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Northwest Cattle Feeders, LLC v. O'Connell

Court of Appeals of Texas, Second District, Fort Worth

June 14, 2018

NORTHWEST CATTLE FEEDERS, LLC; RILEY LIVESTOCK, INC.; AND JEFF COX APPELLANTS
v.
JASON O'CONNELL AND TOM O'CONNELL APPELLEES

          FROM THE 271ST DISTRICT COURT OF JACK COUNTY TRIAL COURT NO. 16-06-052

          PANEL: WALKER, MEIER, and BIRDWELL, JJ.

          OPINION

          WADE BIRDWELL, JUSTICE

         This appeal arises from a modern-day cattle rustling scheme. It stems, according to Jason O'Connell, from a "problem in Texas."

         Appellants Northwest Cattle Feeders, LLC (Northwest); Riley Livestock, Inc. (Riley); and Jeff Cox appeal the trial court's order that granted the special appearance of appellees Jason O'Connell and Tom O'Connell and that dismissed claims against the O'Connells for lack of personal jurisdiction. Appellants contend that the trial court's order is erroneous because the record establishes that Texas has personal jurisdiction over the O'Connells on a theory of specific jurisdiction. We affirm the trial court's order in part, reverse it in part, and remand this case to the trial court for further proceedings.

         Background

         Midwestern Cattle Marketing, LLC (Midwestern) was a Nebraska cattle brokering company; the company matched cattle producers with cattle buyers and made a profit on the difference between the buying and selling prices. Tom O'Connell was Midwestern's chief financial officer; his nephew, Jason O'Connell, was Midwestern's president.

         Midwestern reached an agreement with Tony Lyon, a Texas resident, to buy and sell cattle on Midwestern's behalf. Tony kept the cattle on Lyon Farms in Perrin, Texas. He had a criminal history: in 2001, he was convicted and imprisoned for bank fraud. At some point, to facilitate Tony's buying cattle on Midwestern's behalf, Midwestern gave Tony one of its checkbooks along with a stamp of Jason's signature to endorse the checks.

         In 2015, Northwest, through its managing member Jeff Cox, agreed to buy 554 steers from Midwestern. Midwestern issued an invoice that stated that Northwest was buying the steers for $798, 351.19. It recited that the steers were at Lyon Farms. Riley, an investor in Northwest's business, issued Midwestern a check for the full amount of the sale, and Midwestern deposited the check into its account at Points West Community Bank (Points West). Cox went to Lyon Farms and saw the 554 steers.

         After Northwest bought the cattle, Cox let them graze in Perrin with the intention of retrieving them later. He understood that Tony would responsibly care for the cattle during the interim period and would be compensated for doing so. Northwest had previously bought cattle from Midwestern and, on those occasions, Cox had likewise allowed them to remain under Tony's control on Lyon Farms to graze before sending them to another location.

         In June 2015, Points West called Tom and told him that Midwestern's account had been overdrawn by over $1 million. Tony had led the O'Connells to believe that Midwestern would soon receive $5 million from a check written from George Cattle Company to buy cattle from Midwestern. But when Tom went to the bank, the bank's president expressed his concern that Midwestern was the victim of a check-kiting scheme by Tony, who had control over his own account in Texas and over Midwestern's account in Nebraska. As explained by Tom,

[Midwestern] had given [Tony] our checking account. [Tony was] writing a number of checks on our account, and we would . . . deposit it back to our account to cover those checks. . . . And everything was fine as long as . . . deposits came back into [Midwestern's] checking account.
Once the music stopped, . . . there [were] no seats to be sat in, and Midwestern was left holding the bag on a $5, 020, 000 deposit that was no good. So it drained all of the money that we had in our account [and] left us with a $1.3 million overdraft.

         Tom informed Jason about the overdraft, and after meeting with Tom in Nebraska, Jason told Tom that he was "going to head to Texas and see if [he could] get to the bottom of this." Jason asked Tim Correll, a business associate, to go with him to Texas to "get this figured out."

         Jason drove all night to reach Texas. On the way, Correll advised Jason to inform Midwestern's customers about what was happening. While on his way to Texas, Jason called Cox, told him that there was a "problem in Texas, " and asked him to come to Tony's property.

         On the morning of July 1, 2015, Jason confronted Tony at his property. Tony confessed to Jason that "there [was] no money, [that] he had committed fraud, [and that] there was no George Cattle Company." Jason, with Correll's assistance, decided to seize all of the cattle on Tony's property. That day, Tony and Jason signed a handwritten document stating:

Approx 850 head of cows, calves, bulls located in and around Perrin[, ] Texas are owned by [Midwestern and] Points West . . . . Cattle are roaming on pasture land owned or leased by Lyon Farms.
Lyon Farms agrees to provide care in a husbandly fashion and not move any cattle off pasture without the knowledge of Jason O'Connell or Tom O'Connell[, ] owners of [Midwestern].

         Tony later testified in a deposition,

As soon as [Jason] got to Perrin he sat down . . . and wrote this up and had [me] sign it, which I would not have signed if I had known the cattle [were] not going to Brule, Nebraska.[1]
. . . .
. . . [Jason] knew what he was wanting to do and he just [sat] down and wrote everything out. And he said, . . . I'm going to write this out, I need you to start gathering the cattle, bring[] them into this set of pens, we're going to have trucks, we're going to start sending all this stuff to Nebraska to Jeff's Northwest Cattle Feeders, and we're going to let it all wash itself out in Nebraska. And I said, that's fine.
. . . .
. . . I signed off because [the cattle were] supposed to be going to Nebraska. If he would have said, we're going to send them to here and there and yonder, I would not have signed off . . . .

         For the next several days, Jason managed the seizure of all of the cattle- approximately 900 head-from Lyon Farms and moved them away from there. The 554 steers that Northwest had bought from Midwestern and that Cox had believed to be at Tony's property were not among the cattle that Midwestern seized. While the cattle were still being seized from Lyons Farms, Cox arrived there and confronted Tony about the steers; Tony said that he had sold them to another party. Midwestern eventually sold most of the cattle that it seized; it transferred forty-one of them to Northwest.

         To repay the overdraft to Points West, the O'Connells signed a note on behalf of Midwestern and in their individual capacities.[2] They informed Points West that they intended to use proceeds from the sales of the seized cattle to help repay the overdraft.

         Northwest and Riley sued several parties, including Midwestern and Tony. In their original petition, among other causes of action, they pleaded for a constructive trust over proceeds from sales of cattle seized by Midwestern; alleged that Midwestern had committed fraud and had unjustly enriched itself; alleged that Midwestern had breached its contract for the sale of the steers; pleaded that upon seizing cattle from Tony, Midwestern had committed conversion; and alleged that Tony had committed fraud for which Midwestern was liable because Tony was Midwestern's agent. They further pleaded that the O'Connells, acting for Midwestern, had seized 892 cattle from Tony while representing to Cox that the "seized cattle would be used to try to 'make whole' both Cox and Midwestern Cattle." They alleged that Midwestern had delivered only 41 of the cattle to Northwest, had sold the remaining cattle, and had retained the proceeds.

         Midwestern filed a special appearance, alleging that Northwest and Riley's pleading did not establish personal jurisdiction over Midwestern. After Northwest and Riley filed a response to the special appearance, the trial court denied it.

         Midwestern joined Cox as a third-party defendant, [3] pleading for a declaratory judgment that Midwestern had delivered the steers under its contract with Northwest, that Cox had formed a partnership with Tony for the steers to graze on Tony's property, and that Cox was liable for any damages incurred by Northwest for the loss of the steers. Cox answered Midwestern's claims against him and brought counterclaims under the Texas Theft Liability Act, for breach of contract, and for quantum meruit. Additionally, he pleaded that because Jason and Tom had denuded Midwestern of its corporate assets, they were individually and derivatively responsible for any liability upon Midwestern.

         Northwest and Riley amended their petition multiple times. In their third amended petition, they added the O'Connells as defendants.[4] They pleaded that the O'Connells had sufficient contacts with Texas to support personal jurisdiction and that jurisdiction over them would not offend traditional notions of fair play and substantial justice. They also alleged that the claims they asserted against the O'Connells arose out of transactions that had occurred in Texas.

         More specifically, with respect to the events that occurred upon the O'Connells' discovery of Tony's fraudulent check-kiting scheme, Northwest and Riley pleaded the following:

Jeff Cox was told by representatives of [Midwestern] that "we have a problem" in Texas. . . .
In several conversations that followed, Jeff Cox was led to believe by Jason O'Connell that efforts were underway to collect any cattle found in the possession of Lyon Farms in Texas, and that the cattle collected would be used to help try to make all those impacted by Tony Lyon's fraudulent scheme whole, including [Northwest]. Specifically, Jeff Cox was led to believe that [Midwestern], [Northwest, ] and other victims would be acting together as a "team" in order to recover any losses from the fraudulent scheme . . . .
In reliance upon the representations by Jason O'Connell, Jeff Cox (at all times acting as [Northwest and Riley's] representative) refrained from taking any direct action to take possession of cattle found at Lyon Farms. Instead, acting consistently with what Jeff Cox was told by Jason O'Connell, [Northwest] accepted shipment of approximately 41 head of cattle taken from Lyon Farms for feeding and care. [Northwest] cared for the cattle, incurring approximately $16, 193.11 in costs. After finish out, the cattle were sold . . . . The net proceeds paid were $61, 268.20. In compliance with the representations of Jason O'Connell that the cattle seized were for the mutual benefit of [Northwest and Midwestern], Jeff Cox directed that the checks issued by [the buyer] be made payable to both [Northwest and Midwestern].
However, as it turns out, Jason O'Connell was not acting for the mutual benefit of [Northwest and Midwestern]. Instead, Jason O'Connell headed to Texas following a late June meeting with [Tom] and their bankers at Points West Community Bank. As a result of this meeting, Jason O'Connell [went] to Texas to confront Tony Lyon. His actions confirm that Jason O'Connell [and] Tom O'Connell . . . intended to take any cattle found in the possession of Lyon Farms for the exclusive benefit of [Midwestern].
By July 1, 2015, Jason O'Connell was in Texas . . . taking inventory of the cattle found in the possession of Lyon Farms. Jason O'Connell then drafted a document for signature by . . . Tony Lyon in order to "confirm" ownership of ...

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