UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

CONRAD P. SEGHERS, ET AL.,

Plaintiffs,

VS.

SAMER M. EL BIZRI, ET AL.,

Defendants.

)

)

)

) CIVIL ACTION NO.

)

) 3:06-CV-0279-G

)

) ECF

)

MEMORANDUM OPINION AND ORDER

Before the court is the motion of the defendants Samer M. El Bizri (“Bizri”),

Codehost, Incorporated (“Codehost”), and Bizri Capital Partners, Incorporated

(“BCP”) (collectively, “defendants”) to dismiss the plaintiffs’ complaint pursuant to

FED. R. CIV. P. 12(b)(1), (2), (3), (5), and (6). Additionally, the plaintiffs Conrad P.

Seghers (“Seghers”), Integral Hedging Offshore, Limited (IHO), and Exponential

Returns, L.P. (“Exponential”) (collectively, “plaintiffs”) have filed a motion for leave

to file Conrad Seghers’ supplemental declaration, which is opposed by the defendants

with a motion to strike. For the reasons stated below, the defendants’ motion to

 

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dismiss is granted in part and denied in part. The remaining two motions are denied

as moot. 

I. BACKGROUND

The plaintiffs filed this case on February 15, 2006, basing jurisdiction on

diversity of citizenship. Docket Sheet; Complaint ¶ 7. They assert six causes of

action against the defendants: (1) fraud; (2) negligent misrepresentation; (3) breach

of contract; (4) money lent; (5) conversion; and (6) indemnification. Complaint

¶¶ 31, 38, 44, 47, 50, 59. This dispute arises out of two separate and unrelated

transactions. The first involves a loan agreement; the second involves Bizri’s

management of hedge funds in which Seghers’ companies invested. Brief in Support

of Pre-Answer Motion to Dismiss (“Motion to Dismiss”) at 1. 

The dispute arising out of Bizri’s management of the hedge funds began in

1998. Id. at 1. At the time, Seghers was managing a series of hedge funds through

his company, Integral Investment Management (“IIM”). Id. Seghers, through IIM,

hired Bizri and Bizri’s company BCP to manage these funds utilizing a proprietary

investment strategy -- known as the Risk Adaptive Portfolio Strategy or RAPS --

developed by Bizri. Id. BCP and IIM entered into a RAPS agreement that became

effective on January 1, 2001. RAPS Agreement at 1, attached to Declaration of

Conrad P. Seghers (“Seghers Declaration”) as Exhibit 1. In accordance with this

agreement, BCP established the Galileo Fund, L.P. and Galileo Fund Domestic, L.P.

 

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(collectively, “Galileo”) to provide vehicles to facilitate the IIM investments. Motion

to Dismiss at 2. BCP also entered into an agreement with Morgan Stanley whereby

Morgan Stanley provided its services as a registered securities broker for Galileo. Id.

Soon, however, BCP began experiencing problems with Morgan Stanley. The

defendants assert that Bizri would place trades with the Morgan Stanley broker only

to discover that he had placed the trade with the wrong option, at the wrong price, at

the wrong expiration, or not at all. Id. Ultimately, these mistakes led to losses in the

millions of dollars. Id.

The defendants claim that Seghers was always aware of the problems with the

Galileo accounts at Morgan Stanley. Id. Seghers, however, contends he was ignorant

of the errors, and that BCP deliberately misinformed him about the ongoing

problems. Seghers asserts that as a direct result of this misinformation, his reputation

has been ruined, and he has been named in several lawsuits and subject to several

investigations, requiring him to spend time and money to defend himself. Complaint

¶ 56. He seeks to recover these losses. 

The dispute over the loan agreement arises out of an entirely different set of

facts. On February 19, 1999, Bizri formed a company known as AnswerBuddy.com. 

Complaint ¶ 11. Its purpose was to develop software for airplane cockpits that could

plot the exact location of other planes nearby. Id. Bizri approached Seghers as a

possible investor in the fledgling company. He informed Seghers that his product

 

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would prevent approximately one in ten plane crashes per five-year period. Id.

Seghers agreed to invest and signed a letter of intent to purchase 200,000 shares at

$5 per share. Id. ¶ 14. Bizri insisted, however, that the money be invested through

him as a personal loan, and not directly with AnswerBuddy.com. Id. ¶ 17. Seghers

was always assured that the invested money would be used to develop and market the

aviation software. Id. ¶ 16. 

The loan was to be made in two instalments of $500,000. Id. ¶ 18. Each

instalment was for a term of two years with ten percent interest. Id. The first

instalment was transferred to Bizri on October 15, 1999. Id. ¶ 19. The second

instalment was transferred on April 1, 2000. Id. In April of 2001, however, Bizri

drastically changed the business plan of AnswerBuddy.com. He changed the name to

Codehost and began developing software such as printer drivers rather than the

original aviation software. Id. ¶ 21. In addition, the plaintiffs allege that the loan

proceeds were diverted to Bizri’s personal use, specifically a home in California and a

Jaguar convertible. Id. ¶ 23. The plaintiffs have demanded payment of the principal

and interest, but Bizri has refused. Id. ¶ 24. 

II. ANALYSIS

A. Lack of Personal Jurisdiction and Improper Venue

The defendants’ motion to dismiss is based on five different grounds. First, the

defendants argue that this court lacks personal jurisdiction over them and that Texas

 

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is an improper venue. Motion to Dismiss at 4, 12. The defendants therefore move to

dismiss the plaintiffs’ claims pursuant to FED. R. CIV. P. 12(b)(2) and(3).

1. Personal Jurisdiction - The Legal Standard

Applying state law, this court must first determine whether Texas, the forum

state, could assert long-arm jurisdiction. Pedelahore v. Astropark, Incorporated, 745 F.2d

346, 347 (5th Cir. 1984). Because the Texas long-arm statute confers jurisdiction to

the limits of the federal constitution, Access Telecom, Inc. v. MCI Telecommunications

Corporation, 197 F.3d 694, 716 (5th Cir. 1999), cert. denied,531 U.S. 917 (2000); Hall

v. Helicopteros Nacionales de Colombia, S.A., 638 S.W.2d 870, 872 (Tex. 1982), rev’d on

other grounds, 466 U.S. 408 (1984), the court need only concern itself with the federal

due process inquiry. Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir. 1999); Wilson v.

Belin, 20 F.3d 644, 647 n.1 (5th Cir.), cert. denied, 513 U.S. 930 (1994); see also TEX.

CIV. PRAC. & REM.CODE ANN. § 17.041 et seq. (Vernon 1997) (Texas long-arm

statute).

Due process requires the satisfaction of two elements to exercise personal

jurisdiction over a non-resident defendant: (1) the nonresident must have some

minimum contact with the forum that results from an affirmative act on his part such

that the nonresident defendant could anticipate being haled into the courts of the

forum state; and (2) it must be fair or reasonable to require the nonresident to defend

the suit in the forum state. Burger King Corporation v. Rudzewicz, 471 U.S. 462, 474-

 

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78 (1985); Gulf Consolidated Services, Inc. v. Corinth Pipeworks, S.A., 898 F.2d 1071,

1073 (5th Cir.), cert. denied, 498 U.S. 900 (1990). The Due Process Clause ensures

that persons have a “fair warning that a particular activity may subject [them] to the

jurisdiction of a foreign sovereign.” Burger King, 471 U.S. at 472 (quoting Shaffer v.

Heitner, 433 U.S. 186, 218 (1977) (Stevens, J., concurring)).

Here, the defendants argue that they have not established the required

“minimum contacts” with the forum state. Motion to Dismiss at 5. The minimum

contacts test, however, need not be considered in this case. Personal jurisdiction is a

waivable right. Insurance Corporation of Ireland, Ltd. v. Compagnie des Bauxites de Guinee,

456 U.S. 694, 702-703 (1982). As a result, “a variety of legal arrangements” exist by

which a litigant may consent to personal jurisdiction. Id. at 703. One such legal

arrangement is a forum selection clause, so long as it has been freely negotiated and is

not unreasonable and unjust. M/S Bremen v. Zapata Off-Shore Company, 407 U.S. 1,

15 (1972). Here, the parties signed agreements regarding both the loan and Bizri’s

management of the hedge funds. Both of these agreements contain clauses selecting

Texas as the appropriate forum for disputes. 

2. The Loan Agreement

The loan agreement, signed on October 15, 1999, by both Seghers and Bizri,

includes a provision entitled “Governing Law; Venue.” Loan Agreement at 2, attached

to Segher Declaration in Plaintiff’s Response to Defendant’s Pre-Answer Motion to

 

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Dismiss as Exhibit 3. This provision states, “THIS AGREEMENT IS MADE AND IS

PERFORMABLE IN DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED

BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE

OF TEXAS.” Id. It is clear from this provision that the parties intended Texas to

provide the appropriate venue and governing law. There being no suggestion that this

clause was not freely negotiated or that it is unreasonable and unjust, it must be given

effect. The Bremen, 407 U.S. at 15. 

Due to this provision, the defendants’ argument that they are not subject to

personal jurisdiction regarding the dispute over the loan agreement is unfounded. 

The purpose of minimum contacts is to “give[] a degree of predictability to the legal

system” and “allow[] potential defendants to structure their primary conduct with

some minimum assurance as to where that conduct will and will not render them

liable to suit.” World Wide Volkswagen Corporation v. Woodson, 444 U.S. 286, 297

(1980). Here, it seems clear that the defendants could easily have anticipated being

haled into court in Texas, the state which they had agreed would provide the proper

venue and governing law. The defendants have thus had fair warning that their

activities arising out of the loan agreement with the plaintiffs could subject them to

personal jurisdiction in Texas. It is fair and reasonable to require the defendants to

defend here. The requirements of due process are therefore satisfied, and the

 

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defendants’ motion to dismiss the plaintiffs’ loan agreement claims for lack of

personal jurisdiction and improper venue are denied. 

3. The RAPS Agreement

Similarly, the RAPS agreement and the Declaration of Assets Agreement,

which Bizri signed, have clauses almost identical to the loan agreement’s forum

selection provision. RAPS Agreement at 20; Declaration of Assets Agreement at 8,

attached to Declaration of Conrad Seghers as Exhibit 2. Thus, the defendants also

consented to venue and personal jurisdiction in Texas regarding any disputes arising

under the RAPS agreement. For the same reasons given above, the requirements of

due process are satisfied. The motions to dismiss the plaintiffs’ claims regarding the

RAPS agreement, pursuant to FED. R. CIV. P. 12(b)(2) and FED. R. CIV. P. 12(b)(3),

are therefore denied. 

B. Statute of Limitations and Lack of Subject Matter Jurisdiction

The defendants next argue that the complaint should be dismissed under FED.

R. CIV. P. 12(b)(6) because all claims are barred by the statute of limitations. Motion

to Dismiss at 9. The defendants also argue that the case should be dismissed for lack

of subject matter jurisdiction, pursuant to FED. R. CIV. P. 12(b)(1), since the amount

in controversy requirement cannot be met by barred claims. Id. at 12. Because the

outcome of the 12(b)(1) motion is entirely dependent on the outcome of the

12(b)(6) motion, only the 12(b)(6) motion will be discussed. 

 

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1. 12(b)(6) -- The Legal Standard

Rule 12(b)(6) authorizes dismissal of a complaint for “failure to state a claim

upon which relief can be granted.” FED. R. CIV. P. 12(b)(6). There are two primary

principles that guide the court’s determination of whether dismissal under Rule

12(b)(6) should be granted. First, a motion under Rule 12(b)(6) should be granted

only if it appears beyond doubt that the nonmovants could prove no set of facts in

support of their claims that would entitle them to relief. Conley v. Gibson, 355 U.S.

41, 45-46 (1957); Leffall v. Dallas Independent School District, 28 F.3d 521, 524 (5th

Cir. 1994); see also Kaiser Aluminum & Chemical Sales, Incorporated v. Avondale

Shipyards, Incorporated, 677 F.2d 1045, 1050 (5th Cir. 1982) (citing 5B WRIGHT &

MILLER § 1357 at 598 (1969), for the proposition that “the motion to dismiss for

failure to state a claim is viewed with disfavor and is rarely granted”), cert. denied, 459

U.S. 1105 (1983). Second, the court must accept all well-pleaded facts as true and

view them in the light most favorable to the nonmovants. See Capital Parks,

Incorporated v. Southeastern Advertising and Sales System, Inc., 30 F.3d 627, 629 (5th Cir.

1994); Norman v. Apache Corporation, 19 F.3d 1017, 1021 (5th Cir. 1994); Chrissy F.

by Medley v. Mississippi Department of Public Welfare, 925 F.2d 844, 846 (5th Cir.

1991). However, conclusory allegations and unwarranted factual deductions will not

suffice to avoid a motion to dismiss. United States ex rel. Willard v. Humana Health

Plan of Texas Incorporated, 336 F.3d 375, 379 (5th Cir. 2003). In addition, a court

 

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must not look beyond the pleadings when determining whether a complaint states a

claim upon which relief may be granted. Carpenters Local Union No. 1846 v.

Pratt-Farnsworth, Incorporated, 690 F.2d 489, 499-500 (5th Cir. 1982), cert. denied, 464

U.S. 932 (1983).

If it appears that a more carefully drafted pleading might state a claim upon

which relief could be granted, the court should give the claimants an opportunity to

amend their claim rather than dismiss it. Friedlander v. Nims, 755 F.2d 810, 813

(11th Cir. 1985); Taylor v. Dallas County Hospital District, 976 F.Supp. 437, 438

(N.D. Tex. 1996). Furthermore, leave to amend a pleading should be freely given

and should be granted unless there is some justification for refusal. Willard, 336 F.3d

at 386.

2. Fraud -- The Loan Agreement

Seghers asserts two counts of fraud. Complaint ¶¶ 31, 54. The first fraud

claim concerns the loan agreement. This claim is based on the plaintiffs’ allegation

that Bizri made fraudulent representations in an effort to induce Seghers to invest in

AnswerBuddy.com. Id. ¶ 31. Specifically, the plaintiffs assert that they were falsely

informed that AnswerBuddy.com was valued at $50,000,000 and that the loan

proceeds were to be used exclusively for the business and not for any personal use by

Bizri. Id. In addition, they allege that they were falsely informed that the company

was in negotiations with the Federal Aviation Association and the National Travel

 

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Safety Board, and that Seghers would soon be provided with the company’s business

plan and subscription documents. Id.

The statute of limitations governing fraud claims is four years. TEX. CIV. PRAC.

& REM. CODE § 16.004(a)(4) (Vernon 2002). A fraud cause of action does not

accrue until the fraud is discovered or could have been discovered through reasonable

diligence. See Computer Associates International v. Altai, Inc., 918 S.W.2d 453, 455-56

(Tex. 1996). Thus, for Seghers’ claim to survive the statute of limitations, Bizri’s

fraud must not have been discoverable through reasonable diligence before

February 15, 2002 -- four years before the suit was filed. Id.

Seghers argues that although he had long believed that Bizri cheated him in

the loan transaction, Bizri’s fraud was first discovered in March 2004. Response at 4-

5. But Seghers admits that this recently discovered fraud related only to his fraud

claim regarding the RAPS agreement and not to the loan. Seghers Declaration ¶¶ 14,

15. In fact, with reference to the loan agreement, Seghers states that he “viewed Bizri

as having cheated me in the loan transactions, and I therefore sued him in early

2002.” Seghers Declaration ¶ 14. It is thus clear that Seghers was aware of Bizri’s

fraud against him in the loan transaction at least by early 2002, when he filed suit for

the first time. Id. As a result, the four year statute of limitations now bars Seghers’

fraud claim regarding the loan transaction. TEX. CIV. PRAC. & REM. CODE § 16.004

 

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1 “A statute of limitations may support dismissal under Rule 12(b)(6)

where it is evident from the plaintiff’s pleading that the action is barred and the

pleadings fail to raise some basis for tolling or the like.” Jones v. Alcoa, Inc., 339 F.3d

359, 366 (5th Cir. 2003), cert. denied, 540 U.S. 1161 (2004). See also Taylor v. Books

A Million, Inc., 296 F.3d 376 (5th Cir. 2002) (affirming dismissal of Title VII claim

under Rule 12(b)(6) for failure to bring suit within 90 days after receipt of right to

sue letter), cert. denied, 537 U.S. 1200 (2003).

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(Vernon 2002). Accordingly, the motion to dismiss the fraud claim regarding the

loan agreement is granted pursuant to FED. R. CIV. P. 12(b)(6).1

 

3. Fraud -- The RAPS Agreement

Seghers also asserts a fraud claim regarding the RAPS agreement. Seghers

argues that the defendants deliberately misinformed him and his companies, IHO and

Exponential, about the problems that arose with Morgan Stanley and the trading

strategy. Complaint ¶ 54. Because the four year statute of limitations applies to this

fraud claim as well, TEX. CIV. PRAC. & REM. CODE § 16.004, it must be demonstrated

that the claim was not discoverable before February 15, 2002. See Computer Associates

International, 918 S.W.2d at 455-56. 

Seghers asserts that he only learned of the fraud in March of 2004, when Bizri

agreed with the SEC to be enjoined from the securities business. Response at 5. The

defendants, however, argue that the plaintiffs have known of any fraud regarding the

RAPS agreement since at least 2001, when Seghers’ company, IH, was sued by the

Art Institute of Chicago for the same incidence of fraud. Motion to Dismiss at 11. A

review of the pleadings in the case, however, does not reveal that Seghers was aware

 

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2 Although this deficiency is not addressed in the defendants’ motion to

dismiss, the court is authorized to consider the sufficiency of the complaint on its

own initiative. Guthrie v. Tifco Industries, 941 F.2d 374, 379 (5th Cir. 1991), cert.

denied, 503 U.S. 908 (1992); Bazrowx v. Scott, 136 F.3d 1053, 1054-55 (5th Cir.)

(noting that since a district court can dismiss an action on its own motion under Rule

12(b)(6) “as long as the procedure employed is fair,” the lower court’s dismissal of an

action without prejudice ameliorated any error that the court made in dismissing the

plaintiff’s suit without notice or opportunity to amend), cert. denied, 525 U.S. 865

(1998).

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that any fraud had been committed upon him or his companies. He merely denied

that he had been involved in any fraud upon the Art Institute. Since the court must

take all well-pleaded facts as true and view them in the light most favorable to the

nonmovant, the second fraud claim is not barred by the statute of limitations. See

Capital Parks, Incorporated, 30 F.3d at 629.

However, both fraud claims must be dismissed for a different reason: neither

claim meets the heightened pleading requirements for causes of action based on

fraud. See FED. R. CIV. P. 9(b).2

 Although under the general pleading requirements of

FED. R. CIV. P. 8(a) the complaint need only contain “a short and plain statement of

the claim,” a claim for fraud must meet the more stringent requirements of FED. R.

CIV. P. 9(b). Under Rule 9(b), the circumstances constituting the alleged fraud “shall

be stated with particularity.” FED. R. CIV. P. 9(b). The elements of a fraud claim are: 

(1) a misstatement or omission (2) of material fact (3) made with the intent to

defraud the plaintiff (4) on which the plaintiff relied, and (5) which proximately

caused the plaintiff’s injury. Williams v. WMX Technologies, Inc., 112 F.3d 175, 177

 

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(5th Cir.), cert. denied, 522 U.S. 966 (1997). Pleading fraud with particularity

requires that a plaintiff specify the statements contended to be fraudulent, identify

the speaker, state when and where the statements were made, and explain why the

statements were fraudulent. Id.; see also Benchmark Electronics, Inc. v. J.M. Huber

Corporation, 343 F.3d 719, 724 (5th Cir. 2003) (stating that Rule 9(b) requires the

plaintiff to lay out “the who, what, when, where, and how” of the alleged fraud);

United States ex rel. Russell v. Epic Healthcare Management Group, 193 F.3d 304, 308

(5th Cir. 1999). If a plaintiff’s fraud claim is not pleaded with particularity, however,

the plaintiff should be given an opportunity to amend. Hart v. Bayer Corporation, 199

F.3d 239, 248 n.6 (5th Cir. 2000). Here, the plaintiffs have met only one of these

requirements. 

The original complaint alleges only that Bizri made representations to Seghers

that are untrue. It goes on to state generally what the fraudulent representations

were, but never identifies the speaker or states when and where the statements were

made or what exactly was said. Complaint ¶¶ 15, 22, 23, 26, 31, 32, 54. The

complaint also never explains why the statements made by the defendants are untrue. 

Id. Thus, the plaintiffs failed to meet the requirements for pleading a cause of action

based on fraud. Williams, 112 F.3d at 177. “A dismissal for failure to comply with

Rule 9(b) is a dismissal on the pleadings for failure to state a claim.” United States ex

rel. Russell, 193 F.3d at 308. Thus, the plaintiffs’ fraud claims are dismissed pursuant

 

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to FED. R. CIV. P. 12(b)(6), with leave, however, to file an amended complaint --

within the time limits set forth below -- to cure these deficiencies. 

4. Negligent Misrepresentation

The plaintiffs’ next claim is based on the defendants’ negligent

misrepresentation. For these claims, courts have applied either the lenient Rule 8

pleading requirements or the more strict Rule 9(b) criteria. See American Realty Trust,

Incorporated v. Hamilton Lane Advisors, Incorporated, 115 Fed. Appx. 662, 668-69 (5th

Cir. 2004) (holding that this court improperly dismissed a negligent

misrepresentation claim on the basis that it did not satisfy Rule 9(b) pleading

requirements); General Electric Capital Corporation v. Posey, 415 F.3d 391, 396-97 (5th

Cir. 2005) (applying Rule 8 pleading requirements to negligent misrepresentation

claim); but see Benchmark Electronics, 343 F.3d at 723 (applying Rule 9(b) because

plaintiff’s “fraud and negligent misrepresentation claims [were] based on the same set

of alleged facts”); see also Williams, 112 F.3d at 177. The rule has developed in the

Fifth Circuit that a plaintiff’s claims must be dismissed if “the inadequate fraud

averment is so intertwined with the negligent misrepresentation claim that it is not

possible to describe a simple redaction that removes the inadequate fraud averment

while leaving behind a viable negligent misrepresentation claim.” See Nazareth

International, Inc. v. J.C. Penney Corporation, Inc., No. 3:04-CV-1265-M, 2005 WL

1704793, at *3-4 (N.D. Tex. July 19, 2005) (Lynn, J.) (discussing evolution of

 

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pleading requirements for negligent misrepresentation after Benchmark Electronics, 343

F.3d 719, and American Realty, 115 Fed. Appx. 662).

As stated in the complaint, this claim arises out of the same facts as the fraud

claim. The plaintiffs essentially reassert their argument that Bizri made false

representations regarding both the loan agreement and the RAPS agreement. 

Complaint ¶ 39. Thus, for the same reasons stated above regarding the plaintiffs’

fraud claims, the pleadings fail to meet Rule 9(b)’s requirement of particularity. The

plaintiffs’ negligent misrepresentation claim is therefore dismissed pursuant to FED. R.

CIV. P. 12(b)(6), with leave to replead. 

5. Breach of Contract

The plaintiffs’ next cause of action is based on the defendants’ breach of the

loan agreement. Complaint ¶ 43. Breach of contract claims are subject to a four year

statute of limitations. Kansa Reinsurance Company v. Congressional Mortgage Corporation

of Texas, 20 F.3d 1362, 1369 (5th Cir. 1994). A contract claim generally accrues

when the contract is breached. Hoover v. Gregory, 835 S.W.2d 668, 677 (Tex. App. --

Dallas 1992, writ denied). “A breach occurs when a party fails to perform a duty

required by the contract.” Id. In this situation, then, Bizri breached the contract

when he failed to repay the loan on the date it became due. 

There were two loans involved in the loan agreement, each for $500,000 and

with a two-year term. Loan Agreement at 1. The first loan was made on October 15,

 

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1999; the second on April 1, 2000. Id. Thus, the first loan became due on

October 15, 2001 and the second became due on April 1, 2002. Since the plaintiffs

assert that neither has been paid, the contracts were allegedly breached on these two

due dates. This suit was filed on February 15, 2006, more than four years after

October 15, 2001, but less than four years from April 1, 2002. Therefore the

plaintiffs may maintain the breach of contract claim only with respect to the second

loan. The motion to dismiss is granted with respect to the first loan and denied with

respect to the second. 

6. Money Lent

The plaintiffs’ fourth cause of action is for the $1,000,000 lent to the

defendants, as well as the accompanying interest. Complaint ¶¶ 47, 48. This is

essentially the same claim as breach of contract. It is merely an alternate method of

requiring the defendants to pay their debt. Debt claims are subject to a four year

statute of limitations in Texas. TEX. CIV. PRAC. & REM. CODE § 16.004 (Vernon

2002). In general, a cause of action accrues “when facts come into existence which

authorize a claimant to seek a judicial remedy.” Robinson v. Weaver, 550 S.W.2d 18,

19 (Tex. 1977). Here, that time is the date the loans matured and became due. As

stated above, the two loans became due on October 15, 2001 and April 1, 2002,

respectively. Thus, under the four year statute of limitations, the plaintiffs may

maintain their action for money lent regarding the second loan but not the first. The

 

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motion to dismiss is therefore granted with respect to the first loan and denied with

respect to the second. 

7. Conversion

The plaintiff’s fifth cause of action is based on Bizri’s use of the loaned funds

for his personal use -- the purchase of a home and vehicle -- when it was intended

exclusively for the use and benefit of AnswerBuddy.com. Complaint ¶ 50. 

Conversion actions are subject to a two year statute of limitations. TEX. CIV. PRAC. &

REM. CODE § 16.003(a) (Vernon 2002). The accrual of a cause of action for

conversion occurs when the owner of the property had notice of the conversion or, by

the use of reasonable diligence, would have known of the conversion. Las Mendozas,

Inc. v. Powell, 368 F.2d 445, 450 (5th Cir. 1966) (citing 14 Tex. Jur. 2d 65). Here,

Seghers filed suit against Bizri in early 2002 for cheating him in the loan transaction. 

Consequently, it is clear that he had notice of the conversion (or should have,

through the use of reasonable diligence) much longer than two years ago. Thus, the 

 

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3 Moreover, the conversion claim fails as a matter of law for another

reason not addressed by the parties. Conversion claims for the recovery of money

may only be maintained if the money can be identified as a specific chattel. Eckman v.

Centennial Savings Bank, 757 S.W.2d 392, 398 (Tex. App.--Dallas 1988, writ denied). 

When an action for indebtedness can be discharged by the payment of money

generally, an action for conversion is inappropriate. Id. In Eckman, it was held that a

construction loan did not constitute a specific chattel. Id. Because there is little

difference between a construction loan and a personal loan to develop a company, the

plaintiffs’ claim for conversion must be dismissed for failure to state a claim.

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statute of limitations bars this claim as well.3 TEX. CIV. PRAC. & REM. CODE § 16.003.

C. Improper Service of Process

The defendants’ next ground for dismissal is based on the allegedly improper

service of process on Bizri. Motion to Dismiss at 7-9. Bizri asserts that he was served

with process while he was in the State of Texas for the sole purpose of testifying in a

Securities and Exchange Commission (“SEC”) enforcement action against Seghers -- a

legal proceeding unrelated to the case sub judice. Id. at 8. As a result, the defendants

argue, the suit must be dismissed for improper service of process under FED. R. CIV. P.

12(b)(5). 

Under federal law, “witnesses, coming from another state or jurisdiction, are

exempt from the service of civil process while in attendance upon court, and during a

reasonable time in coming and going.” Stewart v. Ramsay, 242 U.S. 128, 129 (1916). 

The purpose behind this rule is that “[c]ourts of justice ought everywhere to be open,

accessible, free from interruption, and to cast a perfect protection around every man

who necessarily approaches them.” Id. (quoting Halsey v. Stewart, 4 N.J.L. 366, 367

 

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(N.J. 1817)). This has been referred to as “wholesome public policy,” Lovejoy v. Foster,

77 F. Supp. 414, 415 (N.D. Tex. 1948), and must therefore be upheld. 

Here, the parties dispute exactly where Bizri was served with process. The

defendants contend that Bizri was served in the hallway outside the courtroom. 

Motion to Dismiss at 8-9. The plaintiffs argue he was just outside the courthouse,

“outside of any secured area.” Seghers Declaration ¶ 28. Even if the plaintiffs’

assertion is correct, however, stepping out of the courthouse is surely within the

“reasonable time for coming and going” afforded by Stewart. 242 U.S. at 129. In

Stewart, the defendant Ramsay was served with process while returning from the

courtroom after testifying. Id. at 128. This was held to be within the period of a

“reasonable time for coming and going.” Id. at 129. Here, Bizri was also just leaving

the courthouse after testifying, as the plaintiffs admit. Thus, it seems clear that

Stewart renders the plaintiffs’ service of process upon Bizri improper. 

It is not clear, however, that the motion to dismiss must be granted as a result

of the improper service of process. Courts in this circuit have suggested that plaintiffs

should be afforded additional time to correct a problem of improper service of

process. See Lovejoy, 77 F. Supp. at 415; Clayton v. Prudential Insurance Company of

America, 554 F. Supp. 628, 630 (S.D. Tex. 1983). Clayton held that although there

had never been proper service upon the individual defendants, the plaintiff had an

additional twenty days to effectuate proper service of process upon them, and only

 

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then would the complaint be dismissed. 554 F. Supp. at 630. Lovejoy suggests that

plaintiffs must have an opportunity to inquire into the exact reason for a defendant’s

presence in the state where he is served with process. 77 F. Supp. at 415. Here, the

plaintiffs request additional time to carry out both these tasks. The plaintiffs contend

that Bizri’s presence in Dallas, Texas was not for the sole purpose of testifying in the

SEC case and that further discovery is necessary to determine the exact purpose of

the visit. Response at 4. They alternatively request additional time to serve process

properly. Following the precedent of Clayton, the plaintiffs are afforded twenty days

to complete either of these two tasks. Failing that, the claims will be dismissed. 

D. Motion for Leave to File Supplement to Conrad Seghers’ Declaration

The plaintiffs have filed a motion for leave to supplement Conrad Seghers’

declaration with a document overlooked in the “rush to file the Response papers.” 

Motion for Leave to File Conrad Seghers Supplemental Declaration (“Motion for

Leave”) at 2. This supplement is a Notice of Motion to Dismiss filed by Bizri in a

California lawsuit that involved the same issues as the case sub judice. Id. The

plaintiffs offer the document in an effort to disprove the defendants’ contention that

personal jurisdiction is lacking in this case. Id. In it, the defendants highlight the

forum selection clauses in the RAPS and loan agreements and request that the

California court dismiss the claims for lack of jurisdiction, since Dallas, Texas is

clearly the only proper forum. Bizri’s Motion to Dismiss (Attached to Motion for

 

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4 Because the court addressed dismissal under Rule 12(b)(6) rather than

Rule 12(b)(1) and is giving the plaintiffs an opportunity to amend their complaint,

the court will reserve decision on diversity of citizenship jurisdiction until after the

repleading, if any, of the plaintiffs’ claims.

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Leave) at 1-2. The defendants counter this motion for leave with a motion to strike

the supplement.

While Bizri’s motion to dismiss from the California lawsuit confirms that

Dallas is the proper forum, it is not necessary to the decision of the instant motion to

dimiss. It is clear that personal jurisdiction is proper in this case even without

consideration of the motion to dismiss from California. Thus, both motions

regarding the supplement to the Seghers Declaration are denied as moot. 

III. CONCLUSION

For the reasons stated above, the motion to dismiss is GRANTED in part and

DENIED in part.4 Specifically, the defendants’ motion to dismiss the plaintiffs’

breach of contract and money lent claims on grounds of limitations is GRANTED as

to the first loan, but DENIED as to the second loan. For the same reasons, the

plaintiffs’ fraud and negligent misrepresentation claims are GRANTED as to the loan

agreement, but DENIED as to the RAPS agreement. The motion to dismiss the

conversion claim is GRANTED on statute of limitations grounds as well. The

motion to supplement and motion to strike are DENIED as moot.

 

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Further, the plaintiffs’ fraud and negligent misrepresentation claims are

DISMISSED for failure to comply with Rule 9(b)’s particularity requirements. 

However, because it appears that a more carefully drafted complaint might state

claims upon which relief could be granted, the plaintiffs shall have leave to

electronically file and serve, not later than August 4, 2006, an amended complaint

to remedy the Rule 9(b) deficiencies in their pending complaint; if no such amended

complaint is filed and served, these claims will be deemed dismissed without further

notice. If the plaintiffs duly amend their complaint, the defendants may reassert

their motion to dismiss if they believe that the amended complaint fails to cure the

defects in the original complaint noted above.

Finally, the plaintiffs are GRANTED twenty days from the date of this

memorandum opinion and order to ascertain whether the previous service of process

was accomplished properly and, if it was not, to effect proper service upon the

defendants.

SO ORDERED.

July 17, 2006.

 

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