Motient Corp. v. Dondero

• Decision Date: 20 August 2008
• Docket Number: No. 05-07-00580-CV.,05-07-00580-CV.
• Citation: Motient Corp. v. Dondero, 269 S.W.3d 78 (Tex. App. 2008)
• Parties: MOTIENT CORPORATION, Appellant, v. James D. DONDERO, Appellee.
• Court: Texas Court of Appeals

269 S.W.3d 78

MOTIENT CORPORATION, Appellant, v. James D. DONDERO, Appellee.

No. 05-07-00580-CV.

Court of Appeals of Texas, Dallas.

August 20, 2008.

Rehearing Overruled November 25, 2008.

T. Ray Guy, Paige Holden Montgomery, Brian J. D'Amico, Ken Barnett, Weil, Gotshal & Manges, LLP, Dallas, TX, for Appellant.

Craig Trively Enoch, Austin, Jay J. Madrid, Winstead Sechrest & Minick, P.C., Dallas, TX, for Appellee.

Before Justices MOSELEY, BRIDGES, and LANG-MIERS.

OPINION

Opinion by Justice MOSELEY.

Motient Corporation appeals a summary judgment granted in favor of James D. Dondero on grounds of res judicata. In its first issue, Motient contends Dondero is not entitled to summary judgment because he did not establish his affirmative defense of res judicata as a matter of law. We decide this issue in Motient's favor, reverse the order granting summary judgment, and remand this case for further proceedings.

I. FACTUAL BACKGROUND

The following factual recitation is taken from Motient's first amended petition in this case. Motient¹ is a publicly held corporation providing two-way wireless mobile data services and nationwide wireless internet services. Dondero is president of Highland Capital Management, L.P., an investment manager of affiliated hedge funds (the "Highland Entities"). Through a series of transactions and events culminating in a reorganization plan approved in Motient's 2002 Chapter 11 bankruptcy proceeding, the Highland Entities became owners of Motient common stock. In July 2002, Dondero became a member of Motient's Board of Directors.

In 2004, Motient's management and directors began redirecting Motient's focus toward capitalizing on its equity interest in two other companies. One of those companies was TerreStar Networks, Inc., which controlled FCC-allocated radio licenses crucial to the development of next-generation hybrid satellite/terrestrial mobile communications systems. In April 2005, to raise capital to facilitate its investment in TerreStar, Motient issued a certain amount of Series A Cumulative Convertible Preferred Stock, of which four of the Highland Entities purchased some shares. Dondero requested the voting rights of the Series A Preferred Stock be limited so the Highland Entities could participate without being required to make a filing under a federal statute and risk missing an opportunity to buy shares of the Series A Preferred Stock while waiting for the expiration of the mandatory waiting period. Motient agreed and issued the Series A Preferred Stock with a Certificate of Designations providing for limited voting rights.

After the Series A Preferred Stock transaction closed, Motient's attorneys discovered the description of the restricted voting rights in the Certificate of Designations might be construed as conflicting with Motient's Restated Certificate of Incorporation, which provided that Motient shall not issue any class of non-voting stock. In July 2005, Motient's counsel circulated a confidential memorandum, advising the board of the potential problem. Without Dondero's participation, the board approved: (1) the filing of a Certificate of Designations to set forth correctly the voting rights for Series A Preferred Stock, thus effectuating Motient's intent that the Series A Preferred Stock have limited voting rights consistent with the Highland Entities's statutory filing needs; and (2) an offer to exchange shares of the Series A Preferred Stock for an equal number of shares of "virtually identical" Series B Cumulative Convertible Preferred Stock.

According to Motient, Dondero decided to engage in a proxy fight for control of Motient. In the summer of 2005, Dondero, through Highland Capital attorneys, complained to the SEC about Motient. Beginning in August 2005, the Highland Entities filed the first of six lawsuits against Motient, its outside counsel, and certain Motient officers and board members. According to Motient, Dondero used confidential information to further his proxy fight and took other anti-Motient actions, including: (1) making complaints necessitating an investigation by the board's audit committee; (2) opposing a transaction as to TerreStar beneficial to Motient, opposition that was motivated by an undisclosed investment in a competitor; (3) making additional SEC filings; (4) calling Motient investors and disseminating nonpublic information and criticisms of Motient; and (5) refusing to take steps required by NASDAQ rules to achieve a listing. In February 2006, Dondero resigned from the board and publicly announced a proxy fight.

II. PROCEDURAL BACKGROUND

In October 2005, Motient filed two suits against Dondero: one in federal court² and this case in state court. In the federal suit, Motient sued Dondero and then amended its complaint to add other defendants, including Highland Capital and certain Highland Entities. In its first amended complaint, Motient contended that Dondero, on behalf of himself and his affiliates, sought to persuade Motient's shareholders to cede control of Motient to Dondero through false, misleading, and incomplete public statements. Motient alleged the defendants violated certain provisions of the Securities Exchange Act of 1934 and rules thereunder by making improper Schedule 13D/A filings. These filings related to the Series A Preferred Stock transaction and the proposed TerreStar transaction. Motient alleged that the improper 13D amendments were "designed to improperly influence the vote by Motient shareholders on critical corporate transactions and therefore constitute disguised proxy solicitations."

Dondero and the other defendants filed a motion to dismiss the federal suit pursuant to rule of civil procedure 12(b)(6) on grounds that a heightened pleading standard applied under the federal Private Securities Litigation Reform Act. See 15 U.S.C.A. § 78u-4(b)(1) (West 1997). Thereafter, the federal court dismissed Motient's claims without prejudice. However, Dondero moved to amend the judgment because a dismissal under rule 12(b)(6) must be with prejudice. Ultimately, the federal court signed an amended final judgment dismissing Motient's claims with prejudice.

In the state court case, Motient alleged Dondero "embarked on a course of action designed to undermine and disrupt Motient's business with the ultimate goal of taking control of Motient in a proxy contest." Motient alleged Dondero was a director of Motient and owed Motient and its shareholders fiduciary duties of loyalty and care and the duty of good faith, which Dondero breached by engaging in the actions outlined above that damaged Motient. For convenience, we will refer to these as Motient's "fiduciary duty claims."

While Motient's federal case was pending, Dondero moved unsuccessfully to abate and stay the state court case. After the federal suit was dismissed, Dondero moved for summary judgment on Motient's fiduciary duty claims based on res judicata. Relying on the federal court's amended final judgment dismissing the federal suit, Dondero contended he had proved conclusively every element of that affirmative defense. Motient filed a response, arguing Dondero was not entitled to summary judgment based on res judicata because he failed to prove two elements, specifically, that the federal and state lawsuits arose from the same transaction or occurrence and the judgment in the federal action was rendered by a court that would have had jurisdiction over its fiduciary duty claims. Dondero filed a reply to this response. The trial court granted Dondero's motion for summary judgment and dismissed Motient's fiduciary duty claims with prejudice. This appeal followed.

III. STANDARD OF REVIEW

Under Texas Rule of Civil Procedure 166a(c), the party moving for summary judgment bears the burden to show that no genuine issue of material fact exists and it is entitled to judgment as a matter of law. TEX.R. CIV. P. 166a(c). We review the trial court's summary judgment de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). In our review, we examine the entire record in the light most favorable to the nonmovant, indulging every reasonable inference and resolving any doubts against the motion in the nonmovant's favor. City of Keller v. Wilson, 168 S.W.3d 802, 824-25 (Tex.2005). In this case, Dondero has the burden to show he is entitled to summary judgment by pleading and proving all elements of his affirmative defense. See Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995). See also TEX.R. CIV. P. 94; Fernandez v. Mem'l Healthcare Sys., Inc., 896 S.W.2d 227, 230 (Tex.App.-Houston [1st Dist.] 1995, writ denied). If Dondero established his asserted affirmative defense of res judicata, Motient, as the nonmovant plaintiff, must then adduce summary judgment proof raising a fact issue in avoidance of that affirmative defense. See Diversicare Gen. Partner, Inc. v. Rubio, 185 S.W.3d 842, 846 (Tex.2005). All theories in support of or in opposition to a motion for summary judgment must be presented in writing to the trial court. See TEX.R. CIV. P. 166a(c).

IV. APPLICABLE LAW

Since the first suit was decided in federal court, federal law controls the determination of whether res judicata will bar a later state court proceeding. Geary v. Tex. Commerce Bank, 967 S.W.2d 836 837 (Tex.1998) (per curiam); Eagle Props., Ltd., v. Scharbauer, 807 S.W.2d 714, 718 (Tex.1990) (citing Aerojet-Gen. Corp. v. Askew, 511 F.2d 710, 715 (5th Cir.), cert. denied, 423 U.S. 908, 96 S.Ct. 210, 46 L.Ed.2d 137 (1975)); Brown v. Dr. Michael D. Hoffman & Assocs., 111 S.W.3d 826, 829 (Tex.App.-Dallas 2003, no pet.). Res judicata, or claim preclusion, bars the litigation of claims that either have been litigated or should have been raised in an earlier suit. Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005), cert. denied, 547 U.S. 1055, 126 S.Ct. 1662, 164 L.Ed.2d 397 (2006). When two successive suits seek recovery for the same injury, "a...