Opinion
1:22-CV-00284
03-29-2023
FUNDIENT, LLC, SCOTT GORDON, SAL MIRRAN, Plaintiffs v. JOHNSON CONTROLS, INC., Defendant.
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
DUSTIN M. HOWELL UNITED STATES MAGISTRATE JUDGE
TO: THE HONORABLE ROBERT PITMAN UNITED STATES DISTRICT JUDGE
Before the Court is Defendant Johnson Control Inc.'s (JCI) renewed motion to dismiss Plaintiffs' first amended petition for lack of personal jurisdiction, or in the alternative for failure to state a claim, Dkt. 44, and all related briefing. After reviewing these filings and the relevant case law, the undersigned recommends that the District Court deny JCI's motion.
I. BACKGROUND
Fundient brings claims for fraud and violation of the Texas Securities Act based on JCI's alleged role in misrepresenting material facts allegedly contained within a whitepaper and a PowerPoint presentation delivered to Fundient at a meeting on September 22, 2020, among principals from Fundient, JJS Leasing (a former defendant in this case), and two JCI employees. Dkt. 46-2, at 3, 7-11. Fundient states that the whitepaper and presentation fraudulently induced Fundient to invest in an HVAC leasing program run by JJS Leasing. Id. at 6-10.
“A white paper is a report or guide that informs readers concisely about a complex issue and presents the issuing body's philosophy on the matter. It is meant to help readers understand an issue, solve a problem, or make a decision.” Wikipedia, https://en.wikipedia.org/wiki/White paper.
During the meeting, JCI employees Joe Olivieri and Nina LoCicero, along with Jim Probst and Scott Zimmer of JJS allegedly “delivered a presentation” to Fundient touting potential revenues of the JJS all-in-one (AIO) leasing program, likening it to a similar program first piloted by JCI's subsidiary, YORK, and George Brazil Air Conditioning and Heating. Id. at 4-5. George Brazil is the trade name for the HVAC sales and installation business of QHM Holdings, LLC, a member of JJS Leasing. Id. at 4. An appendix to the PowerPoint presentation described a “10% increase in system sales, a “21% increase in revenue,” and a “29% increase in gross profit....” Id. at 4.
After the meeting and presentation, Fundient received a whitepaper that described the results of the AIO leasing program piloted by YORK and George Brazil. Id. at 5. The whitepaper contained a number of financial projections for future AIO leasing programs that were supposedly “conservatively reduced” from the profit results of the YORK/George Brazil pilot. Id.
Fundient alleges that “[t]ogether, the presentation and whitepaper represented that (1) the AIO pilot program in Phoenix was materially the same as the JJS Leasing program for which JCI was soliciting investments, (2) this material similarity justified basing financial projections for the JJS leasing program on the pilot program results, and (3) George Brazil would continue to participate in the AIO program through JJS Leasing.” Id. at 5. In reliance on these misrepresentations, Fundient went on to invest $3 million into the JJS leasing program, and JJS Leasing later became Fundient Capital (as distinct from Fundient). Id. at 6. Fundient alleges that the program it invested in was materially different from the YORK/George Brazil program, and ultimately, less attractive for consumers and installers resulting in profits of 1% of first year sales projections. Id at 4-5. Fundient alleges that it was “misled ... [by JCI] about the nature of the pilot program, the basis of its projections, and George Brazil's intent not to participate” in the JJS leasing program. Id. at 7.
Fundient brings a common law fraud claim based on various false, misleading, or partial representations JCI made about the JJS Leasing program that JCI knew to be false or misleading. Id. at 7-10. Fundient alleges that these representations were made with the intent to induce Fundient to invest in the JJS leasing program, resulting in Fundient's loss of investment capital and damage to Fundient's principals' reputations. Id. Fundient also brings a claim for violation of the Texas Securities Act on the basis that JCI “materially aided the sale of a security . with intent to deceive or defraud or with reckless disregard for the truth or the law . and JCI benefitted by obtaining advantage or profit in the form of business relations with Fundient Capital [formerly JJS Leasing] as a result of false representations or promises.” Id. at 11.
JCI's renewed motion to dismiss asks the Court to dismiss Fundient's claims pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction, or in the alternative, pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Dkt. 44, at 1. JCI states that it was not a party to the transactions between Fundient, JJS Leasing, and Fundient Capital, never owned or controlled Fundient Capital, and didn't receive any of Fundient's investment capital. Id. at 2. Further, JCI, an Irish corporation with its principal place of business in Wisconsin, asserts that neither the whitepaper, nor the presentation, support this Court's exercise of specific personal jurisdiction. Id. at 2. These two communications are the only two contacts alleged by Fundient. Dkt. 46-2, at 2-5. JCI states that the whitepaper was prepared for JCI leadership, not Fundient, “at least nine months before [Fundient] even entered the scene and [was] indisputably sent to [Fundient] by ... JJS Leasing, not by JCI.” Dkt. 44 at 3.
As for the presentation, JCI contends that Fundient does not “allege facts as to JCI's role . in delivering the Presentation and the Presentation does not contain the statements that Plaintiffs allege were false.” Id. at 3. The presentation “does not give rise to an intentional tort by JCI, [and] is not a purposeful contact needed to support specific jurisdiction.” Id. Additionally, JCI states that Fundient's interrogatory responses show that neither of Fundient's principals in attendance at the September 22, 2020, virtual meeting was in Texas at the time. Dkts. 68 at 2-4; 67-4, at 3-4. As a result, the presentation “was not a communication to Texas,” constituting a contact with the forum state and giving rise to personal jurisdiction. Id.
This and other arguments postdating JCI's renewed motion to dismiss, Dkt. 44, are the result of the parties' interrogatory responses and JCI's productions following jurisdictional discovery. Prior to the filing of JCI's renewed motion to dismiss, Fundient filed a motion for jurisdictional discovery, Dkt. 10, which was granted by the undersigned. Dkt. 36. The District Court dismissed JCI's initial motion to dismiss, Dkt. 4, on that basis. In response to the undersigned's order for jurisdictional discovery, JCI produced one document, an email Fundient already possessed. Dkt. 42, at 1. Fundient moved to compel JCI to fully respond to its discovery requests. Dkt. 42. That motion was granted by the undersigned shortly thereafter. Dkt. 57. JCI then produced several documents pertaining to JCI employees' role at the presentation. See Dkts. 63-6; 63-7; 63-8; 63-9.
Lastly, JCI claims that the whitepaper and presentation don't contain the false representations alleged by Fundient. Dkt. 44, at 3. For example, “they do not state that the [YORK/George Brazil pilot] was the same as the proposed JJS Leasing program, but rather that three specific aspects of the JJS Leasing offering were validated by the George Brazil project.” Id. JCI argues that Fundient has created “a false impression of duplicity” such that Fundient's petition fails to state a claim for fraud or a violation of the Texas Securities Act. Id.
In response, Fundient argues that JCI “prepared the Whitepaper, was copied on the email sending the Whitepaper to Plaintiffs, and never intervened to correct the Whitepaper's misrepresentations.” Dkt. 46, at 3. As for the PowerPoint presentation, Fundient points to JCI's YORK logo on the slides that contain misrepresentations that give rise to Fundient's claims and argues that JCI's employees delivered the presentation at the meeting. Id. at 3. Fundient states that JCI's role in delivering and endorsing fraudulent communications in the form of the whitepaper and PowerPoint presentation establishes specific personal jurisdiction in Texas. Id.
As for JCI's contention that this Court does not have personal jurisdiction over JCI because Fundient's principals were not in Texas during the virtual meeting, Fundient responds: (1) that one of Fundient's principals was in Texas when he received the whitepaper; (2) the Fundient principals who attended the virtual meeting were acting as agents of Fundient, a corporation domiciled in Texas; (3) the principals were Texas residents; and (4) an intentional tort as alleged here establishes personal jurisdiction over an out-of-state defendant where the effects of the tort occur. Dkt. 69, at 3-5. Lastly, Fundient argues that it has stated its claims with adequate particularity, satisfying the heightened pleading requirements for fraud claims and has established the type of contact needed to support specific personal jurisdiction and to survive JCI's motion to dismiss pursuant to 12(b)(6). The undersigned addresses the parties' arguments below.
II. LEGAL STANDARD
A. 12(b)(2)
The Federal Rules of Civil Procedure allow a defendant to assert lack of personal jurisdiction as a defense to suit. Fed.R.Civ.P. 12(b)(2). On such a motion, “the plaintiff bears the burden of establishing the district court's jurisdiction over the nonresident.” Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). The court may determine the jurisdictional issue “by receiving affidavits, interrogatories, depositions, oral testimony, or any combination of the recognized methods of discovery.” Id. But when, as here, the court rules on the motion without an evidentiary hearing, the plaintiff need only present a prima facie case that personal jurisdiction is proper; proof by a preponderance of the evidence is not required. Walk Haydel & Assocs., Inc. v. Coastal Power Prod. Co., 517 F.3d 235, 241 (5th Cir. 2008). Uncontroverted allegations in a plaintiff's complaint must be taken as true, and conflicts between the facts contained in the parties' affidavits must be resolved in the plaintiff's favor. Id. Nevertheless, a court need not credit conclusory allegations, even if uncontroverted. Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 869 (5th Cir. 2001) (per curiam).
B. 12(b)(6)
Pursuant to Rule 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a 12(b)(6) motion, a “court accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). “To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need detailed factual allegations,' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). That is, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
A claim has facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. A court ruling on a 12(b)(6) motion may rely on the complaint, its proper attachments, “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) (citations and internal quotation marks omitted). A court may also consider documents that a defendant attaches to a motion to dismiss “if they are referred to in the plaintiff's complaint and are central to her claim.” Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004). But because the court reviews only the well-pleaded facts in the complaint, it may not consider new factual allegations made outside the complaint. Dorsey, 540 F.3d at 338. “[A] motion to dismiss under 12(b)(6) ‘is viewed with disfavor and is rarely granted.'” Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (quoting Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009)).
III. DISCUSSION
A. Fundient's 12(b)(2) Motion
JCI moves to dismiss on the basis that Fundient has not made a prima facie showing that this Court has specific personal jurisdiction over JCI. Dkt. 44, at 4. To decide whether Fundient has made a prima facie showing of specific personal jurisdiction, the Court must ask: “(1) whether the defendant has minimum contacts with the forum state, i.e., whether it purposely directed its activities toward the forum state or purposefully availed itself of the privileges of conducting activities there; (2) whether the plaintiff's cause of action arises out of or results from the defendant's forum-related contacts; and (3) whether the exercise of personal jurisdiction is fair and reasonable.” Vanderbilt Mortg. and Fin., Inc. v. Flores, 692 F.3d 358, 375 (5th Cir.2012). Additionally, in the context of intentional torts, “[w]hen the actual content of communications with a forum gives rise to intentional tort causes of action, this alone constitutes purposeful availment [because] [t]he defendant is purposefully availing himself of the privilege of causing a consequence.” Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 213 (5th Cir. 1999) (cleaned up).
At issue in this case is whether JCI's contacts with Texas are sufficient to support an assertion of specific personal jurisdiction. JCI is an Irish corporation with its principal offices located in Wisconsin, while Fundient is a Delaware LLC with its principal offices in Texas. Dkt. 46-2 at 2. Fundient's members, Scott Gordon and Sal Mirran, are Texas residents. Id. The two jurisdictional contacts identified by Fundient include a whitepaper and PowerPoint presentation delivered at a meeting attended by two JCI employees, Fundient's principals, and Scott Zimmer of JJS Leasing. Dkt. 46-2, at 3-5. The undersigned will address each alleged jurisdictional contact in turn.
1. Whitepaper
Fundient's petition states that after the September 22, 2020, meeting, JCI prepared an eight-page whitepaper for Fundient and that Zimmer of JJS Leasing emailed the whitepaper to Fundient stating that it “was referenced and pulled together as an outcome of the HVAC AIO program conducted back in the summer of 2018”. Id. at 4. The whitepaper “detail[s] the background of the AIO program [a collaboration between YORK and George Brazil] as well as the scope of the pilot, the results, and a summary of potential benefit.” Dkt. 46-6, at 3. Joe Olivieri and Nina LoCicero of JCI were copied on the email, though JCI did not direct Zimmer to send the email or whitepaper to Fundient. Dkt. 46-5, at 2.
JCI argues that the whitepaper was prepared at least nine months before the September 22, 2020, meeting, not for Fundient, but for JCI leadership and was not a communication directed to a party in Texas for the purposes of specific personal jurisdiction. Dkt. 44, at 7. Indeed, though the whitepaper bears the YORK logo on every page, it appears to be aimed at convincing YORK to move forward with expanding the AIO program. See id. at 10 (“If YORK is interested in moving forward with a national service offering, George Brazil proposes working with the YORK team to create a go-to-market proposal.”).
Fundient responds that the fact that JCI leadership reviewed the whitepaper “and all of its misrepresentations and still allowed it to go out to [Fundient] confirms that personal jurisdiction is proper in Texas [because] [i]t shows that JCI knowingly directed the Whitepaper's fraudulent communications to Plaintiffs.” Dkt. 46, at 9. Additionally, Fundient argues, it “makes no difference that Zimmer was the one to actually hit ‘send'” because specific personal jurisdiction can be exercised when a defendant does not directly deliver a fraudulent communication but “‘formulated, directed, controlled, had the authority to control, or participated in' it.” Id. at 9-10 (citing Fed. Trade Comm'n v. Educare Centre Servs., Inc. 414 F.Supp.3d 960, 970 (W.D. Tex. 2019)). Fundient also argues that JCI failed to intervene to correct the “glaring misrepresentations and omissions [in the whitepaper] even though JCI admits the Whitepaper was outdated by at least nine months at the time Zimmer sent it.” Dkt. 46, at 10 (citing Lewis v. Fresne, 252 F.3d, 352, 358 (5th Cir. 2001) (finding that the court had personal jurisdiction over a defendant who “'failed to correct allegedly false statements made by his [co-defendant] during a phone call' with plaintiff, a Texas resident.”)).
Fundient does not substantively address the argument that JCI did not direct Zimmer to send the whitepaper to Fundient. The operative question is whether a communication sent by a third party, that contains materials prepared by the defendant but not intended for the plaintiff, gives rise to specific personal jurisdiction. The undersigned finds that, in this case, it does not.
The cases cited by Fundient are distinguishable from the facts in this case. While it is true that in Lewis the Fifth Circuit held that the district court had jurisdiction over a defendant who failed to correct false statements made by his codefendant during a phone call with the plaintiff, specific personal jurisdiction was not decided on that basis alone. 252 F.3d at 358. The defendant in that case also “prepared and sent loan documents and stock certificates to the [the plaintiff] in Texas that contained fraudulent misstatements.” Id. Citing the notion that “[w]hen the actual content of communications with a forum gives rise to intentional tort causes of action, this alone constitutes purposeful availment,” the Lewis court found that the “‘actual content' of [the out-of-state defendant's communications to [the plaintiff] shows purposeful availment of the benefits and protections of Texas laws.” Id. at 359. In Lewis, the “actual content” of the communications included “fraudulent misstatements” regarding a store, the sale of which was at the center of the case. Id. Fundient's petition does not identify statements within the whitepaper that it alleges to be fraudulent such that the “actual content” of the communication to Fundient, regardless of who sent it, shows purposeful availment of the benefits and protections of Texas laws.
Fundient also cites a case where the court held that it had specific personal jurisdiction over a defendant because, “whether or not [the defendant] initiated any single phone call, he is alleged at a minimum to have directed many deceptive phone calls be made to U.S. consumers, such that he is ‘akin to an initiator' of the calls and it is his intentional conduct ‘that led to this litigation.” Educare, 414 F.Supp.3d at 971. Neither case supports the notion that, where JCI did not itself send the whitepaper, nor direct Zimmer to send the whitepaper to Fundient, JCI's actions rise to the standard of “intentional conduct by the defendant that creates the necessary contacts with the forum” justifying a forum state's exercise of jurisdiction over an out-of-state intentional tortfeasor. Walden v. Fiore, 571 U.S. 277, 286 (2014). The undersigned finds that the whitepaper does not support specific personal jurisdiction over Fundient.
2. Presentation and meeting
In addition to the whitepaper, however, Fundient also states that JCI employees LoCicero and Olivieri, along with representatives from JJS Leasing, delivered a presentation to Fundient and that JCI “knew that Fundient's principal place of business was in Texas and that Fundient's only two members were based there.” Dkt. 46-2, at 3. Fundient alleges that the presentation “premised the ‘Investment Thesis for JJS Leasing' on a [s]ucessful” and “validated pilot for the AIO (‘All-in-One') leasing program” with JCI and laid out promising financial predictions for the program. Id at 4. The presentation led Fundient to believe that the program it would eventually invest in was materially similar to the successful pilot program on which the presentation's projections were based. Id. at 5. Fundient alleges that JCI knew that the programs were not similar not least because the JJS Leasing program involved purchase-money loans, rather than leases, and paid installers for service contracts up front, instead of for services as rendered. Id. These differences made the program “less attractive for both installers and consumers” leading to poor investment returns for Fundient equal to “approximately 1% of Fundient Capital's first-year sales projections.” Id. at 5, 7.
JCI responds with several arguments primarily directed toward the content of the PowerPoint presentation itself and Fundient's failure to specify what role JCI played in “delivering” the presentation. See Dkt. 44, at 8-12 (citing text from the Powerpoint presentation itself and stating “[m]issing from the FAP [first amended petition] is any explanation of how the Presentation was delivered, where the Presentation was delivered, or-critically, for the purposes of personal jurisdiction- what role JCI's representatives allegedly played in ‘delivering' the Presentation”).
But JCI's productions in response to Fundient's jurisdictional discovery request have revealed what role LoCicero and Olivieri may have played. Dkt. 63, at 3. These productions show that LoCicero and Olivieri were aware of the subject and purpose of the meeting, coordinated amongst themselves to attend the meeting, and prepared talking points for the meeting. Id. The produced documents include: an email from Zimmer of JJS Leasing to LoCicero asking for Olivieri's availability for a call with a potential investor who “want[s] to get a sense of JCI's interest and commitment to the program as well as potential scale,” Dkt. 63-6, at 3; an email from LoCicero to Olivieri asking him to confirm his availability for the meeting, id. at 2; a calendar invite for a meeting titled “JCI, JJS, and Fundient Intro” from Zimmer to Olivieri, LoCicero, and Fundient's principals, Dkt. 63-7; a calendar invite from LoCicero to Olivieri for a meeting titled “Prep Call for Fundient Discussion-Talking Points Attached,” Dkt. 63-8, at 2; and a document titled “Key Talking Points for Fundient Call” that states “JCI is committed to the AIO program and JJS Leasing” and references “potential for JCI to invest in getting JJS Leasing entity stood up,” Dkt. 63-9, at 2.
JCI argues that these documents merely show that JCI employees agreed to attend the meeting, but that Fundient does not establish or allege that Olivieri or LoCicero repeated any of the talking points at the meeting. Dkt. 66, at 7. JCI also states that none of Fundient's claims are based on anything LoCicero or Olivieri said at the meeting, the talking points don't track the PowerPoint presentation, and there is no evidence that JCI created or worked on the presentation deck that was shown at the meeting. Id. JCI also argues that Fundient's interrogatory responses show that Fundient's representatives in attendance at the virtual meeting were not actually in Texas at the time, so any conduct by JCI during the meeting cannot be said to have been directed to plaintiffs in Texas for the purposes of this Court's exercise of specific personal jurisdiction over JCI. Dkt. 68, at 2-3.
As a preliminary matter, the fact that Fundient's representatives were not in Texas at the time of the virtual meeting does not bar the Court from exercising specific personal jurisdiction over JCI. As Fundient notes, “an intentional tort establishes personal jurisdiction over an out-of-state defendant when the ‘effects' of the tort are felt in the forum state, regardless of whether the plaintiff is located in the forum state at the exact moment the tortious communication is uttered.” Dkt. 69, at 7; see Calder v. Jones, 465 U.S. 783, 789 (1984) (“[T]he brunt of the harm, in terms both of respondent's emotional distress and the injury to her professional reputation, was suffered in California. In sum, California is the focal point both of the story and of the harm suffered. Jurisdiction over petitioners is therefore proper in California based on the ‘effects' of their Florida conduct in California.”); Wien Air Alaska, 195 F.3d at 213 (in finding that a defendant purposefully avails himself of privileges of the forum state when the content of his communications gives rise to an intentional tort cause of action, he is “purposefully availing himself of ‘the privilege of causing a consequence' in the [the state]”); Walden, 571 U.S. at 284 (stating “physical presence in the forum is not a requisite to jurisdiction.”).
Fundient's petition sufficiently states that the “effects” of JCI's alleged conduct, in the form of investment losses and damaged reputation, were felt by Fundient's Texas-resident principals and Fundient, a Texas corporation. Dkt. 46-2, at 10. Additionally, Fundient has alleged that at the time of the meeting, “JCI knew that Fundient's principal place of business was in Texas and that Fundient's only two members were based there.” Id. at 3. Because JCI has not submitted an affidavit to the contrary, and “[o]n a motion to dismiss for lack of personal jurisdiction, the allegations of the complaint, except as controverted by the defendants' affidavits, must be taken as true”, Fundient is entitled to its assertion. Brown v. Flowers Indus., Inc., 688 F.2d 328, 332, (5th Cir. 1982).
The undersigned notes that the Fifth Circuit has regularly “declined to allow jurisdiction for even an intentional tort where the only jurisdictional basis is the alleged harm to a Texas resident” and that, because specific jurisdiction “focuses on the relationship among the defendant, the forum, and the litigation,” what matters is “the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there.” Stroman Realty, Inc. v. Wercinski, 513 F.3d 476, 486 (5th Cir. 2008); Walden, 571 U.S. at 284. Nonetheless, the “effects test” applied in Calder, and here, is not incompatible with these principles. In Walden the Court explains that in Calder “the ‘effects' caused by the defendants' articlei.e., the injury to the plaintiffs reputation in the estimation of the California public-connected the defendants' conduct to California, not just to a plaintiff who lived there. That connection, combined with the various facts that gave the article a California focus, sufficed to authorize the California court's exercise of jurisdiction.” 571 U.S. at 284. The effects of JCI's conducti.e., the injury to Fundient's principals' reputations in the estimation of the financial community, as well as monetary harm to Fundient's principals, and Fundient itself-connects JCI's conduct to Texas. Dkt. 46-2, at 7, 10. Thus, it is not the case here that the “only jurisdictional basis is the alleged harm to a Texas resident” as in cases in which the Fifth Circuit declined to allow jurisdiction over an intentional tortfeasor.
The undersigned now turns to JCI's argument that Fundient does not adequately allege that the substance of JCI's contact with Fundient gives rise to specific personal jurisdiction, as required in the intentional tort context. As stated above, JCI argues that the documents produced during jurisdictional discovery only show that LoCicero and Olivieri agreed to attend the meeting but don't establish what LoCicero and Olivieri said at the meeting, nor does Fundient allege that their claims are based on anything LoCicero or Olivieri said at the meeting. Dkt. 66, at 7. JCI's arguments about the newly produced documents concerning LoCicero and Olivieri's participation in the meeting mirror the arguments it made in its renewed motion to dismiss concerning Fundient's failure to adequately specify which statements in the PowerPoint presentation were fraudulent. Dkt. 44, at 10-17. JCI there alleged that the statements identified by Fundient were cobbled together to form different sections of the PowerPoint presentation and misstated the actual contents of the presentation. Dkt. 44, at 10-17 (“[Fundient] attempts to stretch [a statement concerning validation by the George Brazil pilot] into a representation that all aspects of the George Brazil pilot in 2018 were exactly the same as the subsequently developed AIO program two years later, but the Presentation states otherwise.”). While it may have been the case that statements in the PowerPoint presentation did not fully support Fundient's representations concerning the presentation's contents, the documents produced during jurisdictional discovery change the analysis. See Quick Techs., Inc. v. Sage Group PLC, 313 F.3d 338, 344 (5th Cir. 2002). (“In making its determination, the district court may consider the contents of the record before the court at the time of the motion, including affidavits, interrogatories, depositions, oral testimony or any combination of the recognized methods of discovery.”).
JCI's concerns about the sufficiency of the pleadings for the purposes of this Court's exercise of specific personal jurisdiction stem from the Court's prior adoption of a principle outlined in Moody Nat'l Realty v. Ozark Mgmt., Inc., No. 4:07-cv-3239, 2008 WL 8082760, at *6-7 (S.D. Tex. Apr. 22, 2008). In Moody, the Court ruled that “[w]here the exercise of specific jurisdiction turns entirely on an allegation that Defendant has committed the intentional tort of fraud, the Court believes that it is incumbent upon the Plaintiff to state its fraud claims with particularity.” Id., at *6; Gross v. PowerBlock, Inc., No. 1:18-CV-62-RP, 2019 WL 1313452, at *2 (W.D. Tex. Jan. 31, 2019) (stating that Moody's reasoning on this point was sound). The Report & Recommendation adopted by the district judge in Gross stated: “To be sure, the court is not to determine the merits of the suit upon a Rule 12(b)(2) motion, but Plaintiff must at least meet minimum pleading requirements when his fraud claim is the sole remaining potential basis for personal jurisdiction.” Gross v. PowerBlock, Inc., No. 1:18-CV-62-RP, 2019 WL 1313472, at *5 (W.D. Tex. Jan. 11, 2019), report and recommendation adopted, No. 1:18-CV-62-RP, 2019 WL 1313452, at *2 (W.D. Tex. Jan. 31, 2019). The minimum pleading requirement for fraud claims is governed by Federal Rule of Civil Procedure 9(b). Rule 9(b) reflects a heightened requirement that underlying factual circumstances must be pleaded “with particularity.” Fed.R.Civ.P. 9(b). “To satisfy 9(b)'s pleading requirements, the plaintiffs must specify statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.” Southland Sec. Corp. v. Inspire Ins. Sols., Inc., 365 F.3d 353, 362 (5th Cir. 2004) (cleaned up).
The undersigned finds that Fundient has stated its fraud claims with particularity sufficient to satisfy the 9(b) pleading requirements. Throughout its pleadings Fundient has maintained that LoCicero and Olivieri “delivered the presentation” at the September 22, 2020, meeting between JCI, JJS, and Fundient, establishing the who, when, and where of their claims. Dkt. 46-2, at 2. Additionally, Fundient alleges that the statements communicated to them, as confirmed by the “key talking points” document prepared by LoCicero and Olivieri include: “JCI is committed to the AIO program and JJS Leasing”; JCI has been “[i]nvolved for 2+ years developing AIO since the George Brazil pilot in 2018”; the “[p]rogram scales up to an annual originations opportunity of ~$1 Billion”; and the “[p]rojections were determined from the George Brazil pilot and feedback from our channel.” Dkts. 63-9, at 2; 63, at 3. Fundient also alleges that the statements were fraudulent because they served to “tie ... projections for the [J]S Leasing] AIO leasing program to the early success of the George Brazil pilot despite undisclosed material differences between the program and the pilot.” Dkt. 63, at 3. JCI's alleged false equivocation of the two programs induced Fundient “to induce and lose $3 million in the AIO leasing program.” Dkt. 63, at 3. Fundient, thus, identifies statements alleged to be fraudulent and explains why the statements were fraudulent.
Because JCI's alleged conduct in participating in the presentation and meeting were directed to Texas through Texas residents and a Texas corporation, and Fundient has stated its claims with particularity adequate to meet the Rule 9(b) standard, the presentation and meeting justify the Court's exercise of specific personal jurisdiction over JCI. Based on the foregoing, the undersigned recommends that the District Court deny JCI's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2).
B. Fundient's 12(b)(6) Motion
In addition to moving to dismiss on jurisdictional grounds, JCI also moves to dismiss Fundient's fraud and violation of the Texas Securities Act claims pursuant to Federal Rule of Civil Procedure 12(b)(6).
1. Fraud claim
Because the undersigned has addressed the sufficiency of Fundient's fraud pleadings under the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), the undersigned need not re-address the sufficiency of Fundient's pleadings as to its fraud claim. See Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996) (stating “[a] dismissal for failure to plead fraud with particularity under Rule 9(b) is treated as a dismissal for failure to state a claim [under Rule 12(b)(6)]”).
However, applying the 12(b)(6) standard to Fundient's pleadings and the elements of a Texas common law fraud claim, the undersigned finds that Fundient's motion states a claim for common law fraud upon which relief can be granted. The elements of a Texas common law fraud claim are: (1) a material representation was made; (2) the representation was false; (3) when the representation was made the speaker knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion; (4) the speaker made the representation with the intent that it should be acted upon by the party; (5) the party acted in reliance upon the representation; and (6) the party thereby suffered injury. Shakeri v. ADT Sec. Servs., Inc., 816 F.3d 283, 296 (5th Cir. 2016).
Fundient's petition alleges that JCI represented to Fundient that the JJS Leasing program was similar in a number of ways to a program piloted by JCI's subsidiary, YORK, and George Brazil. Dkt. 46-2 at 4. Fundient states that these representations were false-that “JCI knew that the economics of this bundle were materially different and less attractive for both installers and consumers than the leasing program it was promoting to Fundient.” Id. Further, Fundient states that the presentation delivered at the meeting was titled “JJS Leasing, LLC: Point-of-Sale Consumer Finance Opportunity Investment Overview” and that JCI “has admitted that [it] knew its projections were ‘rosy' when it pitched them to Fundient” suggesting that the meeting was an investment opportunity pitch meeting, after which JJS Leasing and JCI hoped that Fundient might invest in the JJS Leasing Program. Dkt. 46-2, at 3-4.
Fundient states that in reliance on JCI's misrepresentations, it “entered into a Second Amended Limited Liability Company Agreement with JJS Leasing” and contributed $3 million in investment capital the leasing program discussed at the meeting. Dkt. 46-2, at 6. Fundient alleges that it subsequently lost its investment and states that the results of the program represented “approximately 1% of ... first- year sales projections.” Id. Fundient's injuries include “loss of Fundient's investment in Fundient Capital, the loss of Gordon's and Mirran's investments in Fundient Flow, and the lost value of all Plaintiffs' reputation as investors and ability to raise funds from others.” Dkt. 46-2, at 10.
The undersigned finds that Fundient has adequately stated its fraud claims under the 9(b) and 12(b)(6) standard and recommends that the District Court deny JCI's motion to dismiss with respect to Fundient's fraud claim.
2. Claim for violation of the Texas Securities Act (TSA)
“To state a claim for aider and abettor liabilities under the TSA, a plaintiff must show (1) a primary violation of the securities laws, (2) that the aider and abettor has general awareness of his role in the violation, (3) that he gave substantial assistance in the violation, and (4) that he intended to deceive the plaintiff or acted with reckless disregard for the truth of the primary violator's misrepresentations.” Dorsey, 540 F.3d at 344 (cleaned up). “Reckless disregard” in this context “means that an alleged aider can only be held liable if it rendered assistance in the face of a perceived risk that its assistance would facilitate untruthful or illegal activity by the primary violator.” Sterling Tr. Co. v. Adderley, 168 S.W.3d 835, 842 (Tex. 2005) (cleaned up). “In order to perceive such risk, the alleged aider must possess a general awareness that his role was part of an overall activity that is improper.” Id. (cleaned up).
JCI states that its contact with Fundient took place “a full two months before Fundient entered into a [an agreement] with JJS leasing ... [and] does not support an inference that it was generally aware that its role was part of improper activity.” Dkt. 44, at 15-16. Further, JCI states that Fundient does not “allege that JCI was privy to the flow of information between Fundient and JSS Leasing during that time.” Id. Thus, JCI contends Fundient's TSA claim should fail. Id.
Fundient responds that JCI's privity to information passed between Fundient and JJS Leasing prior to Fundient's investment outlay is irrelevant because Fundient “has never alleged [it] relied on fraudulent communications after the Presentation . in making [its] investment.” Dkt. 46, at 21. Instead, Fundient states its petition “raises an inference that JCI was ‘generally aware' it's representations in the Presentation were misleading and delivered them in ‘reckless disregard' of their falsity.” Id. at 20. Fundient states that it “[alleges] JCI's representatives actually authored the presentation ... and based representations and projections therein almost exclusively on the success of the George Brazil pilot” that turned out to be materially different than the program being offered to Fundient. Id. at 21.
Turning to the petition itself, Fundient states that “JCI is . liable because it materially aided the sale of a security as defined in Tex. Rev. Civ. Stat. 581-4(A)” when it “solicited Fundient's purchase of a membership interest in Fundient Capital with the intent to defraud Plaintiffs, or at a minimum, with reckless disregard for the truth or the law ..” Dkt. 46-2, at 11. The undersigned finds that Fundient has sufficiently alleged facts supporting this claim and recommends that the District Court deny JCI's motion to dismiss with respect to Fundient's TSA claim.
IV. RECOMMENDATION
In accordance with the foregoing discussion, the undersigned RECOMMENDS that the District Court DENY JCI's Renewed Motion to Dismiss, Dkt. 44.
The referral of this case to the Magistrate Court should now be CANCELED.
V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The district court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen days after the party is served with a copy of the Report shall bar that party from de novo review by the district court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the district court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).