Case: 12-10986 Document: 00512771210 Page: 1 Date Filed: 09/16/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 12-10986 FILED
September 16, 2014
Lyle W. Cayce
JORDAN DONTOS; JENNIFER DONTOS; CRAVE, L.L.C., Clerk
Plaintiffs-Appellants
v.
VENDOMATION NZ LIMITED; VENDOMATION, L.L.C.; VENDOMATION
SECURITIES LIMITED; JOHN HALPERN; GEORGE PARKMAN DENNY,
III,
Defendants-Appellees
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:11-CV-553
Before SMITH, DENNIS, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Plaintiffs-Appellants Jordan and Jennifer Dontos are residents of Texas
and co-owners of Crave, L.L.C., a Texas company. Plaintiffs filed suit in the
Northern District of Texas against two citizens of Massachusetts, John
Halpern and George Parkman Denny, and three corporations—Vendomation
NZ Limited, Vendomation, L.L.C., and Vendomation Securities Limited,
[hereinafter, collectively referred to as “the Vendomation Defendants”]—
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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alleging state law claims of fraudulent asset transfer, fraud, negligent
misrepresentation, civil conspiracy, and aiding and abetting, and asserting
federal jurisdiction based on the diversity of citizenship of the parties,
pursuant to 28 U.S.C. § 1332. 1 Plaintiffs contend that Defendants fraudulently
induced them into a franchise agreement to service vending machines on
unprofitable routes, made misrepresentations upon which Plaintiffs
detrimentally relied, fraudulently transferred assets to avoid payment of
Plaintiffs’ Texas state court judgment against them, and failed to inform the
Plaintiffs of the franchiser’s bankruptcy. The district court, after denying
Plaintiffs’ motion for jurisdictional discovery, granted Defendants’ motion to
dismiss for lack of personal jurisdiction, finding that Plaintiffs failed to
establish a prima facie case for personal jurisdiction over any of the
Defendants.
For the reasons that follow, we conclude that the district court erred in
granting Defendants’ motions to dismiss for lack of personal jurisdiction
because, accepting Plaintiffs’ allegations as true, Plaintiffs established a prima
facie case of specific personal jurisdiction over Defendants Halpern, Denny and
the Vendomation Defendants with regard to the Plaintiffs’ fraudulent asset
transfer claim.
I.
Plaintiffs allege that Defendants Halpern and Denny were part-owners
and board members of “All Seasons,” a vending services company. All Seasons,
in order to engage in a franchising model, formed 24Seven USA Franchising,
Limited (“24 Seven”), a Delaware Corporation, which is affiliated with various
1 Erica Hannam, the manager of all of the Vendomation corporations involved,
submitted affidavits indicating that Vendomation, NZ Limited and Vendomation Securities
Limited are both New Zealand registered companies and that Vendomation, L.L.C., is
incorporated in Massachusetts. Accordingly, the Vendomation Defendants have complete
diversity of citizenship from the Plaintiffs.
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sister or partner franchising companies in New Zealand that Plaintiffs
collectively refer to as the “VTL Group.” Plaintiffs assert that Defendants
Halpern and Denny “were involved in the negotiation and deal with” the VTL
Group companies to develop vending machine servicing franchises. As part of
this effort to obtain franchise agreements, 24Seven distributed a Uniform
Franchise Offering Circular (“UFOC”), listing Halpern and Denny as
principals. On March 29, 2007, in response to the UFOC, Plaintiffs Jennifer
and Jordan Dontos entered into a franchise agreement with 24Seven.
Plaintiffs provided 24Seven with $175,000 for the rights to service two
vending machine routes in Texas. Plaintiffs were informed that these specific
routes generated a weekly gross sale of almost $7,000. Relying on this
information, Plaintiffs moved their home from Seattle, Washington, to
Carrolton, Texas, quit their jobs in Washington, and borrowed over $300,000
to pay additional franchise fees. Plaintiffs assert that 24Seven never tendered
access to the routes promised, despite its representations, and instead
attempted to convince the Plaintiffs to accept less profitable routes.
Plaintiffs allege that because of the VTL Group’s financial difficulties,
Halpern and Denny formed Bacon Whitney, LLC (“Bacon Whitney”) for the
purpose of transferring the majority of VTL’s assets to Bacon Whitney, with
the remainder placed in a trust for All Seasons. Bacon Whitney, by receiving
the VTL Group’s assets, thereby “assumed control” over Plaintiffs’ money,
vending service routes, and franchise agreement with 24Seven. 2 Plaintiffs
allege that two officials of Bacon Whitney, Brad Camac and Mark Bruno,
2Defendants Halpern and Denny dispute that Bacon Whitney or any of their affiliates
ever acquired the Plaintiffs’ franchise fee or franchise agreement. As discussed infra, for
purposes of this appeal, we must accept all of Plaintiffs’ allegations as true and resolve all
factual disputes in their favor. Accordingly, we will assume Bacon Whitney did assume
control over Plaintiffs’ money and contract with 24Seven, as Plaintiffs assert in their
complaint.
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informed Plaintiffs of this transfer and assured them that Bacon Whitney was
financially sound, invoking the good names and reputations of Halpern and
Denny, and assuring Plaintiffs that they would be accepted as a franchisee of
Bacon Whitney. However, Plaintiffs were never accepted as a franchisee of
Bacon Whitney.
Plaintiffs then filed suit in Texas state court alleging, inter alia, state
law claims of fraud, breach of the franchise agreement, and interference with
contractual and business relationships. Plaintiffs filed suit against ten
defendants, including 24Seven, VTL Group, and Bacon Whitney, as well as
Mark Bruno, the Vice President of Bacon Whitney, and Brad Camac, a
salesman for 24Seven, who allegedly made the fraudulent misrepresentations
to the Plaintiffs about the vending machine routes. Bruno was dismissed as a
Defendant because the Texas Court of Appeals found that Texas courts lacked
personal jurisdiction over him. Dontos v. Bruno, 339 S.W.3d 777 (Tex. App. -
Dallas 2011, no pet.). A different panel of the Texas Court of Appeals
thereafter denied Camac’s motion to dismiss for lack of personal jurisdiction,
concluding that he was subject to suit in Texas for his allegedly fraudulent acts
committed while employed by 24Seven. Camac v. Dontos, 390 S.W.3d 398 (Tex.
App. - Dallas 2012). Plaintiffs assert that, as a result of this litigation, they
were awarded a $6,000,000 judgment against the VTL Group and Bacon
Whitney. Thereafter, in January of 2009, Plaintiffs were contacted by two
Vendomation officials—Lisle McErlane, an attorney, and Erica Hannam, a
manager of the Vendomation Defendants—who offered to settle the dispute
between Plaintiffs and the VTL Group for a lump sum payment of $500,000.
Plaintiffs accepted this offer on January 26, 2009, but never received the
promised lump sum.
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At the time of the state court judgment, Bacon Whitney had entered
receivership in Massachusetts and was purchased by a corporation named
Intellivend, in exchange for a $1,250,000 note. Plaintiffs allege that the Bacon
Whitney receiver then assigned this note to Halpern and Denny, without
sufficient compensation. In October 2009, the Vendomation Defendants
obtained this note from Intellivend, becoming one of its largest creditors. In
2010, Intellivend entered bankruptcy proceedings. The Vendomation
Defendants do not dispute that, as of December 2010, Vendomation Securities
Limited owned five franchise agreements in Texas as a result of receiving a
$1.25 million note from Intellivend, which Intellivend later defaulted on.
Thereafter, in December 2010, and again in March 2011, McErlane
contacted Plaintiffs via e-mail and arranged for a meeting with all holders of
Intellivend franchise agreements (including Plaintiffs) to explain that the
Vendomation Defendants now owned their franchise agreements. At this
meeting, McErlane represented himself as an attorney, investor, employee,
and partner for Vendomation. McErlane presented the franchisees with a
document to sign, officially transferring their franchise agreements to
Vendomation. McErlane allegedly suggested at this meeting that the
franchisees would suffer “dire and adverse consequences” if they refused to
sign the document.
In March 2011, Plaintiffs filed a complaint in the Northern District of
Texas against Defendants Halpern, Denny, and the Vendomation Defendants,
asserting Texas state law claims of fraudulent asset transfer, fraud, negligent
misrepresentation, civil conspiracy, and aiding and abetting. Defendants filed
a motion to dismiss under Federal Rule of Civil Procedure 12(b)(2), alleging
that the district court lacked personal jurisdiction over Defendants, and in the
alternative, moved to dismiss under Federal Rule of Civil Procedure 12(b)(6),
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for failure to state a cause of action, and under Federal Rule of Civil Procedure
9(b), for failure to plead a claim of fraud with particularity.
The district court granted Defendants’ motion to dismiss on personal
jurisdiction grounds only, and denied Plaintiffs’ motion for jurisdictional
discovery. Plaintiffs timely appealed, arguing that the court erred in granting
Defendants’ Rule 12(b)(2) motion for lack of personal jurisdiction and abused
its discretion in denying Plaintiffs’ motion for discovery. 3 For the following
reasons, we REVERSE and REMAND.
II.
A district court’s motion to dismiss for lack of personal jurisdiction over
a non-resident defendant is reviewed de novo. Adams v. Unione Mediterranea
Di Sicurta, 220 F.3d 659, 667 (5th Cir. 2000). If a party raises the defense of
lack of personal jurisdiction, the non-moving party bears the burden of proving
personal jurisdiction. Luv N’ Care, Ltd. v. Insta-Mix, Inc., 438 F.3d 465, 469
(5th Cir. 2006). Although the non-moving party bears the burden, “[w]hen a
court rules on a motion to dismiss for lack of personal jurisdiction without
holding an evidentiary hearing, as in the present case . . . the nonmoving party
need only make a prima facie showing, and the court must accept as true the
nonmover’s allegations and resolve all factual disputes in its favor.” Guidry v.
U.S. Tobacco Co., Inc., 188 F.3d 619, 625 (5th Cir. 1999); see also Stripling v.
Jordan Prod. Co., 234 F.3d 863, 869 (5th Cir. 2000) (explaining that we “accept
as true the uncontroverted allegations in the complaint and resolve in favor of
the plaintiff any factual conflicts.”).
A court sitting in diversity “may exercise personal jurisdiction only to the
extent permitted a state court under applicable state law.” Allred v. Moore &
3 Because we reverse the district court’s dismissal for lack of personal jurisdiction,
Plaintiffs’ arguments regarding the denial of their motion for jurisdictional discovery is moot.
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Peterson, 117 F.3d 278, 281 (5th Cir. 1997). Further, a federal court may only
exercise personal jurisdiction over a nonresident defendant if “the exercise of
personal jurisdiction comports with the Due Process Clause of the Fourteenth
Amendment.” McFadin v. Gerber, 587 F.3d 753, 759 (5th Cir. 2009). Due
process is satisfied if the “nonresident defendant has certain minimum
contacts with [the forum] such that the maintenance of the suit does not offend
traditional notions of fair play and substantial justice.” Gardemal v. Westin
Hotel Co., 186 F.3d 588, 595 (5th Cir. 1999) (alteration in original) (quoting
Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). “The ‘minimum
contacts’ inquiry is fact intensive and no one element is decisive; rather the
touchstone is whether the defendant’s conduct shows that it ‘reasonably
anticipates being haled into court.’” McFadin, 587 F.3d at 759 (internal
citation omitted).
A district court may assert either general or specific jurisdiction over a
party. Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865,
867-68 (5th Cir. 2001). General jurisdiction is established where the defendant
has “continuous and systematic” contacts with the forum state. Choice
Healthcare, Inc. v. Kaiser Foundation Health Plan of Colo., 615 F.3d 364, 368
(5th Cir. 2010). Specific jurisdiction may be established where the defendant
lacks “continuous and systematic contacts” but has instead some minimum
contacts that establish (1) the defendant has “purposefully directed his
activities at residents of the forum,” and (2) that the plaintiff’s alleged injury
“arise[s] out of or relate[s]” to the defendant’s contacts with the forum state.
Clemens v. McNamee, 615 F.3d 374, 378-79 (5th Cir. 2010) (quoting Burger
King v. Rudzewicz, 471 U.S. 462, 472 (1985)). Stated differently, there must
be a sufficient nexus between the defendant’s minimum contacts and the
plaintiff’s alleged injury. Id. at 379. Accordingly, “[w]hen a nonresident
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defendant commits a tort within the state, or an act outside the state that
causes tortious injury within the state, that tortious conduct amounts to
sufficient minimum contacts with the state by the defendant to constitutionally
permit courts within that state, including federal courts, to exercise personal
adjudicative jurisdiction over the tortfeasor and the causes of actions arising
from its offenses or quasi-offenses.” Guidry, 188 F.3d at 628.
If a plaintiff establishes minimum contacts between the defendant and
the forum state, the burden of proof shifts to the defendant to show that the
assertion of jurisdiction is unfair and unreasonable. Cent. Freight Lines Inc.
v. APA Transp. Corp., 322 F.3d 376, 384 (5th Cir. 2003). “To show that an
exercise of jurisdiction is unreasonable once minimum contacts are
established, the defendant must make a ‘compelling case’ against it.” Wien Air
Alaska, Inc. v. Brandt, 195 F.3d 208, 215 (5th Cir. 1999) (citing Burger King
Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)). “It is rare to say the assertion
is unfair after minimum contacts have been shown.” Id. To determine whether
jurisdiction is unfair and unreasonable, a court may consider, when relevant,
“(1) the burden on the nonresident defendant, (2) the forum state’s interests,
(3) the plaintiff’s interest in securing relief, (4) the interest of the interstate
judicial system in the efficient administration of justice, and (5) the shared
interest of the several states in furthering fundamental social policies.”
McFadin, 587 F.3d at 759-60.
III.
Specific jurisdiction is a “claim-specific inquiry[.]” See Seiferth v.
Helicopteros Atuneros, Inc., 472 F.3d 266, 274 (5th Cir. 2006). “A plaintiff
bringing multiple claims that arise out of different forum contacts of the
defendant must establish specific jurisdiction for each claim.” Id. In the
district court, Plaintiffs alleged state law claims of fraudulent asset transfer,
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fraud, negligent misrepresentation, civil conspiracy, and aiding and abetting.
On appeal, however, Plaintiffs have failed to adequately brief the district
court’s conclusions that it lacked jurisdiction over the Defendants as to the
Plaintiffs’ state law claims of fraud, negligent misinterpretation, civil
conspiracy and aiding and abetting. Any argument the Plaintiffs could have
raised that the Defendants were subject to specific jurisdiction for these claims
are therefore abandoned. Yohey v. Collins, 985 F.2d 222, 224–25 (5th Cir.
1993) (“Yohey has abandoned these arguments by failing to argue them in the
body of his brief.”). Accordingly, we will only consider whether the Plaintiffs
have established a prima facie case of specific personal jurisdiction regarding
the fraudulent asset transfer claim, which was adequately briefed on appeal.
Based on the foregoing reasons, we conclude that Plaintiffs have
established a prima facie case of specific 4 personal jurisdiction over Defendants
Halpern and Denny and the Vendomation Defendants as to the fraudulent
asset transfer claim.
A. Fraudulent Asset Transfer
The Plaintiffs allege that the Defendants are all liable under Section
24.005(a) of the Texas Uniform Fraudulent Transfer Act (“TUFTA”) for their
participation as subsequent transferees in the fraudulent asset transfer of the
VTL Group’s and Bacon Whitney’s assets to prevent satisfaction of the
Plaintiffs’ Texas state court judgment against the VTL Group and Bacon
Whitney.
To establish a claim under TUFTA, a plaintiff must prove that (1) she is
a “creditor” with a claim against a “debtor”; (2) the debtor transferred assets
4 Plaintiffs have not established a prima facie case that any of the Defendants are
subject to general jurisdiction. Halpern and Denny are residents of Massachusetts, and
Plaintiffs did not allege any facts that, if true, would establish that the Vendomation
Defendants, as foreign corporations, were “at home” in the state of Texas. Goodyear Dunlop
Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2854 (2011).
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after, or a short time before, the plaintiff's claim arose; and (3) the debtor made
the transfer with the intent to hinder, delay, or defraud the plaintiff. Nwokedi
v. Unlimited Restoration Specialistis, Inc., 428 S.W.3d 191, 203-05 (Tex. App.
– Houston 1st Dist. 2013, pet. Denied). We have recently explained that
In general, a determination of liability under TUFTA is a two-step
process: first, a finding that a debtor committed an actual,
fraudulent transfer, TUFTA § 24.005(a)(1), or a constructive,
fraudulent transfer, id. § 24.005(a)(2); and, second, recovery of that
fraudulent transfer, or its value, from the transferees, id. §§
24.008–24.009.
Spring Street Partners-IV, L.P. v. Lam, 730 F.3d 427, 436 (5th Cir. 2013). With
regard to the debtor’s intent, actual fraud requires an “actual intent to hinder,
delay, or defraud any creditor of the debtor,” whereas constructive fraud is
established by demonstrating that a debtor made the transfer or incurred an
obligation “without receiving a reasonably equivalent value in exchange for the
transfer or obligation,” and either (1) “was engaged or was about to engage in
a business or a transaction for which the remaining assets of the debtor were
unreasonably small,” or (2) “intended to incur, or believed or reasonably should
have believed that the debtor would incur, debts beyond the debtor’s ability to
pay as they became due.” Id. at 437 (quoting Tex. Bus. & Com. Code §
24.005(a)(2)).
TUFTA defines a creditor as someone who has a “claim”—that is, a “right
to payment or property, whether or not the right is reduced to judgment,
liquidated, . . . fixed, contingent, matured . . . disputed, undisputed, legal,
equitable, [or] secured.” In re Galaz, 13-50781, 2014 WL 4197213 (5th Cir.
Aug. 25, 2014) (quoting Tex. Bus. & Com. Code §§ 24.002(3), (4)). A plaintiff’s
status as a creditor thus “turns on whether ‘she had a right to payment or
property that existed at the time of the fraudulent transfer[ ] or that arose
within a reasonable time afterwards.’” Id. (citing Williams v. Performance
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Diesel, Inc., No. 14-00-00063-CV, 2002 WL 596414 at *2 (Tex. App. – Houston
Apr. 18, 2002, no pet.). A “debtor” is defined as “a person who is liable on a
claim[.]” Id. (quoting Tex. Bus. & Com. Code § 4.002(6)).
The statute provides a good faith defense for subsequent transferees who
accept the fraudulent transfer “in good faith and for a reasonably equivalent
value.” Spring Street Partners-IV, L.P., 730 F.3d at 438 (quoting Tex. Bus. &
Com. Code § 24.009(a)). Thus, as Plaintiffs note on appeal, if the debtor has
actual or constructive fraudulent intent, then any “subsequent transferee of
the asset” is liable under TUFTA, unless the transferee took the assets “in good
faith and for a reasonably equivalent value.” Id. A “reasonably equivalent
value” is defined under TUFTA as “within the range of values for which the
transferor would have sold the assets in an arm’s length transaction.” Id. at
437 (quoting Tex. Bus. & Com. Code § 24.004(d)).
As noted supra, a tortious act committed outside the forum state that
has consequences or effects within the forum will establish minimum contacts
if the tortious conduct is purposefully or expressly aimed at the forum state.
See Mullins v. TestAmerica, Inc., 564 F.3d 386, 400 (5th Cir. 2009) (citing
Calder v. Jones, 465 U.S. 783, 789-90 (1984)). While this court is hesitant to
make per se rules regarding the fact-specific minimum contacts analysis, a
debtor who is liable under TUFTA to a Texas resident is likely subject to suit
in the creditor’s forum state because the debtor acted with actual or
constructive fraudulent intent to expressly aim their conduct at a creditor in
the forum, where the tort’s harm was felt. Id. However, a subsequent
transferee’s liability under TUFTA alone may be insufficient to establish
minimum contacts with the creditor’s forum state. Id. 400-401 (“Knowingly
accepting a fraudulent transfer may subject a transferee to liability, but such
conduct is not necessarily tantamount to committing a wrongful act
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purposefully aimed at a creditor of the transferor in his state of residence.”).
For example, an individual or corporation who is a mere “passive transferee,”
is unlikely to be subject to jurisdiction in the creditor’s resident state. Id. at
401. However, if the transferee “precipitate[s] and direct[s] an alleged
fraudulent transfer at the expense of a known, . . . creditor in Texas whose
right to payment arises out of contracts that share a strong connection with
Texas,” then the transferee is subject to suit in Texas court. Id. at 402.
B. Minimum Contacts
The district court found that Plaintiffs failed to establish that any of the
Defendants had sufficient minimum contacts relating to the Plaintiffs’ TUFTA
claim. With regard to the Vendomation Defendants, the district court reasoned
that the “record calls into question whether the fraudulent transfer claim could
have even involved the Vendomation Defendants.” The district court
concluded that the alleged conduct amounting to a fraudulent transfer began
in January of 2009, with McErlane’s misrepresentations that VTL Group was
willing to provide Plaintiffs $500,000 to settle their differences. Therefore, the
court reasoned, Vendomation could not feasibly have participated in this
conduct, as it did not exist at the time the fraudulent transfer began. In so
finding, the district court did not address the Vendomation Defendants’ alleged
participation in the fraudulent transfer as a subsequent transferee of the VTL
Group’s assets. The district court, by disregarding these factual allegations,
erroneously failed to “accept as true the uncontroverted allegations in the
complaint and resolve in favor of the plaintiff any factual conflicts.” Stripling,
234 F.3d at 869.
With regard to Defendants Halpern and Denny, the district court
reasoned that because Plaintiffs failed to provide “any evidence of contacts
Defendant Halpern and Denny themselves had with Texas” that would give
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rise to a fraudulent transfer claim, the Plaintiffs failed to meet their burden of
establishing the proper exercise of personal jurisdiction over Denny and
Halpern. As noted, however, Plaintiffs were not required to put forth any
evidence of contacts the Defendants had with the forum state, but only to
demonstrate a prima facie case. See Guidry, 188 F.3d at 625. Moreover, just
as with its analysis regarding the Vendomation Defendants, the district court
disregarded Plaintiffs’ allegations that Denny and Halpern were knowing,
subsequent transferees to a fraudulent asset transfer.
Viewing the record in the light most favorable to Plaintiffs, as we must,
we conclude that the Plaintiffs have established a prima facie case that
Defendants Halpern and Denny as well as the Vendomation Defendants are
subject to suit in Texas district court on Plaintiffs’ alleged TUFTA claims.
As detailed supra, Plaintiffs allege that Halpern and Denny served as
board members of All Seasons (which formed 24Seven as part of its franchising
venture), that they were involved with negotiations with the VTL Group, and
that they co-owned and formed Bacon Whitney, a company they created with
the purpose of fraudulently transferring the VTL Group’s assets—which
included Plaintiffs’ franchise fee and Texas-based franchise agreement—before
the VTL Group entered receivership, so that the VTL Group could avoid
payment to its creditors. Plaintiffs also contend that Defendants Halpern and
Denny, as assignees of the $1.25 million note that they received from Bacon
Whitney without sufficient consideration, received a fraudulent asset transfer,
and used the note to form the Vendomation corporations, which ultimately
acquired Plaintiffs’ franchise fee and franchise agreement, and now owns five
Texas-based franchise agreements. Plaintiffs allege that Halpern and Denny
were board members and managing directors of Bacon Whitney and all of the
“franchise businesses throughout their various iterations” and therefore
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knowingly directed the operations and fraudulent conduct of each. The
Plaintiffs’ complaint additionally states that
the assets of Bacon Whitney [which include Plaintiffs’ franchise fee
and franchise agreement] have been sold and/or transferred to
Halpern and Denny and Vendomation . . . . for less than equivalent
value thus rendering the VTL Group and Bacon Whitney insolvent
and unable to pay its creditors. This was done, in bad faith for the
purpose of defrauding creditors and hindering or delaying
collection of their debts, including Plaintiffs who’s [sic] debt is
evidenced by Judgment for activities which took place in Texas by
a Texas court.
Plaintiffs complaint further states that “Vendomation had acquired their
franchise agreements and vending route assets” and that Vendomation was
“formed to carry on the business of operating the franchises that had passed
down from the VTL Group, through Bacon Whitney and Intellivend.”
Preliminarily, Plaintiffs’ factual allegations, taken as true, sufficiently
establish the Plaintiffs as “creditors” under TUFTA, because they have a right
to payment of the unsatisfied judgment against the VTL Group and Bacon
Whitney—a Texas state court judgment that was entered in their favor a
reasonable time after the allegedly fraudulent transfer of VTL’s assets to
Bacon Whitney. In re Galaz, 2014 WL 4197213, at *5. Likewise, Plaintiffs’
factual allegations establish that Bacon Whitney and the VTL Group are
“debtors” under TUFTA because, pursuant to the Texas state court judgment,
they are each liable to the Plaintiffs on a claim. Id. Plaintiffs allege that Bacon
Whitney was formed by Halpern and Denny with the purpose of fraudulently
transferring the VTL Group’s assets before it went into receivership.
Accordingly, Plaintiffs have also sufficiently pleaded that the VTL Group and
Bacon Whitney acted with actual fraudulent intent. Spring Street Partners-
IV, L.P., 730 F.3d at 438.
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Plaintiffs further allege that the Vendomation Defendants and Halpern
and Denny are each transferees of the fraudulent asset transfers that
prevented satisfaction of Plaintiffs’ six million dollar Texas state court
judgment against the VTL Group and Bacon Whitney. As discussed supra, to
render the Defendants liable under TUFTA, Plaintiffs must allege only that
the Defendants accepted the fraudulently transferred assets, in the absence of
good faith. But to allege a prima facie case of specific personal jurisdiction
based on TUFTA liability, the Plaintiffs must allege more than mere passive
acceptance of a fraudulent asset transfer that harmed a creditor in the forum
state; they must also allege some purposeful conduct directed at a creditor in
the forum state. Mullins, 564 F.3d at 400.
With regard to the Vendomation Defendants, Plaintiffs allege that
Vendomation acquired its assets, money, and franchise agreements from
Intellivend, that had acquired Bacon Whitney’s assets, which had received the
VTL Group’s assets, which included the Plaintiffs’ contract for two vending
machine routes in Texas. Plaintiffs assert that each of these fraudulent
transfers was orchestrated to render the preceding corporation insolvent and
unable to pay its creditors. Specifically, Plaintiffs allege that Vendomation
was formed for the very purpose of continuing the franchising business of the
now bankrupt VTL Group and Bacon Whitney and that, consequently,
Vendomation now owns and operates five Texas-based franchises. Taking
these facts as true, Vendomation has minimum contacts with Texas—its five
franchise agreements in Texas—and the Plaintiffs’ TUFTA claim is closely
related to these minimum contacts. The Vendomation Defendants, by
knowingly accepting Texas franchise agreements from the bankrupt debtor,
“purposefully directed” their business activity at Texas, and such conduct
contributed to Plaintiffs’ alleged injury caused by Vendomation’s violation of
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TUFTA. Mullins, 564 F.3d at 402 (finding specific personal jurisdiction over a
non-resident subsequent transferee who knowingly “thwarted” a Texas
creditor’s right to payment by acquiring a note and purchase agreement, both
of which were governed under Texas law, from the debtor “ensuring that a
portion of its own notes would be paid while knowing that [the Texas creditor’s]
would not”). The Texas-based franchise agreements that the Vendomation
Defendants ultimately acquired are sufficient minimum contacts to form the
basis of specific personal jurisdiction because they are part of the very assets
that were allegedly fraudulently transferred, and thus “[p]roof that these
assets were [fraudulently] transferred and an assessment of their value will be
essential to the [T]UFTA analysis.” Retamco Operating, Inc., 278 S.W.3d at
341. Accordingly, Plaintiffs have sufficiently alleged that the Vendomation
Defendants have minimum contacts with Texas which have a sufficient nexus
to their TUFTA claim.
With regard to Defendants Halpern and Denny, Plaintiffs’ allegations,
taken as true, establish that Denny and Halpern are liable under TUFTA as
the first transferee of the VTL Group’s assets, knowingly accepting the VTL
Group’s assets so that it could avoid payment to its creditors. Plaintiffs
additionally allege that Defendants Halpern and Denny also acted as
subsequent transferees by accepting a $1.25 million note without providing
sufficient compensation in return, in order to bankrupt Bacon Whitney and
avoid payment to its creditors, including the Plaintiffs. Plaintiffs claims all
center around Halpern and Denny’s efforts to purposefully avoid payment of
their six million dollar judgment to the Plaintiffs. As noted, the Texas
franchise agreements and Plaintiffs’ franchise fee were part of the actual
assets that were allegedly fraudulently transferred. As the Texas Supreme
Court has explained, when a nonresident defendant receives Texas property or
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Case: 12-10986 Document: 00512771210 Page: 17 Date Filed: 09/16/2014
No. 12-10986
a Texas contract, for the purpose of defrauding a Texas resident, the non-
resident defendant is subject to suit in Texas courts. Retamco Operating, Inc.
v. Republic Drilling Co., 278 S.W.3d 333, 341 (Tex. 2009). Halpern and
Denny’s “alleged conduct in engineering a transfer that knowingly impaired
the rights of a Texas resident under agreements centered in Texas
substantiates that [they] purposefully aimed [their] intentionally tortious
conduct at the forum state.” Mullins, 564 F.3d at 403. Accordingly, Plaintiffs’
pleadings sufficiently establish that their TUFTA claims arise from
Defendants’ minimum contacts with Texas.
C. Due Process Considerations
Once minimum contacts are established that have a sufficient nexus to
the Plaintiffs’ claims, the burden then shifts to the Defendants to establish that
hailing Defendants into court in Texas would offend the notions of due process.
McFadin, 587 F.3d at 759-60. The Defendants have not made a “compelling
case” that the exercise of jurisdiction would offend traditional notions of fair
play and substantial justice. Wien Air Alaska, Inc., 195 F.3d at 215. Here, the
forum state has a significant interest in protecting its citizens from the fraud
that Plaintiffs allege Halpern and Denny and the Vendomation Defendants
committed that caused their financial hardship. Id. (“If a cause of action for
fraud committed against a resident of the forum is directly related to the
tortious activities that give rise to personal jurisdiction, an exercise of
jurisdiction likely comports with the due process clause, given the obvious
interests of the plaintiff and the forum state.”). Additionally, the Plaintiffs
have a sufficient interest in securing relief, as they allege significant financial
damages, including an unsatisfied $6,000,000 judgment. Further, if the
allegations are true, then the Defendants, who have benefitted from receipt of
five franchise agreements in Texas, can reasonably expect to be haled into a
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Case: 12-10986 Document: 00512771210 Page: 18 Date Filed: 09/16/2014
No. 12-10986
Texas court. Luv N' care, Ltd., 438 F.3d at 470 (explaining defendants who
purposefully engage in business within the forum state “knowingly benefit[]
from the availability of a particular state’s market” and thus may reasonably
foresee that claims will arise from their business transactions, and may be
subjected to suit in the forum state). The district court’s exercise of personal
jurisdiction over the Defendants would therefore not offend due process.
Lastly, we note that our opinion today that the Plaintiffs have
established a prima facie case of specific personal jurisdiction, does not
“foreclose [any] defendant from holding [the Plaintiffs] to its ultimate burden
at trial of establishing contested jurisdictional facts by a preponderance of the
evidence.” Mullins, 564 F.3d at 399.
CONCLUSION
Because Plaintiffs have sufficiently pleaded facts that establish the
Defendants’ minimum contacts with Texas, and Plaintiffs’ fraudulent asset
transfer claim arises directly out of those minimum contacts, we REVERSE
the district court’s judgment dismissing the complaint for lack of jurisdiction
and REMAND the case to it for further proceedings consistent with this
opinion.
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