HOUSTON – The Court of Appeals for the First District of Texas granted and denied two appellants' special appearance motions in an investment strategy lawsuit.

The court reversed a trial court’s judgment and granted appellant Steamboat Capital Management LLC special appearance, but affirmed the trial court's ruling denying appellant Jay Johnston special appearance in a Nov. 21 opinion.

The appeal stems from appellees R.K. Lowry Jr. and L-Falling Creek LLC suing numerous parties, including Steamboat Capital Management LLC and Johnston, over allegations of breach of fiduciary duty, fraud, conspiracy and tax-reducing investment strategies that cost them severe Internal Revenue Service penalties, the opinion states.

The appellees alleged the Gramercy Advisors LLC, Steamboat (a Gramercy-related entity) and Johnston (a Gramercy principal) promoted and sold them investment strategies that "would not, and could not, yield the tax advantages claimed," the opinion states.

However, Gramercy Advisors LLC, which included the services of Steamboat and Johnston, filed a combined special appearance, arguing Texas courts lacked personal jurisdiction over them.

Johnston, who testified he was a Puerto Rico resident who never lived or had property in Texas, also claimed he never solicited appellees; rather he was referred as a Gramercy Advisors LLC co-managing member. According to Johnston, the trial court erred in denying his amended special appearance since he acted in a representative capacity only, which with the fiduciary shield doctrine defends him from personal jurisdiction.

However, the 1st District Court deemed differently. Citing Crithfield v. Boothe 2011, which holds that fiduciary shield doctrine is indeed a defense, the appeals court clarified that Johnston never raised the fiduciary shield doctrine in his special appearance.

“And he does not direct us to any other place in the record in which he raised it in the trial court,” according to the Nov. 21 opinion, adding, “Further, the record of the hearing on Johnston’s special appearance reflects that he affirmatively disavowed any application of the fiduciary-shield doctrine to this case.”

Though the 1st District Court of Appeals deemed Johnston waived the issue for appellate review, they saw differently for Steamboat, which argued the trial court erred also in its decision by denying its amended special appearance since appellees failed to present evidence to back specific jurisdiction.

The court of appeals noted to back specific jurisdiction, a “substantial connection” must be apparent between the defendant’s contacts and the working litigation facts, which was not so with Steamboat. Citing several cases to prove the point, the court of appeals showed that Steamboat is a Delaware limited liability company with no Texas strong-arm statue to say otherwise.

“We conclude that Steamboat has negated all bases for an assertion of specific jurisdiction over it,” according to the Nov. 21 opinion, adding, “We reverse the trial court’s order denying Steamboat’s special appearance and render judgment granting the special appearance and dismissing the claims against Steamboat.”

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