Cornerstone Healthcare Grp. Holding, Inc. v. Nautic Mgmt. VI, L.P.
| Decision Date | 17 June 2016 |
| Docket Number | No. 14–0538, No. 14–0539,14–0538 |
| Citation | 493 S.W.3d 65 |
| Parties | Cornerstone Healthcare Group Holding, Inc., Petitioner, v. Nautic Management VI, L.P., Respondent Cornerstone Healthcare Group Holding, Inc., Petitioner, v. Nautic Partners VI, L.P., Reliant Splitter, L.P., and Kennedy Plaza Partners VI, L.P., Respondents |
| Court | Texas Supreme Court |
Cliff Aycock Junior, Cumming, GA, pro se.
Michael Brohm, Norcross, GA, pro se.
Ryan Patrick Brohm, Alpharetta, GA, pro se.
Scott A. Brister, Marc Daniel Katz, Gavin Burke Justiss, Andrews Kurth LLP, Austin TX, Elizabeth Stone Miller, Attorney and Professor of Law, Waco TX, Kendall M. Gray, Andrews Kurth LLP, Houston TX, Mark A. Shoffner, Andrews Kurth LLP, Dallas TX, for Petitioner.
Mark R. Steiner, Mark T. Josephs, Andrew D. Graham, Jackson Walker LLP, Dallas TX, John F. Hartmann, Kirkland & Ellis LLP, Chicago IL, Patrick F. Philbin, Rebecca Taibleson, Kirkland & Ellis LLP, Washington DC, for Respondents.
Joanne Early, Mark W. Bayer, Gardere Wynne Sewell L.L.P., Dallas TX, David Spencer Denton, Jonathan C. LaMendola, Cobb Martinez Woodward, PLLC, Dallas TX, John Michael Helms Jr., Dallas TX, Manuel Diaz, Diaz Law Firm PC, Dallas TX, Ralph Ritch Roberts III, Fitzpatrick Hagood Smith & Uhl LLP, Dallas TX, Alyson C. Brown, Dallas TX, Gregory Michael Clift, Keith A. Clouse, Clouse Dunn LLP, Dallas TX, for other interested parties.
delivered the opinion of the Court.
In these causes we consider whether Texas courts have specific personal jurisdiction over three nonresident private-equity fund limited partnerships and their general partner. The funds invested in a newly created Texas subsidiary that purchased a chain of Texas hospitals from a Texas company. The plaintiff, another Texas company allegedly in the market to purchase the hospitals, asserts that this conduct was tortious and subjects the defendants to Texas's jurisdiction with respect to claims arising out of that conduct. We agree and hold that Texas courts have specific jurisdiction over the private-equity funds and their general partner.
Plaintiff Cornerstone Healthcare Group Holding, Inc. owns and operates long-term acute-care hospitals in Texas and other states. According to its pleadings, Cornerstone “sought to expand into other sectors of the post-acute care continuum.” Several Cornerstone executives (Executives) identified Reliant Hospital Partners, LLC (Old Reliant), which owned a chain of inpatient rehabilitation facilities in Texas, as a possible takeover target. Cornerstone alleges that the Executives “decided to take advantage of this opportunity for themselves” rather than present it to Cornerstone's board and that they approached several potential investment sources about the deal, including Rhode Island-based private-equity firm Nautic Partners, LLC.
Nautic Partners is a management advisor that identifies and conducts due diligence on potential investments for several private-equity funds. The three funds at issue here—Nautic Partners VI, L.P., Reliant Splitter, L.P., and Kennedy Plaza Partners VI, L.P. (collectively, the Funds)—are Delaware limited partnerships with their principal places of business in Rhode Island. Nautic Management VI, L.P., also a Delaware limited partnership, is the general partner of two of the Funds and manager of the third. We will refer to Nautic Management VI as the General Partner.1
Based on its due diligence, Nautic Partners determines whether to present an investment opportunity to the General Partner's investment committee, which authorizes investment decisions for the Funds.2 Scott Hilinski is Nautic Partners' managing director and, along with two other Nautic Partners employees, is also a member of the General Partner's investment committee. According to the General Partner's corporate representative, Hilinski has a fiduciary duty to bring to the committee any deal that would be an “appropriate” investment for the Funds.
In November 2010, Cornerstone's then-Chief Executive Officer Michael Brohm contacted Nautic Partners to discuss a potential health-care investment opportunity. Shortly thereafter, Brohm specifically proposed that the Funds acquire Old Reliant's assets and hire Brohm and other Cornerstone executives to run the company. Hilinski met with Brohm and another Cornerstone executive at a “get-to-know-you dinner” in Texas. Hilinski subsequently called Old Reliant's owner in Texas expressing interest in the investment. On November 22, Nautic Partners and Old Reliant signed a confidentiality agreement “in connection with [Nautic Partners'] evaluation of a potential transaction with [Old Reliant],” and Nautic Partners began investigating the acquisition.
Nautic Partners' due diligence included site visits to Old Reliant's hospitals in Texas by Hilinski and Chris Corey, another Nautic Partners employee. Cornerstone alleges that Brohm disclosed Cornerstone's confidential information to Nautic Partners during the due-diligence period and that Nautic Partners used that information to evaluate the Reliant deal. On January 7, 2011, Nautic Partners and Old Reliant signed a letter of intent summarizing the “terms and conditions under which an entity ... to be formed by funds affiliated with Nautic Partners” would purchase Old Reliant's assets. The letter further stated that “Nautic's deal team has discussed the proposed transaction with the members of Nautic's Investment Committee, and this Letter is submitted with the endorsement and excitement of that group.”
Hilinski presented the deal to the General Partner's investment committee over three meetings in Rhode Island in January and February 2011. On March 14, 2011, the committee authorized the investment and issued a capital call to fund the deal. A chain of wholly owned subsidiaries was established to facilitate the transaction, which closed March 23. On that date, the Funds entered into a limited liability company agreement with Reliant Holding Company,3 a new Delaware LLC with its principal place of business in Texas, which the Funds describe as a “passive investment vehicle.” In turn, Reliant Holding owned 100% of Reliant Pledgor, also a Delaware LLC, which owned 100% of Reliant Opco Holding Corp., a Delaware corporation. Finally, Reliant Pledgor and Reliant Opco owned, respectively, 99.9% and 0.1%4 of Reliant Acquisitions, LLC, which would eventually change its name to Reliant Hospital Partners, LLC (New Reliant).5 New Reliant, a Delaware LLC with its principal place of business in Texas, entered into an asset-purchase agreement with Old Reliant to acquire and operate its hospitals.
The money New Reliant used to purchase the hospitals came from the Funds' capital contributions to Reliant Holding. The purchase price was “deemed” to pass from the Funds to Reliant Holding, from Reliant Holding to Reliant Pledgor, from Reliant Pledgor to New Reliant, and finally from New Reliant to Old Reliant. In actuality, the Funds transferred the money to the law firm that served as New Reliant's disbursement agent, and the law firm transferred the purchase price directly to Old Reliant. New Reliant's transaction expenses on the deal included a $1 million “transaction fee” to the General Partner and $85,000 to Nautic Partners to reimbursement its expenses.
Immediately following the acquisition, Brohm and the other Executives resigned from Cornerstone and joined New Reliant. Two weeks later, Cornerstone sued the Executives,6 New Reliant, and Nautic Partners. Cornerstone later added as defendants, among others, Old Reliant, the Funds, the General Partner, Hilinski, Corey, and one other Nautic Partners employee. Cornerstone accuses the Executives of utilizing its proprietary and confidential information to usurp a corporate opportunity for their own and New Reliant's benefit, misappropriating Cornerstone's confidential information following their resignations, and breaching their fiduciary duties. Cornerstone alleges the Nautic entities and employees conspired with and assisted the executives in their tortious conduct. Cornerstone also asserts tortious interference claims against these defendants.
The Funds and the General Partner, to which we will refer collectively as the respondents, filed special appearances contesting the trial court's personal jurisdiction over them. Nautic Partners, New Reliant, Hilinski, and the other Nautic Partners employees entered general appearances and did not contest jurisdiction.
The trial court granted the Funds' special appearance but denied the General Partner's. Cornerstone appealed the former order, and the General Partner appealed the latter. In separate opinions issued by different panels, the court of appeals affirmed as to the Funds and reversed as to the General Partner, holding that Texas lacks jurisdiction over all four entities. ––– S.W.3d –––– (Tex.App.–Dallas 2014); ––– S.W.3d –––– (Tex.App.–Dallas 2014). We granted Cornerstone's petitions for review and consolidated the cases for oral argument.7
In several recent cases, we have reaffirmed the well-established framework for analyzing personal jurisdiction, both generally and more specifically in the business-tort context. Courts have personal jurisdiction over a nonresident defendant when the state's long-arm statute authorizes such jurisdiction and its exercise comports with due process. TV Azteca v. Ruiz, 494 S.W.3d 109, 113 (Tex.2016)
. We have held that “the requirements of the Texas long-arm statute are satisfied if an assertion of jurisdiction accords with federal due-process limitations,” and those limitations therefore guide our analysis. Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 575 (Tex.2007). A state's exercise of jurisdiction comports with federal due process if the nonresident defendant has “minimum contacts” with the state and the exercise of jurisdiction “does not offend ‘traditional notions of fair play and substantial justice.’ ”...
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