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OZO Capital, Inc. v. Syphers

Court of Appeals of Texas, Second District, Fort Worth

March 29, 2018






         In this appeal from the trial court's order granting the special appearance of nonresident appellees Vance Syphers and Chris Edens, appellants OZO Capital, Inc., Biltmore Funding II, LLC (Biltmore II), and DFI-OTH, LLC contend that the trial court erred by determining (1) that it did not have general or specific jurisdiction over Syphers, or specific jurisdiction over Edens, and (2) that exercising jurisdiction over both appellees would offend traditional notions of fair play and substantial justice. Because we conclude that the trial court did not err by concluding that exercising jurisdiction over appellees would violate federal due process guarantees, we affirm.


         In December 2013, Texas resident Mark Hyland and Florida resident Greg Wright encouraged Texas resident Tim Fleet to purchase a pool of mortgage loans for the sole purpose of reselling them. The three created Biltmore II, a Texas limited liability company, to buy and sell the pool. Biltmore II's managing member is NTex Realty, LP, a Texas limited partnership owned by Fleet. The other members of Biltmore II are OZO, a Florida corporation whose principal is Wright, and DFI-OTH, a Texas limited liability company whose principal is Hyland. Fleet funded Biltmore II with a $1.7 million contribution, but Hyland and Wright did not contribute any funds to Biltmore II. The company is structured so that Fleet, through NTex Realty, will receive the return of his initial $1.7 million investment from any money paid to Biltmore II before making any distributions to OZO or DFI-OTH.

         Hyland began working on a deal to sell Biltmore II's pool to 3 Star Properties, along with two other note pools: one owned by TM Property Solutions, LLC (TMPS), in which Hyland owns a fifty percent interest, and another owned by Biltmore Funding, LLC, a company controlled by Wright. While 3 Star was negotiating its purchase of the three loan pools, it entered into an agreement to sell a large group of loans from each of the three pools to SED Holdings, LLC, a North Carolina limited liability company, for around $13.8 million. Syphers is the managing member of SED, and Edens was both a member and the president.[2]

         3 Star closed its sale to SED in June 2014 before closing its purchase from Biltmore II in July 2014; 3 Star used some of SED's initial $4 million cash payment[3] to fund its purchase of the Biltmore II, Biltmore Funding, and TMPS pools. 3 Star paid Biltmore II $1.5 million cash[4] and executed a promissory note for the remaining $2.7 million purchase price for the Biltmore II loans. In the sale contract with 3 Star, Biltmore II agreed that Brown & Associates, a "custodian and doc prep vendor" located in Harris County, Texas, would keep physical possession of the Biltmore II notes.

         SED's contract with 3 Star allowed it to perform due diligence after closing and "put back" loans that it could not resell. After the closing of SED's purchase from 3 Star, Edens travelled to Texas to review the notes; SED decided that at least 600 or more of the notes that it bought from 3 Star--some of them from the Biltmore II pool--were "unsellable" and attempted to give those loans back. For that reason, SED stopped making payments on its promissory note to 3 Star. As a result, 3 Star never made a payment on its note to Biltmore II. Biltmore II sent 3 Star a default notice indicating that it would retain ownership of its pool unless 3 Star timely objected--it did not.

         Thus began a series of lawsuits to obtain ownership of the Biltmore II pool. First, SED sued 3 Star, its principal Jamie Johnson, Hyland, and TMPS in North Carolina; Biltmore II was not a party to that suit. SED obtained an injunction prohibiting Hyland from selling the notes in the Biltmore II pool. 3 Star then sued SED in Harris County, Texas. Brown & Associates interpleaded the notes into the Harris County suit. Finally, Biltmore II, acting through Fleet, sued 3 Star in Tarrant County in April 2015. At some point, Fleet became aware that 3 Star had closed its sale to SED before obtaining ownership of the Biltmore II pool. Biltmore II and SED each attempted to obtain the notes from Brown & Associates, who refused to release them because of the multiple title claims.

         SED intervened in Biltmore II's Tarrant County suit. In an attempt to salvage the value of the Biltmore II pool, Edens and Fleet discussed selling the Biltmore II notes. Eventually, they agreed to a settlement. Under the settlement agreement, which Syphers approved and signed from North Carolina, SED and Biltmore II "agree[d] to work together and cooperate with each other in the [Tarrant County suit] . . . to achieve an outcome whereby a [j]udgment is rendered . . . declaring [Biltmore II] the owner of the [pool] with clear and negotiable title . . ., free and clear of any claims by or through 3 Star." Biltmore II further agreed that if it obtained such a judgment, it would, with Fleet and SED, "jointly pursue possession of the [pool]" and upon taking possession, liquidate the pool. SED would receive sixty percent of the liquidated proceeds and Biltmore II forty percent.

         At the Tarrant County trial, SED and Biltmore II set forth the settlement agreement terms on the record. Fleet and Edens testified. 3 Star did not offer any evidence or sponsor any witnesses, and its counsel admitted that 3 Star had defaulted on its payments to Biltmore II because SED had defaulted on its payments to 3 Star. The trial court signed a judgment declaring Biltmore II the sole owner of the Biltmore II pool, free of 3 Star's and its assignees' claims.

         During the fallout from the sale to 3 Star, Fleet's relationship with Hyland and Wright soured to the point that they could no longer work together. Through attorneys, Hyland attempted to buy out NTex Realty's membership interest in Biltmore II. As part of these negotiations, Hyland's counsel attempted to obtain Fleet's verification that Biltmore II had not "disposed of, assigned, released, transferred, or otherwise conveyed" the mortgages in the pool, but Fleet's counsel refused to answer. After Hyland and Wright found out about the settlement agreement with SED, they purported to authorize Biltmore II, along with OZO and DFI-OTH, to sue Fleet, NTex Realty, appellees, and James Dever[5]for breach of fiduciary duty, fraud, breach of contract, and tortious interference with a contract. Hyland verified appellants' original and amended petitions. OZO and DFI-OTH also called a members' meeting of Biltmore II, at which they voted to expel NTex Realty as managing member.

         Appellants alleged in their pleadings that the settlement agreement Biltmore II entered into with SED is a void Mary Carter agreement, [6] characterized it as a "side deal" to transfer Biltmore II's assets to SED, and contended that its purpose was to benefit Fleet to their detriment because Biltmore II's company agreement allows him to "get his money out first."

         Appellants sought (1) damages, (2) a temporary restraining order and temporary injunction preventing the conveyance of the Biltmore II pool to any third parties, (3) a temporary injunction ordering that the pool be sold "at a price agreeable to all parties, " that the parties mutually agree to hire a broker to effect the sale, and that the sale proceeds be deposited into an escrow account pending the suit's resolution, (4) a court order to wind up and terminate Biltmore II, (5) a declaratory judgment that the Tarrant County judgment in the 3 Star litigation "finally, fully, and forever adjudicated any interest SED . . . had or may have had in the Biltmore II Pool--none, " and (6) a declaratory judgment that Biltmore II's settlement agreement with SED is void, illegal, and unenforceable, that SED's claims to the pool are barred by res judicata, and that their vote to expel NTex Realty as a member of Biltmore II comported with the Biltmore II company agreement and Texas law.

         Regarding jurisdiction over appellees, appellants alleged in their original petition that although appellees both resided in North Carolina, [7] they did business in Texas and the suit arose from that business. In their second amended petition--the live pleading at the time of the special appearance ruling- -appellants alleged only that appellees conduct business in Texas, have systematic and continuous contacts with Texas sufficient to establish general jurisdiction, have committed torts in Texas in their individual capacities, and their Texas contacts gave rise to or relate to appellants' claims in this suit. Appellants did not plead any alter ego-based theories of jurisdiction.

         Appellees filed a joint special appearance in which they argued (1) that appellants failed to plead jurisdictional facts sufficient to subject them to Texas's jurisdiction, (2) that they are not Texas residents, (3) that they "have no business presence in Texas, own no property in Texas, have no offices in Texas, have no bank accounts in Texas, and have no employees or agents in Texas, " (4) that they have not maintained sufficient contacts with Texas or purposefully availed themselves of the benefits and protections of Texas laws, and (5) that exercising jurisdiction over them would offend traditional notions of fair play and substantial justice. Appellees also attached an affidavit from Syphers averring the same.

         After the parties engaged in jurisdictional discovery, appellants moved to strike Syphers's affidavit claiming that his entire affidavit was not credible because he had falsely answered some discovery requests. Appellants attached evidence purporting to show that contrary to Syphers's statements in his affidavit, he had some Texas business connections, Texas business partners, and dealings with Texas companies sufficient to establish general jurisdiction. In response, appellees filed five additional exhibits including an amended affidavit from Syphers. Appellants again objected, arguing that Syphers was continuing to make false statements under oath and that his new affidavit suffered from the same defects as the original.

         After a nonevidentiary hearing, the trial court overruled appellants' objections to appellees' special appearance evidence and granted appellees' special appearance. Although appellants timely requested findings of fact and conclusions of law, the trial court declined to file any. Appellants filed this accelerated interlocutory appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(7) (West Supp. 2017).

         Law on Personal Jurisdiction

         A Texas court may assert personal jurisdiction over a nonresident defendant only if the requirements of the Texas long-arm statute and of due process under the Fourteenth Amendment are satisfied. U.S. Const. amend. XIV, § 1; Tex. Civ. Prac. & Rem. Code Ann. §§ 17.041-.045 (West 2015); Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 137 S.Ct. 1773, 1779 (2017); TV Azteca v. Ruiz, 490 S.W.3d 29, 36 (Tex. 2016), cert. denied, 137 S.Ct. 2290 (2017). The Texas long-arm statute permits Texas courts to exercise jurisdiction over a nonresident defendant who "does business" in Texas, which includes committing a tort in whole or in part in the state. Tex. Civ. Prac. & Rem. Code Ann. § 17.042; TV Azteca, 490 S.W.3d at 36. Due process is satisfied when (1) the defendant has established minimum contacts with the forum state and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. BNSF Ry. v. Tyrrell, 137 S.Ct. 1549, 1558 (2017); TV Azteca, 490 S.W.3d at 36. In determining whether federal due process requirements have been met, we rely on precedent from the United States Supreme Court and other federal courts, as well as our own state's decisions. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002); TravelJungle v. Am. Airlines, Inc., 212 S.W.3d 841, 845-46 (Tex. App.--Fort Worth 2006, no pet.).

         The United States Supreme Court has distinguished two types of jurisdiction, depending on the types of contacts: general (all-purpose) jurisdiction and specific (case-linked) jurisdiction. BNSF Ry., 137 S.Ct. at 1558. A trial court may assert general jurisdiction over a nonresident defendant when that defendant's contacts with the forum are so continuous and systematic that they render the defendant "at home" in the forum state. Daimler AG v. Bauman, 134 S.Ct. 746, 754 (2014); TV Azteca, 490 S.W.3d at 37. The paradigm forum for exercising general jurisdiction over an individual is the person's domicile; for a corporation, it is an equivalent place in which the company is fairly regarded as at home, such as its domicile, place of incorporation, or principal place of business. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924, 131 S.Ct. 2846, 2853-54 (2011). Only a limited set of affiliations with a forum will render a defendant amenable to general jurisdiction in a state. Bristol-Myers Squibb, 137 S.Ct. at 1780.

         In contrast, a trial court may exercise specific jurisdiction over a defendant only if the suit arises out of or relates to the defendant's forum contacts. Id. In other words, specific jurisdiction depends on the existence of activity or an occurrence that takes place in the forum state and is therefore subject to its regulation. Goodyear, 564 U.S. at 919, 131 S.Ct. at 2851.

         Parties' Burdens in Trial Court and Appellate Standard of Review

         Whether a trial court has personal jurisdiction over a defendant is a question of law, which we review de novo based on all of the evidence. Searcy v. Parex Res., Inc., 496 S.W.3d 58, 66 (Tex. 2016). At trial, the plaintiff bears the initial burden to plead sufficient allegations that would permit the trial court to exercise personal jurisdiction over a defendant. Id. Once the plaintiff has done so, the defendant bears the burden to negate all potential bases for personal jurisdiction pleaded by the plaintiff. Id. The defendant can negate jurisdiction on a factual basis by presenting evidence that he has no contacts with Texas, effectively disproving the plaintiff's allegations; the plaintiff risks dismissal of its suit if it does not present the trial court with evidence affirming its jurisdictional allegations and establishing personal jurisdiction over the defendant. Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 659 (Tex. 2010). The defendant can also negate jurisdiction on a legal basis by showing that even if the plaintiff's alleged jurisdictional facts are true, (1) those facts are not sufficient ...

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