Seghers v. El Bizri

Decision Date07 March 2007
Docket NumberCivil Action No. 3:06-CV-0279-G.
Citation513 F.Supp.2d 694
PartiesConrad P. SEGHERS, et al., Plaintiffs, v. Samer M. EL BIZRI, et al., Defendants.
CourtU.S. District Court — Northern District of Texas

Carl A. Generes, Law Office of Carl A. Generes, Dallas, TX, Charles B. Manuel, Jr., Shira Y. Rosenfeld, Manuel & Rosenfeld LLP, New York, NY, for Plaintiffs.

Jim L. Flegle, Carol E. Farquhar, Loewinsohn Flegle, Dallas, TX, for Defendants.


A. JOE FISH, Chief Judge.

Before the court is the motion by the defendants Samer M. El Bizri ("Bizri"), Codehost, Incorporated f/d/b/a ("Codehost"), and Bizri Capital Partners, Incorporated ("BCP") (collectively, "the defendants") to dismiss the plaintiffs' first amended complaint pursuant to FED. R. CIV. P. 12(b)(2) and (6). For the reasons stated below, the defendants' motion is granted in part and denied in part.


Conrad P. Seghers ("Seghers"), Integral Hedging Offshore, Ltd. ("IHO"), and Exponential Returns, L.P. ("Exponential") (collectively, "the plaintiffs") filed this first amended complaint following the court's memorandum opinion and order granting in part and denying in part the defendants' motion to dismiss the plaintiffs' original complaint pursuant to FED. R. CIV. P. 12(b)(1), (2), (3), (5), and (6). Memorandum Opinion and Order, July 17, 2006 ("Order"). While that order contained a comprehensive description of the facts, a briefer recitation of the factual allegations and procedural background will suffice here. The plaintiffs' original complaint asserted claims of (1) fraud; (2) negligent misrepresentation; (3) breach of contract; (4) money lent; (5) conversion; and (6) indemnification. Complaint ¶¶ 31, 38, 44, 47, 50, 59. The dispute arises out of two separate and unrelated transactions: (1) a loan agreement between Exponential and Bizri and (2) an agreement between BCP and Integral Investment Management, LLC ("IIM") to manage certain hedge funds. Brief in Support of Pre-Answer Motion to Dismiss ("First Motion to Dismiss") at 1-4.

The hedge fund management dispute began in 1998, when Seghers, on behalf of JIM, hired BCP to manage certain hedge funds utilizing a proprietary investment strategy — known as the Risk Adaptive Portfolio Strategy or RAPS — developed by Bizri. Id. BCP and JIM entered into a RAPS agreement that became effective on January 1, 2001. RAPS Agreement at 1, attached to Declaration of Conrad P. Seghers ("Seghers Declaration") as Exhibit 1, attached to Plaintiffs' Appendix in Support of Their Response to Defendants' Motion to Dismiss First Amended Complaint ("Plaintiffs Appendix"). In accordance with this agreement, BCP established two limited partnerships and entered into an agreement with Morgan Stanley, whereby Morgan Stanley provided its services as a registered securities broker. First Motion to Dismiss at 2. Soon, however, BCP began experiencing problems with Morgan Stanley. The defendants assert that Bizri would place trades with the Morgan Stanley broker only to discover that he had placed the trade with the wrong option, at the wrong price, at the wrong expiration, or not at all. Id. Ultimately, these mistakes led to losses totaling millions of dollars. Id.

The defendants claim that Seghers was always aware of the problems with the accounts at Morgan Stanley. Id. Seghers, however, contends he was ignorant of the errors and that BCP deliberately misinformed him about the ongoing problems. Seghers asserts that as a direct result of this misinformation, his reputation has been ruined, and he has been named in several lawsuits and subject to several investigations, requiring him to spend time and money to defend himself. First Amended Complaint ("Amended Complaint") ¶ 59. He seeks to recover these losses.

The dispute over the loan agreement arises out of an entirely different set of facts. On February 19, 1999, Bizri formed a company known as for the purpose of developing certain aviation related software. Id. ¶ 12. Bizri approached Seghers as a possible investor; Seghers, on behalf of Exponential, agreed and signed a letter of intent to purchase 200,000 shares at $5 per share. Id. ¶ 15. The money, however, was paid directly to Bizri as a personal loan, not with Id. ¶ 18. According to the plaintiffs, Seghers was always assured that the invested money would be used to develop and market the aviation software. Id. ¶ 17.

The loan was to be made in two instalments of $500,000 — one on October 15 1999 and the other on April 1, 2000. Id. ¶ 20. Each instalment was for a term of two years with ten percent interest. Id. ¶ 19. In April 2001, however, Bizri drastically deviated from the original business plan of AnswerBuddy.cbm, changing the name to Codehost and developing software unrelated to the initially planned aviation software. Id. ¶ 22. The plaintiffs further allege that the loan proceeds were diverted to Bizri's personal use, specifically, the purchase of a home in California and a Jaguar convertible. Id. ¶ 24. The plaintiffs have demanded payment of the principal and interest, but Bizri has refused. Id. ¶ 25.

This court previously granted a motion to dismiss on the plaintiffs' breach of contract and money lent claims for the first instalment of the loan, but denied the motion as to the second instalment, finding that the statute of limitations had not run with regards to the second instalment. Additionally, the plaintiffs' conversion claim was dismissed on limitations grounds. The court also granted the first motion to dismiss on the plaintiffs' fraud and negligent misrepresentation claims for failure to meet the pleading requirements of FED. R. Civ. P. 9(b) but granted leave for the plaintiffs to re-plead. On August 4, 2006, the plaintiffs filed their first amended complaint, alleging two counts of fraud, breach of contract (as to the second instalment on the loan), money lent (as to the second instalment), and indemnification. See generally Amended Complaint. The instant motion to dismiss followed.

At the close of briefing on this motion to dismiss, the court reviewed the defendants' reassertion of their personal jurisdiction challenge. The plaintiffs, in response to that challenge, relied solely on this court's prior memorandum opinion and order which found that defendants Codehost and BCP had waived their personal jurisdiction challenges through provisions in the loan agreement and the RAPS agreement, respectively. The crux of Codehost's and BCP's challenge to the existence of personal jurisdiction is that the parties to the contract and the parties to this litigation are different. That is, the loan agreement was between Exponential and Bizri in his personal capacity; Codehost was not a party to that loan agreement. The RAPS agreement was between JIM and BCP, but TIM is not a party to this suit. Finding that these personal jurisdiction challenges warranted further consideration, the court vacated its prior memorandum opinion and order to the extent that it concluded personal jurisdiction existed on the basis of these contracts but granted the parties an opportunity to supplement their briefing on the personal jurisdiction issue. The plaintiffs filed a supplemental response to the defendants' motion to dismiss, and the defendants have filed a reply to that supplemental response.


The defendants' motion to dismiss is based on FED. R. Civ. P. 12(b)(2) and (6). The defendants argue that this court lacks personal jurisdiction over Codehost and BCP. As with the prior motion to dismiss, the defendants assert in the instant motion that the plaintiffs' fraud claims must be dismissed pursuant to FED. R. CIV. P. 12(b)(6) for failure to plead with specificity. The defendants further argue that the breach of contract claim and the money lent claim against Codehost and BCP must be dismissed for failure to state a claim on which relief can be granted. Additionally, the defendants argue that the plaintiffs' fraud claim regarding the second instalment of the loan, the breach of contract claim, and the money lent claim are barred by limitations. Finally the defendants assert that Exponential lacks standing to sue.1

A. Lack of Personal Jurisdiction
1. The Factual Standard: A Prima Facie Case

When a nonresident defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing the district court's jurisdiction over the nonresident. Wilson v. Belin, 20 F.3d 644, 648 (5th Cir.), cert. denied, 513 U.S. 930, 115 S.Ct. 322, 130 L.Ed.2d 282 (1994); Gardemal v. Westin Hotel Company, 186 F.3d 588, 592 (5th Cir.1999). If the district court chooses to decide the matter without an evidentiary hearing, the plaintiff may meet his burden by presenting a prima facie case for personal jurisdiction. Wilson, 20 F.3d at 648; Gardemal, 186 F.3d at 592.

The court will take the allegations of the complaint as true, except where they are controverted by opposing affidavits, and all conflicts in the facts are resolved in favor of the plaintiff. Wilson, 20 F.3d at 648; Gardemal, 186 F.3d at 592. In making its determination, the court may consider affidavits, interrogatories, depositions, oral testimony, or any combination of recognized discovery methods. Allred v. Moore & Peterson, 117 F.3d 278, 281(5th Cir.1997), cert. denied, 522 U.S. 1048, 118 S.Ct. 691, 139 L.Ed.2d 637 (1998); Thompson v. Chrysler Motors Corporation, 755 F.2d 1162, 1165 (5th Cir.1985).

2. The Legal Standard

A federal district court may exercise personal jurisdiction over a nonresident defendant if (1) the long-arm statute of the forum state permits the exercise of personal jurisdiction over the defendant; and (2) the exercise of such jurisdiction by the forum state is consistent with due process under the United States Constitution....

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