Western District of Texas Court Summaries

FEDERAL COURT UPDATE

Western District of Texas Court Summaries

By Soledad Valenciano, Melanie Fry, and Jeffrie Lewis

If you are aware of a Western District of Texas order that you believe would be of interest to the local bar and should be summarized in this column, please contact Soledad Valenciano (svalenciano@svtxlaw.com, 210-787-4654) or Melanie Fry (mfry@dykema.com, 210-554-5500) with the style and cause number of the case, and the entry date and docket number of the order.

Substitute Service

Orange Beacon Mktg., LLC v. Outstanding Real Estate Sols., Inc., SA-22-CV-00570-FB (Chestney, E., November 9, 2022).

The court approved the plaintiff’s motion for substituted service under FRCP 4(e) after reviewing the plaintiff’s motion and response to show cause order as to why the plaintiff’s case should not be dismissed for want of prosecution. The process server’s affidavit showed five failed attempts on defendant’s registered agent and how investigation as to agent’s whereabouts had proven futile. Rule 4(e) provides that an individual may be served in a judicial district of the United States by following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located. Following TRCP 106(b), and considering the process server’s affidavit that personal service could not be reasonably effectuated on the defendant’s registered agent, the court granted service: (1) by registered or certified mail, return receipt requested on the agent; (2) via the defendant’s attorney; (3) through social media (here, Facebook); (4) via email; and (5) using any other technology that would give the defendant reasonable notice as permitted under TRCP 106 and FRCP 4(e).

Rule 12 Motions; Answers; Sanctions

Mandawala v. Baptist Sch. Of Health Pros., No. SA-19-CV-01415-JKP (Pulliam, J., December 21, 2022)

The plaintiff student failed a medical school sonography program. After multiple appeals to the Fifth Circuit on other grounds, the student moved for judgment on the pleadings, alleging the defendant school missed its answer deadline and violated the rule on successive motions to dismiss. The school moved for summary judgment on the student’s claims

for sex discrimination and breach of contract. The court explained that the school did not fail to answer when it properly filed its FRCP 12(b)(6) motion to dismiss before it filed its answer and that the school did not violate the rule on successive motions to dismiss when, as here, the second motion was in response to an amended complaint. The school’s answer to the amended complaint was not untimely as a party’s responsive pleading is due fourteen (14) days after notice of the court’s action on a Rule 12 motion. The court added that even if an answer is untimely, a party is not entitled to a default judgment as a matter of right. Accordingly, the court denied the student’s motion for judgment on the pleadings. The school moved for sanctions against the student for not making his initial disclosures and not timely responding to discovery. Because the student’s delay was neither justified nor harmless, the student’s evidence was subject to exclusion under Rule 37(c)(1); however, such exclusion was moot because it was not relied upon by the student in his response to the school’s summary judgment motion. Dismissal of the case as a discovery sanction is permitted when a party has the ability to comply but willfully refuses to do so; however, here, the court determined such a harsh sanction need not be imposed because the school’s summary judgment motion succeeded on its merits. The court denied the school’s motion for $1,800 in attorney’s fees sought for work related to the student’s untimely discovery responses because the student eventually responded and, thus, did not “fail to respond.” The student failed to meet his prima facie case on sex discrimination, as he produced no evidence demonstrating that discrimination was a substantial or motivating factor in the school’s decision to fail him. Even if he did, and the school then met its burden to provide a non-discriminatory reason for failing him (i.e., the student did not complete the program’s requirements), the student failed to show that the school’s reason for failing him was pretextual, as none of the witnesses he disclosed were school employees, much less decision makers. The court granted the school’s motion for summary judgment on the student’s breach of contract claim as well, holding no evidence was produced to establish that the sonography program was a contract.

Motion for Sanctions; Motion for Default

Resea Project Aps v. Restoring Integrity to the Oceans, Inc., No. SA-21-CV-1132-JKP (Pulliam, J., Dec. 15, 2022)

The plaintiff filed a motion for default judgment and a motion for sanctions, also seeking entry of default judgment. The corporate defendant was unrepresented by counsel and did not file any response. The individual defendant (Kelly) had previously answered and proceeded pro se but filed no formal response to the motion for default, instead only filing a response to the motion for sanctions.

On the motion for default, the court noted a clerk’s entry of default does not automatically entitle a plaintiff to default judgment, and the decision to enter a default judgment is ultimately within the sound discretion of the district court. Even though the clerk had entered a default against the unrepresented corporate defendant, the court held that because Kelly remained to defend the action and could establish the plaintiff has no cause of action, the motion would be denied without prejudice to refiling after the case was finally resolved as to all defendants.

The plaintiff had also filed a motion for sanctions seeking entry of default for alleged discovery abuses committed by Kelly for lying, destruction of evidence, and violations of court orders through allegedly deleting emails. At a prior hearing on a discovery matter, Kelly admitted on the record to deleting emails. However, assuming without deciding that Kelly did in fact delete the emails, as alleged by the plaintiff: (1) dismissal without prejudice is a “sanction of last resort.” and the court should consider lesser sanctions before resorting to the harsh sanction of default judgment; (2) the plaintiff had not requested any lesser sanctions; and (3) the plaintiff had not addressed whether the deleted emails could not be replaced through additional discovery and had not shown why a default was warranted over a presumption that the lost information was unfavorable to Kelly. The court found entry of default judgment as a discovery sanction unwarranted based on the facts presented and, while acknowledging the court’s inherent power to sanction in some circumstances, declined to consider unrequested lesser sanctions noting the plaintiff “overplayed its hand” in seeking only entry of default.

Alter Ego; Joint Liability; Agency

L.B. Benon Fam. L.P. v. Wells Fargo Bank, N.A., No. SA-21-CA-01115-XR (Rodriguez, X., Nov. 7, 2022)

The court dismissed the plaintiffs’ alter ego, agency, and joint liability claims on defendants’ motion to dismiss. In their second amended complaint, the plaintiffs alleged defendants Texas Name and N.F. Mgt. breached their fiduciary duties, both individually and as alter egos and agents of one another. The court held the individual theory of “alter ego liability” was not applicable in this case because, under Texas law, it applies only when there is such unity between corporation and individual that the separateness of the corporation has ceased, and holding only the corporation liable would result in injustice. In this case, the plaintiffs had not asserted claims against any individuals. Therefore, the individual alter ego theory did not apply. Regarding the veil-piercing alter ego liability in the context of corporate entities, because the plaintiffs had not alleged any facts indicating there is a parent-subsidiary relationship between defendants Texas Name and N.F. Mgt., the theory was dismissed. The court further held the plaintiffs had not provided any factual allegations to support their claim that the defendants were agents of one other, and the plaintiffs’ only allegations with regard to the relationship between the parties were that they have the same CFO, operate out of the same office, and are managed by the same individuals, which did not support an agency theory. Finally, citing Texas law regarding joint liability, the court found disregarding the corporate structure in this case was not appropriate because there was no alleged injustice or inequity such as fraud, criminal conduct, or any other considerations set forth in Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986). Mere allegations that they have the same CFO, operate out of the same office, and are managed by the same individuals were insufficient as Texas law does not hold corporations liable for each other’s obligations merely because of centralized control, mutual purposes, and shared finances.

Texas Insurance Code Chapter 541; Assignability

TuYo Holdings, LLC v. Transamerica Life Ins. Co., SA-22-CV-00845-JKP (Pulliam, J., Dec. 6, 2022)

A life insurance beneficiary sold his policy to a third party. The insurer terminated the policy due to alleged non-payment. The third party entered bankruptcy, and the original life insurance beneficiary purchased “all right, title, and interest, to include legal remedies, in the Policy” from the bankruptcy trustee. The beneficiary then sued the insurer for declaratory relief, breach of contract, violations of Texas Insurance Code § 541.151(1), unjust enrichment, and promissory estoppel. The court granted the insurer’s motion to dismiss the Chapter 541 cause of action, holding it may not be assigned. The Texas Supreme Court has not addressed the assignability of claims under the Texas Insurance Code. The court looked to Texas Supreme Court precedent on non-assignability of Deceptive Trade Practices Act claims, Texas intermediate courts of appeals precedent, and holdings from other federal district courts to conclude that Insurance Code remedies are personal and punitive in nature (not property), the Texas Insurance Code contains no provision for assignability, and Texas Insurance Code damages are intended to encourage suits by aggrieved consumers, only. The court also dismissed the beneficiary’s claims for unjust enrichment and promissory estoppel. Although the parties’ dispute involved actions and documents other than the policy, the dispute was still governed by the terms of the policy. Because the beneficiary did not dispute the validity of the policy, the beneficiary could not assert equitable causes of action.

Specific Jurisdiction; Civil Conspiracy

Plaintiffs v. GainJet Aviation S.A., SA-20CA-01422-XR (Rodriguez, X., Nov. 29, 2022)

The family of a San Antonio resident humanitarian and activist sued Greek private jet operator GainJet for its role in the kidnapping of the activist by the Rwandan government. GainJet had diverted the activist’s flight to Rwanda against his will, after being paid and hired by Rwandan officials. Jurisdictional discovery suggested that GainJet was aware of, or agreed to participate in, the kidnapping of the activist. The activist has been tortured and remains in a Rwandan prison. GainJet moved to dismiss for lack of personal jurisdiction, and plaintiffs sought additional discovery as to what occurred on the aircraft. The plaintiffs asserted that GainJet’s torts began in Texas and continued on the flight, that tortious conduct onboard was “felt in Texas,” and that the Calder “effects test” (jurisdiction against Florida residents proper in California based on the “effects” of their Florida conduct in California) applied. The court denied the plaintiffs’ motion for additional jurisdictional discovery. A defendant’s participation in a larger conspiracy directed at a Texas resident is not enough for specific jurisdiction; a plaintiff must show the conspiracy was related to or arose out of the co-conspirator’s purposeful contacts with the forum state. There was no evidence that GainJet ever contacted the activist concerning the flight while he was still in San Antonio, or that he had any other contact with Texas in furtherance of the conspiracy.

Soledad Valenciano practices commercial and real estate litigation with Spivey Valenciano, PLLC.

Melanie Fry practices commercial litigation and appellate law with Dykema Gossett PLLC.

Jeffrie B. Lewis is Assistant General Counsel with Zachry Group.