Royal Mortgage Corp. v. Montague

• Decision Date: 18 January 2001
• Docket Number: L,No. 2-99-329-CV,MR-1,2-99-329-CV
• Citation: 41 S.W.3d 721
• Parties: (Tex.App.-Fort Worth 2001) ROYAL MORTGAGE CORPORATION, APPELLANT v. F. DOUGLAS MONTAGUE III; FRANK D. MONTAGUE JR.; MARY DIXON MONTAGUE; MONTAGUE, PITTMAN AND VARNADO, A PROFESSIONAL CORPORATION;L.C.; CM&M LTD.; BOBBY L. CHAIN; AND MICHAEL MCELROY, APPELLEES
• Court: Texas Court of Appeals

Page 721

41 S.W.3d 721 (Tex.App.-Fort Worth 2001)

ROYAL MORTGAGE CORPORATION, APPELLANT v. F. DOUGLAS MONTAGUE III; FRANK D. MONTAGUE JR.; MARY DIXON MONTAGUE; MONTAGUE, PITTMAN AND VARNADO, A PROFESSIONAL CORPORATION; MR-1, L.L.C.; CM&M LTD.; BOBBY L. CHAIN; AND MICHAEL MCELROY, APPELLEES

No. 2-99-329-CV

Court of Appeals of Texas, Fort Worth.

January 18, 2001

Rehearing Overruled April 5, 2001.

FROM THE 348TH DISTRICT COURT OF TARRANT COUNTY

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[Copyrighted Material Omitted] PANEL A: DAY, J.; DAVID F. FARRIS, J. (Retired, Sitting by Assignment); and DAVID L. RICHARDS, J. (Sitting by Assignment).

OPINION

DAVID L. RICHARDS, JUSTICE(Assigned).

Introduction

Royal Mortgage Company ("Royal") brought suit against seventeen named defendants, asserting causes of action for negligence, breach of contract, breach of fiduciary duty, fraud, and DTPA violations arising out of a transaction for the sale of debt instruments called the Park Cities Properties Package ("Park Cities"). Appellees include eight Mississippi residents and companies who were dismissed from the suit after the trial court sustained their special appearance motions.

Factual Background

Mortgage Resources, Inc. ("Mortgage Resources") is a Mississippi corporation formed to purchase debt instruments from Royal and other loan servicing businesses. F. Douglas Montague III is Mortgage Resources' sole officer and shareholder.

In 1994, Mortgage Resources contracted with Kevin Edlin to bid, service, and collect on loan packages for Mortgage Resources. In exchange, Edlin would receive a 16% commission on the gross proceeds, collected as administrative costs, and an additional 42.5% of proceeds collected after deduction of administrative costs and the return of the principal payment to investors. Mortgage Resources would retain a 15% commission, collected after deduction of administrative costs. The contract was signed by Douglas Montague as president of Mortgage Resources and identified Edlin as an independent contractor.

Subsequently, MR-1, L.L.C. ("MR-1") and CM&M, Ltd. ("CM&M") were formed under the laws of Mississippi to take ownership of assets purchased by Mortgage Resources. Douglas Montague served as president of MR-1 and managing partner of CM&M. The original shareholders in MR-1 also included Mary Dixon Montague and H. Dixon Montague. By amendment of MR-1's shareholder agreement, Michael McElroy became a member of MR-1 in October 1995.¹ Bobby L. Chain and Frank D. Montague, Jr. were general partners in CM&M.

In October 1995, Mortgage Resources entered into an "Agency Agreement" with MR-1, which identified Mortgage Resources as "agent" for the purpose of reviewing prospective mortgage and debt instruments, obtaining ownership of selected debt instruments, and collecting funds payable from them. The agreement also recited that Mortgage Resources would "act" as an independent contractor, identifying Edlin as an independent contractor of Mortgage Resources and memorializing the terms upon which Edlin would be compensated through Mortgage Resources.

A separate agreement was also reached between CM&M and Mortgage Resources.² Mortgage Resources was to receive a 5% commission of sums collected as a management fee on the mortgages it purchased. CM&M contracted directly with Edlin to collect from the mortgages of specific properties in exchange for a 10% commission on the sums collected. Profits were to be paid out of CM&M after deducting the 5% management fee paid to Douglas Montague and the 10% collection fee paid to Edlin.³

Royal is a Texas corporation with its principal place of business in Arlington, Texas. Royal purchases debt instruments from third parties. In May 1997, Royal purchased the Park Cities package of debt instruments from Mortgage Resources for between $1.5 and $1.7 million after negotiating the terms of the sale with Edlin. The agreement was signed by Douglas Montague as Mortgage Resources' president. Several months after the transaction, Royal contacted Douglas Montague claiming that assets had not been transferred.

Procedural Background

Royal filed suit in April 1999, against Douglas Montague, Mortgage Resources, Edlin, MR-1, and CM&M, in addition to the MR-1 individual shareholders and the CM&M general partners. Royal also filed suit against the Mississippi law firm of Montague, Pittman, and Varnado, P.C. ("Montague Law Firm"), which Royal claimed represented it during the Park Cities sale. Royal alleged that the defendants or their agents either intentionally or negligently made false representations about the value of Park Cities and failed to disclose that Edlin had a prior felony background. Royal further alleged that each of the corporate defendants was organized and operated as a mere tool or business conduit of the individual defendants who received the direct benefit of the Park Cities sale.

Except for Edlin and Mortgage Resources, each of the appellees filed a separate special appearance challenging the trial court's exercise of jurisdiction. Royal filed a written motion for continuance claiming it needed time for additional discovery. On September 10, 1999, the trial court heard the motions.

In their joint brief supporting their special appearances, appellees argued that their only contact with Texas was through Edlin, an independent contractor, and that Royal's suit was based entirely on Edlin's actions. Appellees explained that in the fall of 1996, it was determined that all assets owned by MR-1 and CM&M would be sold in bulk and that Edlin, working for Mortgage Resources, would locate a buyer and negotiate the terms of the sale on behalf of the owning entities. In May 1997, Edlin advised Douglas Montague that he had entered into negotiations on behalf of Mortgage Resources to sell the assets of MR-1 and CM&M to an initially undisclosed buyer. Immediately prior to consummating the transaction, Edlin disclosed that Royal was the buyer. Appellees claimed that this was the first time that Douglas Montague had any knowledge that Edlin was negotiating on behalf of Mortgage Resources with Royal. The purchase agreement for Park Cities was executed in Mississippi by Douglas Montague as Mortgage Resources' president.

In support of their special appearances, Douglas Montague testified by affidavit that he exercised control over MR-1 and CM&M at all relevant times and that Mortgage Resources, MR-1, and CM&M maintained separate accounts from any other person or entity. He claimed that Mortgage Resources was charged with negotiating and consummating the sale of MR-1's and CM&M's assets and that Edlin, acting on behalf of Mortgage Resources, entered into negotiations to sell MR-1's assets to Royal. He testified that other than requesting the bulk sale of the assets managed by Mortgage Resources, he had no role in the negotiation or consummation of the sale agreement. He further stated that Edlin was the only party who had any communications with Royal during the negotiations and that Edlin did not disclose Royal's identity to him until the Purchase Agreement was executed.

Royal alleged in its jurisdictional brief that Mortgage Resources and Edlin were acting as agents for MR-1 and CM&M. Royal also submitted as evidence the affidavits of Clay Chancellor and Edlin.

Chancellor testified by affidavit that he was a partner in MR-1. He claimed that MR-1 and CM&M were joint venturers in Texas with Mortgage Resources and claimed that Mortgage Resources maintained an office in Athens, Texas and sold Park Cities through that office. Chancellor also claimed that Douglas Montague directed the transfer of funds in the transaction with Royal and that the Montague Law Firm directed Edlin's activities in the initial purchase of Park Cities prior to Royal's involvement.

Edlin claimed in his affidavit that he operated out of his office in Athens, Texas and that he conducted business for Mortgage Resources out of that office. Edlin also claimed that Mortgage Resources directed him through Douglas Montague to conduct business activities in Texas, including the sale of Park Cities, and that Royal was instructed to transfer the sale proceeds to an Athens bank account held in the name of Kevin Edlin, d/b/a/ Mortgage Resources. Edlin further related that Douglas Montague directed him to wire all of the proceeds from the Park Cities sale to Mortgage Resources and CM&M, but Edlin withheld his commission.

After examining the pleadings, evidence, and argument on both sides, the trial court sustained the appellees' special appearances, denied Royal's motion for continuance, and dismissed the appellees from the case. Royal requested findings of fact and conclusions of law, which were entered by the trial court. The trial court found that Royal's claims centered around the sale of assets by Mortgage Resources through Edlin, its independent contractor; that appellees did not contract with a Texas resident or own property in Texas; and that appellees had not purposefully established minimum contacts with Texas. Based on these findings, the trial court concluded that it did not have specific or general jurisdiction and that jurisdiction over Mortgage Resources and Edlin could not be imputed to appellees. Royal timely filed its notice of interlocutory appeal.

Complaints on Appeal

On appeal, Royal challenges the factual sufficiency of the evidence to support the trial court's findings of fact and conclusions of law as to each of the appellees. Royal also complains the trial court abused its discretion in denying its motion for continuance because additional jurisdictional discovery was required.

Personal Jurisdiction

Standard of Review

Texas Rule of Civil Procedure 120a allows a nonresident defendant to contest the trial court's exercise of personal jurisdiction by making a special appearance. The trial court determines the...