Court Opinion

ID: 8484083
Source: CourtListenerOpinion
Date Created: 2022-11-16 07:10:09.021098+00
Date Added: 2024-06-11T16:49:50.734954
License: Public Domain

CONCUR and DISSENT; Opinion Filed November 8, 2022

                                   S  In The
                            Court of Appeals
                     Fifth District of Texas at Dallas
                               No. 05-19-01551-CV

         WARREN CHEN AND DYNACOLOR, INC., Appellants
                              V.
  RAZBERI TECHNOLOGIES, INC., THOMAS J. GALVIN, LIVEOAK
 VENTURE PARTNERS I, L.P., LIVEOAK VENTURES PARTNERS 1A,
 L.P., KENNETH L. AND VIRGINIA T. BOYDA, AS TRUSTEES OF THE
  BOYDA FAMILY REVOCABLE TRUST DATED 10/12/1990, AND JIRI
AND ROSEMARY MODRY, AS TRUSTEES OF THE JRAM TRUST UDT,
                           Appellees

               On Appeal from the 193rd Judicial District Court
                            Dallas County, Texas
                    Trial Court Cause No. DC-18-16568

    CONCURRING AND DISSENTING OPINION ON REMAND
            Before Justices Schenck, Smith, and Garcia
                   Opinion by Justice Schenck
      I concur with the majority’s decision to affirm the trial court’s order denying

appellants’ special appearances as to Count VII with respect to appellant Warren

Chen and reverse and render an order granting appellants’ special appearances as to

Count II. I dissent from the remainder of the judgment. I also write to provide

guidance to the trial court on remand and to explain why, in my view, remanding the
case to the trial court to conform the judgment according to and consistent with the

opinion cannot be understood to reinstate the trial court’s final judgment.

                                         BACKGROUND

       I have no complaint with the background set forth in the majority opinion, but

I will set out the facts and procedural history necessary to explain where I disagree

with the majority.

       The underlying lawsuit involved, among other things, claims for fraud and

breach of fiduciary duty regarding the purchase of certain stock. Appellants filed a

special appearance.

       The petition contained the following jurisdictional allegations.

       Appellees Razberi Technologies, Inc., Thomas J. Galvin, LiveOak Venture

Partners I, L.P., LiveOak Ventures Partners 1A, L.P., Kenneth L. and Virginia T.

Boyda, as Trustees of the Boyda Family Revocable Trust Dated 10/12/1990, and Jiri

and Rosemary Modry, as Trustees of the JRAM Trust UDT 8/21/1996, brought suit

against appellants Chen and DynaColor alleging fraud, fraudulent inducement, and

breach of fiduciary duty in relation to a stock purchase agreement between Razberi,

of which Galvin was president, and the remaining appellees.1 Appellees further

alleged that DynaColor was a non-resident corporation that had conducted business

in Texas, Chen was a Taiwanese national who resided in Taiwan and had conducted

   1
     Appellees also brought suit against Avigilon Corporation and Avigilon USA Corporation, which are
not parties to this appeal.
                                                –2–
business in Texas, and this lawsuit arose out of, and is related to, DynaColor and

Chen’s activities in Texas.

      The appellees also alleged that Razberi’s principal place of business was in

Dallas County; Razberi was “formed as the joint-venture vehicle between Galvin

and DynaColor”; DynaColor was its majority shareholder; Chen was the CEO of

DynaColor and one of two of Razberi’s directors; DynaColor sold components of

network video recorder (NVR) systems to Razberi to use in manufacturing and

selling the Razberi systems; Razberi sold systems to Avigilon; and DynaColor

guaranteed certain aspects of Razberi’s contract with Avigilon.         When Chen

informed Galvin that DynaColor would no longer be investing in Razberi, Razberi

sought investors elsewhere.     The business relationship between Razberi and

Avigilon was critical to the investors’ decision to invest in Razberi through a Stock

Purchase Agreement. Ultimately, the investors (the LiveOak entities, the Boydas,

and the Modrys) contributed approximately $3,500,000 to Razberi.

      DynaColor and Chen were not parties to the Stock Purchase Agreement.

However, in connection with the Stock Purchase Agreement, Razberi and

DynaColor entered into a Purchase Agreement under which Razberi would continue

to order parts from DynaColor and DynaColor would provide product repair services

to Razberi.   Razberi also agreed to immediately pay certain amounts due to

DynaColor from the invested funds.

                                        –3–
      Avigilon subsequently reduced its order forecast and then completely stopped

ordering from Razberi and instead began ordering from DynaColor directly.

Generally, appellees allege that appellants secretly decided to cut Razberi out by

moving forward with a plan for DynaColor to usurp Razberi’s corporate

opportunities to wrongfully compete against Razberi despite Chen’s fiduciary duties

to Razberi and its shareholders and that appellants failed to disclose such information

during the stock purchase negotiations.

      The trial court denied appellants’ special appearances, and on December 10,

2019, appellants filed an accelerated notice of appeal challenging the trial court’s

denial of the special appearances. Two weeks later, appellants filed a motion to stay

the trial court’s proceedings. On January 14, 2020, appellants filed their opening

brief in their interlocutory appeal.

      While appellants’ motion to stay remained pending before this Court,

appellees subsequently filed motions for summary judgment, which the trial court

granted on February 19, 2020. On March 12, 2020, a motions panel of this Court

denied appellants’ motion to stay. On June 30, 2020, the trial court signed a

final judgment in appellees’ favor. The final judgment stated, “The Court previously

disposed of certain issues and claims in the above-referenced February 19, 2020

Order, the June 18, 2020 Order, and two nonsuit orders signed on April 23, 2020.

These orders and all other orders of the Court in this case are incorporated herein.”

                                          –4–
      Appellants did not file a second notice of appeal following that judgment to

reassert its claim that the trial court lacked jurisdiction, and appellees moved to

dismiss this appeal as moot. The merits panel assigned to hear the appeal initially

granted that motion. After consideration of appellants’ motion for rehearing, we

granted rehearing and withdrew our earlier opinion dismissing appellants’

interlocutory appeal. Appellees then sought further rehearing to reinstate dismissal

of the appeal. The Court, with a dissent, granted the appellees’ motion for rehearing,

withdrew the order granting appellants’ motion for rehearing, and reinstated the

Court’s earlier opinion dismissing appellants’ appeal as moot because they failed to

file a separate notice of appeal from the final judgment.

      Appellants filed a petition for review with the Texas Supreme Court. The

Texas Supreme Court held we were obligated to treat the previously perfected appeal

as an appeal from the final judgment, but only as to the issues raised in the existing

appeal. See Chen v. Razberi Techs., Inc., 645 S.W.3d 773, 775 (Tex. 2022). The

court then reversed and remanded the case to our Court “for disposition of the special

appearance on the merits.”

                                         –5–
                                     DISCUSSION

   I. The Trial Court Lacked Personal Jurisdiction over Defendants Where
      the Alleged Forum Contacts Pertain to Inaction and Where the Actor
      Had No Duty to Act

               Personal Jurisdiction

      Texas courts may exercise personal jurisdiction over a nonresident defendant

only if (1) the Texas long-arm statute permits the exercise of jurisdiction and (2) the

assertion of jurisdiction satisfies constitutional due-process guarantees. Kelly v.

Gen. Interior Constr., Inc., 301 S.W.3d 653, 657 (Tex. 2010). The long-arm statute

provides, in relevant part, that in addition to other acts that may constitute doing

business, a nonresident does business in this state if the nonresident commits a tort,

in whole or in part, in this state. TEX. CIV. PRAC. & REM. CODE ANN. § 17.042.

Personal jurisdiction over a nonresident defendant satisfies constitutional due-

process guarantees 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. Kelly, 301 S.W.3d at 658.

      Minimum contacts are established when the nonresident defendant

purposefully avails himself of the privilege of conducting activities within the forum

state, thus invoking the benefits and protections of its laws. Id. at 657–58. In

determining purposeful availment, we consider (1) the defendant’s own actions but

not the unilateral activity of another party, (2) whether the defendant’s actions were

purposeful rather than random, isolated, or fortuitous, and (3) whether the defendant

                                         –6–
sought some benefit, advantage, or profit by availing itself of the privilege of doing

business in Texas. Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777,

785 (Tex. 2005). The focus is the relationship among the defendant, the forum, and

the litigation. Id. at 790 (quoting Helicopteros Nacionales de Colombia, S.A. v.

Hall, 466 U.S. 408, 414 (1984)). In this analysis, we do not assess the quantity of

the contacts, but rather their nature and quality. Moncrief Oil Int’l, Inc. v. OAO

Gazprom, 414 S.W.3d 142, 151 (Tex. 2013).

      A defendant’s contacts with a forum can give rise to either specific or general

jurisdiction. Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333,

338 (Tex. 2009). A court has general jurisdiction over a nonresident defendant

whose affiliations with the State are so continuous and systematic as to render it

essentially at home in the forum State. See TV Azteca v. Ruiz, 490 S.W.3d 29, 37

(Tex. 2016) (citing Daimler v. Bauman, 571 U.S. 117, 127 (2014)). By contrast,

courts may exercise specific jurisdiction when the defendant’s alleged liability arises

from or is related to its activities conducted within the forum. Moki Mac River

Expeditions v. Drugg, 221 S.W.3d 569, 576 (Tex. 2007); accord Bristol-Myers

Squibb Co. v. Superior Court of Cal., 137 S. Ct. 1773, 1780 (2017). The “arises

from or relates to” requirement lies at the heart of specific jurisdiction by defining

the required nexus between the nonresident defendant, the litigation, and the forum

state. Moki Mac, 221 S.W.3d at 579. In order for a nonresident defendant’s contacts

in a forum state to support an exercise of specific jurisdiction, there must be a

                                         –7–
substantial connection between those contacts and the operative facts of the

litigation. Id. at 585; accord Walden v. Fiore, 571 U.S. 277, 284 (2014). The

operative facts of the litigation are those facts the trial court will focus on to prove

the nonresident defendant’s liability. See Jani-King Franchising, Inc. v. Falco

Franchising, S.A., No. 05-15-00335-CV, 2016 WL 2609314, at *5 (Tex. App.—

Dallas May 5, 2016, no pet.) (mem. op.), overruled on other grounds by Steward

Health Care Sys. LLC v. Saidara, 633 S.W.3d 120, 129 (Tex. App.—Dallas 2021,

no pet.); see also Saidara, 633 S.W.3d at 126.

      For specific jurisdiction, we analyze the defendant’s contacts on a claim-by-

claim basis to determine whether each claim arises out of or is related to the

defendant’s forum contacts. See TV Azteca v. Ruiz, 490 S.W.3d 29, 37 (Tex. 2016).

But, when all the claims arise from the same forum contacts, a claim-by-claim

analysis is not required. See Luciano v. SprayFoamPolymers.com, LLC, 625 S.W.3d

1, 18 (Tex. 2021).

      Because the minimum-contacts test is intended to ensure that the defendant

could reasonably anticipate being sued in the forum’s courts, foreseeability is an

important consideration in the analysis. TV Azteca, 490 S.W.3d at 46 (citing World–

Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); BMC Software

Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002)).                         But

foreseeability alone will not support personal jurisdiction. Id. Instead, the defendant

must reasonably anticipate being sued in the forum because of actions the defendant

                                          –8–
“purposefully directed toward the forum state.” Id. (quoting Asahi Metal Indus. Co.

v. Superior Court of Cal., 480 U.S. 102, 112 (1987) (plurality opinion)). The simple

knowledge that the defendant is dealing with a person in Texas or that his alleged

misconduct or inaction elsewhere might have an effect here will not establish the

requisite minimum contacts. See Old Republic Nat'l Title Ins. Co. v. Bell, 549

S.W.3d 550, 565 (Tex. 2018). Rather, the defendant must seek some benefit,

advantage, or profit by itself of the jurisdiction. See id. at 559 (citing Moncrief Oil,

414 S.W.3d at 151).

      In addition to minimum contacts, due process requires the exercise of personal

jurisdiction to comply with traditional notions of fair play and substantial justice.

See Moncrief Oil, 414 S.W.3d at 154. We undertake this evaluation in light of the

following factors, when appropriate: (1) the burden on the defendant; (2) the

interests of the forum in adjudicating the dispute; (3) the plaintiff’s interest in

obtaining convenient and effective relief; (4) the international judicial system’s

interest in obtaining the most efficient resolution of controversies; and (5) the shared

interest of the several nations in furthering fundamental substantive social policies.

Id. at 155 (citing Asahi, 480 U.S. at 113; Spir Star AG v. Kimich, 310 S.W.3d 868,

878 (Tex. 2010).

                Causes of Action

      (1) Count I (Fraud and Fraudulent Inducement): the investors alleged that
          appellants committed fraud by making material misrepresentations and
          omissions that they knew were false, or that they recklessly made as
          positive assertions without any knowledge of their truth, and fraudulently
                                       –9–
    induced the investors to enter into the Stock Purchase Agreement and
    related agreements by making such misrepresentations and omissions.

(2) Count II (Fraud by Nondisclosure): the investors alleged that appellants
    concealed from, or failed to disclose to, the investors that DynaColor
    planned to, and did, usurp the opportunity to sell the NVR systems to
    Avigilon in competition with Razberi.

(3) Count III (Statutory Fraud under TEX. BUS. & COM. CODE ANN. § 27.01):
    the investors alleged that appellants made a false representation to them
    for the purpose of inducing them to enter into the Stock Purchase
    Agreement and that they relied upon the false representation in entering
    into the agreement.

(4) Count IV (Violation of Texas Securities Act): the investors alleged that
    Razberi offered or sold securities to the investors by means of an untrue
    statement of a material fact or omission; that Chen, as Razberi’s director,
    knew the untruth or omission; that his knowledge may be imputed to
    Razberi; that appellants directly or indirectly controlled Razberi and
    knew of the untruth or omission; and that appellants, with intent to
    deceive the investors, materially aided Razberi in its actions.

(5) Count V (Negligent Misrepresentation): in the alternative, the investors
    and Galvin alleged that appellants negligently made material
    misrepresentations and omissions and intended for the investors and
    Galvin to rely upon their misrepresentations and omissions by investing
    in Razberi.

(6) Count VI (Breach of Fiduciary Duty): Galvin alleged that Chen owed
    him a fiduciary duty as a shareholder of Razberi because Chen was a
    director of Razberi and that Chen breached his fiduciary duties of candor,
    loyalty, and honesty. Galvin also alleged that DynaColor owed him a
    fiduciary duty because it was the majority shareholder of Razberi and
    DynaColor also breached its fiduciary duties of candor, loyalty, and
    honesty to Galvin. Razberi alleged that, as director, Chen breached his
    fiduciary duties of candor, loyalty, and honesty to Razberi.

(7) Count VII (Breach of Fiduciary Duty): the investors alleged that Chen
    owed a fiduciary duty to them because he was a director and they were
    shareholders of Razberi and that he breached his fiduciary duties of
    candor, loyalty, and care by usurping and diverting to DynaColor
    corporate opportunities that belonged to Razberi. Chen further breached

                                 –10–
              his duties through dishonesty and deception regarding his and
              DynaColor’s acts and plans with respect to Avigilon.

                   Application of Law to Facts

        With respect to Count VII, I concur with the majority that exercise of personal

jurisdiction comports with traditional notions of substantial justice and fair play

where Chen, as a director, owed a fiduciary duty to the corporation in

his directorial actions, and this duty “includes the dedication of [his] uncorrupted

business judgment for the sole benefit of the corporation.” See Ritchie v. Rupe, 443

S.W.3d 856, 868 (Tex. 2014). Similarly, Chen would owe that duty to the investors.2

        I will concede that even this is a close and difficult question given that the

only connection Chen appears to have with this forum State is through an agent. But

given Chen’s status as a foreign national serving as an officer of a business selling

products to other businesses in this country, I believe that he should have anticipated

the prospect of being haled into a state within the United States if we credit the

plaintiffs’ theories as we should.3 As the company he served as a director had its

principal place of business in Texas, I believe he should have anticipated any claim

    2
      Of course, not all of the investors are Texas residents, so it would seem to be a close question as to
specific jurisdiction with regards to the claims of the non-Texas resident investors. Additionally, there may
be capacity questions, i.e., are the investors proceeding as individuals or bringing a derivative claim.
    3
     As the supreme court has repeatedly held, the “effects test” is not an alternative to the traditional
“minimum contacts” analysis, and it does not displace the factors reviewing courts look to in determining
whether a defendant purposefully availed itself of the state. See Old Republic Nat'l Title Ins. Co. v. Bell,
549 S.W.3d 550, 565 (Tex. 2018) (citing Moncrief Oil, 414 S.W.3d at 151).

                                                   –11–
of breach of fiduciary duty to be filed here, even if his own physical contacts with

the State were very limited.

      Additionally, I concur with the majority with regards to Count II, that the trial

court could not have jurisdiction over appellants for the allegation they sat mute in

Taiwan.

      However, as for any alleged breach of fiduciary duty against DynaColor, the

supreme court specifically declined to recognize a common-law cause of action for

“shareholder oppression,” so no similar specific jurisdiction as to Razberi’s claim

for breach of fiduciary duty against DynaColor. See Ritchie, 443 S.W.3d at 891. To

the extent the majority concludes that whether DynaColor owes such a duty is soley

a question of merits, not jurisdiction, I disagree. We must evaluate jurisdiction

claim-by-claim addressing the relationship between the claim, the forum, and the

defendant as we go. See TV Azteca, 490 S.W.3d at 37, 41 (citing Calder v. Jones,

465 U.S. 783, 780 (1984)).        Moreover, because the minimum-contacts test is

intended to ensure that the defendant could reasonably anticipate being sued in the

forum’s courts, foreseeability of a potential claim is an important—indeed,

controlling—consideration in the analysis.         See id. at 46 (citing World–Wide

Volkswagen, 444 U.S. at 297; BMC Software, 83 S.W.3d at 795). I question how

any foreign national could foresee a suit for breach of fiduciary duty to a fellow

shareholder where no such relationship exists and the presence of the shareholder in

that state is the alleged basis for exercise of jurisdiction. See id. Thus, I dissent from

                                          –12–
the majority’s affirming of the denial of DynaColor’s special appearance as to Count

VI.

        The majority also affirms the trial court’s order as to the remaining Counts I,

III, IV, and V after concluding appellants committed fraud and otherwise deceived

investors through the actions or statements of their agent, James Chan, as he

represented appellants during the negotiations of a term sheet prior to the signing of

the Stock Purchase Agreement. The term sheet contained a statement that: “The

business, assets, financial condition, operations, results of operations and prospects

of the Company are substantially as have been represented to LiveOak and no change

will have occurred which, in LiveOak’s sole judgment, is or may be materially

adverse to the Company.” The majority goes a step further to conclude that Chen

and DynaColor purposefully availed themselves of the benefits of conducting

business in this State because there was evidence that Chen, as a director of Razberi,4

approved the Stock Purchase Agreement, Chen and DynaColor knew the Stock

Purchase Agreement was being negotiated and signed in Texas, and that alleged

misrepresentations in the approved agreement are the same ones negotiated in the

term sheet.

        But in order for a nonresident defendant’s contacts in a forum state to support

an exercise of specific jurisdiction, there must be at least some—indeed a

    4
     I question, too, whether Chen’s approval of a statement in his capacity as director of Razberi would
permit attributing any misrepresentations in said statement to Chen.
                                                 –13–
“substantial”—connection between those contacts and the facts the trial court will

focus on to prove the nonresident defendant’s liability. See Moki Mac, 221 S.W.3d

at 585; accord Walden, 571 U.S. at 284; Jani-King Franchising, Inc. v. Falco

Franchising, S.A., No. 05-15-00335-CV, 2016 WL 2609314, at *5 (Tex. App.—

Dallas May 5, 2016, no pet.) (mem. op.), overruled on other grounds by Steward

Health Care Sys. LLC v. Saidara, 633 S.W.3d 120, 129 (Tex. App.—Dallas 2021,

no pet.); see also Saidara, 633 S.W.3d at 126. The facts necessary to prove

appellants’ liability here appear to be whether Chen or DynaColor disclosed any

changes or conditions they knew of that would affect the investors’ or Galvin’s

decisions. Thus, the complained of conduct is, as in Count II, failure to disclose,

which is a non-action and not “the defendant’s conduct that must form the necessary

connection with the forum State.” See Walden, 571 U.S. at 285. By this theory, a

defendant could be haled into any state or country where they were continuously

engaged in not acting—a concept antithetical to the notion of purposeful availment.

   II. Having Affirmed in Part the Trial Court’s Order, the Majority Cannot
       Be Understood to Reinstate the Trial Court’s Final Judgment

      The majority opinion disposes of the special appearance on the merits, but the

opinion does not address what effect, if any, the trial court’s judgment entered while

the appeal of the special appearance remained pending. Instead, the majority opinion

remands the case to the trial court to conform the judgment according to and

consistent with the opinion. I believe further direction would be helpful here in view

of this case’s tortured history through our Court.
                                         –14–
      By affirming in part the trial court’s order, I do not believe that we can be

taken as leaving the partial or final judgments in place, nor could I understand the

majority’s opinion to reinstate the trial court’s judgment. To reach that decision, the

Court would have to conclude the right to review of the summary judgment was lost

either by briefing waiver or waiver by failing to file a second notice of appeal. In

other words, either the judgment should be reinstated because the parties failed to

challenge that judgment in their initial briefs filed in January 2020 a month before

the judgment was even entered, or the judgment should be reinstated because the

parties failed to file a separate notice of appeal after the judgment was entered, which

the Texas Supreme Court has already held to be error. See Chen v. Razberi Techs.,

Inc., 645 S.W.3d 773, 782 (Tex. 2022).

      This Court did not invite the parties to file supplemental briefing after the

supreme court’s decision and remand to this Court. However, the parties did file

supplemental briefs in response to our order inviting them to do so in our order issued

after this Court withdrew the first opinion dismissing the case as moot and before

the second opinion reinstating the earlier opinion. In those supplemental briefs, they

clearly argued not only the merits of the special appearances but also whether the

trial court had jurisdiction to render final judgment while the interlocutory appeal

was pending in this Court. Accordingly, it cannot be that this Court’s judgment

reinstates the trial court’s final judgment because of any briefing waiver by

appellants.

                                         –15–
        For these reasons, I would provide more complete guidance to the trial court

on remand in order to make clear that its summary judgment order must be vacated.5

                                             CONCLUSION

        Thus, I concur in part with and dissent in part from the majority’s judgment

and write separately to express my understanding that this Court’s judgment cannot

possibly be understood to reinstate the trial court’s summary judgment or final

judgment.

                                                       /David J. Schenck/
                                                       DAVID J. SCHENCK
                                                       JUSTICE

191551DF.P05

    5
      Separate and apart from the effect of the supreme court’s mandate and the impossibility of finding the
merits of the summary judgment to have been waived, I would also reiterate my view that the trial court
lacked subject matter jurisdiction to render a judgment while this Court was vested with jurisdiction over
that question. See Chen v. Razberi Techs., Inc., 649 S.W.3d 232, 237 (Tex. App.—Dallas 2021, no pet.)
(Schenck, J., dissenting), reversed by 645 S.W.3d 773 (Tex. 2022). Having already reversed our judgment
finding the merits appeal to be lost to mootness, the supreme court was not obliged to, and did not, reach
the question of what should be done with the merits judgment. Of course, had the issue already been
waived, this remand to us would be pointless.
                                                  –16–