United States District Court, W.D. Texas, Austin Division
MANCHESTER TEXAS FINANCIAL GROUP, LLC; MANCHESTER AUSTIN, LLC, AS ASSIGNEE OF MANCESTER TEXAS FINANCIAL GROUP, LLC; AND MANCHESTER FINANCIAL GROUP, LLC, Plaintiffs
JAY BADAME AND TISHMAN CONSTRUCTION CORPORATION, Defendants
REPORT AND RECOMMENDATION OF THE UNITED STATES
HIGHTOWER, UNITED STATES MAGISTRATE JUDGE
THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT
this Court are Defendant Tishman Construction
Corporation's Motion to Dismiss filed on May 2, 2019
(Dkt. No. 45); Defendant Jay Badame's Motion to Dismiss
filed on May 2, 2019 (Dkt. No. 46); Plaintiff's Motion
for Leave to Conduct Jurisdictional Discovery filed on June
17, 2019 (Dkt. No. 51); Plaintiff's Motion for Leave to
File Surreply filed on August 1, 2019 (Dkt. No.
and all related filings. On July 18, 2019, the District Court
referred the above motions and related filings to the
undersigned Magistrate Judge for resolution and for report
and recommendation pursuant to 28 U.S.C. § 636(b)(1),
Federal Rule of Civil Procedure 72 and Rule 1 of Appendix C
of the Local Rules of the United States District Court for
the Western District of Texas (“Local Rules”).
Financial Group, LP (“MFG”) is a California-based
commercial real estate development firm that specializes in
hotel development. Dkt. No. 39 at ¶ 10. On May 19, 2014,
MFG's corporate affiliate Manchester Texas Financial
Group, LLC (“MTFG”) entered into a construction
contract (“Contract”) with Hunt
Construction Group, Inc. (“Hunt”) to build the
Fairmont Austin Hotel, in Austin, Texas (the
“Project”). Id. at ¶ 11. The
Contract provided that Hunt would be the general contractor
and construction manager of the Project in exchange for
“Cost of the Work Plus a Fee with a Guaranteed Maximum
Price.” Id. The Contract further designated
Eric Schreiner as Hunt's corporate representative, and he
was assigned as the Project Manager. Dkt. No. 45-1 at p. 1.
The Contract also contained an Arbitration Clause requiring
all parties to arbitrate any claims or disputes arising out
of or related to the Contract. Id. at §§
February 27, 2015, the Contract was amended to establish the
“Guaranteed Maximum Price and the dates for Substantial
Completion and Final Completion of the Hotel.” Dkt. No.
39 at ¶11. The guaranteed maximum price for the
Project's construction was agreed to be $ 237, 734, 526,
the Substantial Completion date was agreed to be May 25,
2017, and the Final Completion date was agreed to be June 3,
2017. Id. Plaintiffs further contend that the timely
completion of the Project was agreed to “be of the
essence” of the parties' agreement. Id.
October 2014, MTFG's rights and obligations under
Contract were assigned to corporate affiliate Manchester
Austin Hotel, LLC (“MAH”). MTFG, however,
contends that it continued to act on behalf of MAH and MFG
with respect to the Project. Dkt. No. 39 at ¶
after the parties executed the Contract, Hunt was acquired by
AECOM, Inc., a large multinational infrastructure firm.
Plaintiffs allege that AECOM became involved in the
construction industry in 2010, when it acquired another
construction firm, Tishman Construction Corporation
(“Tishman”). Thus, with AECOM's acquisition
of Hunt, Hunt and Tishman became corporate affiliates.
Plaintiffs allege that after AECOM acquired Hunt, it did not
give the Project “the same care and attention that Hunt
. . . had in the past.” Id. at ¶ 27. In
the Fall of 2016, AECOM transferred Project Manager Schreiner
to a different construction project in California. Plaintiffs
contend that AECOM failed to appoint a new Project Manager to
oversee the Project. Id. at ¶ 30.
heavy rainfall in the Spring of 2015, Plaintiffs agreed to
move the Substantial Completion Date of May 25, 2017 to
August 9, 2017. Id. at ¶ 28. After Plaintiffs
became aware of more construction delays, MFG President
Richard Gibbons sent Hunt a “Notice of Claims”
expressing his concern that the Project was significantly
behind schedule. Id. at ¶ 35. In response, Hunt
scheduled a meeting with Plaintiffs to discuss the Project.
On March 31, 2107, Tishman's Chief Operating Officer and
President, Jay Badame, and Hunt's Chief Operating Officer
and President, Michael Frattiani, met with Plaintiffs in
Austin. Id. at ¶ 37. Plaintiffs allege that
Badame acknowledged at the meeting that the August 9, 2017
Substantial Completion Date could not be met, but assured
Plaintiffs that Hunt would deliver the Project in a timely
and efficient manner and that he would provide a new project
schedule by April 15, 2017. Id. at ¶ 40.
April 15, 2017, Hunt's Executive Vice President Bill
Morthland informed Plaintiffs that the new Substantial
Completion Date would be September 20, 2017. Id. at
¶ 43. On April 19, 2017, Hunt representatives Jose
Pienknagura and Michael Frattiani met with Plaintiffs again
and allegedly gave Plaintiffs the ultimatum to either (1) pay
$3.6 million and have the Project completed by September 20,
2017; (2) pay $2, 063, 000 and have the Project completed by
October 15, 2017; or (3) make no payments to cover
acceleration costs and the Project would not be done until
the end of 2017. Id. at ¶ 46. Plaintiffs agreed
to pay the $3.6 million to Hunt so that the Project would be
completed by September 20, 2017. Id. at ¶ 51.
Although Plaintiffs made the first two installment payments,
totaling approximately $2.7 million, they did not make the
third installment to Hunt. Id. at ¶ 55.
allege that Hunt did not meet the Substantial Completion Date
of September 20, 2017. Id. at ¶ 56. On March 7,
2018, Plaintiffs decided to open the Hotel although the
Project was not completed. Id. at ¶ 59.
Plaintiffs allege that “40% of the rooms and many of
its amenities were unavailable.” Id.
Plaintiffs allege that a Certificate of Substantial
Completion has not yet been issued, and that the Hotel is
operating pursuant to a Temporary Certificate of Occupancy.
further allege that: “DEFENDANTS strung PLAINTIFFS
along month after month by lying about many things,
concealing others, and always dangling the prospect of
completion of the Hotel at a point in the future just close
enough for Manchester to reasonably believe they could hit
their target if they made the effort they promised, and not
so far away that it would make sense for MANCHESTER to
replace Hunt.” Id. at ¶ 60. Plaintiffs
allege that Hunt and Tishman, through Badame, made numerous
false representations that the Project would be complete by
September 20, 2017. Id. at ¶¶ 57-59.
to the Arbitration Clause contained in the Contract,
Plaintiffs have initiated arbitration proceedings against
Hunt in this case and are seeking $100 million from Hunt.
See Dkt. No. 45 p. 3. In addition to the arbitration
proceeding, Plaintiffs filed the instant lawsuit in state
court against AECOM, Inc., AECOM Tishman f/k/a Tishman
Construction (“Tishman”), and Jay Badame,
alleging fraud (intentional misrepresentation,
non-disclosure, and no intent to perform) and negligent
misrepresentation. See Manchester Texas Financial Group
LLC v. AECOM, Inc., D-1-GN-18-007014 (419th Dist. Ct.
Travis County, Tex. Nov. 21, 2018).
January 3, 2019, AECOM, Tishman and Badame removed this case
to federal court on the basis of diversity jurisdiction
pursuant to 28 U.S.C. § 1332. Dkt. No. 1. On April 11,
2019, the District Court granted Plaintiffs' Voluntary
Notice of Dismissal of Defendant AECOM. Dkt. No. 37. On April
11, 2019, Plaintiffs filed their First Amended Complaint
against Tishman and Badame, once again alleging fraud and
negligent misrepresentation. Plaintiffs seek over $50 million
and Badame have now filed Motions to Dismiss arguing that
Plaintiff's lawsuit should be dismissed under Federal
Rules of Civil Procedure 12(b)(1), 12(b)(2), 12(b)(6), and
12(b)(7). The Court will address the merits of both Motions
Fifth Circuit has held that a district court lacks subject
matter jurisdiction over a case and should dismiss it
pursuant to Federal Rule of Civil Procedure 12(b)(1) when the
parties' dispute is subject to binding arbitration.
Gilbert v. Donahoe, 751 F.3d 303, 306-07 (5th Cir.
2014). The burden of proof for a 12(b)(1) motion to dismiss
is on the party asserting jurisdiction. Id. at 307.
In order to bear that burden, the party “must prove by
a preponderance of the evidence that the court has
jurisdiction based on the complaint and evidence.”
Id. However, “a motion to dismiss for lack of
subject matter jurisdiction should be granted only if it
appears certain that the plaintiff cannot prove any set of
facts in support of his claim that would entitle plaintiff to
Rule of Civil Procedure 12(b)(2) requires a court to dismiss
a claim if the court does not have personal jurisdiction over
the defendant. Fed.R.Civ.P. 12(b)(2). “If . . . the
court rules on personal jurisdiction without conducting an
evidentiary hearing, the plaintiff bears the burden of
establishing only a prima facie case of personal
jurisdiction.” Sangha v. Navig8 ShipManagement
Private Ltd., 882 F.3d 96, 101 (5th Cir. 2018).
“The district court is not obligated to consult only
the assertions in the plaintiff's complaint in
determining whether a prima facie case for jurisdiction has
been made. Rather, the district court may consider the
contents of the record at the time of the motion . . .
.” Id. (internal quotations and citations
omitted). “Although jurisdictional allegations must be
accepted as true, such acceptance does not automatically mean
that a prima facie case for [personal] jurisdiction has been
presented.” Id. The plaintiff must prove that
the court has jurisdiction over the defendant with regard to
each claim. Seiferth v. Helicopteros Atuneros, Inc.,
472 F.3d 266, 275 (5th Cir. 2006).
Rule of Civil Procedure 12(b)(6) allows a party to move to
dismiss an action for failure to state a claim upon which
relief can be granted. Fed.R.Civ.P. 12(b)(6). In deciding a
Rule 12(b)(6) motion to dismiss for failure to state a claim,
“[t]he court accepts all well-pleaded facts as true,
viewing them in the light most favorable to the
[nonmovant].” In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal
quotation marks omitted) (2008). While a complaint attacked
by a Rule 12(b)(6) motion does not need detailed factual
allegations in order to avoid dismissal, the plaintiff's
factual allegations “must be enough to raise a right to
relief above the speculative level.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555 (2007). The Supreme
Court has explained that a court need not accept as true
conclusory allegations or allegations stating a legal
conclusion. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). A complaint must contain sufficient factual matter
“to state a claim to relief that is plausible on its
face.” Id. (quoting Twombly, 550 U.S.
at 570). “A claim has facial plausibility when the
[nonmovant] pleads factual content that allows the court to
draw the reasonable inference that the [movant] is liable for
the misconduct alleged.” Id.
Defendant Tishman's Motion to Dismiss
argues that Plaintiffs' lawsuit should be dismissed
because (1) the Contract's arbitration clause deprives
the Court of subject matter jurisdiction, and (2) the
economic loss rule prohibits Plaintiffs from repackaging
their contract claims against Hunt as tort claims against
Tishman. Alternatively, Tishman argues that Plaintiffs have
failed to plead fraud and negligent misrepresentation with
particularity, Hunt is an indispensable party that cannot be
joined, and therefore dismissal is warranted under Rule
12(b)(7). The Court addresses the arbitration issue first.
Contract between MTFG and Hunt provides that “[c]laims,
disputes, or other matters in controversy arising out of or
related to the Contract . . . shall be subject to mediation
as a condition precedent to binding dispute
resolution.” Dkt. No. 45-1 at § 15.3.1 It also
contains the following arbitration clause:
Any Claim subject to, but not resolved by, mediation shall be
subject to arbitration which, unless the parties mutually
agree otherwise, shall be administered by the American
Arbitration Association in accordance with its Construction
Industry Arbitration Rules in effect on the date of the
Id. at § 15.4.1 (“Arbitration
Tishman was not a signatory to the Contract, Tishman argues
that the Arbitration Clause applies to Plaintiffs' claims
in this lawsuit because those claims all arise of out of the
underlying provisions of the Contract. Plaintiffs argue that
there is not a valid agreement to arbitrate between
Plaintiffs and Tishman because Tishman was not a signatory to
the Contract. In other words, Plaintiffs argue that the only
valid arbitration agreement is between Plaintiffs and
signatory Hunt, not Tishman.
The Law ...