United States District Court, S.D. Texas, Houston Division
H. Miller United States District Judge.
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.
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 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.
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 co-defendants, 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
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 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 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.
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).
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
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. 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 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.
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 ...