Pierce v. Aircraft Fin. Corp.

512 F.Supp.3d 753

Huw PIERCE, et al., Plaintiffs,

v.AIRCRAFT FINANCE CORPORATION LLC, et al., Defendants.

Civil Action No. 4:19-cv-01814

United States District Court, S.D. Texas, Houston Division.

Signed January 8, 2021

Griffin Burke, Newport Beach, CA, pro se.

Brian T. Gravdal, Mark E. Lowary, Berman Berman Berman Schneider and Lowary LLP, Riverside, CA, Courtney Lynn Hylton, Eleecia Barksdale, Mindee J. Stekkinger, Thomas E. Beach, Eligio Jose Luevanos, Beach Cowdrey Jenkins LLP, Oxnard, CA, Lucia Esperanza Coyoca, Mitchell Silberberg and Knupp LLP, Los Angeles, CA, Jessica Marie Helliwell, The Helliwell Law Firm, Newport Beach, CA, Kristina Noel Avena Buan, Fisher and Phillips, LLP, Irvine, CA, for Defendants.

MEMORANDUM AND OPINION DENYING MOTION TO DISMISS AS TO PERSONAL JURISDICTION , VENUE , AND , IN PART , FAILURE TO STATE A CLAIM

CHARLES ESKRIDGE, United States District Judge

This case relates to the purchase of an aircraft by Plaintiffs Huw and Jennifer Pierce through an entity they control, Plaintiff Glencove Holdings LLC. They allege that nonparty Steve Bloom, while acting as their agent, arranged a transaction where he would get a secret $250,000 "flip" profit by purchasing the aircraft for less than Glencove paid for it.

Defendants Martin Ormon and Aircraft Finance Corporation, LLC filed a motion to dismiss the amended complaint for lack of personal jurisdiction, improper venue, and failure to state a claim under Rules 12(b)(2), (b)(3), and (b)(6) of the Federal Rules of Civil Procedure. Dkt 38.

The motion is granted in part and denied in part. It is denied as to personal jurisdiction and venue. As to failure to state a claim, it is granted only as to the claims for conspiracy to commit fraud with Defendant TruStone Financial Credit Union and for aiding and abetting. The claims for fraudulent inducement, fraud by nondisclosure, and conspiracy to commit fraud with Bloom will proceed.

1. Background

The Pierces are Texas citizens. Several of their business entities are also Plaintiffs here, with each (including Glencove) organized under the laws of Texas and having their principal places of business in Houston. Dkt 29 at ¶ 1.

The Pierces were interested in purchasing an aircraft and initially engaged an aircraft broker to assist them. Id. at ¶ 9. Ormon is a resident of South Carolina, and Aircraft Finance is a Wyoming LLC with its principal place of business in California. Id. at ¶¶ 2–3. The Pierces learned of them during their search for an aircraft. Ormon referred Steve Bloom to the Pierces, who later inquired about serving as their agent. After the six-month contract between the Pierces and their prior broker expired, they entered into an agreement with Bloom's company, Bloom Business Jets, Inc., which has offices in Colorado. Id. at ¶¶ 10, 12. He agreed to serve as their agent for a disclosed fee of the lesser of 3.75% or $121,000. See Dkt 29-1 at 2.

Bloom succeeded in finding an aircraft for the Pierces that was owned at the time by Loretto Aviation LLC. He negotiated with Loretto to purchase the aircraft through an entity controlled by Bloom, Ormon, and Aircraft Finance called Big Horn Exploration. Bloom designed the transaction so that Big Horn Exploration would buy the aircraft and then immediately sell it to Glencove, netting an undisclosed flip-profit of $250,000. Dkt 29 at ¶¶ 13–15.

TruStone is a federal credit union with its primary office located in Minnesota. Id. at ¶ 4. The Pierces financed the transaction with funds from TruStone. They didn't apply for credit with TruStone directly but instead went through Aircraft Finance. The agreement stated that Aircraft Finance would receive a one percent origination fee but didn't disclose the flip-profit. Id. at ¶¶ 16–17.

The loan agreement with TruStone required the Pierces to individually guarantee the loan alongside their other Texas-based entities, Plaintiffs The Kipling School, Inc., Kipling Street Academy, Inc., and Mulberry Street Real Estate Ventures, Inc. The agreement also required the Pierces to join a charitable foundation associated with TruStone, make a down payment of $1 million, conduct costly repairs to the aircraft, and set up automatic payments with their bank. Id. at ¶ 21.

Bloom also acted as the appraiser for the aircraft loan, despite representing that he had no financial interest in the transaction. TruStone had knowledge of this through the closing statement, which disclosed the $120,000 commission to Bloom. Id. at ¶¶ 22–23.

Of the flip-profit, $90,000 was paid to Aircraft Finance, $130,366.34 was paid to Bloom Business Jets, and $30,000 was paid to Bloom's lawyer. Id. at ¶ 30. After learning this detail of the financing, Plaintiffs offered to rescind the transaction and return the aircraft to Defendants, who ignored the offer. Id. at ¶ 35. Plaintiffs are continuing to pay the note to maintain the status quo pending final judgment. Id. at ¶ 63.

Plaintiffs initially brought this action in Texas state court in April 2019. Dkt 1-1 at 7–14. TruStone, Aircraft Finance, and Ormon removed the action. Dkt 1. TruStone and former Defendant Elia Griffith then moved to dismiss the initial complaint, as did Aircraft Finance and Ormon. Dkts 11, 18. Plaintiffs moved for leave to amend their complaint, which was granted. Dkts 26, 27.

Plaintiffs then filed the operative amended complaint. Dkt 29. In it, they bring claims against Aircraft Finance and Ormon for fraudulent inducement and fraud by nondisclosure. Id. at ¶¶ 38–45. They assert that TruStone is vicariously liable for the acts of Aircraft Finance and Ormon. Id. at ¶¶ 46–49. And they bring claims against all Defendants for conspiracy to perpetrate a fraud between Aircraft Finance, Ormon, and TruStone; aiding and abetting the tortious conduct of Bloom; and conspiracy to help Bloom. Id. at ¶¶ 50–58.

Aircraft Finance and Ormon seek to dismiss the claims against them for lack of personal jurisdiction under Rule 12(b)(2), improper venue under Rule 12(b)(3), and for failure to state a claim under Rule 12(b)(6). Dkt 38. TruStone likewise moved to dismiss the claims against it and alternatively sought a transfer of venue. Dkt 43. But Plaintiffs and TruStone have since provided notice of the final and binding settlement of their dispute, with dismissal papers to follow funding of the agreement. Dkt 82.

2. Personal jurisdiction

Aircraft Finance and Ormon challenge personal jurisdiction over them in Texas as improper under Rule 12(b)(2). They argue that they didn't have any significant contacts here prior to this litigation, the claims against them don't arise out of any of their alleged contacts with the state, and the exercise of personal jurisdiction would offend traditional notices of fair play and substantial justice. Dkt 38 at 11–18.

a. Legal standard

A federal court may exercise jurisdiction over a nonresident defendant if the long-arm statute of the forum state confers personal jurisdiction over that defendant and exercising that jurisdiction is consistent with the Due Process Clause of the Fourteenth Amendment. McFadin v. Gerber , 587 F.3d 753, 759 (5th Cir. 2009) (citation omitted). The long-arm statute of Texas provides that a nonresident "does business" in Texas and so is subject to service and action in Texas if he, she, or it "commits a tort in whole or in part in this state." Texas Civil Practice and Remedies Code §§ 17.041 – 17.045. The Fifth Circuit holds that this statute confers jurisdiction to the limits of due process. Latshaw v. Johnston , 167 F.3d 208, 211 (5th Cir. 1999) (citation omitted). This means that "the two-step inquiry collapses into one federal due process analysis." Johnston v. Multidata Systems International Corp. , 523 F.3d 602, 609 (5th Cir. 2008) (citation omitted).

Federal due process permits personal jurisdiction over a nonresident defendant who has minimum contacts with the forum state, subject to the limit of not offending "traditional notions of fair play and substantial justice." Ibid. (citation omitted). Such contacts may establish either general or specific jurisdiction.

A federal court has general jurisdiction over a nonresident defendant "to hear any and all claims" if that defendant's contacts with the state are so " ‘continuous and systematic’ " as to render it "essentially at home" in the forum state. Daimler AG v. Bauman , 571 U.S. 117, 127, 134 S.Ct. 746, 187 L.Ed.2d 624 (2014), quoting Goodyear Dunlop Tires Operations, S.A. v. Brown , 564 U.S. 915, 919, 131 S.Ct. 2846, 180 L.Ed.2d 796 (2011). This is a difficult showing to make, requiring "extensive contacts between a defendant and a forum." Johnston , 523 F.3d at 609, quoting Submersible Systems Inc. v. Perforadora Central, S.A. , 249 F.3d 413, 419 (5th Cir. 2001).

A federal court has specific jurisdiction over a nonresident defendant to adjudicate " ‘issues deriving from, or connected with, the very controversy that establishes jurisdiction.’ " Goodyear , 564 U.S. at 919, 131 S.Ct. 2846 (citation omitted). It exists "when a nonresident defendant ‘has purposefully directed its activities at the forum state and the litigation results from alleged injuries that arise out of or relate to those activities.’ " Walk Haydel & Associates Inc. v. Coastal Power Production Co. , 517 F.3d 235, 243 (5th Cir. 2008), quoting Panda Brandywine Corp. v. Potomac Electric Power Co. , 253 F.3d 865, 868 (5th Cir. 2001). The defendant's contacts with the forum "must be more than ‘random, fortuitous, or attenuated, or of the unilateral activity of another party or third person.’ " ITL International, Inc. v. Constenla, S.A. , 669 F.3d 493, 498 (5th Cir. 2012), quoting Burger King Corp. v. Rudzewicz , 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). But even "isolated or sporadic contacts" can support specific jurisdiction "so long as the plaintiff's claim relates to or arises out of those contacts." Id. at 498–99.

Proof by a preponderance of the evidence isn't required. Johnston , 523 F.3d at 609 (citation omitted...