Harries v. Stark et al, No. 3:2014cv02684 - Document 24 (N.D. Tex. 2015)
Court Description: Amended Memorandum Opinion and Order granting in part and denying in part 14 Motion to Dismiss For Lack of Personal Jurisdiction and Forum Non Conveniens. (Ordered by Judge Sam A Lindsay on 7/28/2015) (aaa)
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Harries v. Stark et al Doc. 24 IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION MARK HARRIES, Plaintiff, v. ANDREW STARK and NATHANIEL FOWLER, Individually, Defendants. § § § § § § § § § § § Civil Action No. 3:14-CV-2684-L AMENDED MEMORANDUM OPINION AND ORDER The court noticed several typographical errors in its Memorandum Opinion and Order issued on July 24, 2015, and, therefore, vacates the earlier opinion and issues this Amended Memorandum Opinion and Order in its place. There is no substantive difference between the two opinions. Before the court is Defendants’ Motion to Dismiss For Lack of Personal Jurisdiction and Forum Non Conveniens (Doc. 14), filed September 29, 2014. After careful review of the motion, pleadings, record, and applicable law, the court grants in part and denies in part Defendants’ Motion to Dismiss For Lack of Personal Jurisdiction and Forum Non Conveniens. I. Procedural and Factual Background A. Procedural Background Plaintiff Mark Harries (“Plaintiff” or “Harries”) originally brought this action on February 18, 2014, in the 191st District Court of Dallas County, Texas. On July 25, 2014, the action was removed to federal court because complete diversity of citizenship exists between the parties and the amount in controversy exceeds $75,000, exclusive of interest and costs. Amended Memorandum Opinion and Order - Page 1 Dockets.Justia.com On August 29, 2014, Plaintiff filed his First Amended Original Complaint (“Amended Complaint”) against Defendants Andrew Stark (“Stark”) and Nathaniel Fowler (“Fowler”) (collectively, “Defendants”). Plaintiff alleges claims for (1) misrepresentations and/or negligent misrepresentations, (2) fraud/fraud in the inducement, (3) negligence, and (4) unjust enrichment and/or quantum meruit against both Defendants. Plaintiff also requests equitable relief, prejudgment interest, exemplary and punitive damages, and attorney’s fees. B. Factual Background This case arises from an alleged fraud regarding the purchase of a Texas student housing business. Plaintiff alleges that, in January 2012, Stark contacted Harries about purchasing Harries’s business. Plaintiff alleges that Harries “is an individual in the State of Texas,” and Defendants are residents of New York; however, according to Plaintiff, Stark made phone calls and contacted Harries in Texas. See Pl.’s Compl. ¶ 1-3, 6. Harries alleges that Stark made numerous representations to him to induce him to sign the agreement to sell his business. On March 11, 2012, Stark sent Harries a letter of intent, which Plaintiff contends contains some of the misrepresentations made by Stark. See Defs.’ App. 16. Plaintiff further alleges that additional representations in April and May 2012 induced him into selling his business. This includes Stark’s alleged promise that payment for the business would be made through a preferred return position to Harries’s mother’s estate trust from which Harries borrowed start-up money and operating capitol. According to Plaintiff, Stark made this representation on behalf of him and Fowler. In June 2012, Plaintiff signed the LLC Interest Contribution Agreement (“Agreement”) in which he sold his student housing business to Campus Evolution LLC (“Campus Evolution”), a Amended Memorandum Opinion and Order - Page 2 company owned by Stark and Fowler. According to Plaintiff, the LLC Contribution Agreement did not contain the promissory note relating to the trust of Harries’s mother’s estate, as was promised, and Plaintiff argues that Stark had no intention of signing the promissory note. Plaintiff contends that Stark and Fowler “were aware that they could not sign in their individual capacities,” and “they intentionally did not sign this agreement individually.” Pl.’s First Am. Compl. ¶ 9. Plaintiff alleges that, as part of the Agreement, Stark and Fowler permitted Harries to continue working on projects associated with the student housing business. On August 7, 2013, Harries received an open e-mail solicitation for inquiries into a property near Sam Houston State University in Huntsville, Texas, and he responded by asking for publically available information at the university. That same day, a real estate broker responded and copied Fowler on this response. Plaintiff alleges that Fowler was predisposed to terminate him and that Stark and Fowler wrongly accused him of competing with Campus Evolution and used this event to terminate him. Defendants filed their motion to dismiss on September 29, 2014, pursuant to Federal Rule of Civil Procedure 12(b)(2), contending that the court lacks personal jurisdiction. Alternatively, Defendants move to transfer this action to the Southern District of New York based on a forum non conveniens theory. Defendants contend that neither Stark nor Fowler signed the Agreement with Harries and that they never made any representations or had any contacts with Plaintiff in Texas in their individual capacities, and, instead, they acted in their representative corporate capacities. Defendants additionally argue that this action arises from the Agreement and that the Agreement requires any action arising out of or in connection with it to be brought in New York. Amended Memorandum Opinion and Order - Page 3 II. Rule 12(b)(2) - Standard for Motion to Dismiss for Lack of Personal Jurisdiction On a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing a prima facie case for the court’s jurisdiction over a nonresident defendant. See Ham v. La Cienega Music Co., 4 F.3d 413, 415 (5th Cir. 1993); Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). When the court rules on the motion without an evidentiary hearing, the plaintiff may establish personal jurisdiction by presenting a prima facie case that personal jurisdiction is proper, id.; proof by a preponderance of the evidence is not required. International Truck and Engine Corp. v. Quintana, 259 F. Supp. 2d 553, 556 (N.D. Tex. 2003) (citing WNS, Inc. v. Farrow, 884 F.2d 200, 203 (5th Cir. 1989)). The court may determine the jurisdictional issue by receiving affidavits, interrogatories, depositions, oral testimony, or any combination of the recognized methods of discovery. Stuart, 772 F.2d at 1192. Uncontroverted allegations in a plaintiff’s complaint must be taken as true, and conflicts between the facts contained in the parties’ affidavits must be resolved in favor of the plaintiff. Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir. 1990). After a plaintiff makes his prima facie case, the burden then shifts to the defendant to present “a compelling case that the presence of some other consideration would render jurisdiction unreasonable.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985). A federal court has jurisdiction over a nonresident defendant if the state long-arm statute confers personal jurisdiction over that defendant, and if the exercise of jurisdiction is consistent with due process under the United States Constitution. Ruston Gas Turbines, Inc. v. Donaldson Co., Inc., 9 F.3d 415, 418 (5th Cir. 1993). Because the Texas long-arm statute extends to the limits of federal due process, Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990), the court must determine whether (1) the defendants have established “minimum contacts” with the forum state; and, (2) Amended Memorandum Opinion and Order - Page 4 whether the exercise of personal jurisdiction over the defendants would offend “traditional notions of fair play and substantial justice.” Ruston Gas, 9 F.3d at 418 (citing International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The “minimum contacts” prong is satisfied when a defendant “purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.” Burger King, 471 U.S. at 475. The nonresident defendant’s availment must be such that the defendant “should reasonably anticipate being haled into court” in the forum state. World-Wide r (1) misrepresentations and/or negligent misrepresentations; (2) fraud/fraud in the inducement; (3) negligence; and (4) unjust enrichment and/or quantum meruit. While Plaintiff’s claims sound in tort and not contract law, the court determines that the claims nevertheless rely on the terms of the Agreement, given the circumstances of this case. See Vartec Telecom, Inc. v. BCE Inc., No. 02-2585, 2003 WL 22364302, at *2-3 (N.D. Tex. Oct. 9, 2003) (holding that the plaintiff’s claims for securities fraud relied on the terms of the contract containing a forum-selection clause and therefore defendant, as a nonsignatory, could bind plaintiff to the terms of the forum-selection clause). In Vartec, the court applied equitable estoppel because the plaintiffs’ “claims [were] premised on the [signatories’] breach of the [contract] and “because [p]laintiff’s damages [were] calculated with reference to the [contract].” 2003 WL 22364302 at * 4. The same circumstances that allowed the court in Vartec to apply equitable estoppel are present in this case. Plaintiff alleges that: Stark and Fowler’s plan was to do the following: a.) contact a Texas resident engaged in student housing to get their foot into the business; b.) convince and induce the Texas resident to sell their [sic] student housing business to Stark and Fowler; c.) use a business entity [Campus Evolution] for the purchase in order to insulate Stark and Fowler from individual liability for this fraud; d.) make representations to the Texas resident to induce the resident into signing a contract with the L.L.C., turning over ownership of the student housing business; e.) allowing the Texas resident to “stay on” in the business of student housing for a short amount of time, in order that the fraud would not be immediately discovered; f.) find an incident to which they could Amended Memorandum Opinion and Order - Page 17 use to “terminate” the Texas resident and refuse to follow through on their representations. Pl.’s Am. Compl. ¶ 5 (emphasis added). Plaintiff’s Amended Complaint describes the creation of Campus Evolution as a necessary step for perpetrating the alleged fraud. More importantly, if Plaintiff never sold his business to Campus Evolution pursuant to the Agreement, he would have no claims to assert against Stark, as his alleged injury resulted from the sale of his business to Campus Evolution. Plaintiff’s reliance on the terms of the Agreement is further demonstrated by the relief he seeks in his Amended Complaint. As a result of the alleged fraud perpetrated by Stark, Plaintiff seeks the “return of the entire student housing business and company to Harries, invalid[at]ing all of Stark and Fowler’s ownership of Harries’ student housing business.” Pl.’s Am. Compl. ¶ 29. Stark and Fowler, however, do not own Plaintiff’s student housing business Campus Evolution does. Therefore, to provide Plaintiff with the relief he requests, the court must rely on the Agreement between Plaintiff and Campus Evolution. While some cases have asserted the proposition that “[a] fraud claim, by its nature, does not depend on the terms of a contract,” Vartec applied equitable estoppel even when the plaintiff only alleged claims for common law and statutory securities fraud. Vinewood Capital, LLC v. Sheppard Mullin Richter & Hampton, LLP, 735 F. Supp. 2d 503 (N.D. Tex. 2010) (citation omitted); see also Vartec, 2003 WL 22364302 at *1. Therefore, this proposition is not a categorical rule, and it does not apply to the facts of this case, especially when the court considers the relief sought by Plaintiff. See Grigson, 210 F.3d at 527 (“Each case, of course, turns on its facts.”). Ultimately, Plaintiff’s claims “arise out of or relate to” the terms of the Agreement and, thus, satisfy the first requirement outlined in Grigson. 210 F.3d at 527. Amended Memorandum Opinion and Order - Page 18 There is an even stronger case for applying the second basis for equitable estoppel set forth in Grigson. Plaintiff, a signatory to the Agreement containing an arbitration clause, raises allegations of substantially interdependent and concerted misconduct by both Stark, a nonsignatory to the Agreement, and Campus Evolution, a signatory to the Agreement. The alleged actions taken by Stark and Fowler, by themselves and in their individual capacities, do not support Plaintiff’s claims against them; rather, Plaintiff’s claims are dependent on actions taken by Campus Evolution. Campus Evolution employed and fired Plaintiff. See Pl.’s Am. Compl. ¶ 13 (“Harries was removed from the Campus Evolution website, was terminated at Campus Evolution, was notified that his entire interest in Campus Evolution was being confiscated by Stark and that he was under capricious and continued threat of further action by Stark, Fowler, and the company.”). Plaintiff was allegedly promised that he would have an ownership interest in Campus Evolution, that he would be a member of the Executive committee, and that Stark would make payments to Harries if he signed the Agreement with Campus Evolution. Id. ¶ 19. Plaintiff also alleges that “the fraud did no[t] stop after the LLC Interest Contribution Agreement was signed.” Id. ¶ 23. Plaintiff seeks to rescind the sale of his student housing business to Campus Evolution; however, the student housing business is not owned by Stark or Fowler in their individual capacities. Plaintiff makes this request without suing the other party to the Agreement, Campus Evolution. By suing only Stark and Fowler and not Campus Evolution, while also requesting that the court invalidate the LLC Contribution Agreement, Plaintiff acknowledges the interdependent and concerted misconduct by Stark and Campus Evolution. In light of the alleged concerted actions Amended Memorandum Opinion and Order - Page 19 between Stark and Campus Evolution, Plaintiff is estopped under the second theory set forth in Grigson. The court determines that it is appropriate to apply equitable estoppel under the facts of this case. Grigson only requires “one of the two independent bases to be present when compelling arbitration.” Positive Software Solutions, Inc. v. New Century Mortgage Corp., 259 F. Supp. 2d 531, 540 (N.D. Tex. 2003) (holding that the first basis for courts to apply equitable estoppel did not apply but that “[t]he second basis . . . [was] fully applicable to the facts of this case.”). The facts of this case strongly support the court’s application of equitable estoppel under the second basis set forth in Grigson. In any event, the court has already determined that the first set of circumstances described in Grigson is also present and, therefore, its application of equitable estoppel is “is much more readily applicable.” Grigson, 210 F.3d at 527. The court, additionally, does not find Plaintiff’s arguments regarding the Agreement’s “no third-party beneficiary” clause persuasive. Equitable estoppel is a theory by which nonsignatories bind signatories to a contract pursuant to the arbitration clause therein contained; therefore, if the court accepts Plaintiff’s interpretation of the Agreement’s “no third-party beneficiary” clause, it would vitiate the doctrine of equitable estoppel and the principles of fairness it seeks to protect. “The linchpin for equitable estoppel is equity fairness.” Id. at 528-29. Plaintiff cannot “have it both ways: [he] cannot, on the one hand, seek to hold the [Stark] liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration’s applicability because the defendant is a non-signatory.” Id. at 528. Plaintiff is seeking to rescind the sale of his student housing business to Campus Evolution without ever suing Campus Evolution and without being bound by the terms of the Agreement through which he sold his business. Equity Amended Memorandum Opinion and Order - Page 20 and fairness dictate that equitable estoppel should apply. Accordingly, the court will apply equitable estoppel and allow Stark, as a nonsignatory to the Agreement, to bind Plaintiff, a signatory, to the forum-selection clause contained in the Agreement. After determining that Plaintiff is bound by the forum-selection clause as it applies to his claims against Stark, the court must determine whether transfer is appropriate. See 28 U.S.C. § 1404(a). 2. Whether Transfer is Appropriate The Agreement contains a forum-selection clause, stating that “any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement . . . shall be brought in the United States District Court for the Southern District of New York or any New York State court sitting in [N]ew York County . . . .”4 Def.’s App. 59, Agreement Section 10.4, Ex. B.5 “[A] valid forum-selection clause [should be] giving controlling weight in all but the most exceptional cases.” Atlantic Marine Const. Co., Inc. v. U.S. Dist. Court for the Western Dist. of Texas, 134 S. Ct. 568, 581 (2013). The existence of a valid forum-selection clause alters the typical 4 The forum-selection clause continues: and that any cause of action arising out of this Agreement or the Ancillary Agreements or the transactions contemplated hereby or thereby shall be deemed to have arisen from a transaction of business in the State of New York, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted bylaw, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Def.’s App. 59, Agreement Section 10.4, Ex. B. 5 The court notes that § 1404 applies when the forum-selection clause provides for transfer to another federal district court and that forum non conveniens applies when the clause points to a state or foreign forum. Atlantic Marine, 134 S. Ct. at 580. In any event, “Section 1404(a) is merely a codification of the doctrine of forum non conveniens for the subset of cases in which the transferee forum is within the federal court system . . . .” Id. Amended Memorandum Opinion and Order - Page 21 § 1404 analysis, and the “practical result is that forum-selection clauses should control except in unusual circumstances.” Id. at 582. This is because “[t]he presence of a valid forum-selection clause requires district courts to adjust their usual § 1404(a) analysis in three ways.” Id. at 581. First, the court affords the plaintiff’s choice of forum no merit; second, the court does not consider the parties’ private interests; and third, “a transfer of venue will not carry with it the original venue’s choice-of-law rules.” Id. at 581-82. “As a consequence, a district court may consider arguments about public-interest factors only,” and “those factors will rarely defeat a transfer of motion.” Id. (citation omitted). The public interest factors to be considered by a court when reviewing a claim of forum non conveniens include: “(1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws [or in] the application of foreign law.” In re Volkswagen, 545 F.3d 304, 315 (5th Cir.2008). The court determines that the public interest factors do not defeat Stark’s motion for transfer. Plaintiff has, at most, set forth facts to establish that this court has a local interest in considering the case because he is a Texas resident and conducts business in Texas. This argument is insufficient to sustain Plaintiff’s burden to demonstrate that public interest factors “overwhelmingly disfavor” transfer to New York under the forum-selection clause. In light of these considerations, the court does not believe that an unusual or exceptional case exists and will, accordingly, enforce the Agreement’s forum-selection clause and transfer this case. Amended Memorandum Opinion and Order - Page 22 IV. Conclusion For the reasons herein stated, the court determines that Stark has sufficient contacts with the State of Texas to establish specific jurisdiction and denies Defendants’ Motion to Dismiss For Lack of Personal Jurisdiction as to Andrew Stark. The court further determines that Fowler lacks sufficient contacts with the State of Texas to establish general or specific jurisdiction over him. Accordingly, the court grants Defendants’ Motion to Dismiss For Lack of Personal Jurisdiction as to Nathaniel Fowler. The court determines that, in light of the forum-selection clause in the Agreement, transfer under § 1404 is appropriate. Accordingly, the court grants Defendants’ Alternative Motion to Transfer on Forum Non Conveniens Grounds and transfers this case to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1404(a).6 The clerk of court shall provide an electronic copy of this Amended Memorandum Opinion and Order to the Southern District of New York. It is so ordered this 28th day of July, 2015. _________________________________ Sam A. Lindsay United States District Judge 6 Defendants label their alternative motion as one for transfer under a theory of forum non conveniens. The forum -selection clause allows for transfer to the Southern District of New York or a state court in New York; however, Defendants engage in a § 1404(a) analysis and requests that the court transfer this case to the Southern District of New York. As Defendants engaged in a § 1404 (a) analysis, the proper transfer is to the United States District Court for the Southern District of New York. Amended Memorandum Opinion and Order - Page 23
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