Capital Technology v. Arias & Arias

• Decision Date: 10 November 2008
• Docket Number: No. 05-07-00280-CV.,05-07-00280-CV.
• Citation: 270 S.W.3d 741
• Parties: CAPITAL TECHNOLOGY INFORMATION SERVICES, INC. and Raj N. Shah, Appellants, v. ARIAS & ARIAS CONSULTORES and Pegasus Brokerage House, Inc., Appellees.
• Court: Texas Court of Appeals

270 S.W.3d 741

CAPITAL TECHNOLOGY INFORMATION SERVICES, INC. and Raj N. Shah, Appellants, v. ARIAS & ARIAS CONSULTORES and Pegasus Brokerage House, Inc., Appellees.

No. 05-07-00280-CV.

Court of Appeals of Texas, Dallas.

November 10, 2008.

Rehearing Overruled December 22, 2008.

Sam Joyner, Mark W. Bayer, Stacy R. Obenhaus, Gardere, Wynne and Sewell, L.L.P., Dallas, for Appellants.

Monica Lynne Luebker, Figari, Davenport, L.L.P., Dallas, for Appellees.

Before the Court En Banc.

OPINION

Opinion by Chief Justice THOMAS.

Arias & Arias Consultores and Pegasus Brokerage House, Inc. sued Capital Technology Information Services, Inc., Raj N. Shah, and others who are not parties to this appeal for unjust enrichment, conversion, conspiracy, and other causes of action. After the trial court denied the special appearances filed by CTIS and Shah, they filed this interlocutory appeal.

CTIS and Shah argue the trial court erred because: (1) Arias and Pegasus failed to plead specific jurisdictional facts; (2) CTIS and Shah met their burden to negate the jurisdictional facts pleaded; (3) Arias and Pegasus failed to offer sufficient evidence supporting their allegations of alter ego; (4) Arias and Pegasus failed to plead and prove that jurisdiction in Texas was consistent with fair play and substantial justice; (5) the evidence was legally insufficient to support any presumed findings that support specific or general jurisdiction over CTIS and Shah; and (6) the trial court abused its discretion when it sustained Arias and Pegasus's objections to CTIS and Shah's special appearance evidence. We conclude the trial court did not err when it denied Shah's and CTIS's special appearances.

Background

Capital Surini Group International, Inc., a Maryland corporation, is a service information technology and software development corporation with its principal place of business in Rockville, Maryland. CSGI-Maryland has no employees, and its business is conducted by CTIS. CSGI-Maryland, however, does not pay the salaries of CTIS's employees. CTIS is a Maryland corporation and a wholly-owned subsidiary of CSGI-Maryland, with its principal place of business in Rockville, Maryland. CTIS provides information technology products and services that help clinical trial sponsors improve the safety and efficacy of their clinical trials. CSGI-Maryland and CTIS have common officers and directors. Shah, a Virginia resident, is the chief executive officer and chairman of both CSGI-Maryland and CTIS. In 2000, Shah owned approximately 65% of the shares in CSGI-Maryland. CSGI-Maryland's financial statements are reported on a consolidated basis with its subsidiaries, including CTIS and CSGI-Maryland files a consolidated federal income tax return. However, CTIS files a separate Maryland state income tax return. CSGI-Maryland and CTIS share the same office space, CTIS pays the rent for both entities, and the office space is leased from Shah.

CSGI-Maryland planned to take itself "public" through a reverse merger and private placement. The plan provided for CSGI-Maryland to merge with Silver River Ventures, Inc., a Nevada corporation, with Silver River being the surviving corporation. Following the merger, Silver River would change its name to Capital Surini Group International, Inc., a Nevada corporation. CSGI-Nevada's stock would be sold in a private placement to capitalize a new line of business called C3Care.

In order to locate investors, Shah contacted George Malina, a financial consultant and Texas resident, who had previously raised funds for CSGI-Maryland. G. Malina and Shah reached a preliminary agreement with Salomon Grey Financial Corporation, a stock brokerage firm located in Dallas, Texas, to undertake the private placement. Shah had more than ten telephone conversations with Salomon Grey when negotiating its role in the private placement. On April 11, 2000, Shah signed a letter of intent that Salomon Grey would act as the placement agent for the private offering and to secure a bridge loan.

G. Malina asked his attorney, Jim Choate of Rockwall, Texas, to represent him and help him understand the proposed transaction. Shah traveled to Texas to meet with G. Malina and Choate regarding the private placement. They agreed that Choate would act as escrow agent for the private placement. G. Malina and Choate then met with Salomon Grey, in Dallas, for a "working session" regarding how to proceed with the private placement. Choate insisted the escrow relationship be governed by Texas law. In coordinating the drafting of the private placement memorandum (PPM) and the solicitation of the sale of stock, Shah and CTIS personnel made over seventy telephone calls to Choate in Texas and over three hundred telephone calls to G. Malina in Texas, and transmitted over forty facsimiles to both Choate and G. Malina in Texas.

In May 2000, the PPM was finalized. Pursuant to the terms of the PPM, CSGI-Nevada offered to sell a minimum of 1,333,333 shares and a maximum of two million shares of common stock at $4.50 per share. In the PPM, Shah is referred to as the CEO and chairman of CSGI-Nevada and CSGI-Nevada is referred to as "an established Information Technology (IT) company that offers a wide range of advanced IT services and applications to government and commercial clients in the healthcare industry through its subsidiary [CTIS]." Under the terms of the PPM, an escrow agreement provided that the funds paid by an investor at the time of subscription would be received by American National Bank of Texas located in Rockwall, Texas.

Copies of the PPM were provided to G. Malina and Shah to use in soliciting sales. G. Malina solicited Dallas investors and was required to inform Shah of the potential investors he was soliciting. G. Malina brought Raymond Molina, a Panamanian investment consultant, and Craig Medoff into the transaction to assist in soliciting investors.

In addition to his trips to Dallas to meet initially with G. Malina and Choate, Shah traveled to Texas twice to solicit investments in the PPM transaction. He first went to Dallas to meet with William McKenzie, a member of the board of directors for Scottish Rite Hospital, to solicit investment. On another occasion, Shah traveled to Texas to meet with former Lieutenant Governor Ben Barnes in an effort to find other institutional investors.

As a result of R. Molina's marketing efforts, Choate accepted $330,000 from Panamanian investors Arias and Pegasus as payment for their subscriptions for shares. As a result of G. Malina's marketing efforts, Choate accepted $449,970 and $9,978 from Swiss investors, Giannina Biousse-Valdes and Geneva Asset Management, S.A., as payment for their subscriptions for shares. The money from the Swiss investors was initially placed into a Swiss escrow account, then transferred to the Texas escrow account.

On July 28, 2000, after the Panamanian and Swiss sales, at a regular meeting of the board of directors for CSGI-Maryland, the board of directors terminated: (1) the PPM offered by CSGI-Nevada effective July 30, 2000 because they had not obtained the minimum subscription of $6 million; and (2) CSGI-Maryland's merger negotiations with Silver River.

On September 20, 2000, Choate sent letters from Texas to Biousse-Valdes, vice president of Compagnie Bancaire Geneve, and to the Panamanian investors through R. Molina. The letters referenced the PPM and advised that the Swiss and Panamanian investors' subscriptions at the original price of $4.50 per share had been filled. The letters also advised that more stock was available at the price of $4.50 per share. The letter did not advise the investors that the board of directors for CSGI-Maryland had terminated the PPM and merger negotiations with Silver River. The Swiss and Panamanian investors purchased additional stock at $4.50 per share, and the funds for these additional stock purchases were deposited into the Texas escrow account. On October 18, 2000, Shah signed common stock subscription agreements issuing stock in CSGI-Maryland to Choate and Compagnie Bancaire Geneve Banking Corporation Geneva. According to Choate, the common stock subscription agreements issuing shares to Choate were made on behalf of the Panamanian investors. The subscription agreements for Compagnie Bancaire Geneve were delivered from CSGI-Maryland to Choate in Texas. Choate then forwarded them to the Swiss investors.

Shah instructed Choate to transfer $350,000 from the Texas escrow account into Shah's personal bank account in Virginia. These funds were transferred in four transactions. In October 2000, Choate sent Shah a cashier's check for $100,000, but Choate stated during his deposition he could not remember whether the funds for the cashier's check came from the escrow account, G. Malina, or R. Molina. On February 9, 2001, Choate wired an additional $100,000 from the escrow account into Shah's personal bank account in Virginia. Then, on February 12, 2001, Choate wired separate sums of $50,000 and $100,000 from the escrow account to Shah's personal bank account.

When G. Malina was in Washington, D.C., Shah complained he needed more money and asked G. Malina to help him. G. Malina agreed to lend Shah $250,000 pursuant to a promissory note dated February 2, 2001 ($250,000 Choate note). The promissory note is payable to the order of Choate, recites the place of payment is Rockwall County, Texas, and states it is governed by the laws of Texas. Shah signed the $250,000 Choate note as chairman and CEO of CSGI-Maryland, as well as in his individual capacity. Geoffrey Grosvenor signed the $250,000 Choate note acknowledging it as corporate secretary for CSGI-Maryland. In exchange for the $250,000 Choate note, but without the approval of the board of directors, Shah issued G. Malina one million shares of CSGI-Maryland stock in Choate's name. G. Malina insisted that Shah personally guarantee the $250,000 Choate note because G. Malina wanted to be...