d at 658; see also Tex. R. Civ. P. 120a ("The court shall determine the special appearance on the basis of the pleadings, any stipulations made by and between the parties, such affidavits and attachments as may be filed by the parties, the results of discovery processes, and any oral testimony."). The plaintiff bears the initial burden to plead sufficient allegations to bring the nonresident defendant within the reach of Texas's long-arm statute. Kelly, 301 S.W.3d at 658. "Once the plaintiff has pleaded sufficient jurisdictional allegations, the defendant filing a special appearance bears the burden to negate all bases of personal jurisdiction alleged by the plaintiff." Id. "Because the plaintiff defines the scope and nature of the lawsuit, the defendant's corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff's pleading." Id. "The defendant can negate jurisdiction on either a factual or legal basis." Id. "Factually, the defendant can present evidence that it has no contacts with Texas, effectively disproving the plaintiff's allegations." Id. "The plaintiff can then respond with its own evidence that affirms its allegations, and it risks dismissal of its lawsuit if it cannot present the trial court with evidence establishing personal jurisdiction." Id. "Legally, the defendant can show that even if the plaintiff's alleged facts are true, the evidence is legally insufficient to establish jurisdiction; the defendant's contacts with Texas fall short of purposeful availment; for specific jurisdiction, that the claims do not arise from the contacts; or that traditional notions of fair play and substantial justice are offended by the exercise of jurisdiction." Id.

         C. Application of Law to Facts

         As a preliminary matter, we note that appellants' argument in their appellate brief is organized by headings that do not directly correspond to each of their twelve stated issues. Rather, in the argument portion of their appellate brief, appellants primarily address what they describe as Millennium's "legal theories for specific jurisdiction" and, in doing so, address their appellate issues as those issues pertain to Millennium's purported theories. Millennium responds by providing a "consolidated and reframed" set of issues in its appellate brief, focused primarily on three "categories of contacts" it contends are "sufficient to justify jurisdiction." For purposes of clarity, we will, like the parties, base the organization of our analysis on Millennium's asserted bases for personal jurisdiction. Additionally, for purposes of our analysis, we will assume without deciding that the evidence offered by Millennium and objected to by appellants in the trial court is properly before this Court on appeal.

         Millennium contends on appeal that "[i]n the course of his multi-year scheme to enhance his standing with Hanson by depriving Millennium of a tax benefit payment, Wolfe: (1) came to Texas and breached duties owed to Millennium while present in the state; (2) repeatedly induced Hanson's Texas representatives to engage in tortious acts within Texas that breached Wolfe's duties; and (3) continuously communicated with Texas residents to orchestrate each tortious step and garner ongoing benefits from the state." Further, Millennium states that "[u]nder Texas law, each of those categories of contacts is sufficient to justify jurisdiction because each shows that (1) the defendant has purposefully availed himself of the privilege of conducting activities in the forum state, and (2) there is a substantial connection between those contacts and the operative facts of the litigation." We address those three categories of contacts in turn.

         First, Millennium asserts it "has alleged and shown through evidence that, while physically present in Texas, Wolfe breached fiduciary duties owed to Millennium" and therefore Wolfe is "subject to jurisdiction here" pursuant to section 17.042(2). See Civ. Prac. & Rem. Code § 17.042(2) (nonresident does business in this state if he "commits a tort in whole or in part in this state"). According to Millennium, (1) "Wolfe admits that he knew his [June 2010] Texas meeting would directly impact Millennium's right to obtain a tax benefit payment from Hanson" (emphasis original); (2) "[n]onetheless, Wolfe came to Texas and took positions adverse to Millennium"; and (3) "[d]efendants have provided no evidence to negate those contacts with Texas." In ...


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