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recognizing that "common ownership even when combined with common corporate officers, does not demonstrate that a parent and subsidiary are alter egos"
Summary of this case from SNP Schneider-Neureither & Partner AG v. WoodOpinion
NO. 01–16–00044–CV
10-11-2016
TMX FINANCE HOLDINGS, INC., Appellant v. WELLSHIRE FINANCIAL SERVICES, LLC d/b/a LoanStar Title Loans d/b/a MoneyMax Title Loans and d/b/a LoanMax; Meadowwood Financial Services, LLC d/b/a LoanStar Title Loans and d/b/a MoneyMax Title Loans; and Integrity Texas Funding, LP, Appellees
L. Bradley Hancock, Christopher David Johnsen, Holland & Knight LLP, Roland Garcia, Jr., Greenberg Traurig, LLP, Houston, TX, for Appellant. Daniel Johnson, Robert A. Lemus, Sutherland Asbill & Brennan LLP, Houston, TX, Joseph D. Wargo, John C. Matthews, Wargo & French LLP, Atlanta, GA, for Appellees.
L. Bradley Hancock, Christopher David Johnsen, Holland & Knight LLP, Roland Garcia, Jr., Greenberg Traurig, LLP, Houston, TX, for Appellant.
Daniel Johnson, Robert A. Lemus, Sutherland Asbill & Brennan LLP, Houston, TX, Joseph D. Wargo, John C. Matthews, Wargo & French LLP, Atlanta, GA, for Appellees.
Panel consists of Justices Keyes, Brown, and Huddle.
OPINION
Harvey Brown, Justice
TMX Finance Holdings, Inc. (TMX–Holdings), an out-of-state holding company, appeals the denial of its special appearance. The trial court denied the special appearance based on its finding that TMX–Holdings was an alter ego of a related entity—also a holding company—that had submitted to the court's jurisdiction.
In two issues, TMX–Holdings argues that an alter-ego theory cannot support the trial court's ruling because the plaintiffs failed to allege that theory in their pleadings and, to the extent the plaintiffs are permitted to assert an alter-ego theory, they failed to meet their burden to prove alter ego as a basis to deny TMX–Holdings's special appearance.
We reverse the trial court's order denying the special appearance and render judgment of dismissal of all claims against TMX–Holdings.
Background
This is a suit between competitors in the automobile title lending business. When the suit began, there were three named plaintiff entities—all of which are related—that were suing four named defendant entities—all of which are related—and two individual defendants. The original named plaintiffs were (1) Wellshire Financial Services, LLC d/b/a LoanStar Title Loans d/b/a MoneyMax Title Loans and d/b/a LoanMax, (2) Meadowwood Financial Services, LLC d/b/a LoanStar Title Loans and d/b/a MoneyMax Title Loans, and (3) Integrity Texas Funding, LP (collectively, "Wellshire").
Portions of the record were filed under seal following a Rule 76a sealing order in the trial court. Tex. R. Civ. P. 76a. Because of the sealing order, some of our references to the record are deliberately vague. See Kartsotis v. Bloch, 503 S.W.3d 506, 510 (Tex. App.–Dallas 2016, no pet. h.) (noting that some references in opinion are "deliberately vague" because of sealing order). Nonetheless, we have responsibilities to the public as an appellate court to resolve disputes through public opinions that explain our decisions based on the record. See Tex. R. App. P. 47.3 ("All opinions of the courts of appeals are open to the public and must be made available ...."). To the extent we include any sensitive information in this memorandum opinion, we do so only to the degree necessary to strike a fair balance between the parties' interest in keeping portions of the record confidential and our responsibilities to the public as an appellate court. See R.V.K. v. L.L.K., 103 S.W.3d 612, 614–15 (Tex. App.–San Antonio 2003, no pet.) (attempting to "strike a fair balance" between parties' interest in keeping sealed portion of record confidential and court's and public's interest in court fulfilling its responsibilities); Mi Gwang Contact Lens Co., Ltd. v. Chapa, No. 13–13–00306–CV, 2015 WL 3637846, at *6–7 (Tex. App.–Corpus Christi June 11, 2015, no pet.) (mem. op.) (same).
The original named defendants were (1) TMX–Holdings; (2) its subsidiary, which is also a holding company, TMX Finance, LLC (TMX–Finance); (3) TitleMax of Texas, Inc., which is a credit service subsidiary of TMX–Finance; (4) TMX Finance of Texas, Inc., another credit service subsidiary of TMX–Finance; (5) Felix Deleon, individually, and (6) Ishmael Hernandez, individually (collectively, "the TMX entities"). Other than TMX–Holdings, the TMX entities did not contest the court's jurisdiction over them. Wellshire did not sue Tracy Young, the individual it alleges exerts control over both TMX–Holdings and TMX–Finance.
Wellshire alleged, in its original petition, that the TMX entities "surreptitiously targeted and collected the license plate numbers of customers in [its] parking lot, using that information to perform impermissible searches for customers' personal information" as part of a business-development plan to contact and solicit Wellshire's customers. Wellshire sued the TMX entities for misappropriation of trade secrets and tortious interference with existing contracts and prospective business relations.
Regarding jurisdiction, Wellshire alleged that the trial court had jurisdiction over TMX–Holdings because it purposefully availed itself of the privileges and benefits of conducting business in Texas. Wellshire pleaded joint and several liability on its claims.
In its special appearance, TMX–Holdings asserted that it has never conducted any business activities in Texas. It also asserted that it has no employees, operations, or revenue, and thus, no contacts with Texas. TMX–Holdings issues no paychecks, pays no income taxes, and is not registered to do business in this or any other state. As TMX–Holdings explained it, its owners "formed [the entity] merely to facilitate more efficient estate planning and tax reporting for [themselves]."
The TMX–Holdings officer deposed as its corporate representative, Christopher Kelly Wall, testified that he did not receive a paycheck or any income from TMX–Holdings.
Wellshire responded by arguing that TMX–Holdings is the alter ego of TMX–Finance and the two entities "lack [ ] any meaningful separation," "have acted as a single entity," and have "ignored all corporate formalities" in their dealings. And, according to Wellshire, because TMX–Finance is subject to jurisdiction, so is its alter ego, TMX–Holdings.
TMX–Holdings responded by specifically denying that it is subject to the jurisdiction of a Texas court under an alter-ego theory and asserting, instead, that it is a "separate and distinct" entity from the other TMX entities identified in the suit. According to TMX–Holdings, it is a mere holding company without any employees or operations and, due to its limited role, does not exert authority over any of the codefendant entities' policies or operations. TMX–Holdings included an affidavit from one of its two officers, its vice president, Christopher Kelly Wall, supporting these statements.
The trial court denied TMX–Holdings's special appearance. TMX–Holdings filed an interlocutory appeal from that order.
TMX–Holdings's Contention that Wellshire Waived its Alter–Ego Argument
Before addressing the merits of TMX–Holdings's jurisdictional argument, we first consider its contention that Wellshire waived its alter-ego theory of personal jurisdiction by including it only in the special appearance response and not in its live petition and, as a result, the trial court's order denying the special appearance on alter-ego grounds was in error.
The Texas Rules of Civil Procedure do not limit a trial court's review of a special appearance to considering only the plaintiff's petition. On the contrary, Rule 120a identifies multiple items a trial court may consider when ruling on a special appearance: "The court shall determine the special appearance on the basis of the pleadings, any stipulations made by and between the parties, such affidavits and attachments as may be filed by the parties, the results of discovery processes, and any oral testimony." TEX. R. CIV. P. 120a(3). The plaintiff's "pleadings" are not limited to those in which it originally asserted that the defendant is subject to personal jurisdiction in the forum: "The plaintiff's original pleadings as well as its response to the defendant's special appearance can be considered in determining whether the plaintiff satisfied its burden" to establish the necessary jurisdictional facts. Touradji v. Beach Capital P'ship, L.P. , 316 S.W.3d 15, 23 (Tex. App.–Houston [1st Dist.] 2010, no pet.) ; see Henkel v. Emjo Invs., Ltd. , 480 S.W.3d 1, 7 (Tex. App.–Houston [1st Dist.] 2016, no pet.) (rejecting argument that court confines its consideration to jurisdictional facts contained in original petition and, instead, considering plaintiff's response to defendant's special appearance to determine if plaintiff satisfied its burden to allege jurisdictional facts).
We conclude that the trial court did not err by considering Wellshire's response when it ruled on TMX–Holdings's special appearance. See Henkel , 480 S.W.3d at 7. We overrule TMX–Holdings's first issue and turn next to the merits of the special appearance.
Special Appearance
In its second issue, TMX–Holdings argues that the trial court erred by denying its special appearance because Wellshire did not overcome the presumption of corporate separateness to establish personal jurisdiction under an alter-ego theory.
A. Standard of review
Whether a court can exercise personal jurisdiction over a nonresident defendant is a question of law, and we review de novo a trial court's ruling on a special appearance to challenge personal jurisdiction. Kelly v. Gen. Interior Constr., Inc. , 301 S.W.3d 653, 657 (Tex. 2010). "When [as here] a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied." Id. (quoting BMC Software Belg., N.V. v. Marchand , 83 S.W.3d 789, 795 (Tex. 2002) ). "When the appellate record includes the reporter's and clerk's records, these implied findings are not conclusive and may be challenged for legal and factual sufficiency ...." BMC , 83 S.W.3d at 795.
B. General law on minimum contacts to support personal jurisdiction
A nonresident defendant is subject to personal jurisdiction in Texas if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of jurisdiction does not violate the due process guarantees of the federal and state constitutions. Kelly , 301 S.W.3d at 657. The Texas long-arm statute allows the exercise of personal jurisdiction to "reach as far as the federal constitutional requirements of due process will allow." Id. (quoting Moki Mac River Expeditions v. Drugg , 221 S.W.3d 569, 575 (Tex. 2007) ).
The exercise of personal jurisdiction is consistent with due process "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." Id. (quoting Moki Mac , 221 S.W.3d at 575 ). "A defendant establishes minimum contacts with a state when it ‘purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.’ " Retamco Operating, Inc. v. Republic Drilling Co. , 278 S.W.3d 333, 338 (Tex. 2009) (quoting Hanson v. Denckla , 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958) ).
The plaintiff and the defendant bear shifting burdens of proof in a challenge to personal jurisdiction. Kelly , 301 S.W.3d at 658. The plaintiff bears the initial burden to plead sufficient allegations to bring the nonresident defendant within the reach of the long-arm statute. Id. ; Retamco Operating , 278 S.W.3d at 337. Once the plaintiff pleads sufficient jurisdictional allegations, the defendant seeking to avoid personal jurisdiction bears the burden to negate all bases of personal jurisdiction alleged by the plaintiff. Kelly , 301 S.W.3d at 658. "Because the plaintiff defines the scope and nature of the lawsuit, the defendant's corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff's pleading." Id.
If the plaintiff fails to plead facts bringing the defendant within the reach of the long-arm statute, the defendant need only prove that it does not reside in Texas to negate jurisdiction. Id. at 658–59. The Texas Supreme Court has held that a defendant can negate jurisdiction on either a factual or legal basis:
Factually, the defendant can present evidence that it has no contacts with Texas, effectively disproving the plaintiff's allegations. The plaintiff can then respond with its own evidence that affirms its allegations, and it risks dismissal of its lawsuit if it cannot present the trial court with evidence establishing personal jurisdiction. Legally, the defendant can show that even if the plaintiff's alleged facts are true, the evidence is legally insufficient to establish jurisdiction; the defendant's contacts with Texas fall short of purposeful availment; for specific jurisdiction, that the claims do not arise from the contacts; or that traditional notions of fair play and substantial justice are offended by the exercise of jurisdiction.
Id.
After the defendant negates the plaintiff's jurisdictional allegations, the plaintiff must respond with evidence "establishing the requisite link with Texas." Id. at 660. "Once the defendant has produced credible evidence negating all bases of jurisdiction, the plaintiff bears the ultimate burden to establish that the Texas court has personal jurisdiction over the defendant as a matter of law." Vak v. Net Matrix Sols., Inc. , 442 S.W.3d 553, 558 (Tex. App.–Houston [1st Dist.] 2014, no pet.) (quoting M.G.M. Grand Hotel, Inc. v. Castro , 8 S.W.3d 403, 408 (Tex. App.–Corpus Christi 1999, no pet.) ); Oryx Capital Int'l, Inc. v. Sage Apartments, L.L.C. , 167 S.W.3d 432, 441 (Tex. App.–San Antonio 2005, no pet.)("If the defendant produces evidence negating jurisdiction, the burden returns to the plaintiff to show as a matter of law that the court has jurisdiction over the defendant.").
C. Specific law on personal jurisdiction based on alter-ego status
When a plaintiff sues two related corporations, the law presumes that the two are distinct corporations. PHC–Minden, L.P. v. Kimberly–Clark Corp. , 235 S.W.3d 163, 173 (Tex. 2007). When one of the defendants is a subsidiary of the other, the subsidiary's in-state activities are not imputed to the out-of-state parent if "the subsidiary's presence in the state is primarily for the purpose of carrying on its own business and the subsidiary has preserved some semblance of independence from the parent and is not acting as merely one of its departments ...." 4A CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1069.4 (4th ed. 2016) ; Weatherford Artificial Lift Sys., Inc. v. A & E Sys. SDN BHD , 470 S.W.3d 604, 611 (Tex. App.–Houston [1st Dist.] 2015, no pet.) (applying standard). The independence inquiry examines whether "the parent corporation exerts such domination and control over its subsidiary that they do not in reality constitute separate and distinct corporate entities"; if it does, and the subsidiary is subject to personal jurisdiction in Texas, then, for jurisdictional purposes, the parent will be considered the alter ego of the subsidiary and personal jurisdiction will attach. See PHC–Minden , 235 S.W.3d at 173.
When a plaintiff asserts jurisdiction over a nonresident defendant under an alter-ego theory, the plaintiff has the burden to overcome the presumption of separateness by proving its alter-ego allegation. BMC , 83 S.W.3d at 798 ("[T]he party seeking to ascribe one corporation's actions to another by disregarding their distinct corporate entities must prove this allegation."); see Conner v. ContiCarriers & Terminals, Inc. , 944 S.W.2d 405, 418 (Tex. App.–Houston [14th Dist.] 1997, no writ) (stating that burden is on plaintiff to prove existence of alter-ego relationship). To prove alter ego and "fuse" these two entities for jurisdictional purposes, the plaintiff must establish that the foreign parent exercised a degree of control over the subsidiary that is "greater than that normally associated with common ownership and directorship; the evidence must show that the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice." BMC , 83 S.W.3d at 799.
Our Supreme Court has identified four factors relevant to whether a parent entity exercises a greater-than-normal degree of control over its subsidiary: (1) the amount of the subsidiary's stock owned by the parent corporation; (2) the existence of separate headquarters; (3) the observance of corporate formalities; and (4) the degree of the parent's control over the general policy and administration of the subsidiary. PHC–Minden , 235 S.W.3d at 175. The first three factors evaluate whether corporate structure is such that excessive control could occur, while the fourth measures actual control. Thus, the fourth factor is most closely aligned with the ultimate question the factors address: actual control. See id. at 173 ("The rationale for exercising jurisdiction is that the parent corporation exerts such domination and control over its subsidiary that they do not in reality constitute separate and distinct corporate entities but are one and the same corporation for purposes of jurisdiction.") (internal quotations and citations omitted); see id. at 176.
Evidence relevant to the first factor—common ownership—even when combined with common corporate officers, does not demonstrate that a parent and subsidiary are alter egos. PHC–Minden , 235 S.W.3d at 175 ; BMC , 83 S.W.3d at 799 ; Gentry v. Credit Plan Corp. of Houston , 528 S.W.2d 571, 573 (Tex. 1975). Likewise, evidence of the second factor—shared office space—is insufficient without more. See All Star Enter., Inc. v. Buchanan , 298 S.W.3d 404, 423 (Tex. App.–Houston [14th Dist.] 2009, no pet.). Common ownership and shared headquarters are not enough because these factors merely present circumstances that could lead to parental control over the subsidiary, without indicating whether actual control was exercised. See id. (noting that common stock ownership and shared office space and employees are insufficient to support jurisdictional veil-piercing absent evidence that one entity "exercised meaningful, much less ‘complete,’ control" over the other entity's "daily activities") (quoting U.S. LED, Ltd. v. Nu Power Assocs., Inc. , No. H–07–0783, 2008 WL 4838851, at *6 (S.D. Tex. Nov. 5, 2008) (slip op.)); Conner , 944 S.W.2d at 419–20 (concluding that parent and subsidiary are not alter egos even though they "maintain significant ties" because they operate with level of independence such that corporate separation is not "pure fiction"). Nor is it enough to show parental involvement in the subsidiary's activities typical of an investor. PHC–Minden , 235 S.W.3d at 176. Thus, a parent will not be considered an alter ego of a subsidiary even if it monitors the subsidiary's performance, supervises its finance and capital budget decisions, and articulates general policies for the subsidiary. Id.
Instead, the plaintiff must show something more—a "plus factor" "beyond the subsidiary's mere presence within the bosom of the corporate family." Id. (quoting Dickson Marine, Inc. v. Panalpina, Inc. , 179 F.3d 331, 338 (5th Cir. 1999) ; see Dickson Marine , 179 F.3d at 338 ("Invariably such clear evidence requires an additional or a ‘plus' factor .... There must be evidence of one corporation asserting sufficient control ...."). It is this plus factor that converts, for jurisdictional purposes, the typical parent-subsidiary relationship—which involves common ownership, monitoring, reporting, and articulating of general policies—into an alter-ego relationship. PHC–Minden , 235 S.W.3d at 176 ; cf. All Star , 298 S.W.3d at 422 (stating that four PHC–Minden factors "are not of uniform significance"). As the Texas Supreme Court has explained, the level of actual control over the subsidiary must rise to the level to be "abnormal" or "atypical." BMC , 83 S.W.3d at 798, 800 ; PHC–Minden , 235 S.W.3d at 176.
D. Whether TMX–Holding exercised an abnormal degree of control over TMX–Finance
Wellshire asserts that TMX–Holding "completely controls" TMX–Finance. As proof of that assertion, Wellshire points to statements in TMX–Finance's Form 10–K. After explaining that TMX–Finance is a limited liability company that exists solely as a holding company to own the equity interests of its subsidiaries and that its former sole member, Tracy Young, transferred 100% of his membership interests to TMX–Holdings in exchange for shares of TMX–Holdings, the TMX–Finance annual report states:
Tracy Young is our founder, Chairman of the Board, Chief Executive Officer, President and the sole beneficial owner of our parent holding company, [TMX–Holdings]. As a result ... Mr. Young has the ability to control substantially all matters of significance to the Company, including the strategic direction of our business ... regardless of whether the holders of senior secured notes, or our
"bondholders," believe that any such action is in their best interests.
As a result of Mr. Young's complete beneficial ownership and control of our Company, his interests could conflict with the interests of our bondholders.
Wellshire asserts that this language demonstrates TMX–Holdings's control over TMX–Finance. There are at least two problems with Wellshire's interpretation. First, the Form 10–K states that Tracy Young—not TMX–Holdings—is the party with control. Wellshire sued various TMX-related entities and two individuals, but it did not sue Young. Wellshire has not argued that TMX–Finance or TMX–Holdings is the alter ego of Young. Instead, Wellshire argues that TMX–Holdings is the alter ego of TMX–Finance. The Form 10–K does not support Wellshire's argument that TMX–Holdings controls TMX–Finance.
That Wellshire did not argue that Young was the alter ego of these entities distinguishes this case from Cappuccitti v. Gulf Indus. Prod., Inc., 222 S.W.3d 468 (Tex. App.–Houston [1st Dist.] 2007, no pet.). There, the appellate court concluded that an individual, a parent company, and a subsidiary were alter egos of one another and that the trial court had personal jurisdiction over all three. Id. at 484. Cappuccitti, who was not a Texas resident, incorporated two Bahamian corporations. He owned 100% of the parent company, and the parent company owned 90% of the subsidiary. Id. at 482. The subsidiary entered into a contract with a Texas corporation. Id. at 475. The Texas corporation ultimately terminated the contract for non-performance and sued the subsidiary, its parent company, and Cappuccitti. Id. at 475–78. Cappuccitti and the parent company filed special appearances, which were denied. Id. at 473. The appellate court affirmed, concluding that the plaintiff presented sufficient proof to pierce the corporate veil for jurisdictional purposes. Id. at 484. The appellate court cited as supporting evidence that Cappuccitti was the president of both corporations, the only employee of the parent corporation, and one of only two employees of the subsidiary; both companies operated out of Cappuccitti's home; the subsidiary company paid Cappuccitti $10,000 per month as a consultant; Cappuccitti negotiated with the Texas-based manufacturer to grant rights of first refusal to both companies; on at least one occasion, Cappuccitti paid the subsidiary's bills with a check drawn from his personal account; and Cappuccitti, the subsidiary, and the parent company were used interchangeably to transfer assets from one to the other, which rendered the subsidiary insolvent. Id. at 482–84. Here, by contrast, there is no evidence of deliberate undercapitalization to defraud an insolvent subsidiary's creditors or payment of a subsidiary's bills from a personal account. Nor is the individual who allegedly controls the entities a named defendant.
Second, the Form 10–K discloses only that Young "has the ability to control " TMX–Finance. As stated above, although Young's common ownership of TMX–Holdings and TMX–Finance permits the possibility of control, it does not—without more—establish alter ego because it provides no evidence of actual control of TMX–Finance by TMX–Holdings to a degree that is abnormal or atypical. See PHC–Minden , 235 S.W.3d at 175 ; BMC , 83 S.W.3d at 799 ; Gentry , 528 S.W.2d at 573.
Wellshire argues that TMX–Holdings controls "each and every aspect of TMX Finance's operations," but the evidence, through the deposition of TMX–Holdings's vice president, Wall, reflects that TMX–Holdings has no involvement in TMX–Finance's operations, marketing efforts, personnel decisions, or internal policies and procedures. Wellshire has presented no evidence to the contrary. TMX–Holdings receives annual reports concerning TMX–Finance's business, but that is entirely consistent with TMX–Holdings's status as owner of TMX–Finance's membership interests and constitutes "appropriate parental involvement." See PHC–Minden , 235 S.W.3d at 176 ("Appropriate parental involvement includes monitoring the subsidiary's performance, supervision of the subsidiary's finance and capital budget decisions, and articulation of general policies.").
Wellshire points to a single, substantial contribution TMX–Holdings made to TMX–Finance. But a parent corporation's infusion of capital to its subsidiary, which in itself does not harm creditors or other third parties dealing with the subsidiary or cause some other injustice to third parties, is insufficient to confer personal jurisdiction over an out-of-state parent entity. See Conner , 944 S.W.2d at 419 (rejecting contention that parent entity was alter ego of its subsidiary when entities had "significant ties" and subsidiary received its initial capital from parent).
Wellshire also points to evidence that TMX–Finance's tax department prepared annual financial statements for TMX–Holdings without TMX–Holdings paying for those services. Yet reports from a subsidiary to a parent that allow a parent to monitor its operations are insufficient to treat two separate entities as one entity. PHC–Minden , 235 S.W.3d at 176 ; cf. SSP Partners v. Gladstrong Invs. (USA) Corp. , 275 S.W.3d 444, 454–56 (Tex. 2009) (stating, in rejecting single-business enterprise doctrine, that affiliated entities that "coordinate their activities" and "pursu[e] common goals" are "commonplace" and holding that "abuse" is required to disregard the corporate separateness of two related entities).
Additionally, Wellshire maintains that the two entities have not complied with all corporate formalities. For example, both entities list the same business address as their headquarters, yet there is no evidence that either pays rent to the other. There is also an undocumented, non-contractual financial liability TMX–Holdings has to TMX–Finance. Further, there is evidence that TMX–Holdings has never had any directors, despite being required by Delaware law to have at least one. While these facts may indicate a dereliction of some corporate formalities, there is evidence that other corporate formalities have been observed. For example, Wall averred that TMX–Holdings "maintains separate corporate accounts and a separate bank account; does not commingle assets; does not share business departments; [and] has its own financial statements." This evidence is mixed regarding observance of corporate formalities, but the mixed character does not strongly suggest that their corporate separateness is "pure fiction." See PHC–Minden , 235 S.W.3d at 176 (with evidence of some corporate formalities observed and others not, concluding that corporate separation was not "pure fiction"). Further, each of the two distinct entities meets regularly to discuss the business of that entity apart from the other, which counsels against an alter-ego finding. See BMC , 83 S.W.3d at 798 ; cf. PHC–Minden , 235 S.W.3d at 176 (courts should consider all relevant facts and circumstances surrounding operations of parent and subsidiary to determine whether two separate and distinct corporate entities exist).
In any event, we decline to conclude that the failure to follow corporate formalities, particularly for this family-held group of entities, is sufficient, in itself to demonstrate that the two entities are one. Cf. TEX. BUS. ORGS. CODE ANN. § 21.730(1) (stating that, for liability purposes, failure to follow corporate formalities for a closely held corporation is not "a factor" in determining whether to disregard the corporate status); Id. § 21.223 (stating that corporate separateness may not be disregarded "on the basis of the failure of the corporation to observe any corporate formality"); Hoffmann v. Dandurand , 180 S.W.3d 340, 347 (Tex.App.–Dallas 2005, no pet.)(stating that "[f]ailure to comply with corporate formalities is no longer a factor in considering whether alter ego exists" for liability purposes); Pinebrook Props., Ltd. v. Brookhaven Lake Prop. Owners Ass'n , 77 S.W.3d 487, 499 (Tex. App.–Texarkana 2002, pet. denied) (same); cf. also El Puerto de Liverpool, S.A. de C.V. v. Servi Mundo Llantero S.A. de C.V. , 82 S.W.3d 622, 634 (Tex. App.–Corpus Christi 2002, pet. dism'd w.o.j.) (noting that jurisdictional veil-piercing involves different analysis than that used when "determining whether separate corporate entities should be treated as one for liability purposes").
As the party seeking to impute TMX–Finance's contacts with Texas to TMX–Holdings through an alter-ego theory of personal jurisdiction, Wellshire bears the burden of establishing that TMX–Holdings "controls the internal business operations and affairs of" TMX–Finance and that the degree of control TMX–Holdings actually exercises is "greater than that normally associated with common ownership and directorship" such that "the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice." PHC–Minden , 235 S.W.3d at 175. Wellshire has not presented evidence that TMX–Holdings exercises atypical control over "the internal business operations and affairs" of TMX–Finance to subject it to personal jurisdiction in Texas courts based on TMX–Finance's contacts. Accordingly, Wellshire fails, as a matter of law, to overcome the presumption of separateness to prove alter ego. See BMC , 83 S.W.3d at 799 (noting that there must be degree of control "greater than that normally associated with common ownership and directorship" for alter-ego based jurisdiction); All Star , 298 S.W.3d at 423 (requiring evidence of greater-than-normal control).
E. Role of inferred facts in support of judgment
Wellshire argues that, under the applicable standard of review, we must read into the trial court's order denying TMX–Holdings's special appearance various implied facts, including that TMX–Holdings actually exercised abnormal control over TMX–Finance and, as long as there is more than a scintilla of evidence in support of that implied finding, we may not reverse and render judgment in TMX–Holding's favor.
Wellshire overstates the role of implied findings. Our Supreme Court stated, in BMC , that, "[w]hen a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied." 83 S.W.3d at 795 (emphasis added); see Lockhart v. Garner , 156 Tex. 580, 298 S.W.2d 108, 110 (1957) ("[I]f the evidence on the issue raised a fact issue, although the trial court made no findings of fact, we may infer [facts] in favor of the validity of the judgment ...."). We have already concluded that there is no evidence that TMX–Holdings exercised actual atypical or abnormal control over TMX–Finance. Accordingly, we do not imply a factual finding that such control was exercised.
We conclude that, based on this record, Wellshire has not established that TMX–Holdings controls the internal operations of TMX–Finance to such an extent that the entities have ceased to be separate, justifying the imputing of TMX–Finance's consent to jurisdiction in Texas to TMX–Holdings. We therefore hold that the trial court erred in denying TMX–Holdings's special appearance on alter-ego grounds.
We sustain TMX–Holdings's second issue. Conclusion
Because the alter-ego theory was the only basis for personal jurisdiction asserted by Wellshire and we have concluded that TMX–Holdings is not an alter ego of TMX–Finance, we reverse the order of the trial court denying TMX–Holdings's special appearance and render judgment dismissing TMX–Holdings from the underlying litigation.
Justice Keyes, dissenting from denial of rehearing.
Rehearing Denied.
Evelyn V. Keyes, Justice, dissent from denial of rehearing
On rehearing, I disagree with the majority's holding reversing the trial court's denial of TMX–Holdings' special appearance. In my view, the majority misconstrues controlling law, established by the Texas Supreme Court in PHC–Minden, L.P. v. Kimberly–Clark Corp. , 235 S.W.3d 163 (Tex. 2007), and it misapplies the PHC–Minden factors used to determine personal jurisdiction over a corporation on an alter-ego theory. The majority therefore dismisses the financial center of a single fused corporate entity from this suit for misappropriation of trade secrets and tortious interference with contract. It thus countenances misuse of the corporate form to insulate a corporation from potential damages in tort. Therefore, I respectfully dissent.
The parties in this case are competitors in the automobile title loan market. Wellshire Financial Services, LLC, Meadowwood Financial Services, LLC, and Integrity Texas Funding, LP (collectively, "Wellshire") sued TMX Finance Holdings, Inc. ("TMX–Holdings") and TMX–Finance, LLC ("TMX–Finance"), as well as other "TMX entities" not parties to this appeal, for misappropriation of trade secrets and tortious interference with existing contracts and prospective business relations. Wellshire alleged that the TMX entities collected the license plate numbers of the customers in Wellshire's parking lot and used that information to contact and solicit those customers.
TMX–Holdings filed a special appearance, which the trial court denied. The court found that TMX–Holdings was the alter ego of its subsidiary, TMX–Finance, which has consented to personal jurisdiction in Texas, and that the Texas courts' exercise of jurisdiction over TMX–Finance comports with constitutional requirements of fair play and substantial justice. TMX–Holdings filed this interlocutory appeal.
The panel reversed and dismissed TMX–Holdings from the suit. It concluded that Wellshire did not establish that TMX–Holdings exerts such an "abnormal" or "atypical" degree of control over TMX–Finance's internal policies and practices that the two entities can be fused for jurisdictional purposes. See TMX Fin. Holdings, Inc. v. Wellshire Fin. Servs., LLC , 515 S.W.3d 1, 12, No. 01–16–00044–CV, 2016 WL 5920776, at *8 (Tex. App.–Houston [1st Dist.] Oct. 11, 2016, no pet. h.). Wellshire moved for rehearing and en banc reconsideration of the panel opinion.
As Wellshire points out, the evidence establishes that Tracy Young, the President and CEO of both TMX–Holdings and TMX–Finance, owns 100% of the shares of TMX–Holdings; he exerts virtually total control over the operations of both entities; the entities share common ownership, directorship, and headquarters; and the entities do not observe corporate formalities. In other words, the evidence shows that all of the PHC–Minden factors for the exercise of personal jurisdiction over TMX–Holdings are satisfied.I would hold that the trial court correctly determined that TMX–Holdings is an alter ego of TMX–Finance. I would also hold that the Texas courts' exercise of jurisdiction over TMX–Finance comports with constitutional requirements of fair play and substantial justice. Therefore, I would grant rehearing and affirm the trial court's order denying TMX–Holdings' special appearance.
Personal Jurisdiction
A. Standard of Review
Whether a court can exercise personal jurisdiction over a nonresident defendant is a question of law, and we therefore review de novo a trial court's determination of a special appearance. Kelly v. Gen. Interior Constr., Inc. , 301 S.W.3d 653, 657 (Tex. 2010) (citing Moki Mac River Expeditions v. Drugg , 221 S.W.3d 569, 574 (Tex. 2007) ). "When [as here] a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied." Id. (quoting BMC Software Belg., N.V. v. Marchand , 83 S.W.3d 789, 795 (Tex. 2002) ). When the appellate record includes both the reporter's record and the clerk's record, the trial court's implied findings are not conclusive and may be challenged on appeal for legal and factual sufficiency. BMC Software , 83 S.W.3d at 795.
B. Alter Ego Theory of Jurisdiction over a Corporate Entity
1. Controlling Law
Texas law presumes that two separate corporations are distinct entities. PHC–Minden , 235 S.W.3d at 173. However, Texas courts may exercise personal jurisdiction over a nonresident parent corporation if the parent's relationship with its subsidiary that does business in Texas is one that would allow the court to impute the subsidiary's "doing business" in Texas to the parent. Cappuccitti v. Gulf Indus. Prods., Inc. , 222 S.W.3d 468, 482 (Tex. App.–Houston [1st Dist.] 2007, no pet.). Thus, the party "seeking to ascribe one corporation's actions to another" must prove that "the parent corporation exerts such domination and control over its subsidiary that they do not in reality constitute separate and distinct corporate entities but are one and the same corporation for purposes of jurisdiction." PHC–Minden , 235 S.W.3d at 173 (quoting BMC Software , 83 S.W.3d at 798 ); Conner v. ContiCarriers & Terminals, Inc. , 944 S.W.2d 405, 418 (Tex. App.–Houston [14th Dist.] 1997, no writ) (stating that burden is on plaintiffs to prove existence of alter-ego relationship).
The Texas Supreme Court has outlined the factors relevant for "jurisdictional veil-piercing" on a "single business enterprise" theory:
To "fuse" the parent company and its subsidiary for jurisdictional purposes, the plaintiffs must prove the parent controls the internal business operations and affairs of the subsidiary. But the degree of control the parent exercises must be greater than that normally associated with common ownership and directorship; the evidence must show that the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice.
PHC–Minden , 235 S.W.3d at 175 (quoting BMC Software , 83 S.W.3d at 799 ); see also El Puerto de Liverpool, S.A. de C.V. v. Servi Mundo Llantero S.A. de C.V. , 82 S.W.3d 622, 634 (Tex. App.–Corpus Christi 2002, pet. dism'd w.o.j.) (noting that jurisdictional veil-piercing involves different analysis from that used when "determining whether separate corporate entities should be treated as one for liability purposes"). Courts will not regard a subsidiary corporation as the alter ego of its parent "merely because of stock ownership, a duplication of some or all of the directors or officers, or an exercise of the control that stock ownership gives to stockholders." PHC–Minden , 235 S.W.3d at 175 (quoting Gentry v. Credit Plan Corp. of Houston , 528 S.W.2d 571, 573 (Tex. 1975) ) (emphasis added). Rather, courts should consider all of the relevant facts and circumstances surrounding the operations of the parent and subsidiary to determine whether two separate and distinct corporate entities exist. Id. at 173 (quoting Hargrave v. Fibreboard Corp. , 710 F.2d 1154, 1160 (5th Cir. 1983) ); Capital Tech. Info. Servs., Inc. v. Arias & Arias Consultores , 270 S.W.3d 741, 749 (Tex. App.–Dallas 2008, pet. denied).
"Appropriate parental involvement includes monitoring the subsidiary's performance, supervision of the subsidiary's finance and capital budget decisions, and articulation of general policies." PHC–Minden , 235 S.W.3d at 176. Thus, in making an alter-ego finding, courts require a " ‘plus' factor, ‘something beyond the subsidiary's mere presence within the bosom of the corporate family.’ " Id. (quoting Dickson Marine Inc. v. Panalpina, Inc. , 179 F.3d 331, 338 (5th Cir. 1999) ). Specifically, "to ‘fuse’ two corporations for jurisdictional purposes, a parent must ‘control[ ] the internal business operations and affairs of the subsidiary’ to an extent beyond its role as an investor." Spir Star AG v. Kimich , 310 S.W.3d 868, 873–74 (Tex. 2010) (quoting PHC–Minden , 235 S.W.3d at 175 ). Thus, under PHC–Minden , to determine whether a parent corporation and a subsidiary are "fused" on an alter-ego theory so that the courts of the forum state have jurisdiction over both because one of them does business there, courts should take into account "the amount of the subsidiary's stock owned by the parent corporation, the existence of separate headquarters, the observance of corporate formalities, and the degree of the parent's control over the general policy and administration of the subsidiary." 235 S.W.3d at 175. "The degree of control exercised by the parent must be greater than that normally associated with common ownership and directorship." Cappuccitti , 222 S.W.3d at 482.
2. Facts Relevant to Alter Ego Jurisdiction
TMX–Holdings is a non-resident Delaware corporation with its principal place of business in Georgia. In its original petition, Wellshire alleged that the trial court "has jurisdiction over defendants, nonresident corporations, because [the TMX entities] have purposefully availed themselves of the privileges and benefits of conducting business in Texas." Wellshire alleged that the named TMX entities were jointly and severally liable for its claims. Wellshire also alleged the following relating to the corporate structure of the TMX entities:
22. Defendants are part of a family of related companies operating under the name "TitleMax." TitleMax is engaged in the business of automobile title lending, and is a competitor of Plaintiffs.
23. Defendant TMX Texas [TitleMax of Texas, Inc.] operates as a CSO [credit services organization] under Texas law and is a competitor of Plaintiffs.
24. Defendant TMX Finance Texas also operates as a CSO under Texas law and is a competitor of Plaintiffs.
25. Defendant TMX Finance is a parent company which owns all ownership and membership interests of various operating subsidiaries, including Defendants TMX Finance Texas and TMX Texas. Defendant TMX Finance manages, directs, and controls
all operations of its operating subsidiaries, including Defendants TMX Finance Texas and TMX Texas.
26. Defendant [TMX–Holdings] is a parent company which owns all ownership and membership interests in Defendant TMX Finance, and thus indirectly owns Defendants TMX Finance Texas and TMX Texas.
Wellshire's live pleading, its second amended petition, contained identical jurisdictional allegations.
After the parties conducted jurisdictional discovery, TMX–Holdings filed a special appearance. As evidence supporting its special appearance, TMX–Holdings attached the affidavit of its vice president, Christopher Kelly Wall. Wall averred that TMX–Holdings "was formed in October 2012 in order to facilitate more efficient estate planning and tax reporting for its owners." He averred that TMX–Holdings does not have any employees, does not issue paychecks, does not file income taxes, does not have any operations, and is not registered to do business in any state. Wall also averred, specifically with respect to Texas, that TMX–Holdings has never been incorporated in Texas, maintained an office or facility in this state, had any employees in Texas, maintained a mailing address or telephone number in Texas, designated a registered agent for service of process in Texas, paid franchise taxes in Texas, maintained a bank account in Texas, owned or leased any kind of property in Texas, been involved in any other litigation in Texas, committed a tort or an illegal act in Texas, been licensed or authorized to do business in Texas, provided services in Texas, advertised or marketed in Texas, or entered into a contract with Texas residents aside from retaining counsel in this proceeding.
With regard to the specific allegations in Wellshire's lawsuit, Wall averred that "TMX Holdings has never accessed any driving records of anyone, including but not limited to residents of Texas." He also averred, in support of TMX–Holdings' contention that it was not the alter ego of any of the other defendants:
TMX Holdings is a separate and distinct entity from the other [TMX entities]. It observes corporate formalities; maintains separate corporate accounts and a separate bank account; does not commingle assets; does not share business departments; has its own financial statements; and has separate operations. Further, it does not exercise sole authority over the other [TMX entities'] general policies and daily operations and does not pay their salaries and expenses. Moreover, TMX Holdings does not have a direct ownership interest in Defendant, TitleMax of Texas, Inc.
However, the irrebuttable documentary evidence produced by Wellshire refutes these claims.
3. Application of PHC–Minden Factors to Wellshire's Evidence
In response to TMX–Holdings' special appearance, Wellshire argued that TMX–Holdings was subject to personal jurisdiction in Texas because it was the alter ego of TMX–Finance, which had already consented to jurisdiction. To support its claims, Wellshire produced evidence on each of the PHC–Minden factors.
a. Amount of subsidiary's stock owned by parent
Wellshire argued that TMX–Holdings "has complete ownership and control over TMX Finance," as it owns all of the membership interests in TMX–Finance and the same individual, Tracy Young, is the CEO and President of both entities and thus controls both entities. It produced interrogatory answers from TMX–Holdings indicating that Young owns all of TMX– Holdings' voting shares. Wellshire also attached as evidence a copy of TMX–Finance's 2012 10–K filing with the Securities and Exchange Commission, which noted that, on September 30, 2012, Young, the sole member of TMX–Finance, transferred 100% of his membership interest to TMX–Holdings. This evidence establishes that TMX–Holdings does own all of TMX–Finance.
b. Degree of parent's control over general policy and administration of subsidiary
TMX–Finance's 2012 10–K filing with the Securities and Exchange Commission also stated:
Tracy Young is our founder, Chairman of the Board, Chief Executive Officer, President and the sole beneficial owner of our parent holding company, [TMX–Holdings]. As a result, subject to the limitations in the agreements governing our indebtedness, including the indenture governing our senior secured notes, or the "Indenture," Mr. Young has the ability to control substantially all matters of significance to the Company [TMX–Finance], including the strategic direction of our business, the election and removal of the managers of [TMX–Finance], the appointment and removal of our officers, the approval or rejection of a sale, merger, consolidation or other business combination, the issuances of additional equity or debt securities, amendments of our organizational documents, the entering into of related party transactions and the dissolution and liquidation of [TMX–Finance], regardless of whether the holders of the senior secured noted, or our "bondholders," believe that any such action is in their best interests.
As a result of Mr. Young's complete beneficial ownership and control of [TMX–Finance], his interests could conflict with the interests of our bondholders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, Mr. Young's interests as the sole equity owner of our Parent [TMX–Holdings] might conflict with the interests of our bondholders. Mr. Young might also have an interest in pursuing transactions that, in his judgment, could enhance his equity investment, even though such transactions might involve risks to our bondholders. In addition, Mr. Young could cause us to make acquisitions that increase the amount of our indebtedness or sell assets, either of which may impair our ability to make payments under the notes.
This is strong documentary evidence of TMX–Holdings' control over the general policy and administration of its subsidiary, TMX–Finance. See Cappuccitti , 222 S.W.3d at 484 (considering, when upholding trial court's alter-ego determination, that "as president of both Minerec and Flottec and the sole owner of Flottec, which owned 90% of Minerec, Cappuccitti exercised complete control over the activities of both Minerec and Flottec"). The majority distinguished Cappuccitti , reasoning that this case was different because Wellshire did not argue that Tracy Young was the alter ego of the TMX entities, whereas the plaintiff in Cappuccitti alleged that each of the three defendants—Cappuccitti, the parent company Flottec, and the subsidiary company Minerec, which did not contest personal jursidction—were all alter egos of each other. See TMX Fin. Holdings, Inc. , ––– S.W.3d at –––– n.3, 2016 WL 5920776, at *6 n.3 (citing Cappuccitti , 222 S.W.3d 468 ). The fact that Wellshire did not name Young as a defendant is immaterial. Young controls both TMX–Holdings and TMX–Finance, just as Cappuccitti controlled both Flottec and Minerec. See Cappuccitti , 222 S.W.3d at 474. I would conclude that Cappuccitti is directly on point and that TMX–Holdings, which is controlled by Young, is an alter ego of TMX–Finance, an entity also controlled by Young. Further, in his deposition, Wall testified that TMX–Holdings was formed at Young's behest to facilitate his estate planning.
Wellshire also presented evidence that, shortly after Young incorporated TMX–Holdings, TMX–Holdings made a $45 million capital contribution to TMX–Finance, which Wellshire argued was likewise "strong evidence of control," especially given that TMX–Holdings had "not produced any contract or paperwork demonstrating that the $45 million cash infusion was an arms-length transaction." Wellshire also presented Wall's deposition testimony that TMX–Holdings claimed that it currently owes a $120,000 "non-contractual" liability to TMX–Finance. And it presented evidence that TMX–Holdings likewise failed to produce any documentation concerning the $120,000 non-contractual liability to TMX–Finance that it claimed. This evidence is indeed, as Wellshire argued, "strong evidence of control" of TMX–Finance by TMX–Holdings.
c. The observance of corporate formalities
Wellshire also argued that TMX–Holdings failed to follow corporate formalities. It also argued that TMX–Holdings does not conduct business with TMX–Finance at arm's length and that it receives gratuitous services from TMX–Finance, indicating that TMX–Holdings is not separate and distinct from TMX–Finance. It presented evidence, through Wall's testimony, that a TMX–Finance employee, Linda Long, prepares annual accounting reports for TMX–Holdings, but there is no contract governing provision of this service, and TMX–Holdings does not pay her for this service. Cf. All Star Enter., Inc. v. Buchanan , 298 S.W.3d 404, 423 (Tex. App.–Houston [14th Dist.] 2009, no pet.) ("Although the employees common to Antero [parent company] and Piceance [subsidiary] were paid by Antero, this is not evidence of an abnormal degree of control; the evidence instead is undisputed that Antero billed the affiliated entity for services rendered by the employees, and the affiliated entity remitted payment to Antero for such services."); Conner , 944 S.W.2d at 419 (noting that employees for parent company "provide legal, accounting and other services" to subsidiary company, but parent company "bills [subsidiary company] for all of the legal, accounting or other services its employees provide to [the subsidiary]").
And Wellshire presented evidence, through Wall's testimony, that TMX–Holdings does not have any employees of its own, that it only has two officers, himself and Young, and that neither of them receives a salary from TMX–Holdings for the work that they perform as officers. Instead, Young and Wall receive paychecks solely from TMX–Finance. See I & JC Corp. v. Helen of Troy L.P. , 164 S.W.3d 877, 890 (Tex. App.–El Paso 2005, pet. denied) (noting, in upholding finding that parent and subsidiary were alter egos, that president of parent company controlled daily operations of subsidiary but received paycheck only from parent, not subsidiary); see also Capital Tech. Info. Servs. , 270 S.W.3d at 754 (noting, in upholding trial court's alter-ego finding, that parent company had no employees and that payroll of parent and subsidiary companies was "the same").
Furthermore, Wellshire presented evidence that both TMX–Holdings and TMX–Finance are incorporated in Delaware, that Delaware law requires that "[t]he business and affairs of every corporation organized [under Delaware law] shall be managed by or under the direction of a board of directors," and that TMX Holdings does not have a board of directors and does not hold board meetings. See 8 DEL. CODE § 141(a) ; id. § 211(b) ("Unless directors are elected by written consent in lieu of an annual meeting as permitted by this subsection, an annual meeting of stockholders shall be held for the election of directors on a date and at a time designated by or in the manner provided in the bylaws."). Wall testified that TMX–Holdings does not have a board of directors, and, although he also testified that Young is TMX–Holdings' only director, Wellshire presented irrefutable evidence to the contrary in the form of three years' worth of public Delaware franchise tax filings in which TMX–Holdings, through its officer Young, reported, under penalty of perjury, that it had no directors.
All of this is strong evidence that TMX–Holdings failed to follow corporate formalities that maintain its distinction from TMX–Finance.
d. The existence of separate headquarters
Finally, with respect to the sole remaining PHC–Minden factor, Wellshire presented evidence that TMX–Holdings and TMX–Finance share the same corporate headquarters in Savannah, Georgia and that TMX–Holdings does not pay any rent to TMX–Finance for use of that space. Wellshire thus argued that TMX–Holdings and TMX–Finance should be treated as a single entity for personal jurisdictional purposes.
In sum, the jurisdictional evidence clearly establishes the satisfaction of all of the PHC–Minden factors for determining that two corporation are "fused" as a single business enterprise for purposes of the exercise of personal jurisdiction over both on an alter-ego theory. It is undisputed that, in October 2012, Tracy Young, the president and CEO of TMX–Finance, transferred his 100% membership interest in TMX–Finance to the newly-formed TMX–Holdings. Young is the president, CEO, and sole shareholder of TMX–Holdings, and thus Young indirectly owns TMX–Finance. It is also undisputed that Christopher Kelly Wall is vice president of both TMX–Holdings and TMX–Finance. Thus, both of TMX–Holdings' officers are officers of TMX–Finance, although Wall testified in his deposition that TMX–Finance has an additional officer who is not also an officer of TMX–Holdings. Further, it is undisputed that TMX–Holdings and TMX–Finance share headquarters in Savannah, Georgia, and Wall testified that TMX–Holdings does not pay rent for use of these facilities. See PHC–Minden , 235 S.W.3d at 175 (considering amount of subsidiary's stock owned by parent corporation and whether entities have separate offices in jurisdictional veil-piercing analysis). And Wellshire presented evidence that TMX–Holdings had never had any directors, despite being required by Delaware law to have at least one director, does not conduct business with TMX–Finance at arm's length, and receives gratuitous services from TMX–Finance.
There is not a single one of the PHC–Minden factors that is not satisfied in this case. Thus, under the clear mandate of the Texas Supreme Court, Wellshire met its burden of proof to demonstrate such a degree of control by TMX–Holdings over TMX–Finance that the two entities ought to be fused for jurisdictional purposes. See PHC–Minden , 235 S.W.3d at 175–76 ; Capital Tech. Info. Servs. , 270 S.W.3d at 754–55 ; I & JC Corp. , 164 S.W.3d at 890 ("This record shows such unity between the two corporations that the separateness of the corporations is virtually non-existent.").
I would hold that the trial court did not err by denying TMX–Holdings' special appearance based on alter-ego theory.
C. Fair Play and Substantial Justice
Having determined that Wellshire met its burden of establishing jurisdiction over TMX–Holdings on an alter-ego theory, I would further hold that, under principles of fair play and substantial justice, Texas courts can, consistent with due process, exercise personal jurisdiction over TMX–Holdings. See Capital Tech. Info. Servs. , 270 S.W.3d at 755 ("Even where the contacts of the parent are imputed to the subsidiary based on the theory of alter ego, the trial court's exercise of general, personal jurisdiction over the subsidiary must comport with traditional notions of fair play and substantial justice.").
In making this inquiry, courts consider (1) the burden on the defendant of litigating in Texas; (2) the interests of the forum state in adjudicating the dispute; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental substantive social policies. Spir Star AG , 310 S.W.3d at 878 ; Cappuccitti , 222 S.W.3d at 486. To defeat jurisdiction, the defendant must present "a compelling case that the presence of some consideration would render jurisdiction unreasonable." Spir Star AG , 310 S.W.3d at 878–79 (quoting Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C. , 815 S.W.2d 223, 231 (Tex. 1991) ).
The burden on TMX–Holdings of litigating this dispute in Texas is minimal. TMX–Holdings argues that this factor weighs against exercising jurisdiction "[b]ecause of the distance between TMX Holdings' office and Houston" and because TMX–Holdings' representatives would need to travel to Texas and TMX–Holdings "would have to exchange documents and other evidence with other parties and attorneys in Texas and would have to attend the trial of the case in Texas." Distance from the forum state alone, however, is not sufficient to defeat jurisdiction. See id. at 879.
Moreover—and very importantly—TMX–Holdings' only officers, Young and Wall, are also officers of TMX–Finance, which has consented to jurisdiction, and Wall has been designated as the corporate representative for both entities. See Cappuccitti , 222 S.W.3d at 486 ("Minerec, Flottec, and Cappuccitti are all alter egos of each other. Cappuccitti is president of Minerec, and Minerec did not contest the personal jurisdiction of the trial court over it."); see also Spir Star AG , 310 S.W.3d at 879 ("Three of [the parent company's] directors collectively own seventy-five percent of [the subsidiary], which will be litigating in Houston.").
Wall also testified in his deposition that Young, in his capacity as officer of TMX–Finance, does have reason to visit Texas on occasion, and he "visits sites and meets with the departments that are located in [this] state."See Spir Star AG , 310 S.W.3d at 879 (considering fact that parent company's president and directors traveled to Houston on occasion); Cappuccitti , 222 S.W.3d at 486 (same). Wellshire's claims against TMX–Holdings "will not require great additional burdens to try" beyond the claims that are already being properly litigated in this forum.
Texas has a substantial interest in adjudicating this dispute, which involves allegations of torts committed against Texas companies and the alleged misuse of identifying information of Texas customers. See Spir Star AG , 310 S.W.3d at 879 ("Texas has a significant interest in exercising jurisdiction over controversies arising from injuries a Texas resident sustains from products that are purposefully brought into the state and purchased by Texas companies."); Cappuccitti , 222 S.W.3d at 487 ("Texas has a substantial interest in protecting its citizens both against harm from breach of contract and against harm from the torts alleged in this litigation.").
Additionally, none of the other defendants in the underlying proceeding contested the exercise of personal jurisdiction over them, and, thus, the claims against these defendants are properly being litigated in Texas. It would, therefore, be more efficient to adjudicate the entire case in one forum. See Spir Star AG , 310 S.W.3d at 879 ("[B]ecause the claims against [the subsidiary] will be heard in Texas, it would be more efficient to adjudicate the entire case in the same place."). Furthermore, trying Wellshire's suit against TMX–Holdings here in Texas, as opposed to in Georgia, where TMX–Holdings contends the case ought to be tried, "will avoid duplication of efforts and minimize the possibility of inconsistent findings on common issues." See Cappuccitti , 222 S.W.3d at 487 ; see also Capital Tech. Info. Servs. , 270 S.W.3d at 755 ("[T]he interstate judicial system's interest in obtaining the most efficient resolution of the controversy will be served by litigation in Texas where most of the individuals and documents are located. [The parent corporation] has already answered the lawsuit in Texas, and piecemeal litigation would result in inefficiency.").
Finally, the interests of the two states involved, Texas and Georgia, as the state where TMX–Holdings and TMX–Finance have their principal places of business, are best served by litigating the related claims against each of the defendants in Texas, where the alleged improper scheme to misappropriate Wellshire's trade secrets and interfere with Wellshire's relations with its customers and the alleged damages occurred. See Cappuccitti , 222 S.W.3d at 487.
I conclude and would hold that exercising personal jurisdiction over TMX Holdings does not offend traditional notions of fair play and substantial justice. See Spir Star AG , 310 S.W.3d at 879–80 ; Capital Tech. Info. Servs. , 270 S.W.3d at 755–56 ; Cappuccitti , 222 S.W.3d at 487.
Conclusion
I would grant rehearing and affirm the order of the trial court denying TMX–Holdings' special appearance.