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Phoneternet, LLC v. Lexisnexis Risk Solutions, Inc.

United States District Court, N.D. Texas, Dallas Division

September 30, 2019

PHONETERNET, LLC d/b/a MAESTRO, Plaintiff,
v.
LEXISNEXIS RISK SOLUTIONS, INC. and RELX, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          Sam A. Lindsay United States District Judge.

         Before the court is Defendants’ Joint Motion to Dismiss Plaintiff’s Third Amended Complaint (Doc. 27); and RELX Inc.’s Motion to Dismiss Third Amended Complaint (Doc. 26). Both motions were filed January 28, 2019. After considering the motions, briefs, pleadings, and applicable law, the court grants Defendants’ Joint Motion to Dismiss Plaintiff’s Third Amended Complaint (Doc. 27); grants RELX Inc.’s Motion to Dismiss Third Amended Complaint (Doc. 26); and dismisses with prejudice all claims and requests for relief asserted and requested by Plaintiff against Defendants in this action.

         I. Factual and Procedural Background

         Plaintiff Phoneternet, LLC d/b/a Maestro (“Plaintiff” or “Phoneternet”) originally brought this action against Defendant LexisNexis Risk Solutions, Inc. (“LexisNexis”) on June 5, 2018. After the case was removed to federal court, Plaintiff amended its pleadings to add RELX Inc. (“RELX”) as a defendant. The court refers to LexisNexis and RELX collectively as “Defendants.”

         In its Third Amended Complaint (“Complaint”) (Doc. 25), Plaintiff alleges that, in early 2017, “the Lexus Division of the Toyota Motor Corporation (hereinafter, Toyota) approached [it] to provide [its] personal assistant service, ‘MyStar’ to its Lexus Division under the ‘Lexus’ brand”; that “Toyota and Phoneternet immediately entered into extensive negotiations, demos, and marketing creation to finalize the deal”; and that consummation of the deal was contingent on Phoneternet having a “clean business report” as determined by Toyota’s procurement department. Pl.’s Compl. 2-3. Plaintiff further alleges that Toyota obtained a business report from Experian Business Credit Services (“Experian”), as well as LexisNexis, and was unhappy with what both reports revealed about Phoneternet’s business credit rating and informed Plaintiff:

At this point since all we have to go on is Experian and LexisNexis information and as I pointed out yesterday we need to protect our brand at all costs. Once you have worked out any potential changes please reach back out to me and we can then have risk management re-evaluate at that point.

Id. at 4.

         Plaintiff alleges that, after it notified Experian by letter on July 20, 2017, regarding discrepancies in the Experian business credit advantage report obtained by Toyota, Experian updated Phoneternet’s credit report on August 23, 2017, which raised Phoneternet’s business credit score. Plaintiff alleges that, on July 21, 2017, it similarly notified LexisNexis regarding 15 discrepancies and errors in the LexisNexis database related to Phoneternet, provided supporting documentation, and requested LexisNexis to correct the incorrect information, but LexisNexis did not respond until October 6, 2017.

         According to Plaintiff, LexisNexis stated in a letter on this date that it had “modified ‘the data as requested, ’ when in fact LexisNexis only changed one of the fifteen discrepancies” identified by Phoneternet. Id. at 6. Plaintiff alleges that it subsequently:

began to contact LexisNexis at least three times a week at its phone number of 1-800-382-6228 which is for the LexisNexis Small Business Advocacy Center (SBAC). Plaintiff spoke with the LexisNexis customer service team, managers and supervisors on numerous occasions who each assured Plaintiff that Plaintiff’s information would be updated in the database. Plaintiff was informed more than once that the issue of Phoneternet’s data had been passed upon by senior decision makers at LexisNexis and would be fixed promptly. But the promised action never materialized.

Id.

         Plaintiff alleges that, on November 16, 2017, it was informed that Toyota had decided to not use Phoneternet because of the issues with its business report. Plaintiff further alleges that it sent LexisNexis a final letter on January 2, 2018, to again request that LexisNexis correct the incorrect information in its database regarding Phoneternet; that LexisNexis notifed Plaintiff, on February 12, 2018, that it had made one additional change to Phoneternet’s business report but failed to explain why the other requested changes had not been made; and that, to date, LexisNexis has failed to correct these errors in its database. Plaintiff alleges that, as a result of these errors and the failure to correct errors brought to its attention, it lost the contract with Toyota, and its future business prospects with other business partners will be negatively effected if the errors are not corrected.

         Plaintiff alleges various Texas tort claims against Defendants for negligence; business disparagement; negligent misrepresentation; tortious interference with prospective business relations; and negligent breach of special duty. Plaintiff also asserts a claim for equitable relief based on promissory estoppel and seeks injunctive relief. Plaintiff alleges that RELX, as the parent company of LexisNexis, is jointly reliable for LexisNexis’s conduct based on alter ego and joint enterprise theories of liability. On January 28, 2019, Defendants moved, pursuant to Federal Rule of Civil Procedure 12(b)6), to dismiss all claims asserted against them.

         II. Rule 12(b)(6) Standard

         To defeat a motion to dismiss filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Reliable Consultants, Inc. v. Earle, 517 F.3d 738, 742 (5th Cir. 2008); Guidry v. American Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007). A claim meets the plausibility test “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a ‘probability requirement, ’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted). While a complaint need not contain detailed factual allegations, it must set forth “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (citation omitted). The “[f]actual allegations of [a complaint] must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. (quotation marks, citations, and footnote omitted). When the allegations of the pleading do not allow the court to infer more than the mere possibility of wrongdoing, they fall short of showing that the pleader is entitled to relief. Iqbal, 556 U.S. at 679.

         In reviewing a Rule 12(b)(6) motion, the court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mutual Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007); Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In ruling on such a motion, the court cannot look beyond the pleadings. Id.; Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). The pleadings include the complaint and any documents attached to it. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). Likewise, “‘[d]ocuments that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff’s complaint and are central to [the plaintiff’s] claims.’” Id. (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)). In this regard, a document that is part of the record but not referred to in a plaintiff’s complaint and not attached to a motion to dismiss may not be considered by the court in ruling on a 12(b)(6) motion. Gines v. D.R. Horton, Inc., 699 F.3d 812, 820 & n.9 (5th Cir. 2012) (citation omitted). Further, it is well-established and ‘“clearly proper in deciding a 12(b)(6) motion [that a court may] take judicial notice of matters of public record.”’ Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (quoting Norris v. Hearst Trust, 500 F.3d 454, 461 n.9 (5th Cir. 2007) (citing Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994)).

         The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid claim when it is viewed in the light most favorable to the plaintiff. Great Plains Trust Co. v. Morgan Stanley Dean Witter, 313 F.3d 305, 312 (5th Cir. 2002). While well-pleaded facts of a complaint are to be accepted as true, legal conclusions are not “entitled to the assumption of truth.” Iqbal, 556 U.S. at 679 (citation omitted). Further, a court is not to strain to find inferences favorable to the plaintiff and is not to accept conclusory allegations, unwarranted deductions, or legal conclusions. R2 Invs. LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005) (citations omitted). The court does not evaluate the plaintiff’s likelihood of success; instead, it only determines whether the plaintiff has pleaded a legally cognizable claim. United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004). Stated another way, when a court deals with a Rule 12(b)(6) motion, its task is to test the sufficiency of the allegations contained in the pleadings to determine whether they are adequate enough to state a claim upon which relief can be granted. Mann v. Adams Realty Co., 556 F.2d 288, 293 (5th Cir. 1977); Doe v. Hillsboro Indep. Sch. Dist., 81 F.3d 1395, 1401 (5th Cir. 1996), rev’d on other grounds, 113 F.3d 1412 (5th Cir. 1997) (en banc). Accordingly, denial of a 12(b)(6) motion has no bearing on whether a plaintiff ultimately establishes the necessary proof to prevail on a claim that withstands a 12(b)(6) challenge. Adams, 556 F.2d at 293.

         III. Analysis

         A. RELX’s Motion to Dismiss

         RELX moves to dismiss all claims against it, contending that, as a matter of law, it cannot be held liable for LexisNexis’s alleged conduct under the alter ego or joint enterprise theories alleged by Plaintiff. RELX contends that, under the Texas Business Organizations Code, “a defendant who owns a corporation is not liable for ‘any contractual obligation of the corporation or any matter relating to or arising from the obligation on the basis that . . . [the defendant] . . . is or was the alter ego of the corporation.” RELX Mot. 3-4 (quoting Tex. Bus. Orgs. Code Ann. § 21.223(a)(2)). RELX asserts that, “if an obligation falls within the purview of Section 21.223(a), then the statute is the only mechanism for imputing liability onto a corporation’s owner, and all other theories are preempted” because section 21.224 provides that section 21.223 “is exclusive and preempts any other liability imposed for that obligation under common law or otherwise.” RELX Mot. 3.

         RELX, therefore, argues that Plaintiff’s claims against it, that are based on alter ego and joint enterprise theories, are barred by statute. In addition, RELX contends that the “joint enterprise” theory of liability “has been rejected by the Texas Supreme Court and the Texas Legislature.” Id. at 5 (citing SSP Partners v. Gladstrong Inv. Corp., 275 S.W.3d 444, 456 (Tex. 2008), for the proposition that “‘[t]he single business enterprise liability theory is fundamentally inconsistent with the approach taken by the Legislature in Section 21.223.”). RELX also contends that Plaintiff’s allegations are insufficient to bring its claims within the statutory exception of actual fraud, which requires a plaintiff to plead that “the defendant used the corporation for the purpose of perpetrating, and did perpetrate, an actual fraud on the plaintiff primarily for the defendant’s direct personal benefit.” RELX Mot. 4 (citing Tex. Bus. Orgs. Code Ann. § 21.223(b); Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1035 (5th Cir. 2010); and Saeed v. Bennett-Fouch Assoc., LLC, No. 3:11-CV-1134-F, 2012 WL 13026741, at *4 (N.D. Tex. Aug. 28, 2012)).

         Phoneternet concedes in response to RELX’s Motion to Dismiss that its claims, to the extent based on an alter ego theory, are barred by statute and acknowledges that the fraud exception does not apply because it has not pleaded a fraud-based theory of piercing the corporate veil. Phoneternet, nevertheless, maintains that its joint enterprise theory of liability survives because the statute does not expressly bar claims based on this theory, and the Texas Supreme Court in SSP Partners concluded that the “single business enterprise liability theory” was inconsistent with the statute, not the joint enterprise theory relied on by it.

         RELX disagrees with the latter contention and argues that the statute applies “‘whatever label might be given’ to a plaintiff’s attempt to treat corporate entities as a single entity.” RELX Reply 2 (quoting Southern Union Co. v. City of Edinburg, 129 S.W.3d 74, 87 (Tex. 2003), for the proposition that “the predecessor to Section 21.224 controls, and is the ‘exclusive means for imposing liability on a corporation for the obligations of another corporation in which it holds shares’”). RELX asserts that the court in Biliouris v. Sundance Resources, Incorporated, No. 3:07-CV-1591-N, 2010 WL 11515566 (N.D. Tex. Aug. 11, 2010), reached the same result and concluded that it could not “impose joint and several liability based on the joint enterprise theory without a finding of actual fraud, as required by section 21.223(b).” RELX, thus, contends that the joint enterprise theory of liability under Texas common law is likewise barred by sections 21.223 and 21.224 of the Texas Business Organizations Code, and any claim by Plaintiff against it on this theory or an alter ego theory should be dismissed with prejudice. The court agrees.

         Texas law on this issue is quite clear. Accordingly, based on the authority in RELX’s motion and reply brief, the court determines that Plaintiff’s claims against RELX that are premised on alter ego and joint enterprise theories of liability fail as a matter of law, as they are barred by the Texas Business Organizations Code and Texas case law interpreting the statute. Moreover, as noted, Phoneternet concedes that its alter ego theory is barred by the statute, and it acknowledges that the fraud exception is inapplicable. Accordingly, the court will grant RELX’s Motion to Dismiss and dismiss will prejudice all claims by Phoneternet against RELX. Thus, in addressing Defendants’ Joint Motion to Dismiss, the court will only consider whether, under Rule 12(b)(6), Plaintiff has stated any valid claims against LexisNexis upon which relief can be granted.

         B. Defendants’ Joint Motion to Dismiss

         1. Negligence

         The elements of a negligence claim under Texas common law are the existence of a duty; a breach of that duty; and damages proximately caused by that breach. Kroger Co. v. Elwood, 197 S.W.3d 793, 794 (Tex. 2006) (citations omitted). The threshold issue in any negligence case is whether the defendant owed a duty to the plaintiff. Pagayon v. Exxon Mobil Corp., 536 S.W.3d 499, 503 (Tex. 2017) (footnote and citations omitted). Whether a duty exists is “a question of law for the court to decide from the facts surrounding the occurrence in question.” Id. (footnote and citations omitted).

         Plaintiff’s Complaint includes the following list of acts or omissions that form the bases for its negligence claim:

a. Providing false, misleading, and out-of-date information about Plaintiff to third parties, including Toyota and Plaintiff;
b. Failing to maintain up-to-date and correct data to be sold to third parties, including Toyota and Plaintiff;
c. Selling information and data about Plaintiff without conducting due diligence or making updates and corrections;
d. Failing to promptly respond to Plaintiff’s initial and subsequent “fix requests” for correcting errors in the data that rendered its use false and misleading;
e. Intentionally delaying the correction of the false information;
f. Failing to timely correct false data and information;
g. Failing to inform Plaintiff of the status of the corrections to the data;
h. Failing and knowingly refusing to fix or correct errors in the data prove[d] to be incorrect by the Plaintiff;
i. Failing to maintain Plaintiff’s public records which [LexisNexis] claims to possess for third parties correctly;
j. Failing to notify Plaintiff of reasons why [LexisNexis] failed to fix its errors;
k. Failing to notify Toyota that it had been informed and knew that the report it furnished to Toyota ...

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