Daniel M. Isard v. Fred C. Dickey, Jr. and Ricardo Lopez; Allegiance Capital, L.L.C.; Border Funerals, Inc.--Appeal from 49th Judicial District Court of Webb County

No. 04-00-00239-CV

Daniel M. ISARD,

Appellant

v.

Fred C. DICKEY, Jr. and Ricardo Lopez,

Appellees

From the 49th Judicial District Court, Webb County, Texas

Trial Court No. 1999CVF001080-D1

Honorable Manuel R. Flores, Judge Presiding

Opinion by: Tom Rickhoff, Justice

Sitting: Tom Rickhoff, Justice

Alma L. L pez, Justice

Sarah B. Duncan, Justice

Delivered and Filed: August 30, 2000

AFFIRMED

This is an accelerated appeal from the trial court's denial of a special appearance by Daniel M. Isard, a resident of Phoenix, Arizona. We find the trial court did not abuse its discretion in concluding that Isard's nondisclosure of his close ties to the appellees' lender while serving as the appellees' "exclusive business consultant" was sufficient purposeful contacts to satisfy due process.

BACKGROUND

Fred Dickey and Ricardo Lopez (collectively, the appellees) owned and operated the Nieto Dickey, Lopez Funeral Home in Laredo, Texas. They were shareholders in Border Funerals, Inc. In 1997, a representative of Loewen Group International, Inc. contacted Dickey about purchasing Loewen's funeral home businesses in San Benito and Brownsville, Texas. In April 1997, Dickey contacted Isard to obtain his help in evaluating the Loewen funeral home businesses. In May 1997, Foresight M&A, Inc. and Border entered into a Business Acquisition Agreement (1) and a Business Financing Agreement. (2) Isard is the president of Foresight.

In December 1997, Border borrowed money from Allegiance Capital, L.L.C. to buy the two Loewen funeral homes. Isard is the vice president and a twenty percent owner of Allegiance. The appellees guaranteed the debt, and pledged their stock in Border as collateral for the debt. Upon default, Allegiance exercised its proxy rights in the Border stock, voted the stock, and added additional directors to the Border board of directors. The new board then removed the appellees as officers of the corporation and installed new officers.

Border and Allegiance instituted suit against the appellees in a Texas court. Border sued the appellees for conversion, breach of fiduciary duty, self-dealing, and fraud. Allegiance sued the appellees for breach of their guarantees of Border's debt and, derivatively, for all claims asserted by Border. The appellees countersued Border, Allegiance, and Isard for fraud in a stock transaction, Texas Deceptive Trade Practices violations, common-law fraud, breach of fiduciary duty, negligent representation, conspiracy, conversion, and other derivative claims. The appellees alleged, in part, that Isard did not disclose the conflict of interest that arose from his ownership interests in Foresight and Allegiance.

Isard filed a special appearance, asserting the Texas court did not have personal jurisdiction over him. After a hearing, the trial court denied the special appearance and filed findings of fact and conclusions of law. This appeal by Isard followed.

SPECIAL APPEARANCE

Isard asserts the trial court does not have specific or general jurisdiction over him. He relies on the fiduciary shield doctrine, arguing that all his contacts with Texas were in his capacity as an officer of Foresight, not in his individual capacity.

Standard of Review

On interlocutory appeal, we review the granting of a special appearance for an abuse of discretion. Magnolia Gas Co. v. Knight Equip. & Mfg. Corp., 994 S.W.2d 684, 689 (Tex. App.-San Antonio 1998, no pet.). Under an abuse of discretion standard, we may not disturb a trial court's resolution of factual issues unless the trial court could reasonably have reached only one decision. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992). With regard to legal issues, we are much less deferential. Id. at 840. A clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion. Id.

A Texas Court may exercise jurisdiction over a nonresident if: (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of jurisdiction comports with due process. See Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991). The broad language of the long-arm statute permits an expansive reach, limited only by federal constitutional requirements of due process. See Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990). The entire test thus collapses into the single question of whether it is consistent with federal constitutional requirements of due process for Texas to assert personal jurisdiction over the defendant. See Disney Enters., Inc. v. Esprit Finance, Inc., 981 S.W.2d 25, 29 (Tex. App.-San Antonio 1998, pet. dism'd w.o.j.). Under the federal constitutional test of due process, a state may assert personal jurisdiction over a nonresident defendant if: (1) the defendant has purposefully established minimum contacts with the forum state, and (2) the exercise of jurisdiction comports with fair play and substantial justice. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985).

In analyzing minimum contacts, it is not the number but rather the quality and nature of the nonresident's contacts with the forum state that is important. See Memorial Hosp. Sys., 835 S.W.2d at 650. The exercise of personal jurisdiction is proper when the contacts proximately result from actions of the nonresident defendant that create a substantial connection with the forum state. See Guardian Royal, 815 S.W.2d at 226. However, the constitutional touchstone remains whether the nonresident defendant purposefully established minimum contacts in the forum state. See id., citing Burger King, 471 U.S. at 474, 105 S. Ct. 2174. This requirement that a defendant purposefully avail himself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws, ensures that a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts, or of the unilateral activity of another party or a third person. See Burger King, 471 U.S. at 475, 105 S. Ct. 2174.

Foreseeability is also an important consideration in deciding whether the nonresident has purposefully established minimum contacts with the forum state. See Guardian Royal, 815 S.W.2d at 227. The concept of foreseeability is implicit in the requirement that there be a substantial connection between the nonresident defendant and Texas arising from action or conduct of the nonresident defendant purposefully directed toward Texas. See id. If the tort-feasor knows that the brunt of the injury will be felt by a particular resident in the forum state, he must reasonably anticipate being haled into court there to answer for his actions. See Memorial Hosp. Sys. v. Fisher Ins. Agency, Inc., 835 S.W.2d 645, 650 (Tex. App.-Houston [14th Dist.] 1992, no writ).

The minimum contacts analysis has been refined to two types of jurisdiction-specific and general. Specific jurisdiction exists when the cause of action arises out of or relates to the nonresident defendant's contacts with Texas. See Guardian Royal, 815 S.W.2d at 230. There must be a substantial connection between the nonresident's action or conduct directed toward Texas and the cause of action in Texas. See Memorial Hosp. Sys., 835 S.W.2d at 650. When specific jurisdiction is asserted, the minimum contacts analysis focuses on the relationship among the defendant, the forum, and the litigation. See id. General jurisdiction exists when the defendant's contacts with Texas are continuous and systematic, even if the cause of action does not arise from or relate to activities conducted within Texas. See CSR Ltd. v. Link, 925 S.W.2d 591, 595 (Tex. 1996). The general jurisdiction analysis is more demanding than the specific jurisdiction analysis and requires a showing of substantial activity in the forum state. See id. The minimum contacts requirement is satisfied if either specific or general jurisdiction exists, and a nonresident defendant must negate all bases of personal jurisdiction to prevail in a special appearance. See id. at 595-96. Fiduciary Shield Doctrine

Isard asserts that the fiduciary shield doctrine prevents his contacts with Texas from serving as a basis for personal jurisdiction, because the contacts he had with Texas were in his representative capacity. He relies on the following facts to assert that he is not amenable to process in Texas. Isard is currently a resident of Phoenix, Arizona and has been for more than 15 years. He resided in Texas between 1981 and 1984 and owned a residence in Texas from 1981 to 1985. Since 1984, Isard has not maintained a place of business in Texas, has not had agents, servants, or employees resident within Texas, nor has he recruited any Texas resident for employment inside or outside Texas. Since 1985, Isard has not had any telephone numbers, telephone listings, bank accounts, real property, or personal property in Texas. He has never filed any lawsuits in Texas requesting affirmative relief. He does not have, and never has had, a registered agent for service in Texas. Foresight was formed under the laws of Arizona in 1995, and has always maintained its only office and place of business in Phoenix, Arizona. Since 1995, Isard has served as president of Foresight. Isard was not a party to and did not sign either agreement between Foresight and Border. Isard's wife signed the agreements as an officer of Foresight. Isard has never had any contact or communication with Lopez. All payments received from Border under the agreements were paid directly to Foresight, not Isard. He was served with process on the underlying lawsuit in Kansas City, Missouri.

Under the fiduciary shield doctrine, jurisdiction over an individual generally cannot be based on jurisdiction over a corporation with which he is associated unless the corporation is the alter ego of the individual. See Vosko v. Chase Manhattan Bank, N.A., 909 S.W.2d 95, 99-100 (Tex. App.-Houston [14th Dist] 1995, writ denied); Leon Ltd. v. Albuquerque Commons Partnership, 862 S.W.2d 693, 708 (Tex. App.-El Paso 1993, no writ). Isard contends that all his contacts with Border and Dickey were in his capacity as an officer of Foresight and in connection with the formation and performance of the two agreements between Border and Foresight. Isard argues that before the December 1997 closing of the deal between the parties, his contact with Dickey on behalf of Foresight occurred outside of Texas.

We agree with Isard that the appellees must establish that Foresight was his alter ego to impose liability on him based on his actions as a Foresight officer. However, the appellees' claims against Isard arise, in part, from his allegedly not disclosing to them the fact that he was an officer and twenty percent owner of Allegiance. The appellees contend this conflict of interest resulted in their economic harm. The trial court made the following findings of fact with regard to this claim:

1. Defendants' claims against Isard all arise, in part, from the loan transaction being sued upon by Allegiance.

2. Unbeknownst to Defendants and Border, Isard had also been engaged in his individual capacity by a lender, Defendant Allegiance, to assist Allegiance in making a loan to Defendants and/or Border on terms favorable to Allegiance. Throughout nearly the entire period of time during 1997 that Defendants believed Isard was providing consulting services to them, Isard was also working with Michael McDermitt to establish the company with [sic] ultimate [sic] became Plaintiff Allegiance Capital, L.L.C. during September 1997. Isard withheld from Defendants the fact that while purporting to serve Defendants as their exclusive acquisition consultant in evaluating and negotiating the acquisition of the two Texas funeral home businesses from Loewen, and also purportedly obtaining financing on favorable terms from Allegiance, Isard was in fact serving Allegiance's interests as Vice President and twenty percent owner of Allegiance. . . . .

3. As the Vice President and twenty percent owners [sic] of Allegiance, Isard sought to loan money to Defendants and Border on terms as profitable and advantageous to Allegiance as possible. He therefore purported to offer professional business advice to Defendants, as their exclusive acquisition consultant, while withholding from them the fact that he was the Vice President of Allegiance. In order to induce Defendants and Border to acquire the San Benito and Brownsville funeral homes with money borrowed from Allegiance, Isard prepared or caused to be prepared a false forecast purporting to show that the Brownsville and San Benito funeral homes would generate sales and earnings far in excess of what would be required to service and pay off a loan from Allegiance for acquiring these businesses. . . . . To protect Allegiance from eventual failure of the two acquired businesses to make the excessively high Allegiance loan payments, Isard and Allegiance caused Defendants and Border to pledge their existing Laredo funeral business to Allegiance as security for the loan. With Defendants and Border's existing Laredo funeral business pledged as collateral, Isard and Allegiance could profit from the Allegiance loan as long as it lasted, and then reap additional profits from [the] sale of all three funeral businesses when Defendants eventually defaulted on the excessively high Allegiance loan.

4. [W]ithout knowledge that Isard was secretly functioning to serve Allegiance, Defendants and Border entered in [sic] the credit and promissory note with Plaintiff, Allegiance.

If Isard had a duty to disclosure his relationship with Allegiance, (3) then the claims against him are individual in nature and not the result of his position as an officer of Foresight. Therefore, we address whether Isard's personal contacts with Texas give rise to either specific or general jurisdiction.

Specific Jurisdiction

The appellees claim they were injured because Isard did not disclose his ties to Allegiance. Single or even occasional acts are not sufficient to support jurisdiction if their nature and quality and the circumstances of their commission create only an attenuated affiliation with the forum state. However, a single act may support jurisdiction if it creates a substantial connection with the forum state and the contact is such that the prospect of being sued in the forum state is reasonably foreseeable. See Oden v. Marrs, 880 S.W.2d 451, 456 (Tex. App.-Texarkana 1994, no writ).

Foresight contracted with Border to act as Border's "exclusive business consultant" for the purpose of locating a business available for purchase, and to use "good faith" and "reasonable efforts" to "secure" financing. Isard controls Foresight. Foresight "secured" financing from Allegiance. Isard is a vice president and twenty percent owner of Allegiance. The Allegiance loan was made to Texas residents to assist them in purchasing two businesses located in Texas. The sale of the businesses and the funding of the sale were closed in Texas. Isard was present at the closing. Allegiance anticipated a profit from its loan to Border. Isard's association with Foresight and Allegiance created a potential conflict of interest that he, allegedly, did not disclose to the appellees. When Isard did not disclose his close ties with Allegiance, knowing that the appellees were relying on his expertise to assist them in obtaining funding favorable to them, he should have anticipated being haled into a Texas court to answer for the injurious results of his acts or omissions.

This single act of nondisclosure on Isard's part is sufficient to create a "substantial connection" with the forum. See Guardian Royal, 815 S.W.2d at 230 n.12 (noting that even a single act can support jurisdiction); see also CSR Ltd., 925 S.W.2d at 597 (one sale of 363 tons of raw asbestos shipped directly to Texas not sufficient to establish jurisdiction because sale was not directed toward Texas); Zac Smith & Co. v. Otis Elevator Co., 734 S.W.2d 662, 666 (Tex. 1987) (although elevator contract was just one intermediate step toward finalizing construction project, because finalization of project was the real object of the business transaction, jurisdiction over Smith for breach of elevator contract was proper); Memorial Hosp. Sys., 835 S.W.2d at 651 (single telephone call in which defendant gave plaintiff false information was sufficient to establish jurisdiction). Whether Isard's actions were proper is not before us today. All we decide is whether the trial court abused its discretion in concluding that Isard's alleged nondisclosure of his close ties to Allegiance was sufficient purposeful minimum contacts with this State to satisfy due process.

Fair Play and Substantial Justice

Having determined that Isard had sufficient minimum contacts in Texas, we must now decide whether the state court's assertion of in personam jurisdiction comports with "traditional notions of fair play and substantial justice." See Guardian Royal, 815 S.W.2d at 228. In this inquiry, it is incumbent upon the defendant to present "a compelling case that the presence of some consideration would render jurisdiction unreasonable." Id. at 231 (quoting Burger King, 471 U.S. at 477-78, 105 S. Ct. 2174). We evaluate a nonresident defendant's contacts in light of the following factors: (1) the burden on the defendant; (2) the interests of the forum state in adjudicating the dispute; (3) the plaintiff's interest in obtaining convenient and efficient relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental substantive social policies. Guardian Royal, 815 S.W.2d at 228. Because the minimum contacts analysis now encompasses so many considerations of fairness, it has become less likely that the exercise of jurisdiction will fail a fair play analysis. Schlobohm, 784 S.W.2d at 357-58. We must consider this analysis, however, because the case law makes it clear that this analysis is separate and distinct from the minimum contacts issue. Id. at 358.

In this case, personal jurisdiction comports with the principles of substantial justice and fair play. In his special appearance pleadings and on appeal, Isard did not identify any considerations that would render jurisdiction in Texas unreasonable. Allegiance chose Texas as its forum when it filed suit against the appellees; therefore, the appellees' interest in convenient and effective relief is best served if they can litigate their counter-claims against Isard in Texas. A Texas court, which will hear similar counter-claims against Allegiance, is the most efficient forum for these proceedings. For these reasons, the controversies among the parties can be most efficiently resolved in a Texas court.

CONCLUSION

Based on our review of the record, (4) we hold that the trial court did not abuse its discretion in denying Isard's special appearance. We affirm the trial court's judgment.

Tom Rickhoff, Justice

DO NOT PUBLISH

1. Under this agreement, Border retained Foresight "as its exclusive business consultant for the purpose of locating a business available for purchase . . . ."

2. Under this agreement, Foresight agreed to make "good faith attempts" to "use reasonable efforts to secure, from a lender, a loan commitment for debt financing for [Border] . . . ."

3. When deciding whether to exercise or decline jurisdiction, the merits of the cause of action are not at issue. See Memorial Hosp., 835 S.W.2d at 648.

4. On appeal, the parties assert this Court must determine the contents of the appellate record. At the special appearance hearing, the appellees attempted to introduce into evidence excerpts from the depositions of Isard and Michael McDermitt. When the appellees offered the depositions into evidence, Isard's attorney objected that he had not been able to review the depositions; appellees' attorney stated he had only just received the depositions the night before the hearing. The trial court overruled the special appearance, without admitting the depositions of Isard and McDermitt. After the appellees filed their appeal with this Court, they sought to supplement the appellate record with Isard's and McDermitt's depositions and the transcript of a temporary injunction hearing held on October 27, 1999. Isard objected and a hearing was held before the trial court on whether the depositions should be included as part of the special appearance proceeding. The trial court stated, "Well, the record speaks for itself. They were offered. There was an objection. The Court never really ruled on their admissibility." The trial court ordered the court reporter to transmit these exhibits to this Court along with the trial record previously prepared and delivered to this Court. Isard filed objections with this Court, objecting to our consideration of the transcript from the temporary restraining order hearing and the Isard and McDermitt depositions. The objections were taken with the case. Isard asserts this Court may consider only evidence that was before the trial court at the special appearance hearing. The appellees assert this Court may consider the entire record. We do not address the merits of the parties' contentions because the undisputed portion of the appellate record supports the trial court's denial of Isard's special appearance.