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Franke v. Bollen

Court of Appeals of Texas, First District

November 5, 2019


          On Appeal from the 127th District Court Harris County, Texas Trial Court Case No. 2017-83163.

          Panel consists of Justices Kelly, Hightower, and Countiss.


          Richard Hightower Justice.

         Appellants David Franke, Bruce Nickel, Mike Schankenburg, Kent Schankenburg, and Rick Zimmer (collectively, the Investors) challenge the trial court's grant of the special appearance of appellee Johan Bollen. The Investors assert that Bollen had contacts with Texas in connection with the sale of securities to Texas residents and that his status as a control person of an entity that engaged in securities fraud in Texas supports the exercise of personal jurisdiction over him. Because we conclude that the Investors failed to allege or provide any evidence of Bollen's purported contacts with Texas that gave rise to this litigation, we affirm the trial court's grant of Bollen's plea to the jurisdiction.


         Bollen is the founder and majority shareholder in Guidewave Consulting, LLC. The Investors sued Bollen individually, Guidewave, and another Guidewave officer, Rocky Emery, alleging fraudulent inducement and securities fraud in connection with the Investors' decision to invest $495, 000 in predictive technology.

         In their original petition, the Investors alleged that Guidewave is a privately owned company based in Indiana, founded by Bollen in 2011 "to monetize predictive technology he developed while working at Indiana University." According to the Investors' petition, "Guidewave's technology allegedly allows it to analyze data from social media to determine a global 'mood' that can predict trends or outcomes including, but not limited, to financial markets, political elections, and major world events."

         The Investors alleged causes of action for fraudulent inducement and securities fraud against Guidewave, Bollen, and Emery, stating that the Guidewave parties:

jointly and severally represented, among other things, that: (1) Guidewave's social media analytics could make reliable and consistent predictions regarding movements in the financial markets, political elections, and major world events; and that (2) KPMG was going to be a 50% investor in Guidewave, which would make Guidewave a billion dollar company; and (3) that the [Investors] would earn a substantial return on their investment."

         The Investors asserted that the Guidewave parties knowingly or recklessly made these material and false representations and that the Investors relied on the misrepresentations "in their decision to invest approximately $495, 000.00, and suffered financial harm as a proximate cause of the false representations."

         The Investors further alleged that Bollen and Emergy "were the majority members and beneficial owners of Guidewave" and "[c]aused Guidewave to be used for the purpose of perpetrating and did perpetrate an actual fraud on [the Investors] for the direct personal benefit of themselves and are personally liable under the common law" and Business Organizations Code sections 101.002 and 21.223(b). And they alleged that because the Guidewave parties' "conduct relates to the sale of a security, their fraudulent conduct constitutes securities fraud."

         The Investors did not specifically identify any statements by Bollen, made either directly or indirectly, that they relied upon. Nor did the they identify the nature of their investment with Guidewave. It appears from the record that the Investors actually invested money in a third company-Predictor Technology Corp.-but that company is not a party to this lawsuit, and the Investors do not explain the relationship, if any, between Predictor and Guidewave or Bollen. The Investors alleged only that Guidewave at some point approved Emery's transfer of a portion of his own interest in Guidewave to them, without explaining when or how they paid for such a transfer. Rather, the Investors alleged the following facts in support of their fraud claims:

• Emery "was not only an investor and company officer in Guidewave, but was authorized by Guidewave and [Bollen] to solicit other investors for the purpose of raising capital to fund Guidewave's operations."
• The Investors were contacted by Emery on Guidewave's behalf in February 2014 because Emery wanted them to invest in Guidewave.
• Emery "made representations with a particular emphasis on Guidewave's purported ability to predict movements in financial markets" and Bollen "conferred with [the Investors] about Guidewave's technology and uses." Emery "for his own benefit and that of Guidewave, secured signed buy/sell agreements with" the Investors.
• The Guidewave parties used "sales tactics" that included sending the Investors Guidewave's newsletter, "as well as hand-picked 'Guidewave Alerts' and 'Guidewave Indicators of the Day,' which purported to show how closely Guidewave predicted market movements, but always after the predictions had come true."
• Emery represented "that KPMG had expressed an interest in acquiring as much as 50% of Guidewave, which, according to Mr. Emery, would '. . . make [Guidewave] a billion dollar company. . . .'"
• Emery became Guidewave's chief operating officer with a 35% ownership interest in June 2014 and "immediately agreed to sell a portion of his 35% interest in order to help capitalize Guidewave."
• Investors "understood that their investment equated to a 9.9% ownership interest in Guidewave" collectively and that their total investment was $495, 000.
• "In June 2014, the [Investors] became suspicious that something was amiss. More specifically, by this time period, none of the [Investors] had received membership certificates or any other documentation showing that they were members of Guidewave. This was particularly worrisome because several of the [Investors] had reached out to Mr. Emery asking for such documentation. Mr. Emery would always assure those who inquired that the documents would be forthcoming."
• Emery resigned his position as Guidewave's COO in December 2014 "because he planned to form a hedge fund using Guidewave's analytics." Emery "divested himself of his interest in Guidewave" by transferring his units to Bollen, "ostensibly to avoid any appearance of a conflict of interest." ...

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