Court Opinion

ID: 3100221
Source: CourtListenerOpinion
Date Created: 2015-10-16 05:03:15.692393+00
Date Added: 2024-06-11T09:45:27.539282
License: Public Domain

COURT OF APPEALS
                         SECOND DISTRICT OF TEXAS
                              FORT WORTH

                             NO. 02-12-00396-CV

BIG ROCK INVESTORS                                                 APPELLANT
ASSOCIATION

                                       V.

BIG ROCK PETROLEUM, INC. AND                                       APPELLEES
J.A. MCENTIRE, III

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          FROM THE 141ST DISTRICT COURT OF TARRANT COUNTY

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                                  OPINION

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                               I. INTRODUCTION

      The primary issue we address in this appeal is whether Appellant Big Rock

Investors Association (BRIA) possesses standing to assert any of the claims it

filed against Appellees Big Rock Petroleum, Inc. and J.A. McEntire, III. Because

we hold that it does not, we affirm the trial court’s judgment dismissing BRIA’s

claims.
                      II. FACTUAL AND PROCEDURAL BACKGROUND

      BRIA is a nonprofit association registered under the Texas Uniform

Unincorporated Nonprofit Association Act.      It was created to commence and

prosecute its members’ claims against Appellees.           BRIA is comprised of

approximately 226 individual or entity investors who invested approximately

$26.8 million from November 1994 to June 2005 in approximately 117 different

oil and gas drilling projects offered by Big Rock. BRIA filed suit on behalf of its

member investors, alleging that Appellees and others participated in an oil and

gas Ponzi scheme causing financial damages to BRIA’s members.1                BRIA

pleaded that, following an FBI raid and the appointment of a receiver, ―the

Receiver has confirmed that a substantial majority of Projects . . . never existed

or that Big Rock never had any interests in the Projects.‖        On behalf of its

members, BRIA pleaded causes of action against Appellees for violations of the

Texas Securities Act, breach of fiduciary duty, constructive trust, and for

attorneys’ fees. BRIA prayed for the following relief: actual damages, special

damages, rescission, constructive trust, exemplary damages, attorneys’ fees,

court costs, and pre- and post-judgment interest.

      Appellees filed a plea to the jurisdiction and asserted that ―[a]s a matter of

law, an association such as BRIA cannot pursue the individual claims of its

      1
      BRIA subsequently filed a first amended petition, but the trial court signed
an order striking it, and BRIA makes no complaint concerning this order on
appeal. Therefore, we consider only BRIA’s original petition.

                                         2
members.‖    Appellees contended that BRIA’s claims, as well as the relief

requested by BRIA, required the participation of each individual member of BRIA

and that, therefore, BRIA could not satisfy the third prong of the associational

standing test established by the United States Supreme Court and adopted by

the Texas Supreme Court. See Hunt v. Wash. State Apple Adver. Comm’n, 432
U.S. 333, 343, 97 S. Ct. 2434, 2441 (1977) (setting forth three-pronged

associational standing test); Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 444 (Tex. 1993) (adopting associational standing test set forth in

Hunt).2 Following a hearing, the trial court signed an order granting Appellees’

plea to the jurisdiction and dismissing BRIA’s claims.      BRIA perfected this

appeal; BRIA raises two issues claiming that the trial court erred by granting

Appellees’ plea to the jurisdiction because BRIA possesses associational

standing and because BRIA possesses standing as an agent.

                           III. STANDARD OF REVIEW

      Standing is a component of subject-matter jurisdiction and must be

established in order to maintain a lawsuit under Texas law. Tex. Ass’n of Bus.,
852 S.W.2d at 443–44. A plea to the jurisdiction is proper to challenge a party’s

lack of standing. M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 710–11

      2
       While we are obligated to follow the dictates of only the United States
Supreme Court and the Texas Supreme Court, we nonetheless draw on and
discuss the associational standing precedent of other courts that also apply the
Hunt test. See Penrod Drilling Corp. v. Williams, 868 S.W.2d 294, 296 (Tex.
1993).

                                       3
(Tex. 2001); Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 850 (Tex. 2000).

A plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat a

cause of action based on lack of subject-matter jurisdiction without regard to the

merits of the claim. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.

2000); Bishop v. Bishop, 74 S.W.3d 877, 878 (Tex. App.––San Antonio 2002, no

pet.). The plaintiff bears the burden of alleging facts that affirmatively show the

trial court has subject-matter jurisdiction. Tex. Ass’n of Bus., 852 S.W.2d at 446;

Bishop, 74 S.W.3d at 878. When reviewing a grant or denial of a plea to the

jurisdiction, we consider the plaintiff’s pleadings, construed in favor of the

plaintiff, and any evidence relevant to the jurisdictional issue without considering

the merits of the claim beyond the extent necessary to determine jurisdiction.

Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004);

Cnty. of Cameron v. Brown, 80 S.W.3d 549, 555 (Tex. 2002). Applying this view

of the pleadings and any jurisdictional evidence, whether the trial court has

subject matter jurisdiction is a question of law that we review de novo. Miranda,
133 S.W.3d at 226; Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928 (Tex.

1998), cert. denied, 526 U.S. 1144 (1999); see also Frost Nat’l Bank v.

Fernandez, 315 S.W.3d 494, 502–03 (Tex. 2010) (―It has long been the rule that

a plaintiff’s good faith allegations are used to determine the trial court’s

jurisdiction.‖), cert. denied, 131 S. Ct. 1017 (2011).

                                          4
                                   IV. STANDING

                    A. BRIA Lacks Associational Standing

                      1. The Associational Standing Test

      Article III of the United States Constitution limits the judicial power of the

United States to the resolution of ―cases‖ and ―controversies.‖ U.S. Const. art. III,

§ 2, cl. 1. One element of the case and controversy requirement under Article III

is that the plaintiff, including an association, must have standing to raise each

claim. See, e.g., Comm. for Reasonable Reg. of Lake Tahoe v. Tahoe Reg’l

Planning Agency, 365 F. Supp. 2d 1146, 1161 (D. Nev. 2005). An association

has standing to bring suit on behalf of its members when (1) its members would

otherwise have standing to sue in their own right, (2) the interests it seeks to

protect are germane to the organization’s purpose, and (3) neither the claim

asserted nor the relief requested requires the participation in the lawsuit of each

of the individual members. Hunt, 432 U.S. at 343, 97 S. Ct. at 2441; Tex. Ass’n

of Bus., 852 S.W.2d at 447.

      Appellees concede that BRIA satisfies the first two prongs of the

associational standing test. BRIA’s individual members would have standing to

sue Appellees for Appellees’ alleged roles in the Ponzi scheme, and the interests

BRIA seeks to protect are germane to BRIA’s purpose.                Whether BRIA

possesses associational standing therefore turns on the third prong of the

associational standing test, that is, whether BRIA’s pleadings and the record

demonstrate that neither the claims asserted by BRIA nor the relief requested by

                                         5
BRIA requires the participation in the lawsuit of each of BRIA’s individual

members. See Tex. Ass’n of Bus., 852 S.W.2d at 448.

2. The Law Concerning the Third Prong of the Associational Standing Test

      The third prong of the associational standing test––requiring that neither

the claim asserted nor the relief requested requires the participation in the lawsuit

of each of the association’s individual members––is best seen as focusing on the

matters of administrative convenience and efficiency, not on elements of a case

or controversy within the meaning of the Constitution.             United Food &

Commercial Workers Union Local 751 v. Brown Group, Inc., 517 U.S. 544, 557,

116 S. Ct. 1529, 1536 (1996). The third prong of the associational standing test

is not constitutional but is prudential and is based on concerns of judicial

economy.3 United Food, 517 U.S. at 556–57, 116 S. Ct. at 1536.

      Under the third prong of the associational standing test, determining what

type of claims brought by an association and what type of relief sought by an

association would or would not require the participation in the litigation of the

association’s individual members and therefore would or would not advance

prudential concerns of administrative convenience, efficiency, and judicial

      3
       Because the third prong of the associational standing test is not
constitutional, Congress can abrogate this standing requirement in certain
circumstances. See, e.g., id. at 558, 116 S. Ct. at 1537 (holding that Congress
could authorize union to sue on behalf of its members); Or. Advocacy Ctr. v.
Mink, 322 F.3d 1101, 1109 (9th Cir. 2003) (recognizing that Congress had
authorized advocacy groups to sue on behalf of mentally ill criminal defendants).
But Congress has not abrogated the third prong of the associational standing
requirement in BRIA’s claims against Appellees.

                                         6
economy is somewhat tricky. Usually, an association’s claim for damages on

behalf of its members is barred by want of the association’s standing to sue

because such suits typically require each individual member to participate in the

litigation to establish his own damages. See, e.g., Warth v. Seldin, 422 U.S. 490,

516, 95 S. Ct. 2197, 2214 (1975) (―Thus, to obtain relief in damages, each

member of Home Builders who claims injury . . . m[u]st be a party to the suit.‖);

Telecomms. Research & Action Ctr. on Behalf of Checknoff v. Allnet Comm.

Servs., Inc., 806 F.2d 1093, 1094 (D.C. Cir. 1986) (holding that ―the money

damages claims TRAC seeks to advance are the kind that ordinarily require

individual participation‖ and that associational standing did not exist).     For

example, in Warth, the United States Supreme Court held that an association of

construction firms could not seek damages for the profits and business lost by its

members because ―whatever injury may have been suffered is peculiar to the

individual member concerned, and both the fact and extent of injury would

require individualized proof.‖ 422 U.S. at 515–16, 95 S. Ct. at 2214.       The

Supreme Court explained:

      [H]ere an association seeks relief in damages for alleged injuries to
      its members. Home Builders [the association] alleges no monetary
      injury to itself, nor any assignment of the damages claims of its
      members. No award therefore can be made to the association as
      such. Moreover, in the circumstances of this case, the damages
      claims are not common to the entire membership, nor shared by all
      in equal degree. To the contrary, whatever injury may have been
      suffered is peculiar to the individual member concerned, and both
      the fact and extent of injury would require individualized proof.
      Thus, to obtain relief in damages, each member of Home Builders
      who claims injury as a result of respondents’ practices m[u]st be a

                                        7
        party to the suit, and Home Builders has no standing to claim
        damages on his behalf.

Id., 95 S. Ct. at 2214. Thus, when claims for damages have not been assigned

to an association, when the relief sought by an association is monetary damages

for alleged injuries to individual members, and when the damages claimed are

not common to the entire membership, nor shared by all to an equal degree, then

each individual member must be a party to the suit; the association possesses no

standing to claim damages on behalf of its members. Id., 95 S. Ct. at 2214; see

also United Food, 517 U.S. at 546, 116 S. Ct. 1531 (recognizing general rule set

forth in Hunt is that ―an association’s action for damages running solely to its

members would be barred for want of the association’s standing to sue‖); Ga.

Cemetery Ass’n, Inc. v. Cox, 353 F.3d 1319, 1322–23 (11th Cir. 2003) (per

curiam) (holding associational standing did not exist to assert as-applied takings

claim    because   such   claim   ―will   vary   depending   upon   the   economic

circumstances‖ of each member); Telecomms. Research & Action Ctr. on Behalf

of Checknoff, 806 F.2d at 1094–95 (holding claim for money damages required

participation of association’s individual members so that no associational

standing existed); Nat’l Ass’n of Coll. Bookstores, Inc. v. Cambridge Univ. Press,

990 F. Supp. 245, 248–49 (S.D.N.Y. 1997) (holding associational standing did

not exist to assert a takings claim because a particularized analysis of each

owner’s circumstances was required).

                                          8
      When, however, an association seeks a declaration, injunction, or some

other form of prospective equitable relief, it can reasonably be supposed that the

remedy, if granted, will inure to the benefit of those members of the association

actually injured and that, consequently, prudential concerns are advanced and

the association may possess standing to invoke the court’s remedial powers on

behalf of its members. Tex. Ass’n of Bus., 852 S.W.2d at 448 (holding that ―TAB

seeks only prospective relief, raises only issues of law, and need not prove the

individual circumstance of its members to obtain that relief, thus meeting the third

prong‖ of the associational standing test); see also Hunt, 432 U.S. at 343–44, 97

S. Ct. at 2441–42 (recognizing that neither the commission’s ―interstate

commerce claim nor [its] request for declaratory and injunctive relief requires

individualized proof and both are thus properly resolved in a group context‖); City

of Laredo v. Rio Grande H20 Guardian, No. 04-10-00872-CV, 2011 WL 3122205,

at *6 (Tex. App.––San Antonio July 27, 2011, no pet.) (mem. op.) (holding that

because Rio Grande sought ―prospective relief in the form of a declaration that

the enacted zoning ordinances were invalid, relief that is not dependent on proof

of the individual circumstances of its members,‖ Rio Grande had satisfied the

third associational standing prong). For example, in Texas Ass’n of Business,

the association possessed associational standing to assert a facial challenge to

the constitutionality of an administrative enforcement scheme for the assessment

of civil penalties. 852 S.W.2d at 443.

                                         9
      But merely pleading for equitable relief does not automatically satisfy the

third prong of the associational standing test. See Am. Acad. of Emergency

Med. v. Memorial Hermann Healthcare Sys., Inc., 285 S.W.3d 35, 44 (Tex.

App.—Houston [1st Dist.] 2009, no pet.) (holding no associational standing

existed to assert declaratory judgment action because declaration sought did not

present ―pure issues of law, but instead require[d] individualized inquiry and fact-

intensive analysis‖); see also Bano v. Union Carbide Corp., 361 F.3d 696, 714

(2d Cir. 2004) (recognizing associational standing was absent even though

injunctive relief sought when fact and extent of the injury giving rise to claims for

injunctive relief would require individualized proof). And, likewise, given the fact

that the third prong of the associational standing test is a prudential

consideration, the mere fact that some level of individualized evidence is required

does not automatically thwart the existence of associational standing. See, e.g.,

Assoc. of Am. Physicians & Surgeons, Inc. v. Tex. Med. Bd., 627 F.3d 547, 551–

52 (5th Cir. 2010) (recognizing that when claims can be proven by evidence from

representative injured members, without a fact-intensive-individual inquiry, the

participation of those individual members will not defeat associational standing);

Pa. Psychiatric Soc’y v. Green Spring Health Servs., Inc., 280 F.3d 278, 287 (3d

Cir.) (holding associational standing not defeated by need for limited individual

member participation), cert. denied, 537 U.S. 881 (2002). Instead, courts look to

whether a plaintiff association that is pleading for equitable relief on behalf of its

members has established that any individualized evidence required to prosecute

                                         10
the claim would be duplicative and redundant, thus advancing prudential

concerns and judicial economy by granting associational standing. See, e.g.,

Hosp. Council of W. Pa. v. City of Pittsburgh, 949 F.2d 83, 89–90 (3rd Cir. 1991)

(recognizing   associational   standing        not   defeated   by   participation   of

representative member hospitals in association’s claim for equitable and

injunctive relief from city’s efforts to ―coerce‖ payment of taxes by tax-exempt

member hospitals). In other words, when resolution of the claims can be proven

by evidence from representative injured members without a fact-intensive-

individual inquiry, the need for participation of those individual members will not

defeat associational standing. Retired Chicago Police Ass’n v. City of Chicago, 7
F.3d 584, 601–02 (7th Cir. 1993).

   3. Analysis of the Claims Asserted and the Relief Requested by BRIA

      BRIA pleaded that Appellees sold to hundreds of investors located

throughout the United States millions of dollars’ worth of fraudulent securities in

the form of fictitious working interests in oil and gas drilling projects and

pipelines. BRIA alleged that Appellees comingled investor funds and falsified oil

and gas production reports. BRIA pleaded causes of action for violations of the

Texas Securities Act, breach of fiduciary duty, constructive trust, and for

attorneys’ fees and prayed for actual damages, special damages, rescission,

constructive trust, exemplary damages, attorneys’ fees, court costs, and pre- and

post-judgment interest.

                                          11
      Appellees argue on appeal that BRIA’s 226 members do not share a

common investment portfolio, invested in over 100 separate projects in varying

amounts, and reaped profits or incurred losses in different amounts over a ten-

year period from November 1994 to June 2005. Appellees contend that each

investment transaction is unique and that the amount of each investor’s gains or

losses is unique, requiring a fact-intensive participation in the litigation by each

BRIA member. BRIA does not dispute these facts; BRIA does not deny that

each of the claims it asserts, as well as the relief it requests, requires proof of

investments made and damages suffered by each of its individual members.

Instead, BRIA claims that it intends to retain a damage expert and that the

expert’s testimony, coupled with the testimony of a receiver previously appointed

by the trial court,4 will minimize the need for the participation of the individual

members of BRIA in the litigation.5

      4
        BRIA attached an affidavit from the receiver to its appellate brief, quotes
extensively from the affidavit in the argument section of its brief, and requests
that we take judicial notice of the affidavit. We decline to take judicial notice of
the affidavit. See, e.g., Thornton v. Cash, No. 14-11-01092-CV, 2013 WL
1683650, at *14 (Tex. App.––Houston [14th Dist.] Apr. 18, 2013, no pet.) (mem.
op.) (declining to take judicial notice of documents attached to appellate brief and
noting that appellate court review is limited to consideration of material before
trial court). We nonetheless discuss the affidavit’s content because it is quoted
extensively in BRIA’s brief and shows that even if given the opportunity to
replead, BRIA cannot satisfy the third prong of the associational standing test.
See Tex. A&M Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 839–840 (Tex. 2007)
(holding appellants are not entitled to replead a claim unless it is possible for
them to cure the jurisdictional defect).
      5
        BRIA cites Darocy v. Abildtrup for the proposition that minimal
participation of its individual members would be required in the prosecution of its
                                        12
      BRIA contends that individual member participation in the litigation would

be minimal because––in accordance with the following quoted statement in his

affidavit––the receiver ―could and would testify regarding the financial losses

sustained by the individual plaintiffs in this case with reasonable certainty, with

minimal participation by the individual plaintiffs.‖ This is not the type of non-fact-

intensive, minimal participation envisioned by the third prong of the associational

standing test; the evidence is not duplicative, redundant, or elicited from

representative injured members. See Assoc. of Am. Physicians & Surgeons,

Inc., 627 F.3d at 551–52; Pa. Psychiatric Soc’y, 280 F.3d at 287; Hosp. Council

of W. Pa., 949 F.2d at 89–90. Substituting the testimony of one person (the

receiver) concerning the individual profits and losses of each of BRIA’s 226

individual members is no less fact-intensive than simply permitting each

individual member to provide such testimony concerning his profits and losses.

This type of fact-intensive analysis, even if performed through one witness,

raises the type of real and substantial prudential concerns found to thwart a

determination of associational standing under the third prong of the associational

standing test. See Warth, 422 U.S. at 515, 95 S. Ct. at 2214.

      We overrule BRIA’s second issue.

Texas Securities Act violations claim. 345 S.W.3d 129 (Tex. App.––Dallas 2011,
no pet.). But in Darocy, individual investors, not an association, brought suit.
See id. at 132. Thus, Darocy is not applicable to our associational standing
analysis.

                                         13
          B. BRIA Lacks Standing to Sue as an Agent of its Members

      In its first issue, BRIA contends that it possesses standing by virtue of the

claims management agreement signed by each BRIA member.                        BRIA

characterizes each of these agreements as a power of attorney and concedes

that its members did not execute an assignment of their claims to BRIA. 6 In

support of this contention, BRIA relies upon Rodarte v. Investco Group, 299
S.W.3d 400 (Tex. App.––Houston [14th Dist] 2009, no pet.).

      Rodarte did not involve associational standing; it involved a man filing suit

in his own name pursuant to a power of attorney on behalf of his brother. Id. at

406–07. BRIA argues that just like the man in Rodarte, it filed suit on behalf of its

members pursuant to a power of attorney. But BRIA is a nonprofit association,

not an individual. BRIA cites no authority for the proposition that by virtue of

obtaining a power of attorney from its members, it exempted itself from

establishing the third prong of the associational standing test. To the contrary,

BRIA’s claims on behalf of 226 individual members seeking financial redress for

widely-varied investments made in diverse projects over a ten-year period raise

exactly the substantial prudential concerns identified by the third prong of the

associational standing test as precluding an association that is suing on behalf of

its members from invoking the court’s remedial powers.

      6
      Because BRIA acknowledges that the claims management agreements
do not constitute an assignment of its members’ claims to BRIA, we do not
address the cases BRIA cites concerning assignments.

                                         14
      We overrule BRIA’s first issue.

                                 V. CONCLUSION

      Having overruled both of BRIA’s issues, we affirm the trial court’s grant of

Appellees’ plea to the jurisdiction and its judgment dismissing BRIA’s claims.

                                             SUE WALKER
                                             JUSTICE

PANEL: GARDNER, WALKER, and MCCOY, JJ.

DELIVERED: August 15, 2013

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