Opinion issued January 27, 2015

In The

Court of Appeals 

For The 

First District of Texas 

————————————

NO. 01-14-00273-CV

———————————

FINANCIAL STRATEGY GROUP, PLC, Appellant

V.

R. K. LOWRY, JR., L-FALLING CREEK, LLC, RUSSELL A. CHABAUD, 

R-RAC WIMBLEDON LLC, JOHN P. MOFFITT, J-JASON LLC, 

RUSSELL A. CHABAUD, TRUSTEE OF THE RUSSELL G. CHABAUD 

1999 INVESTMENT TRUST, R-RUSSELL WIMBLEDON, LLC, RUSSELL 

A. CHABAUD, TRUSTEE OF THE ASHLEY CHABAUD 1999 

INVESTMENT TRUST, R-ASHLEY WIMBLEDON, LLC, RUSSELL A. 

CHABAUD, TRUSTEE OF THE AUDREY CHABAUD 1999 INVESTMENT 

TRUST, R-AUDREY WIMBLEDON, LLC, LMC RECOVERY FUND, LLC, 

UNION GAS FUNDING I, L.P., RANA HOLDINGS, LLC, WESTY I LLC, 

AND MOGI, LLC, Appellees

On Appeal from the 80th District Court

Harris County, Texas

Trial Court Case No. 2008-74262

MEMORANDUM OPINION
2

This is an accelerated appeal from an order denying a special appearance. 

We reverse. 

BACKGROUND

Plaintiffs sued numerous defendants complaining of tax investment 

strategies marketed to plaintiffs for use on their federal tax returns for the tax years 

2000 through 2005 (“Investment Strategies”). Defendant Financial Strategy Group 

(“Financial Strategy”) filed a special appearance, which the trial court denied. 

This appeal followed.

A. Plaintiffs’ Allegations

Plaintiffs’ petition alleges that defendants “jointly and in concert developed, 

promoted, sold, and implemented the Investment Strategies as a part of a 

conspiracy to commit fraud.” According to plaintiffs, defendants “counseled and 

advised Plaintiffs to undertake the Investment Strategies, claiming the Investment 

Strategies would yield a substantial profit and minimize Plaintiffs’ tax liability.” 

Plaintiffs further alleged that at the time the defendants sold the Investment 

Strategies to the plaintiffs, they knew—or should have known—that “the 

Investment Strategies would not and could not yield the investment results or tax 

treatment claimed.” Indeed, plaintiffs’ petition contends, the defendants “knew, at 

the time they promoted and sold the Investment Strategies to Plaintiffs, that federal 

authorities were investigating the legality of similar ‘abusive tax shelters.’” 
3

Despite defendants’ knowledge, they did not inform plaintiffs. Defendants’ 

motive, according to plaintiffs, “was to extract millions of dollars in fees and 

commissions from Plaintiffs.” As a result of their detrimentally relying on 

defendants’ expertise, advice and representations about the legality and propriety 

of the Investment Strategies, plaintiffs entered into illegal and abusive tax shelters, 

subjecting them to “substantial back taxes, interest, penalties, and other damages.” 

B. Allegations specific to Financial Strategy Group1

Plaintiffs’ petition alleged that defendant-appellant Financial Strategy is a 

Tennessee corporation with its principal place of business in Tennessee that “is 

continuously and systematically engaged in business and/or was continuously and 

systematically engaged in business in the State of Texas, committed tortious acts in 

Texas and entered into contracts with Texas residents.”

 The petition further alleged the following involving Financial Strategy:

Unbeknownst to Plaintiffs, BDO, Gramercy, Sidley Austin, De 

Castro West, Financial Strategy Group and others (including Lehman) 

jointly conspired to design the Investment Strategies before BDO and 

Gramercy, with the assistance of others including MLB and Financial 

Strategy, executed their plan to promote and sell the Investment 

Strategies to their own clients—such as Plaintiffs. Unbeknownst to 

Plaintiffs, Sidley Austin and De Castro West agreed that BDO 

Seidman and Gramercy could promise prospective clients, such as 

Plaintiffs, that they would receive tax opinion letters certifying the 

soundness and legality of the Investment Strategies being sold. For a 

substantial fee, Sidley Austin and De Castro West issued tax opinions 

 

1

The facts recited in this section are taken from Plaintiffs’ petition. 
4

to Plaintiffs that purported to substantiate the bona fides of certain of 

the Investment Strategies.

. . . . 

Despite the Strategy Defendants’ knowledge that the IRS would 

likely deny the Investment Strategies, Financial Strategy and BDO 

prepared certain federal tax returns for an entity used to implement the 

Investment Strategies, and the Strategy Defendants advised Plaintiffs 

to file individual federal tax returns implementing the Investment 

Strategies. Even after the Strategy Defendants learned that the IRS 

had begun to audit and disallow capital and other losses claimed 

through similar tax strategies, the Strategy Defendants continued to 

advise Plaintiffs to use the Investment Strategies to offset income 

and/or capital gains on their income tax returns.

. . . .

Financial Strategy and BDO prepared certain federal tax returns 

for an entity that was used to implement the Investment Strategies. At 

no point in time did BDO, Gramercy, Sidley Austin, De Castro West, 

Financial Strategy, or the Other Participants ever disclose to Plaintiffs 

that they had fraudulently conspired together to design, promote, sell 

and implement the Investment Strategies, and were in no way 

independent from each other.

. . . . 

By design, full implementation of the Investment Strategy took several 

years. Plaintiffs classify the defendants by steps in that strategy. Plaintiffs’ claims 

against Financial Strategy only involve the Investment Strategies in 2002 and 

2003, but their allegations related to the scheme for earlier years are included 

below for context. 
5

1. 2000 Digital Option Strategy

In June 2000, plaintiffs received substantial proceeds from the sale of certain 

oil and gas properties and wanted to diversify their investment portfolio. In 

September 2000, Defendants Randy Mooreman (a tax partner with defendant BDO 

Seidman’s Houston office) and Paul Shanbrom (a member of BDO’s Tax Solutions 

Group) pitched certain of the Investment Strategies—specifically “distressed debt 

strategy”—to plaintiffs. 

Without disclosing agreements between BDO and defendant Gramercy, 

Defendants at that meeting recommended that plaintiffs engage Gramercy as an 

expert in distressed debt investments. Plaintiffs were required to execute a 

consulting agreement with BDO as a condition of their engaging Gramercy. And, 

as part of the Investment Strategy, Shanbrom advised plaintiffs to invest an 

additional $15,000,000 with Gramercy—unrelated to the distressed debt strategy—

to provide a diversified portfolio and strengthen plaintiffs’ position in the event of 

an IRS audit. Plaintiffs were also told that they would need to immediately invest 

with Gramercy in November 2000 to implement the distressed debt strategy for 

2000. As part of the consulting agreement with BDO, plaintiffs were promised 

opinion letters from Sidley Austin opining that the Investment Strategies were 

legal, and free representation by BDO in any resulting IRS audit. 
6

Plaintiffs’ petition alleges that, unbeknownst to plaintiffs, the “2000 Strategy 

Defendants” (which included Gramercy, BDO, and several individuals) invested 

plaintiffs’ funds in a “digital option strategy” rather than a distressed debt strategy 

because there was not sufficient time to implement the distressed debt strategy. 

LMC Recovery Fund LLC is a defendant company into which plaintiffs

(through their respective LLCs formed to purchase options) contributed option 

positions in December 2000 as part of the Investment Strategies. After the options 

expired, creating gains or losses, then plaintiffs also contributed cash and other 

assets to LMC. Plaintiffs then contributed their interest in LMC to an S 

Corporation. That S Corporation sold the capital or ordinary assets contributed by 

plaintiffs, creating substantial losses because the assets had an artificially inflated 

basis.2 These losses could be used on plaintiffs’ tax return to offset income and 

gains from other sources, reducing or eliminating plaintiffs’ tax liability. 

Sidley Austin’s opinion letter opined that the digital option strategies were

legal and that LMC Recovery Fund LLC would be classified as a partnership for 

tax purposes. In 2001, BDO prepared the 2000 federal tax return for LMC 

Recovery Fund and provided a copy of the return plaintiffs. In reliance on the 

2000 Strategy Defendants’ advice, plaintiffs included—on their individual 2000 

 

2

This is because the options’ bases were increased by the premium paid to purchase 

the options, but not decreased by the premium received by plaintiffs on the sale of 

certain options. 
7

tax returns—the losses purportedly generated from the 2000 distressed option 

strategy. 

2. 2001 Distressed Debt Strategy

Under the advice of BDO, Gramercy, and Sidley Austin, plaintiffs entered 

into distressed debt transactions designed to create losses to offset other income or 

game. LMC Recovery Fund LLC was again instrumental in the strategy. In April 

2001 and July 2001, plaintiffs made capital contributions to LMC Recovery Fund. 

Brazilian and Bulgarian companies then contributed certain distressed debt assets3

to the Gramercy Local Markets Recovery Fund, LLC, which, in turn, contributed 

the distressed debt instruments to LMC in exchange for a membership interest 

therein. The plaintiffs purchased additional interest in LMC from the Brazilian and 

Bulgarian interest-holders. Finally, LMC sold a portion of the distressed debt 

instruments, generating losses. 

Sidley Austin’s opinion letters again advised that these transactions were 

legal and that LMC Recovery Fund LLC would be treated as a partnership for tax 

purposes. Plaintiffs and other contributors to LMC (Gramercy Local Markets 

Recovery Fund and the Brazilian and Bulgarian companies) would be considered 

the partners. BDO Seidman prepared the 2001 federal return for LMC and 

 

3 Distressed debt instruments are those that can be purchased at a significant 

discount from the face value, such that they have a significant built-in loss through 

their high basis but low value. 
8

provided a copy of the return to plaintiffs. In reliance on the 2001 Strategy 

Defendants’ advice, plaintiffs included—on their individual 2001 tax returns—the 

losses purportedly generated from the 2001 distressed debt strategy.

3. The 2002 Distressed Debt Strategy (involving Financial Strategy). 

The 2002 distressed debt strategy entailed LMC selling additional portions 

of the distressed debt purchased in 2001 in December 2002, thereby creating a 

purported loss for plaintiffs in 2002. Defendant DeCastro West issued opinion 

letters that the strategies were legal, and that LMC would be treated as a 

partnership for tax purposes. Each of LMC contributors would be treated as a 

partner of LMC Recovery (i.e., Plaintiffs, Gramercy Local Markets Recovery 

Fund, and the Brazilian and Bulgarian companies). DeCastro’s opinion letter also 

provided that a portion of LMC Recovery’s losses would be allocable to plaintiffs 

as transferee and holder of original contributors’ interests. 

Appellant-defendant Financial Strategy prepared the 2002 tax return for 

LMC Recovery Fund and prepared the corresponding Texas-resident plaintiffs’ 

scuedule K-1s. LMC’s 2002 tax return listed a Connecticut address for LMC, and 

designated a non-Texas Gramercy-related entity as the Tax Matters Partner for the 

IRS to contact about the return. Plaintiffs’ petition alleges that, “[i]in reliance on 

the 2002 Strategy Defendants’ advice, opinions, and instructions and the 2002 

federal tax return for LMC Recovery Fund LLC, the Plaintiffs signed and filed 
9

their federal tax returns for the year 2002 in approximately October 2003.” The 

plaintiffs included the losses generated by the 2002 Distressed Debt Strategy on 

their 2002 tax returns. 

4. The 2003 Distressed Debt Strategy (involving Financial Strategy).

The 2003 distressed debt strategy followed the same steps as earlier years—

i.e. in 2002, a different Brazilian company contributed certain distressed debt 

instruments to a Delaware LLC (MPATRN LLC), which, in turn, contributed the 

debt to LMC in exchange for a membership interest. Plaintiffs then purchased 

additional interests in LMC from MPARTN. In 2003, LMC sold portions of the 

original debt from 2001 and additional debt acquired in 2002. Defendant De 

Castro West issued opinion letters that the strategies were legal, and that LMC 

Recovery Fund would be treated as a partnership for tax purposes. Contributors to 

the LMC Recovery Fund would be treated as the partners. (i.e., Plaintiffs, 

Gramercy Local Markets and the Brazilian and Bulgarian companies). DeCastro 

West also opined that LMC losses were allocable to plaintiffs as transferee and 

holders of the original contributors’ interests. 

Appellant-defendant Financial Strategy prepared the 2003 tax return for 

LMC and the Texas-resident plaintiffs’ schedule K-1s. For the first time, LMC’s 

2003 return listed a Texas, rather than a Connecticut, address. It also designated 

Randall Lowry, a Texas resident at a Texas address, as the Tax Matters Partner for 
10

the IRS to contact about the return. Plaintiffs’ petition alleges that, “[i]in reliance 

on the 2003 Strategy Defendants’ advice, opinions, and instructions and the 2002 

federal tax return for LMC Recovery Fund LLC, the Plaintiffs signed and filed 

their federal tax returns for the year 2003 in approximately October 2004.” The 

plaintiffs included the losses generated by the 2003 Distressed Debt Strategy on 

their 2003 tax returns.

5. 2004-2008

A new distressed-debt strategy was pursued in 2004 and 2005 following the 

same scheme and many of the same plaintiffs and defendants. LMC was not 

utilized in the scheme, however, and defendant-appellant Financial Strategy did 

not prepare returns related to this new strategy.

Financial Strategy continued preparing the LMC tax returns and related 

Texas-resident schedule K-1s through at least 2008, and continued to list a Texas 

address for LMC and its tax partner. 

C. Financial Strategy Group, PLC’s Special Appearance

On June 19, 2009, Financial Strategy filed an unverified special appearance 

alleging that it does not have sufficient minimum contacts with Texas to confer 

specific personal jurisdiction over it. As evidence, Financial Strategy’s motion 

attached the first of three affidavits of its Managing Member, Michael Andrew 

Shaul. That affidavit explained that Financial Strategy is a Tennessee LLC 
11

professional firm of Certified Public Accountants that is not licensed to do 

business in Texas. It further averred that Financial Strategy does not maintain

offices, employees, property, post office boxes, or telephone listings in Texas. 

None of Financial Strategy’s CPAs are licensed to practice in Texas, and Financial 

Strategy has never conducted any advertising, solicitation, marketing, or other 

promotional activities in Texas or directed at Texas. The Shaul affidavit also 

stated:

None of the actions complained about by plaintiffs in this case 

occurred in the State of Texas. To the contrary, the federal income tax 

returns prepared by FSG at issue in this lawsuit concern LMC 

Recovery Fund, LLC, a Delaware Limited Liability Company with its 

principal place of business in Greenwich, Connecticut. None of the 

work performed by FSG with regard to such tax returns was done in 

Texas-all the work was done in FSG’s office in Tennessee. Moreover, 

none of the tax returns at issue were sent by FSG to anyone in Texas. 

Rather, such tax returns when prepared were sent to the managing 

member of LMC Recovery Fund LLC, who was located in 

Greenwich, Connecticut.

FSG has not committed any tort in Texas. FSG never entered 

into any contract with Plaintiffs or anyone else located in Texas. 

Plaintiff’s claims do not arise from and are not related to any activity 

conducted by FSG in Texas. FSG has no substantial connection with 

Texas arising from any action or conduct of FSG purposefully 

directed toward Texas. FSG has never had continuous or systematic 

contacts with Texas necessary for the Court to assert jurisdiction over 

it.

FSG has never filed a lawsuit in Texas and has never been sued 

before in Texas. FSG has never appointed the Texas Secretary of 

State, or anyone else, as FSG’s agent for service of process in Texas 

as FSG has not purposefully availed itself of the benefits or

protections of the laws of the great State of Texas.
12

It would be significantly burdensome for FSG to have to defend 

itself in a Texas court room as this firm has no representatives, 

employees or agents in Texas. All court appearances would request 

representatives of FSG to travel from Memphis to Houston five

hundred eighty eight (588) miles which takes nearly 11 hours to drivestay in hotels and incur additional expenses. Moreover, such time 

would reduce time available to service clients of the firm. 

Plaintiffs’ responded that the Financial Strategy “made numerous purposeful 

contacts with the State of Texas directly relating to the actions complained of my 

Plaintiffs in this case.” Specifically, plaintiff’s response asserted, Financial 

Strategy “willfully participated in a scheme to defraud Plaintiffs, all of whom are 

Texas residents”; in furtherance, it “used a Texas licensed CPA to prepares six tax 

returns and at least 50 partnership K-1s over a seven-year period for Texas-resident 

entities, knowing the tax documents would be delivered to and used by Plaintiffs in 

Texas.” Finally, Plaintiffs argued that Financial Strategy’s special appearance was 

not verified, and that the Shaul affidavit is “replete with legal conclusions, 

statements of fact that [Financial Strategy] has since admitted under oath are false,

and matters outside the affiant’s personal knowledge, as well as generally lacking 

in credibility.”

Plaintiffs’ response attached evidence, including: (1) excerpts from Shaul’s 

deposition, (2) evidence that Melinda Gunn, a CPA with a Texas license, worked

for Financial Strategy from 1999 to 2005, (3) engagement letters between 

Financial Strategy and Gramercy for preparation of LMC’s tax returns, (4) 
13

excerpts from LMC’s tax returns and its members schedule K-1s, (5) email 

correspondence between Gramercy and Financial Strategy about Financial 

Strategy’s 2002 and 2003 fees for tax preparation work and discussing details of 

some returns, including LMCs, (6) a 2004 email from a Financial Strategy 

employee asking Melinda Gunn (the Texas-licensed CPA) to revise the address 

and signature line on a LMC tax return, (7) a 2003 email from BDO to Financial 

Strategy responding to Financial Strategy’s questions about reporting of tax 

shelters and opining that certain IRS disclosure requirements applying to tax 

shelters do not apply to distressed debt transactions, and (8) a 2005 email from 

Financial Strategy to Gramercy noting that LMC’s foreign partners and income 

may trigger a withholding obligation. 

Finally, plaintiffs proffered an affidavit by plaintiffs’ accountant explaining 

that (1) the Investment Strategies were marketed to plaintiffs as packaged deals, (2) 

plaintiffs viewed the consulting fees paid to BDO as including tax preparation fees 

for entities necessary to the Investment Strategies, including LMC, (3) plaintiffs 

did not solicit Financial Strategy to do work for LMC, (4) BDO made the decision, 

for strategic reasons, to change LMC’s domicile to Texas after 2002, (5) for 2003-

2008, a majority of LMC’s owners (by numbers and percentage) were Texas 

residents, (6) although schedule K-1s were usually delivered to plaintiffs in Texas 

by BDO or Gramercy, on one or more occasions, Financial Strategy sent Schedule 
14

K-1s directly to plaintiffs in Texas, and (7) Gramercy paid Financial Strategy for 

preparing LMC’s tax returns, but the expenses was charged to LMC and, thus, the 

cost was born by the partners. 

In response to plaintiffs’ objections to the original Shaul Affidavit, the court 

signed an order permitting Financial Strategy to “submit an amended affidavit 

regarding its special appearance which deletes one or more of the statements 

contained in the Affidavit of Mr. Andrew Shaul which was previously filed with 

Financial Strategy’s Special Appearance, provided that no other revisions or 

additions to such affidavit may be made.” Financial Strategy filed a second Shaul 

Affidavit, which verified its special appearance and made numerous additions and 

revisions. On plaintiffs’ motion, the trial court struck this second Shaul affidavit, 

but stated again that Financial Strategy could file an amended affidavit verifying 

its special appearance motion and otherwise complying with the court’s previous 

order permitting deletions but no other revisions or additions. 

At a hearing on the special appearance, plaintiffs focused on Shaul’s 

credibility, pointing out discrepancies between the initial Shaul affidavit and 

Shaul’s later deposition testimony. After the hearing, Financial Strategy filed a 

third Shaul affidavit that largely mirrored his first,4but included a verification of 

 

4

The only difference in the factual recitations of the first and third Shaul affidavit 

was the deletion, in the third affidavit, of a statement that Financial Strategy had 

never had a Texas client. 
15

the Financial Strategy’s special appearance motion. Plaintiffs’ moved to strike the 

new affidavit, and the trial court denied Financial Strategy’s special appearance

without ruling on the motion to strike. Neither party requested findings of fact or 

conclusions of law. Financial Strategy timely brought this interlocutory appeal. 

ISSUE ON APPEAL

In a single issue, Financial Strategy argues that the trial court erred by 

denying its special appearance. 

STANDARD OF REVIEW

Whether a trial court has personal jurisdiction over a nonresident defendant 

is a question of law. Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 

777, 790–91 (Tex. 2005); BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 

789, 794 (Tex. 2002). Because the trial court’s exercise of personal jurisdiction 

over a nonresident defendant is one of law, an appellate court reviews the trial 

court’s determination of a special appearance de novo. Moki Mac River 

Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007); BMC Software, 83 

S.W.3d at 794. However, the trial court must frequently resolve fact questions 

before deciding the jurisdictional question. BMC Software, 83 S.W.3d at 794; 

Capital Tech. Info. Servs., Inc. v. Arias & Arias, Consultores, 270 S.W.3d 741, 748

(Tex. App.—Dallas 2008, pet. denied) (en banc). In a special appearance, the trial 

court is the sole judge of the witnesses’ credibility and the weight to be given their 
16

testimony. Leesboro Corp. v. Hendrickson, 322 S.W.3d 922, 926 (Tex. App.—

Austin 2010, no pet.). We do not “disturb a trial court’s resolution of conflicting 

evidence that turns on the credibility or weight of the evidence.” Ennis v. Loiseau, 

164 S.W.3d 698, 706 (Tex. App.—Austin 2005, no pet.). When a trial court does 

not issue findings of fact or conclusions of law, “all facts necessary to support the 

judgment and supported by the evidence are implied.” BMC Software, 83 S.W.3d 

at 795. We will affirm the trial court’s ruling on any legal theory that finds support 

in the record. Dukatt v. Dukatt, 355 S.W.3d 231, 237 (Tex. App.—Dallas 2011, 

pet. denied).

PERSONAL JURISDICTION

The Texas long-arm statute permits Texas courts to exercise jurisdiction 

over nonresident defendants. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 17.041–

.045 (Vernon 2008); PHC–Minden, L.P. v. Kimberly–Clark Corp., 235 S.W.3d 

163, 166 (Tex. 2007); BMC Software, 83 S.W.3d at 795. The Texas long-arm 

statute extends Texas courts’ personal jurisdiction “as far as the federal 

constitutional requirements of due process will permit.” PHC–Minden, 235 S.W.3d 

at 166 (quoting U–Anchor Adver., Inc. v. Burt, 553 S.W.2d 760, 762 (Tex. 1977)).

The Due Process Clause of the Fourteenth Amendment operates to limit the 

power of a state to assert personal jurisdiction over a nonresident defendant. Asahi 

Metal Indus. Co., Ltd. v. Superior Court of Cal., Solano Cnty., 480 U.S. 102, 108, 
17

107 S. Ct. 1026, 1030 (1987); Helicopteros Nacionales de Colombia., S.A. v. Hall, 

466 U.S. 408, 413–14, 104 S. Ct. 1868, 1872 (1984). Under the Due Process 

Clause, personal jurisdiction over a nonresident defendant is constitutional when 

the nonresident defendant has established minimum contacts with the forum state 

and the exercise of jurisdiction comports with traditional notions of fair play and 

substantial justice. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct. 

2174, 2184 (1985); Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 

158 (1945). Minimum contacts are sufficient to support the exercise of personal 

jurisdiction if they show that the nonresident defendant has “purposefully availed” 

itself of the privilege of conducting activities within the forum state, thus invoking 

the benefits and protections of its laws. See Int’l Shoe Co., 326 U.S. at 319, 66 

S.Ct. at 160; Michiana, 168 S.W.3d at 784. 

The plaintiff bears the initial burden of pleading sufficient allegations to 

bring a nonresident defendant within the provisions of the Texas long-arm statute. 

Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex. 2010); Moki Mac,

221 S.W.3d at 574. The nonresident defendant then has the burden of negating all 

bases of jurisdiction alleged in the plaintiff’s petition. Kelly, 301 S.W.3d at 657–

58; Moki Mac, 221 S.W.3d at 574. The defendant can introduce evidence 

disproving the plaintiff's factual allegations, or show that the defendant’s contacts 

with the forum state “fall short of purposeful availment,” or demonstrate that 
18

“traditional notions of fair play and substantial justice are offended by the exercise 

of jurisdiction.” Washington DC Party Shuttle, LLC v. IGuide Tours, 406 S.W.3d 

723, 728 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (en banc). If 

specific jurisdiction is at issue, then the defendant also can show that the plaintiff’s 

claims do not arise from the defendant’s contacts with Texas. Id.

PARTIES’ ARGUMENTS

Financial Strategy contends that the trial court’s exercise of specific personal 

jurisdiction over it was improper, as it lacked sufficient minimum contacts with 

Texas. According to Financial Strategy, it was Gramercy who steered plaintiffs to 

the other defendants—including Financial Strategy—for legal, financial, 

investment and tax advice and other products related to the Investment Strategies. 

Because Financial Strategy “did not purposefully target, recruit or in any other way 

promote its services” to the Texas plaintiffs, Financial Strategy contends that its

connection with Texas is too attenuated to suffice as minimum contacts. 

Moreover, Financial Strategy insists, plaintiffs’ claims do not arise from any 

connection Financial Strategy has to Texas because it was Gramercy, a non-Texas 

entity, that hired Financial Strategy to prepare LMC’s tax return and the plaintiffs’ 

K-1s. Alternatively, Financial Strategy contends that subjecting it to personal 

jurisdiction in Texas offends traditional notions of fair play and substantial justice 

because it would be burdensome for Financial Strategy to defend itself in Texas, 
19

where is has no offices, representatives, employees, or agents. In support, 

Financial Strategy points out that it has only twelve employees, “all of whom 

contribute significantly to the overall productivity” of Financial Strategy and 

whose absence would “significantly reduce time available to serve the firm’s 

clients.”

Plaintiffs respond with three reasons the trial court did not err in denying 

Financial Strategy’s special appearance, i.e., (1) Financial Strategy failed to meet 

its burden to negate all bases of jurisdiction because the only evidence offered—

the Shaul affidavits—were sham affidavits that the trial court was not required to 

consider, (2) plaintiffs presented legally and factually sufficient evidence to 

support the trial court’s ruling, and (3) Financial Strategy failed to verify the 

special appearance. 

ANALYSIS

The parties do not dispute that plaintiffs pleaded sufficient jurisdictional 

facts with regard to Financial Strategy to invoke the long Texas long-arm statute. 

See TEX. CIV. PRAC. & REM. CODE § 17.042. Thus, the question presented is 

whether Financial Strategy negated each pleaded basis for jurisdiction. 

Although our review is de novo, we must defer to the trial court’s resolution 

of fact questions. BMC Software, 83 S.W.3d at 794. Here, because the trial court 

did not make express findings in support of its denial of Financial Strategy’s 
20

special appearance, we imply all facts necessary to support the judgment that are 

supported by the evidence. Id. The trial court had evidence on the jurisdictional 

question in the form of the Shaul affidavit,

5

the evidence attached to plaintiffs’ 

response to Financial Strategy’s special appearance, and excerpts of the Shaul 

deposition played at the special appearance hearing. 

A. Plaintiffs’ challenges to the Shaul affidavit

As a threshold matter, we must address plaintiffs’ argument that much, if not 

all, of Shaul’s affidavit must be disregarded as a sham and as improperly 

containing legal conclusions. Plaintiffs also contend that Financial Strategy failed 

to properly verify its special appearance motion.

1. Sham affidavit 

Plaintiffs point to the following alleged discrepancies between Shaul’s 

affidavit and excerpts of Shaul’s deposition testimony the court heard at the 

hearing. 

-In Shaul’s affidavit, he states that “None of Financial Strategy’s 

CPAs are licensed to practice in Texas nor do any such CPAs practice 

in Texas.” During his deposition, however, Shaul acknowledged that 

Melinda Gunn, who worked for Financial Strategy in Tennessee until 

2005 and who performed work on LMC Recovery Fund’s tax return, 

holds a Texas CPA license. 

 

5 Unless noted otherwise, references to the Shaul affidavit are to the third Shaul 

affidavit—the last one filed. 
21

-In Shaul’s affidavit, he states that the “tax returns at issue in this 

lawsuit concern LMC Recovery Fund, a Delaware Limited Liability 

Company with its principal place of business in Greenwich, 

Connecticut.” In Shaul’s deposition, however, he acknowledged 

that—in 2003 and subsequent years—the address on LMC’s return 

changed from a Connecticut address to a Texas address, which could 

indicate that its primary place of business is Texas.

-In Shaul’s affidavit, he states that “[n]one of the tax returns at issue 

were sent by [Financial Strategy] to anyone in Texas.” During his 

deposition, Shaul agreed that he “do[es]n’t actually know for sure that 

Mr. Burford or someone else didn’t send copies or even originals of 

the tax returns to the Texans.”

A “sham affidavit” generally refers to an affidavit that contradicts early 

deposition testimony, without any explanation for the change in testimony, for the 

purpose of creating a fact issue to defeat summary judgment. Farroux v. Denny’s 

Rests., Inc., 962 S.W.2d 108, 111 (Tex. App.—Houston [1st Dist.] 1997, no pet.). 

Assuming that the sham affidavit doctrine is applicable in the context and posture

presented here, we conclude that these three alleged “contradictions” do not render 

Shaul’s affidavit a sham affidavit. The second and third topics—i.e. Shaul’s belief 

about LMC’s primary place of business and whether copy of a tax return was sent 

to someone in Texas—do not represent contradictions, as Shaul’s deposition 

testimony only establishes that he is not sure about either. Id. at 111 n.1 (affidavit 

is not a sham if inconsistency is caused by witnesses’ confusion, or if witness 

discovers additional, relevant information after deposition).
22

With regard to the first topic—i.e., whether Financial Strategy employs 

CPAs that hold Texas licenses—the record contains an explanation for that 

discrepancy. Gunn, the Texas-licensed CPA, no longer worked for Financial 

Strategy at the time Shaul’s affidavit was made, and there was some confusion 

about which Financial Strategy division or related company she had been 

employed by. E.g., Naples v. Lesher, No. 06-13-00059-CV, 2014 WL 1856846, at 

*5 n.8 (Tex. App.—Texarkana May 8, 2014, no pet.) (mem. op.) (rejecting 

application of sham affidavit doctrine because affidavit did not directly conflict 

with deposition testimony, and contradiction between affidavit and earlier 

correspondence was explained).

As the San Antonio Court of appeals has noted, “[m]ost differences between 

a witness’s affidavit and deposition are more a matter of degree and details than 

direct contradiction,” and this “reflects human inaccuracy more than fraud.” Cantu 

v. Peacher, 53 S.W.3d 5, 10 (Tex. App.—San Antonio 2001, pet. denied). Thus, if 

an affidavit is generally consistent with prior testimony, but details differ, 

inconsistencies create opportunity for impeachment, not vitiating the affidavit. Id. 

Each of these three alleged inconsistencies was pointed out to the trial court 

at the special appearance hearing, and the court did not strike the affidavit. While

we assume the trial court resolved credibility determinations in plaintiffs’ favor,

we reject the argument that inconsistencies in Shaul’s testimony require that his 
23

affidavit be disregarded in its entirety. E.g., Youngblood v. U.S. Silica Co., 130 

S.W.3d 461, 470 (Tex. App.—Texarkana 2004, pet. denied) (subtle inconsistencies 

or conflicts between deposition testimony and affidavit do not justify disregarding 

affidavit; such differences can be resolved by factfinder). 

2. Conclusory

Plaintiffs also contend that the Shaul affidavit contains the following legal 

conclusions, which they argue should not be considered evidence,

 FSG has not committed any tort in Texas 

 FSG is . . . not required to maintain a registered agent for service in 

Texas

 FSG does not do business in Texas

 FSG never entered into any contract with Plaintiffs or anyone else 

located in Texas

 FSG’s claims do not arise from and are not related to any activity 

conducted with Texas arising from any action or conduct of FSG 

purposefully directed toward Texas

 FSG has never had continuous or systematic contacts with Texas 

necessary for the Court to assert jurisdiction over it

 . . . FSG has not purposefully availed itself of the benefits or 

protections of the laws of the great State of Texas

We agree. An affiant’s legal conclusions lack probative value, and to the 

extent Shaul’s affidavit contains legal conclusions, we will not credit those 

conclusions in reviewing the trial court’s denial of Financial Strategy’s special 

appearance. Wright v. Sage Eng’g, Inc., 137 S.W.3d 238, 250 n.8 (Tex. App.—

Houston [1st Dist.] 2004, pet. denied) (affiant’s testimony that he “committed no 
24

torts in Texas is a legal conclusion without any probative force” in special 

appearance proceeding).

3. Verification

Financial Strategy’s special appearance was not verified. Shaul’s third 

affidavit filed in support of the special appearance, however, contains a verification 

of the facts in both the motion and the affidavit. Plaintiffs’ acknowledge this, but 

argue that we should not allow Financial Strategy to verify its special appearance 

with a “sham affidavit.” They argue that this is an “alternative, and unchallenged, 

ground” that the trial court’s order can be “summarily affirmed.” We have rejected 

the argument that Shaul’s affidavit is a sham affidavit, and hold that Shaul’s 

affidavit sufficed to verify Financial Strategy’s special appearance. Cf. IGuide 

Tours, LLC, 406 S.W.3d at 730–31 (affidavit in support of special appearance that 

did not expressly verify facts in special appearance was sufficient because affidavit 

contained same jurisdictional facts as special appearance). 

B. Evidence to consider 

Plaintiffs no longer contend that Texas can exercise general jurisdiction over 

Financial Strategy. Disregarding conclusory evidence and implying “all facts 

necessary to support the judgment and supported by the evidence,” BMC Software, 

83 S.W.3d at 795, the record presents us with the following facts relevant to the 

issue of specific jurisdiction:
25

 In 2000, BDO marketed certain Investment Strategies to Plaintiffs, 

who in turn hired BDO and Gramercy to implement the strategies. 

 LMC was Delaware LLC formed in 2000 for use implementing the 

plaintiffs’ Investment Strategies. Through this implementation, the 

Texas-resident plaintiffs acquired ownership interests in LMC. BDO 

prepared LMC’s tax returns in 2000 and 2001. 

 Financial Strategy is a Tennessee LLC hired by nonresident Gramercy

beginning in 2002 to prepare LMC tax returns and the corresponding 

Schedule K-1s. The 2002 LMC tax return prepared by Financial 

Strategy listed a Connecticut address for LMC, and a nonresident

Gramercy affiliate as the tax matters partner for the IRS to contact in 

case of questions. The plaintiffs’ 2002 Schedule K-1s listed their 

Texas addresses. 

 In 2003, LMC’s address changed to a Texas address, and its tax 

matters partner was changed to a Texas resident. The plaintiffs’ 

Schedule K-1s listed their Texas addresses. 

 Plaintiffs’ claims against Financial Strategy involve only its

preparation of LMC’s 2002 and 2003 tax returns. 

 Financial Strategy prepared LMC’s tax returns and corresponding K1s in Tennessee. Financial Strategy has a former employee who 

worked in Tennessee but who held a Texas CPA license who may 

have worked on LMC tax returns and K-1s. 

 Financial Strategy’s usual practice was to provide LMC’s tax returns

and K-1s to Gramercy in Connecticut for filing and distribution to 

plaintiffs and other partners, but these materials may have been sent 

by Financial Strategy directly to a plaintiff in Texas at least once. 

 Financial Strategy was paid by Gramercy for preparing LMC’s tax 

returns and K-1s. 

 Litigation in Texas would be burdensome for Financial Strategy, as it 

has no representative, employees or agents in Texas. 
26

C. Financial Strategy’s contacts are not sufficient to confer jurisdiction.

To determine if the trial court properly exercised personal jurisdiction over 

Financial Strategy, we must assess these contacts to determine if Financial Strategy 

purposefully availed itself of the privilege of conducting activities in Texas. This 

“purposeful availment” inquiry is a three-pronged test. Moki Mac, 221 S.W.3d at

575. First, only the defendant’s contacts with the forum are relevant. Id. Second, 

the contacts on which jurisdiction depends must be purposeful, rather than random, 

fortuitous, or attenuated. Id. Third, “the ‘defendant must seek some benefit, 

advantage or profit by “availing” itself of the jurisdiction.’” Id. (quoting Michiana, 

168 S.W.3d at 785); Motor Components, LLC v. Devon Energy Corp., 338 S.W.3d 

198, 201–02 (Tex. App.—Houston [14th Dist.] 2011, no pet.). We agree with 

Financial Strategy that its contacts with Texas fall short of what is required to 

justify exercise of jurisdiction. 

The crux of plaintiffs’ claims is that they were sold Investment Strategies 

that utilized improper tax shelters, and that plaintiffs were damaged by the hefty 

professional fees, taxes, and penalties. Although Financial Strategy later started

preparing tax returns for an entity necessary to carrying out the Investment 

Strategies, i.e., LMC, it is undisputed that Financial Strategy was not initially 

involved in developing, marketing, or implementing the strategies. 
27

The record reflects that—after the Investment Strategies were in place and 

had been implemented—a friend of Shaul’s who was a partner in BDO’s office in 

Tennessee, approached Shaul in Tennessee to ask whether Financial Strategy had 

capacity to prepare some partnership returns that BDO was no longer interested in 

preparing. When Shaul expressed interest, the BDO partner introduced Shaul to 

Gramercy. Gramercy eventually hired Financial Strategy to prepare tax returns for 

several partnerships, including LMC. Gramercy is not a Texas resident, Financial 

Strategy is not a Texas resident and—at the time Financial Strategy was engaged 

by Gramercy—LMC was a Delaware company with a Connecticut address.

Plaintiffs, however, emphasize that Financial Strategy knew that Texasresident plaintiffs would receive and use the LMC tax return documents prepared 

by Financial Strategy in preparing their individual tax returns. But “that a 

defendant might have foreseen or knows the brunt of the injury will be felt by a 

particular resident in a forum state is not enough to establish minimum contacts.”

Asshauer v. Glimcher Realty Trust, 228 S.W.3d 922, 933 (Tex. App.—Dallas 

2007, no pet.) (citing Michiana, 168 S.W.3d at 788–89). To establish minimum 

contacts, a “defendant’s contacts much be purposeful rather than fortuitous.” GJP, 

Inc. v. Ghosh, 251 S.W.3d 854, 869 (Tex. App.—Austin 2008, no pet.). 

In 2003, the second of the two relevant years that Financial Strategy 

prepared LMC’s tax returns, BDO advised plaintiffs to change LMC’s place of 
28

business from Connecticut to Texas and to designate a Texas-resident tax matters 

partner. Accordingly, plaintiffs argue, there can be no doubt at that point that 

Financial Strategy “knew it was doing work for the benefit of a Texas resident.” 

LMC’s address change, however, was the result of unilateral actions by third 

parties, i.e., BDO and plaintiffs. Such independent acts cannot create the minimum 

contacts necessary to demonstrate that Financial Strategy purposefully created 

additional contacts with Texas. Michiana, 168 S.W.3d at 785 n.28 (citing Burger 

King, 417 US at 475 (purposeful availment requirement “ensures that a defendant 

will not be haled into a jurisdiction solely as a result of . . . the unilateral activity of 

another party or a third person”)). 

Also lacking here is a showing that Financial Strategy sought some “benefit 

advantage, or profit by availing itself of the jurisdiction.” GJP, Inc., 251 S.W.3d at 

869. Financial Strategy was paid by Gramercy for preparation of LMC’s tax 

returns and Schedule K-1s. Although plaintiffs proffered evidence that they 

considered the consulting fees they paid to BDO to include the cost of preparing all 

relevant tax returns for entities needed to implement the Investment Strategies, 

“the bare fact that a defendant receives some benefit, advantage, or profit from 

Texas does not necessarily mean that it has purposefully availed itself of the state.” 

GJP, 251 S.W.3d at 869; see also Michiana, 168 S.W.3d at 788 (“[F]inancial 

benefits accruing to the defendant from a collateral relation to the forum State will 
29

not support jurisdiction if they do not stem from a constitutionally cognizable 

contact with that State.”). Here, the fact that Financial Strategy was paid fees by a 

non-Texas entity to prepare tax return documents that would be used, in part, by 

Texas residents is not enough to demonstrate that Financial Strategy sought a 

“benefit, advantage, or profit by availing itself of the jurisdiction.” GJP, Inc., 251 

S.W.3d at 869 (emphasis added). 

In Michiana—a case holding that Texas courts lacked personal jurisdiction 

over a nonresident corporation that sold an RV to a Texas resident over the 

phone—the supreme court noted that a nonresident corporation “[c]ertainly ought 

to be subject to suit in any jurisdiction where it ‘enjoys the benefits and protection 

of the laws of that state.” 168 S.W.3d at 787; see also Moncrief Oil Int’l, Inc. v. 

OAO Gazprom, 414 S.W.3d 142, 158 (Tex. 2013) (holding defendant that 

“attended two Texas meetings with a Texas corporation and accepted alleged trade 

secrets created in Texas regarding a potential joint venture in Texas with the Texas 

corporation . . . sought out Texas and the benefits and protections of its laws” for 

purpose of establishing personal jurisdiction). But in this case, as in Michiana, it 

is “hard to imagine what possible benefits and protections [Financial Strategy] 

enjoyed from Texas law.” 168 S.W.3d at 787. “Indeed, it is hard to imagine how 

[Financial Strategy] would have conducted its activities any differently if Texas 

had no law at all.” Id. 
30

We likewise find the other contacts relied upon by Plaintiffs to be too 

attenuated. The record reflects that Financial Strategy employed a CPA in 

Tennessee that lived and worked in Tennessee, but who held a Texas CPA license 

and may have worked on LMC’s tax return. Plaintiffs cite no authority, and we 

have not located any, holding that that employing a Texas CPA in another state 

demonstrates minimum contacts with Texas absent evidence of that employee 

performing work in Texas. Likewise, we decline to hold that the Financial 

Strategy potentially mailing a tax return or Schedule K-1s to plaintiffs in Texas (as 

directed by a Gramercy, Financial Strategy’s non-Texas client) is a purposeful, 

rather than random, fortuitous, or attenuated contact with Texas. See Moki Mac 

River Expeditions, 221 S.W.3d at 575. This is especially true given that there is no 

evidence indicating when these tax documents were mailed, and if they even relate 

to the 2002 or 2003 tax years that are relevant to plaintiffs’ claim against Financial 

Strategy. See id. at 585 (“[F]or a nonresident defendant’s forum contacts to 

support an exercise of specific jurisdiction, there must be a substantial connection 

between those contacts and the operative facts of the litigation.”). 

We thus conclude that the trial court erred in concluding that Financial 

Strategy had sufficient minimum contacts with Texas to confer Texas courts with 

personal jurisdiction over it. 
31

CONCLUSION

We reverse the trial court’s order denying Financial Strategy Group PLC’s 

special appearance and render judgment granting the special appearance and 

dismissing claims against Financial Strategy Group, PLC.

Sherry Radack

Chief Justice

Panel consists of Chief Justice Radack and Justices Bland and Huddle.