Opinion issued June 30, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00904-CV
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GRAMERCY ADVISOR LLC, GRAMERCY ASSET MANAGEMENT
LLC, GRAMERCY LOCAL MARKETS RECOVERY FUND LLC AND
GRAMERCY FINANCIAL SERVICES LLC, Appellants
V.
R. K. LOWERY, JR. L-FALLING CREEK LLC, RUSSELL A. CHABAUD,
R-RAC WIMBLEDON, LLC, JOHN P. MOFFITT, J-JASON LLC,
RUSSELL A. CHABAUD, TRUSTEE OF THE RUSSELL G. CHABAUD
1999 INVESTMENT TRUST, R- RUSSELL WIMBLEDON, LLC, RUSSELL
A. CHABAUD, TRUSTEE OF THE ASHLEY CHABAUD 1999
INVESTMENT TRUST, R-ASHLEY WIMBLEDON, LLC, RUSSELL A.
CHABAUD, TRUSTEE OF THE AUDREY CHABAUD 1999 INVESTMENT
TRUST, R-AUDREY WIMBLEDON, LLC, LMC RECOVERY FUND, LLC,
UNION GAS FUNDING I, L.P., RANA HOLDINGS, LLC, WESTY I LLC,
AND MOGI, LLC, Appellees
On Appeal from the 80th District Court
Harris County, Texas
Trial Court Case No. 2008-74262
MEMORANDUM OPINION
This is our second occasion to address the trial court’s special appearance
rulings in this case. Plaintiffs sued numerous defendants complaining of tax
investment strategies marketed to Plaintiffs for use on their federal tax returns for
the tax years 2000 through 2005 (“Investment Strategies”). Defendant Financial
Strategy Group (a Tennessee defendant that prepared tax returns for a Connecticut
entity utilized in the Investment Strategies for two years) filed a special
appearance, which the trial court denied. On interlocutory appeal, we reversed,
holding that “the trial court erred in concluding that Financial Services had
sufficient minimum contacts with Texas to confer Texas courts with personal
jurisdiction over it.” Fin. Strategy Grp., PLC v. Lowry, Jr., No. 01-14-00273-CV,
2015 WL 452265, at *12 (Tex. App.—Houston [1st Dist.] Jan. 27, 2015, no pet.).
Defendants-appellants Gramercy Advisors LLC, Gramercy Asset
Management LLC, Gramercy Local Markets Recovery Fund LLC, and Gramercy
Financial Services LLC (collectively, “Gramercy defendants”) and defendants
Steamboat Capital Management LLC and Jay A. Johnston also filed a joint special
appearance. Following a hearing, the trial court denied the Gramercy defendants’
special appearance, and took Steamboat’s and Johnston’s under advisement. The
Gramercy defendants then brought this accelerated appeal from the trial court’s
order denying their special appearance. We affirm.
2
BACKGROUND
A. Plaintiffs’ Allegations
Plaintiffs’ petition alleges that defendants “jointly and in concert developed,
promoted, sold, and implemented the Investment Strategies as a part of a
conspiracy to commit fraud.” 1 According to plaintiffs, defendants “counseled and
advised Plaintiffs to undertake the Investment Strategies, claiming the Investment
Strategies would yield a substantial profit and minimize Plaintiffs’ tax liability.”
Plaintiffs further alleged that at the time the defendants sold the Investment
Strategies to the plaintiffs, they knew—or should have known—that “the
Investment Strategies would not and could not yield the investment results or tax
treatment claimed.” Indeed, plaintiffs’ petition contends, the defendants “knew, at
the time they promoted and sold the Investment Strategies to Plaintiffs, that federal
authorities were investigating the legality of similar ‘abusive tax shelters.’”
Despite defendants’ knowledge, they did not inform Plaintiffs. Defendants’
motive, according to Plaintiffs, “was to extract millions of dollars in fees and
commissions from Plaintiffs.” As a result of their detrimentally relying on
defendants’ expertise, advice, and representations about the legality and propriety
1
The allegations in this background section come from Plaintiffs’ petition. Because
the parties disagree about the scope and characterization of Plaintiffs’ claims, we
quote extensively from the pleading. We have also included allegations related to
other defendants to give context to Plaintiffs’ allegations against the Gramercy
defendants.
3
of the Investment Strategies, plaintiffs entered into illegal and abusive tax shelters,
subjecting them to “substantial back taxes, interest, penalties, and other damages.”
B. Allegations specific to Gramercy defendants
1. Jurisdiction
Relevant to specific jurisdiction,2 Plaintiffs’ petition alleged the following as
to the individual Gramercy defendants: Each is a Delaware LLC with a principal
place of business in Connecticut. At relevant times, each “has done and is doing
business in” Texas, and “has contracted with a corporation through its Texas
office, and either party was to perform the contract in whole or in part” in Texas.
Each has “committed torts, in whole or in part, in the State of Texas, including
intentional tortious acts directed at a resident of the State of Texas, where the brunt
of the harm was felt.” Their “conduct in the State of Texas has been committed by
officers, directors, employees, and/or agents . . . acting within the scope of their
employment or agency.” They have “purposefully availed [themselves] of the
benefits and protections of the laws of the State of Texas and could reasonably
anticipate being subject to the jurisdiction of the courts of the State of Texas.”
2. The Tax Shelter Scheme
Plaintiffs’ petition describes the tax-shelter scheme and the bases for their
suit:
2
Plaintiffs allege only specific, not general, personal jurisdiction over the Gramercy
defendants.
4
Plaintiffs bring this action against the Strategy Defendants3
based on their understanding of what the Internal Revenue Service
(IRS) has apparently concluded during the IRS’ audit of Plaintiffs’ tax
returns. Plaintiffs bring claims for breach of fiduciary duty,
negligence/professional malpractice, negligent misrepresentation,
disgorgement of unethical, excessive and illegal fees, fraudulent
inducement, fraudulent concealment; declaratory judgment; fraud,
civil conspiracy to commit fraud, and breach of contract against the
Strategy Defendants . . . . Plaintiffs seek compensatory damages
against the Defendants for damages arising from certain investment
strategies that Plaintiffs entered into and utilized On their federal tax
returns for the tax years 2000 through 2005 (“Investment Strategies”)
as set forth more fully below. Unbeknownst to Plaintiffs, the Strategy
Defendants jointly and in concert developed, promoted, sold, and
implemented the Investment Strategies as part of a conspiracy to
commit fraud. [Morgan Lewis & Bockius LLP (“MLB”)] conspired
with BDO to perpetrate fraud on Plaintiffs in connection with BDO’s
(and specifically BDO’s Tax Solutions Group) design, promotion,
sale, and implementation of Plaintiffs’ Investment Strategies.
....
Unbeknownst to Plaintiffs, BDO Seidman entered into
undisclosed and illegal business arrangements with MLB, the other
Strategy Defendants . . . . Through these arrangements, BDO
Seidman, and Gramercy systematically identified wealthy potential or
existing clients facing substantial capital gain or income taxes. Then,
playing on their position of trust, confidence, and prestige with their
clients, BDO Seidman and Gramercy - in accordance with the
Strategy Defendants’ pre-planned and fraudulent scheme – steered
clients such as Plaintiffs to the Strategy Defendants and others for
legal, financial, investment, and tax advice and related products.
BDO Seidman and Gramercy advised their clients, including
Plaintiffs, that their tax and investment professionals had designed
proprietary tax-advantaged investment plans that would provide
Plaintiffs with the potential of high return on their investments and at
the same time minimize capital gain and income tax obligations.
3
The “Strategy Defendants” include the Gramercy defendants, as well as BDO
Seidman LLP, Sidley Austin, LLP, De Castro, West, Chodorow, Glickfelf & Nass,
LLC, and Financial Strategy Group PLC.
5
According to the Criminal Information filed by the United States
against Michael Kerekes (a former principal at BDO Seidman and
member of the Tax Solutions Group), BDO Seidman, in furtherance
of the conspiracy, developed a template consulting agreement for use
in the tax shelter transactions. See U.S v. Kerekes, Information at p.
11, 16. This consulting agreement was deliberately broad and vague
and did not specifically refer to the tax shelter transactions. Id. The
purpose of the consulting agreement was to conceal the actual fees
paid to BDO in connection with the tax shelter transactions so that
only a portion of the fees would be considered when conducting a
profitability analysis of the tax shelter transaction. Id. Plaintiffs were
fraudulently induced to enter into these consulting agreements with
BDO, as well as the agreement with Gramercy, Sidley Austin, De
Castro West, and the Other Participants, in connection with the
Investment Strategies.
Each of the participating Strategy Defendants knew or should
have known that these purported tax advantaged investment strategies
were, in reality, likely to be held by the IRS as nothing more than
illegal and abusive tax shelters. To profit from their scheme, the
Strategy Defendants counted on their ability to conceal the true nature
of the strategies from tax authorities and Plaintiffs.
Unbeknownst to Plaintiffs, BDO Gramercy, Sidley Austin, De
Castro West, Financial Strategy Group and others (including Lehman)
jointly conspired to design the Investment Strategies before BDO and
Gramercy, with the assistance of others including MLB and Financial
Strategy, executed their plan to promote and sell the Investment
Strategies to their own clients - such as Plaintiffs. Unbeknownst to
Plaintiffs, Sidley Austin and De Castro West agreed that BDO
Seidman and Gramercy could promise prospective clients, such as
Plaintiffs, that they would receive tax opinion letters certifying the
soundness and legality of the Investment Strategies being sold. For a
substantial fee Sidley Austin and De Castro West issued tax opinions
to Plaintiffs that purported to substantiate the bona fides of certain of
the Investment Strategies. Unbeknownst to Plaintiffs, these opinion
letters were not specifically tailored to Plaintiffs’ specific financial
situations, but were merely “fill in the blank” boilerplate opinions
provided as part of a “pre-wired” scheme.
Despite the Strategy Defendants’ knowledge that the IRS would
likely deny the Investment Strategies, Financial Strategy and BDO
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prepared certain federal tax returns for an entity used to implement the
Investment Strategies, and the Strategy Defendants advised Plaintiffs
to file individual federal tax returns implementing the Investment
Strategies. Even after the Strategy Defendants learned that the IRS
had begun to audit and disallow capital and other losses claimed
through similar tax strategies, the Strategy Defendants continued to
advise Plaintiffs to use the Investment Strategies to offset income
and/or capital gains on their income tax returns.
After BDO and/or Gramercy convinced their clients to pursue
the tax advantaged investment strategies, Gramercy and BDO jointly
worked with each client to execute the technical portion of the
Investment Strategies. . . . . At no point in time did BDO, Gramercy,
Sidley Austin, De Castro West, Financial Strategy or the Other
Participants ever disclose to Plaintiffs that they had fraudulently
conspired together to design, promote, sell and implement the
Investment Strategies, and were in no way independent from each
other.
[U]nbeknownst to Plaintiffs, the Strategy Defendants designed
the Investment Strategies and agreed to provide a veneer of legitimacy
to each other’s opinions as to the lawfulness and tax consequences of
the Investment Strategies by agreeing to the representations that
would be made and to issue the allegedly “independent” opinions
before potential clients were solicited. Unbeknownst to Plaintiffs,
these “independent” opinions were prefabricated and canned opinions
used for each and every client across the United States with basic
factual information inserted depending upon the client.
....
Unbeknownst to Plaintiffs, the Strategy Defendants entered into
the Strategy Defendants’ arrangement, whereby they agreed they
would solicit each other’s clients and split the fees to be charged
clients who executed strategies such as the Investment Strategies,
including Plaintiffs. Indeed, BDO and Gramercy had an undisclosed
agreement that required BDO to pay Gramercy part of the fee that the
clients - including Plaintiffs - paid to BDO. Of course, neither BDO
nor Gramercy disclosed this fee splitting arrangement with plaintiffs,
Nothing says “conspiracy” like an undisclosed fee-splitting agreement
between professional advisors who represented to the Plaintiffs that
they were completely independent.
7
3. BDO and Gramercy “pitch” of the Investment Strategies to
Plaintiffs
Plaintiffs’ petition alleges that BDO and Gramercy were responsible for
pitching the Investment Strategies to Plaintiffs. In September 2000, BDO
representatives first reached out to request a meeting with certain Plaintiffs.
Plaintiffs Lowry and Chabaud and their personal accountant attended with the
understanding that the purpose of the meeting was to “educate Plaintiffs on the
types of services and expertise BDO had to offer Plaintiffs and for BDO to become
family with Plaintiffs and Plaintiffs’ business.” Plaintiffs were required to sign a
non-disclosure agreement at the beginning of the meeting, and then were told that
“BDO had developed several ‘investment’ strategies that met the criteria for
Plaintiffs’ financial, investment and tax needs.” These strategies were described as
having “significant tax benefits because they took advantage of certain loopholes
contain the in the IRS code with respect to partnerships,” that were “completely
legal and valid.”
According to Plaintiffs’ petition, in this initial meeting with BDO
representatives, Gramercy’s role first entered the picture:
Shanbrom [a member of BDO’s Tax Group] described a particular
investment strategy involving foreign distressed debt. According to
Shanbrom, Plaintiffs could invest in foreign distressed debt and after
executing the proprietary strategy, Plaintiffs would be able to legally
take a loss in the distressed debt through the application of certain
partnership tax rules; Shanbrom and Moorman [of BDO] reassured
Plaintiffs that the distressed debt strategy was completely legal and
8
informed Plaintiffs that all of the big accounting firms were
implementing similar types of tax-advantaged investment strategies.
Shanbrom informed Plaintiffs that he had personally engaged in a
distressed debt strategy and also provided Plaintiffs with information
regarding the total number of BDO’s clients that had implemented
these types of strategies and the combined size of these clients’
strategies.
Pursuant to BDO’s undisclosed agreement with Gramercy, Shanbrom
recommended that Plaintiffs engage Gramercy to assist BDO in the
implementation of the distressed debt strategy. . . .
Shanbrom recommended that if Plaintiffs decided to implement the
distressed debt strategy, Plaintiffs should also invest substantial
amounts of money (and as much money as possible) with Gramercy
unrelated to the distressed debt strategy. According to Shanbrom,
these unrelated investments would provide Plaintiffs with a diversified
portfolio that allowed Plaintiffs to achieve higher rates of return and
would, at the ·same time, strengthen Plaintiffs’ position in the event
the IRS audited Plaintiffs’ tax returns. Specifically, Shanbrom
recommended that Plaintiffs invest $15,000,000.00 with Gramercy in
addition to the investments made with Gramercy for the distressed
debt strategy.
Plaintiffs’ allege that a Gramercy representative, Jay Johnston, was present
at their second meeting, held in Texas on November 7, 2000, about the Investment
Strategy. This was the first time Plaintiffs came face-to-face with or talked to a
Gramercy representative:
Plaintiffs Lowry, Chabaud, and Moffitt and Plaintiffs’ personal
accountant and real estate attorney attended another meeting with
Shanbrom and Moorman on November 7, 2000, in Houston, Texas.
Defendant Jay Johnston, a principal at Gramercy, was also present at
this meeting. Plaintiffs had no prior relationship with Gramercy or Jay
Johnston until BDO, pursuant to their undisclosed agreement with
Gramercy, introduced Plaintiffs to Gramercy at this meeting.
9
During the November 7 meeting, Shanbrom and Jay Johnston
discussed in detail the steps of the distressed debt strategy with
Plaintiffs and repeatedly reiterated that it was a completely legal tax-
reducing strategy, Shanbrom and Jay Johnston again stressed that if
Plaintiffs wanted to implement a distressed debt strategy for the 2000
tax year, Plaintiffs needed to make an investment with Gramercy in
November 2000. Shanbrom and Johnston presented the distressed
debt strategy as a take it or leave it offer and reiterated that Plaintiffs
must make a decision almost immediately.
Shanbrom and Johnston told Plaintiffs that if the IRS challenged the
validity of the distressed debt strategy, Plaintiffs would prevail.
Shanbrom emphasized that BDO felt so confident about the strategy
that BDO would represent Plaintiffs in any IRS audit as part of the fee
Plaintiffs paid BDO to execute the distressed debt strategy. Further,
Shanbrom and Johnston told Plaintiffs that Sidley Austin, a reputable
law firm, would issue “independent” opinion letters confirming the
propriety of the distressed debt strategy. According to Shanbrom and
Johnston, Defendant R.J. Ruble (a partner at Sidley Austin) would
draft the Opinion letters, Shanbrom and Johnston told Plaintiffs that
Ruble was the recognized expert with respect to distressed debt
strategies. Shanbrorn and Johnston advised Plaintiffs that Sidley
Austin was completely “independent”' from BDO and would therefore
issue “independent” opinion letters, which would provide the required
legal support to confirm the propriety of the strategy and overcome
any IRS challenge and, equally as important, would provide absolute
penalty protection.
Shanbrom and Johnston recommended that Plaintiffs undertake a
distressed debt strategy that would be implemented over a 5 year
period, beginning in tax year 2000. Shanbrom and Johnston told
Plaintiffs that BDO and Gramercy would handle the design and
implementation of the distressed debt strategy.
....
Pursuant to BDO and Gramercy’s advice and instructions, Plaintiffs
entered into consulting agreements with. BDO. Unbeknownst to
Plaintiffs, BDO and Gramercy had an agreement that required BDO to
pay Gramercy part of the fees that Plaintiffs paid to BDO. The fees
paid to BDO were based on the amount of tax losses created by the
10
distressed debt strategy. Plaintiffs also entered into investment
management agreements with Gramercy with respect to the money
that Plaintiffs invested with Gramercy that was unrelated to the
distressed debt strategy.
Pursuant to BDO and Gramercy’s advice and instructions, Plaintiffs
opened accounts and made investments (unrelated to the tax-reducing
strategies) with Gramercy in November 2000.
4. Implementation of the Investment Strategies and the IRS
Notices
Plaintiffs’ petition describes the Investment Strategies undertaken in the
years 2000 through 2005, as well as the IRS notices issued that bore on the legality
of the strategies.
a. IRS Notice 1999-59
On December 27, 1999, almost a full year before Plaintiffs claim the
Investment Strategies were pitched to them by various defendants, the IRS issued
Notice 1999-59 entitled “Tax Avoidance Using Distribution of Encumbered
Property.” That notice stated that the IRS and Treasury Department had become
aware of “certain types of transaction . . . that are being marketed to taxpayers for
the purpose of generating tax losses.” Specifically, it noted that artificial losses are
being created through a “contrived series of steps, [through which] taxpayers
claimed tax losses for capital outlays that they have in fact recovered.” It reiterated
that artificial losses are not allowed for income tax purposes.
Plaintiffs petition asserts that, despite the “clear message” from the IRS in
Notice 1999-59 that “purported losses arising from transactions wholly lacking in
11
‘economic substance’” are disallowed, the Strategy Defendants “failed to discuss
and analyze the effect and significant of this IRS Notice.”
b. IRS Notice 2000-44
In August 2000, the IRS issued another notice, Notice 2000-44 entitled “Tax
Avoidance Using Artificially High Basis,” which Plaintiffs allege clearly reiterated
that the Investment Strategies being pitched to Plaintiffs were illegal and abusive
tax shelters. This notice specified the precise transaction marketed to the
Plaintiffs, under which a taxpayer purchases call options and simultaneously writes
offsetting call options, transfers the option positions to a partnership, and
ultimately claims that the basis in the partnership interest “is increased by the cost
of the purchased call options but is not reduced under [IRC] §752 as a result of the
partnership’s assumption of the taxpayer’s obligation.” The Notice stated that the
“purported losses from these transactions (and from any similar arrangements
designed to produce non-economic tax losses by artificially overstating basis in
partnership interest) are not allowable as deductions for Federal income tax
purposes.”
Plaintiffs allege that various defendants failed to tell them about the IRS’s
position to their detriment.
12
c. 2000 Digital Option Strategy
“Plaintiffs R.K. Lowry Jr., L-Falling Creek LLC, Russell A. Chabaud, R-
Rac Wimbledon, LLC, John Moffitt, J-Jason, LLC, and LMC Recovery Fund LLC
entered into tax strategies involving the purchase and sale of digital options on
foreign currency (the ‘2000 Digital Options Strategy’).” According to Plaintiffs’
petition, BDO and Gramercy determined that, for the year 2000, there was not
enough time to implement the agreed upon distressed debt strategy, so they instead
implemented a Digital Options 4 Strategy with Plaintiffs’ money for the 2000 tax
year. Plaintiffs further alleged that, “unbeknownst to Plaintiffs, BDO and
Gramercy dipped into the money Plaintiffs had deposited in a separate Gramercy
account for investments wholly unrelated to the tax-reducing strategy and used
$750,000 to execute the digital options necessary to implement the 2000 Digital
Options Strategy.”
Plaintiffs allege that Digital Option Strategies were developed and marketed
from 1991 to 1999 by a partner at Jenkens & Gilchrist. See The Diversified Grp.,
Inc. v. Daugerdas & Jenkens & Gilchrist, 139 F. Supp. 2d 445 (S.D.N.Y. 2001).
To implement the strategy, Plaintiffs formed a single member LLC to purchase and
sell digital options on foreign currency. Some of the options Plaintiffs purchased
through their LLCs allowed Plaintiffs to enter into one of two “forward foreign
4
Digital options provide an investor the opportunity to gain or lose a pre-
determined amount in full if a strike price is met.
13
currency contracts whereby Plaintiffs pay out or received a predetermined amount
in foreign currency.” 5 Each option involving forward foreign currency contracts
was offset by another option, providing foreign currency contracts with identical,
but otherwise opposite, payouts. In other words, the options were issued in
offsetting pairs with different, but narrow, strike prices.
Then Plaintiffs Lowry, Chabaud, and Moffit, through their respective LLCs,
contributed their options to another newly formed LLC (“Fund LLC”). On the
options expiration date, the digital options expired, creating a gain or loss. With
regard to the options involving forward foreign currency contracts, Plaintiffs then
exercised their rights or obligations on the underlying foreign currency contracts,
resulting in a gain or loss (depending on the foreign currency exchange rate).
Next, Plaintiffs made a capital contribution of cash or capital assets to the
Fund LLC. The defendant law firms opined that the Fund LLC would be treated as
a partnership for tax purposes. Then Plaintiffs then contributed their partnership
Fund LLC interest to an S Corporation.
Finally, the S Corporations sold the capital or ordinary assets contributed by
the Individual Plaintiffs. Because the assets had an artificially inflated basis, their
sale lead to substantial losses that Plaintiffs were told to use to offset gains or
income on their tax return.
5
A foreign currency forward contract obligates its parties to exchange currency at a
prespecified exchange rate on a future date.
14
According to Plaintiffs, they were not told that their 2000 Digital Options
Strategy was required to be disclosed on their tax returns. Defendants also failed
to register the 2000 Digital Options Strategy as a tax shelter with the IRS. The
Plaintiffs that participated in the 2000 Digital Option Strategy allege that they
would have refused to participate had they been fully and properly informed.
Sidley Austin provided the promised opinion letter that the positions were legal
and that Plaintiffs would not be subject to any IRS penalties related to their tax
positions.
Plaintiffs further allege that the Strategy Defendants acted in their own
interest rather than Plaintiffs’ interest when they told Plaintiffs not to participate in
a 2001 IRS amnesty program aimed at these types of transactions. Plaintiffs allege
a conflict of interest, as the amnesty program required taxpayers to disclose the
names of all of the individuals and entities involved in the marketing, sale, or
implementation of the tax position, or who received a fee.
d. 2001 Distressed Debt Strategy
In 2001, Plaintiffs Lowry, Falling Creek LLC, Chabaud, Rac Wimbledon,
LLC, Moffitt, J. Jason, LLC, Chabaud (as Trustee of the Russell G. Chabaud 1999
Investment Trust, the Ashley Chabaud 1999 Investment Trust, and the Audrey
Chabaud 1999 Investment Trust), R-Russell Wimbledon LLC, R-Ashley
15
Wimbledon LLC, R. Audrey Wibledon, LLC, and LMC Recovery Fund LLC
entered into the 2001 Distressed Debt Strategy.
To implement, in April 2001 and July 2001 Plaintiffs made capital
contributions to LMC Recovery Fund. Brazilian and Bulgarian companies then
contributed certain distressed debt assets 6 to the Gramercy Local Markets
Recovery Fund, LLC, which, in turn, contributed the distressed debt instruments to
LMC in exchange for a membership interest therein. The plaintiffs purchased
additional interest in LMC from the Brazilian and Bulgarian interest-holders.
Finally, LMC sold a portion of the distressed debt instruments, generating losses.
Sidley Austin’s opinion letters again advised that these transactions were
legal and that LMC Recovery Fund LLC would be treated as a partnership for tax
purposes. Plaintiffs and other contributors to LMC (Gramercy Local Markets
Recovery Fund and the Brazilian and Bulgarian companies) would be considered
the partners. BDO Seidman prepared the 2001 federal return for LMC and
provided a copy of the return to Plaintiffs. In reliance on the 2001 Strategy
Defendants’ advice, plaintiffs included—on their individual 2001 tax returns—the
losses purportedly generated from the 2001 distressed debt strategy.
6
Distressed debt instruments are those that can be purchased at a significant
discount from the face value, such that they have a significant built-in loss through
their high basis but low value.
16
With regard to this transaction, Plaintiffs assert that BDO Seidman,
Gramercy, and Sidley Austin committed fraud in inducing them to participate in
the distressed debt transactions. They assert that each of these defendants made
“various false statements of material fact and omitted to state material facts that
made the statements misleading to Plaintiffs.” The purpose, Plaintiffs allege, was
“to generate fees by promoting an alleged tax-saving strategy.” Plaintiffs would
not, they claim, have participated in the 2001 Distressed Debt Strategy had these
defendants not deceived the Plaintiffs.
e. 2002 - 2008 Distressed Debt Strategy
Aside from a change in the law firm providing the opinion letters and a
different firm preparing some of the entities’ tax returns, the 2002–2008 Distressed
Debt Strategies were identical in structure—and basically continuations—of the
2001 Distressed Debt Strategy.
C. The Trial Court Proceedings
Following extensive briefing, the trial court denied the Gramercy
Defendants’ special appearance at an October 17, 2013 hearing. The Gramercy
defendants timely filed this accelerated appeal.
ISSUE ON APPEAL
In a single issue, the Gramercy defendants challenge the trial court’s order
denying their special appearance:
17
Did the district court err in denying Gramercy’s Amended Special
Appearance and exercising personal jurisdiction over Gramercy when
Appellees conceded Gramercy was not subject to general jurisdiction,
and when there was virtually no connection between Gramercy’s
Texas contacts and the misconduct forming the basis of Appellees’
claims?
THE GRAMERCY DEFENDANTS’ SPECIAL APPEARANCE AND THE
PLAINTIFFS’ RESPONSE
In their special appearance, the Gramercy defendants contended that the trial
court’s exercise of specific personal jurisdiction over them was improper, as they
lacked sufficient minimum contacts with Texas. Specifically, they argued that it
was BDO, and not the Gramercy defendants, who advised Plaintiffs to engage in a
risky tax-reduction investment strategy. And they cited their written contracts with
Plaintiffs acknowledging that Plaintiffs were not relying upon the Gramercy
defendants for tax advice.
Because the agreement between Gramercy and Plaintiffs specified that
Gramercy did not offer Plaintiffs tax opinions or advice, and because Plaintiffs’
allegation is that they received faulty tax advice, the Gramercy defendants argue
that they have “no place in this lawsuit.”
As evidence, Gramercy proffered two affidavits, summarized here:
Robert Lanava’s affidavit: Lonava is the Managing Director for
Operations for all the Gramercy defendants. Lonava stated that none of the
Gramercy defendants are organized in Texas; each has its principal place of
business in either Connecticut or New York. Gramercy’s business and
financial operations are focused in Connecticut, New York, and overseas.
Gramercy has not had offices or employees operating in Texas.
18
Gramercy did not affirmatively solicit Plaintiffs’ investments. Rather,
Plaintiffs were referred to Gramercy by BDO. The investment services
rendered by Gramercy for Plaintiffs were performed entirely outside of
Texas.
Gramercy has not had an agency relationship with any co-defendant,
and has not “had any contract or other type of agreement with them.”
To the best of Lanava’s knowledge, Plaintiffs’ representatives visited
New York to meet with Gramercy to discuss the proposed investments.
Periodic written communications to Plaintiffs were limited to account
statements and notifications and contracts and other documents that were
sent to Plaintiffs for their signature. Gramercy exchanged emails and
facsimile communications with Plaintiffs incident to the administration of
Plaintiffs’ investments.
The distressed debt and emerging market debt acquired by Plaintiffs
was located in Brazil and the Russian Federation. The currency options
Gramercy procured for Plaintiffs were through firms located in New York
City.
Gramercy did not prepare, review, or file tax returns for Plaintiffs.
A Tennessee district court has dismissed a suit against Gramercy
Advisors for lack of personal jurisdiction.
Jay Johnston’s affidavit: Defendant Johnston is Co-Managing
Member of defendant Gramercy Advisors. Johnston lives in Puerto Rico
and previously resided in Conneticut. He has never lived in Texas; nor has
he had offices or property in Texas.
Johnston did not affirmatively solicit Plaintiffs. Plaintiffs were
referred to Gramercy by BDO.
We regard to his interaction with Plaintiffs, Johnston’s affidavit
further averred:
Plaintiffs invested in distressed Brazilian and certain Russian
assets through Gramercy, and also separately invested in
Gramercy’s emerging market hedge funds. To the best of my
recollection, I may have attended a single meeting in Texas in
late 2000 with Plaintiffs’ representatives and representatives of
BDO Seidman, LLP prior to Plaintiffs ‘investments with
19
Gramercy (I am not certain of the timing). To the best of my
recollection, my participation was limited to a discussion of
Gramercy’s hedge fund operations; a description of emerging
market distressed debt assets to be acquired by Plaintiffs, and a
general description of other financial and transactional aspects
of the services that would be performed by Gramercy on
Plaintiffs’ behalf. I did not address the tax implications of any
transactions conducted for Plaintiffs, the anticipated IRS
position with respect thereto, which I understand to be the
subject of this action.
Following Plaintiffs’ investments with Gramercy, I met with
Plaintiffs in Texas on a few additional occasions at Plaintiffs’
request. However, the purpose of these meetings was solely to
update Plaintiffs with respect to their investments in
Gramercy’s hedge funds. These investments were unrelated to
the transactions subsequently challenged by the IRS which, as I
understand it, form the basis of the instant lawsuit.
Plaintiffs filed objections and a motion to strike the Lanava and Johnston
affidavits “because they are replete with legal conclusions, averments make purely
‘upon information and belief,’ and matters outside the affiants’ personal
knowledge, as well as generally lacking in credibility.” No ruling on these
objections or motion appears in the record.
In their response to the Gramercy defendants’ special appearance, Plaintiffs
disputed that the Gramercy defendants were only investment advisors that lacked
sufficient minimum contacts in Texas. Specifically, they argued:
Gramercy made numerous purposeful contacts with the state
of Texas directly relating to the actions complained of by Plaintiffs in
this case. Gramercy willfully participated in a scheme to defraud
Plaintiffs, all of whom are Texas residents. Gramercy met face-to-face
with Plaintiffs in Texas on numerous occasions to market, sell, and
20
implement the tax-reducing investment strategies at issue in this case.
Gramercy’s role was much broader than merely executing investments
strategies determined by others. Instead, Gramercy was actually
involved from the beginning in every aspect of the tax-reducing
investment strategies, including discussing the alleged tax benefits
with Plaintiffs as part of the initial sales pitch in Texas. Contrary to
Gramercy’s position, Gramercy did, in fact, discuss the tax-
advantaged nature of the strategies at Texas meetings and pitched the
tax savings as one of the reasons for doing the deals. Those meetings
alone subject Gramercy to jurisdiction in Texas. Gramercy also
purposefully directed its activities at Texas by:
• Drafting, negotiating, and entering into numerous contracts with
Texas-resident Plaintiffs related to the tax-reducing investment
strategies, which contracts contemplated a longterm relationship
between the parties with performance occurring at least in part
in Texas;
• Managing and holding partnership interests in several entities-
some of which resided in Texas-that were involved in the tax-
reducing investment strategies and selling partnership interests
and distressed debt assets to Texas-resident Plaintiffs;
• Directing and overseeing the preparation of tax returns and
Schedule K -1 s containing the tax losses generated by the tax-
reducing investment strategies for the benefit of Texas resident
Plaintiffs and mailing and, in one instance, hand-delivering the
returns and K -1s to Plaintiffs in Texas;
• Earning millions of dollars from its purposeful actions in Texas
through fees generated by investment management agreements
with Plaintiffs and undisclosed kick-backs from consulting fees
paid by Plaintiffs to BDO;
• Sending regular, monthly account statements to Plaintiffs in
Texas, setting up a secure website for Plaintiffs to view account
information from Texas, and inviting Plaintiffs to participate in
quarterly conference calls from Texas; and
• Marketing and selling tax-reducing investment strategies-similar
to the ones sold to Plaintiffs-to other Texas clients.
21
As evidence in support, the Plaintiffs proffered affidavits by Plaintiffs
Chabaud, Deary, Lowry, and Moffitt, as well as affidavits by Plaintiffs’ accountant
and lawyer. In these affidavits, Plaintiffs averred that, at the September 26, 2000
meeting with BDO, BDO representatives pitched the distressed-debt strategy and
recommended that Plaintiffs engage Gramercy to assist BDO. Plaintiffs did not
initiate the follow-up November 7, 2000 meeting with BDO and Gramercy’s
principal, Jay Johnston. At that meeting, Johnston introduced himself as a
principal with Gramercy, and “Johnston and Shanbrom [with BDO] worked
together equally on the ‘pitch’ that was made to [Plaintiffs] during the meeting.”
Both Shanbrom and Johnston touted R.J. Ruble, a partner with Sidley Austin, as
the recognized expert on distressed debt strategies. Shanbrom explained that an
opinion letter from Ruble would shield Plaintiffs from liability with the IRS.
“Johnston reiterated that Ruble was an expert in this area, Sidley Austin was a
qualified and reputable law firm, and Gramercy had experienced good results from
Sidley Austin on these types of transactions in the past.”
Plaintiffs’ affidavits further provided that Shanbrom represented, and
Johnston confirmed, that investing with Gramercy in areas other than distressed
debt would offer diversity and improve Plaintiffs’ position with the IRS. Both
“Johnston and Shanbrom assured [Plaintiffs] that the Investment Strategies were
legal.”
22
Plaintiffs also averred that Johnston and Shanbrom again met with Plaintiffs
and their accountant in Houston on January 11, 2001, to discuss the digital options
strategy and other investments with Gramercy. Plaintiffs averred that they again
met with Johnston and BDO representatives on May 8, 2001 in Houston.
According to Plaintiffs, during that meeting, which was requested by Gramercy,
they “discussed the opinion letters drafted by Sidley Austin concerning the legality
of the Investment Strategies and had a broad discussion about [each individual
Plaintiffs’] tax loss needs for 2001.” Plaintiffs’ affidavits highlight several other
meetings with Gramercy principals to discuss tax matters and investments.
STANDARD OF REVIEW
Whether a trial court has personal jurisdiction over a nonresident defendant
is a question of law. Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d
777, 790–91 (Tex. 2005); BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d
789, 794 (Tex. 2002). Because the trial court’s exercise of personal jurisdiction
over a nonresident defendant is one of law, an appellate court reviews the trial
court’s determination of a special appearance de novo. Moki Mac River
Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007); BMC Software, 83
S.W.3d at 794. However, the trial court must frequently resolve fact questions
before deciding the jurisdictional question. BMC Software, 83 S.W.3d at 794;
Capital Tech. Info. Servs., Inc. v. Arias & Arias, Consultores, 270 S.W.3d 741, 748
23
(Tex. App.—Dallas 2008, pet. denied) (en banc). In a special appearance, the trial
court is the sole judge of the witnesses’ credibility and the weight to be given their
testimony. Ashdon, Inc. v. Gary Brown & Assocs., 260 S.W.3d 101, 116 (Tex.
App.—Houston [1st Dist.] 2008, no pet.).
We do not “disturb a trial court’s resolution of conflicting evidence that
turns on the credibility or weight of the evidence.” Ennis v. Loiseau, 164 S.W.3d
698, 706 (Tex. App.—Austin 2005, no pet.). When a trial court does not issue
findings of fact or conclusions of law, “all facts necessary to support the judgment
and supported by the evidence are implied.” BMC Software, 83 S.W.3d at 795. We
will affirm the trial court’s ruling on any legal theory that finds support in the
record. Dukatt v. Dukatt, 355 S.W.3d 231, 237 (Tex. App.—Dallas 2011, pet.
denied).
PERSONAL JURISDICTION
The Texas long-arm statute permits Texas courts to exercise jurisdiction
over nonresident defendants. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 17.041–
.045 (West 2014); PHC—Minden, L.P. v. Kimberly—Clark Corp., 235 S.W.3d
163, 166 (Tex. 2007); BMC Software, 83 S.W.3d at 795. It extends Texas courts’
personal jurisdiction “as far as the federal constitutional requirements of due
process will permit.” PHC–Minden, 235 S.W.3d at 166 (quoting U–Anchor
Adver., Inc. v. Burt, 553 S.W.2d 760, 762 (Tex. 1977)).
24
The Due Process Clause of the Fourteenth Amendment operates to limit the
power of a state to assert personal jurisdiction over a nonresident defendant. Asahi
Metal Indus. Co., Ltd. v. Superior Court of Cal., Solano Cnty., 480 U.S. 102, 108,
107 S. Ct. 1026, 1030 (1987); Helicopteros Nacionales de Colombia, S.A. v. Hall,
466 U.S. 408, 413–14, 104 S. Ct. 1868, 1872 (1984). Under the Due Process
Clause, personal jurisdiction over a nonresident defendant is constitutional when
the nonresident defendant has established minimum contacts with the forum state
and the exercise of jurisdiction comports with traditional notions of fair play and
substantial justice. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct.
2174, 2184 (1985); Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154,
158 (1945). Minimum contacts are sufficient to support the exercise of personal
jurisdiction if they show that the nonresident defendant has “purposefully availed”
itself of the privilege of conducting activities within the forum state, thus invoking
the benefits and protections of its laws. See Int’l Shoe Co., 326 U.S. at 319, 66 S.
Ct. at 160; Michiana, 168 S.W.3d at 784.
The plaintiff bears the initial burden of pleading sufficient allegations to
bring a nonresident defendant within the provisions of the Texas long-arm statute.
Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex. 2010); Moki Mac,
221 S.W.3d at 574. The nonresident defendant then has the burden of negating all
bases of jurisdiction alleged in the plaintiff’s petition. Kelly, 301 S.W.3d at 657–
25
58; Moki Mac, 221 S.W.3d at 574. The defendant can introduce evidence
disproving the plaintiff’s factual allegations, or show that the defendant’s contacts
with the forum state “fall short of purposeful availment,” or demonstrate that
“traditional notions of fair play and substantial justice are offended by the exercise
of jurisdiction.” Washington DC Party Shuttle, LLC v. IGuide Tours, 406 S.W.3d
723, 728 (Tex. App.–Houston [14th Dist.] 2013, pet. denied) (en banc). If specific
jurisdiction is at issue, then the defendant also can show that the plaintiff’s claims
do not arise from the defendant’s contacts with Texas. Id.
ANALYSIS
State statutory and federal due-process requirements are satisfied if (a) a
nonresident has minimum contacts with Texas, and (b) exercise of personal
jurisdiction over the nonresident does not offend traditional notions of fair play and
substantial justice. Helicopteros Nacionales de Colombia, S.A., 466 U.S. at 414,
104 S. Ct. at 1872.
We first look to whether Plaintiffs have sufficiently pleaded a basis for the
trial court to exercise specific jurisdiction over the Gramercy defendants. Kelly v.
General Interior Construction, Inc., 301 S.W.3d 653, 658–59 (Tex. 2010). Then
we review the evidence proffered by the Gramercy defendants (as well as
Plaintiffs’ evidence in response), to determine if Gramercy negated all pleaded
bases for jurisdiction. Id.
26
A. Minimum Contacts
Minimum contacts suffice for personal jurisdiction when the nonresident
purposefully avails itself of the privilege of conducting activities within the forum
state, and thus invokes the benefits and protections of its laws. Moki Mac, 221
S.W.3d at 575. The crux of the Gramercy defendants’ argument is that Plaintiffs’
claims relate to tax advice, Plaintiffs disclaimed reliance on Gramercy’s tax advice,
and, therefore, any contact Gramercy had with Texas cannot be sufficiently related
to Plaintiffs’ claims to confer personal jurisdiction over Gramercy. We disagree.
Preliminarily, we note that the Gramercy defendants’ arguments conflate
liability with jurisdiction. The Texas Supreme Court has expressly rejected an
approach “equating the jurisdictional inquiry with the underlying merits,” noting
that would allow a nonresident defendant to “defeat jurisdiction by proving that
there was no tort.” Michiana Easy Livin’ Country Inc. v. Holten, 168 S.W.3d 777,
789 (Tex. 2005). Accordingly, to the extent that the Gramercy defendants argue
that the contractual disclaimers of reliance signed by Plaintiffs negate jurisdiction
because they purport to limit or reduce the Gramercy defendants’ liability related
to tax advice, we reject that argument. See, e.g., Citrin Holdings, LLC v. Minnis,
305 S.W.3d 269, 283 (Tex. App.—Houston [14th Dist.] 2009, no pet.).
We also conclude that the Gramercy defendants’ interpretation of the
Plaintiffs’ claims, and the alleged contacts that are related to those claims, is too
27
narrow. We analyze these contacts to determine if the Gramercy “purposefully
availed itself of the privilege of conducting activities in Texas” considering three
factors articulated by the supreme court:
First, only the defendant’s contacts with the forum are relevant, not
the unilateral activity of another party or a third person. Second, the
contacts relied upon must be purposeful rather than random,
fortuitous, or attenuated. Thus, sellers who reach out beyond one state
and create continuing relationships and obligations with citizens of
another state are subject to the jurisdiction of the latter in suits based
on their activities. Finally, the defendant must seek some benefit,
advantage or profit by availing itself of the jurisdiction.
Moncrief Oil Int’l v. OAO Gazprom, 414 S.W.3d 142, 151 (Tex. 2013).
Applying this standard to the contacts with Financial Strategy Group—a
nonresident company hired by Gramercy to prepare tax returns for a nonresident
Fund used in implementing the Investment Strategies—we concluded that its
contacts were too attenuated to give rise to jurisdiction in Texas. Fin. Strategy
Grp., 2015 WL 452265, at *11. The Gramercy connections alleged here by
Plaintiffs, however, are much greater and more purposeful than Financial Strategy
Group’s alleged contacts.
Jurisdiction is proper “where the contacts proximately result from actions by
the defendant himself that create a substantial connection with the forum State.”
Id. (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473, 475, 105 S. Ct.
2174 (1985) (quotation marks omitted)). A substantial connection can result from
even a single act. Id. (citing McGee v. Int’l Life Ins. Co., 355 U.S. 220, 223, 78 S.
28
Ct. 199, 222 (1957)). But the unilateral activity of another person cannot create
jurisdiction. Id. (citing Burger King, 471 U.S. at 475, 105 S. Ct. at 2174).
Physical presence in the state is not required but “frequently will enhance a
potential defendant’s affiliation with a State and reinforce the reasonable
foreseeability of suit there.” Id. (quoting Burger King, 471 U.S. at 476, 105 S. Ct.
2174). At its core, the purposeful availment analysis seeks to determine whether a
nonresident’s conduct and connection to a forum are such that it could reasonably
anticipate being haled into court there.” Id. (quoting Burger King, 471 U.S. at 474,
105 S. Ct. 2174).
“It is beyond dispute that [a forum] has a significant interest in redressing
injuries that actually occur within the State.” Keeton v. Hustler Magazine, Inc.,
465 U.S. 770, 776, 104 S. Ct. 1473, 1479 (1984). Accordingly, states have a
strong interest “in exercising judicial jurisdiction over those who commit torts
within its territory.” Id. “This is because torts involve wrongful conduct which a
state seeks to deter, and against which it attempts to afford protection, by providing
that a tortfeasor shall be liable for damages which are the proximate result of his
tort.” Id.
The Gramercy defendants cite several cases applying these standards to hold
that the courts lacked personal jurisdiction in a variety of contexts, despite the
nonresident defendants’ attending meetings in the forum at issue. See, e.g.,
29
Gustafson v. Provider Healthnet Servs., Inc., 118 S.W.3d 479, 484 (Tex. App.—
Dallas 2003, no pet.) (defendant’s attendance at two Texas meetings did not give
rise to specific jurisdiction, in part because plaintiff did not allege defendant
“breached any duties to it or committed any torts during these meetings”);
Marathon Oil Co. v. A.G. Ruhrgas, 182 F.3d 291, 295 (5th Cir. 1999) (“Its mere
presence at the three meetings in Houston, together with the noted correspondence
and phone calls, is not sufficient to establish the requisite minimum contacts
because the record is devoid of evidence that Ruhrgas made false statements at the
meetings or that the alleged tortious conduct was aimed at activities in Texas”);
Turan v. Universal Plan Inv. Ltd., 10 F. Supp. 2d 671, 674 (E.D. La. 1999), aff’d in
part 248 F.3d 1139 (5th Cir. 2001) (“Travels to business meetings, conversations
on the telephone, and correspondences by mail are not sufficient to establish
minimum contacts unless there is evidence that the plaintiffs’ claims directly arise
from those specific activities.”); Bozell Grp., Inc. v. Carpet Co-op of Am. Ass’n,
Inc., No. 00 CIV. 1248(RWS), 2000 WL 1523282 (S.D.N.Y. 2000) (holding that
two trips to forum and phone calls were insufficient to confer jurisdiction over
nonresident defendant under New York’s long-arm statute because these contacts
fell short of “conducting business” in New York, and because there lacked a
sufficient nexus between the contacts and the plaintiff’s claim).
30
In contrast, Plaintiffs cite numerous cases for the proposition that “[c]ourts
uniformly exercise specific jurisdiction where a nonresident defendant attended
meetings in Texas concerning the facts of the lawsuit.” See, e.g., Moncrief, 414
S.W.3d at 153–54 (“Because the Gazprom Defendants attended two Texas
meetings, at which they accepted Moncrief’s alleged trade secrets regarding a
proposed joint venture in Texas, their contacts were not unilaterally from
Moncrief, nor were they random and fortuitous.”); Max Protetch, Inc. v. Herrin,
340 S.W.3d 878, 887–88 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (holding
that personal jurisdiction over New York company was supported in part by
misrepresentations made by New York defendant while at Texas meeting);
Horizon Shipbuilding, Inc. v. Blyn II Holding, LLC, 324 S.W.3d 840, 849 (Tex.
App.—Houston [14th Dist.] 2010, no pet.) (rejecting argument that nonresident
defendant attending two Texas meetings and participating in phone calls were too
“isolated, incidental and attenuated” to constitute purposeful availment); Citron
Holdings, LLC, 305 S.W.3d at 283 (affirming trial court’s denial of special
appearance, in part because “the circumstances involve multiple Texas contacts
over many months in the course of an ongoing relationship that ‘was not
unilaterally initiated by the Texas resident’”).
Plaintiffs’ claims here are more like the cases cited by Plaintiffs than by the
Gramercy defendants. Plaintiffs allege that Gramercy and each of the other
31
defendants represented that they were independent and working in the interest of
Plaintiffs. Plaintiffs further contend that Plaintiffs were fraudulently induced to
enter into various aspects of the several years’ long Investment Strategy based
upon representations by both BDO and Gramercy. Plaintiffs allege that
Gramercy’s representative Johnston praised Sidley Austin (and, later, DeWest
Castro) as reputable law firms with expertise in this area, and steered Plaintiffs to
them for “independent” opinion letters confirming the validity of the distressed
debt strategy when, in reality, Gramercy and the other defendants knew the law
firms were merely churning out fill-in-the-blank opinion letters. Finally, Plaintiffs
allege that Gramercy hid from Plaintiffs its agreement with BDO requiring BDO to
pay a portion of the consulting fees BDO received from Plaintiffs to Gramercy.
According to Plaintiffs’ theory, Johnston (as a representative of Gramercy)
attended a meeting in Texas at which Gramercy specifically targeted Plaintiffs for
longterm business while (1) misrepresenting its role in the development of the
Investment Scheme, (2) knowing that information was being fed to Plaintiffs that
was untrue, and (3) seeking to profit from Plaintiffs’ investments tied to the
Investment Strategies, as well as other investments and the secret payments from
BDO. 7
7
The Gramercy defendants point to the fact that the parties’ investment agreements
have a New York choice-of-law provision, but such a provision is not dispositive
on the issue of purposeful availment and minimum contacts in light of these
32
These alleged contacts, which are substantially connected to Plaintiffs’
claims, amount to purposeful availment for purposes of establishing minimum
contacts. While the Gramercy defendants’ affidavits dispute some of Plaintiffs’
allegations and focus on representations made by BDO to Plaintiffs, we must
presume at this state that “the trial court resolved all factual disputes in favor of its
judgment.” Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 806
(Tex. 2002). Because the Gramercy Defendants’ evidence does not conclusively
negate all bases of jurisdiction pleaded by Plaintiffs, e.g., Parex Res., Inc. v. ERG
Res., LLC, 427 S.W.3d 407, 415–16 (Tex. App.—Houston [14th Dist.] 2014, pet.
filed), the Gramercy Defendants have not carried their burden to establish that the
trial court erred in finding sufficient minimum contacts.
B. Traditional Notions of Fair Play and Substantial Justice
To affirm the trial court’s denial of the Gramercy defendants’ special
appearance, we must also determine that the court’s exercise of personal
jurisdiction would not offend traditional notions of fair play and substantial justice.
To answer this question, courts generally look to (1) the burden on the defendant;
(2) the interests in the forum state in adjudicating the dispute; (3) the plaintiff’s
interests in obtaining convenient and effective relief; (4) the interstate judicial
allegations. See Citrin Holdings, LLC, 305 S.W.3d at 283 (“[T]he presence of a
New York choice of law provision in the Cargo Ventures Operating Agreement is
not dispositive and is outweighed by the other Texas-centered contacts.”).
33
system's interest in obtaining the most efficient resolution of controversies; and (5)
the shared interest of the states in furthering fundamental substantive social
policies. Burger King, 471 U.S. at 476–77, 105 S. Ct. 2174. The defendant bears
the burden of establishing that the exercise of personal jurisdiction would offend
traditional notions of fair play and substantial justice. Conner v. ContiCarriers &
Terminals, Inc., 944 S.W.2d at 405, 411 (Tex. App.—Houston [14th Dist.] 1997,
no pet.).
Considering the above-listed factors, we conclude that the exercise of
personal jurisdiction in this case is consistent with traditional notions of fair play
and substantial justice. The Gramercy defendants contend that defending this suit
in Texas would be a considerable burden because (1) Gramercy does not have a
business presence in Texas, (2) its files are not in Texas, and (3) a New York
choice-of-law provision governs at least part of the dispute. In support, it cites two
unpublished orders in cases from Illinois finding that jurisdiction over the
Gramercy defendants in that state would offend traditional notions of fair play and
substantial justice.8 The trial court in both concluded that the Illinois courts lacked
jurisdiction over Gramercy because “Plaintiffs and Gramercy Defendants reside
outside of Illinois and none of the alleged transactions in which the Gramercy
8
These orders were issued on November 26, 2014 by the Circuit Court of Cook
County, Illinois in Coe v. BDO Seidman, Cause No. 12 L 13691 and Kaufman v.
BDO Seidman, Cause No. 12 L 13292.
34
Defendants were involved, concerning Plaintiffs, took place in Illinois,” and the
“contract [was] neither negotiated nor performed in” Illinois. Given that here we
have concluded that Gramercy has sufficient minimum contacts with Texas that
exceed its connection to Illinois discussed in those cases, we find the Illinois cases
relied upon by Gramercy to be inapposite.
The Gramercy defendants have not established that this is one of those “rare
cases” in which the exercise of personal jurisdiction offend traditional notions of
fair play and substantial justice, Retamco Operating, Inc. v. Republic Drilling Co,
278 S.W.3d 333, 341–42 (Tex. 2009).
CONCLUSION
We affirm the trial court’s order denying the Gramercy defendants’ special
appearance.
Sherry Radack
Chief Justice
Panel consists of Chief Justice Radack and Justices Higley and Massengale.
35