Renowned Chem. Sols. v. CJ Chemicals LLC

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RENOWNED CHEMICAL SOLUTIONS LLC, Plaintiff, v. CJ CHEMICALS LLC, et al., Defendants.

Civil Action No. 4:21-CV-669

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

August 17, 2022

ORDER

Andrew S. Hanen, United States District Judge

Pending before the Court is the motion to dismiss filed by Defendants CJ Chemicals LLC (“CJC”) and Joshua Lee (“Lee”) (collectively, “Defendants”). (Doc. No. 40). Plaintiff Renowned Chemical Solutions LLC (“Renowned” or “Plaintiff”) has responded in opposition (Doc. No. 43), and Defendants have replied thereto. (Doc. No. 45). After reviewing the relevant briefing and applicable law, the Court DENIES Defendants' Motion. (Doc. No 40).

I. Background

This is a breach of contract and fraud case. According to the Second Amended Complaint (“SAC”), Plaintiff Renowned Chemical Solutions is a specialty chemical distributor based in Texas, and Defendant CJ Chemicals is a chemical distributor based in Michigan. (Doc. No. 33 at ¶ 7-8). Defendant Joshua Lee is the CFO and aprincipal at CJC. (Id. at ¶ 9). Renowned's president, Jess Covington (“Covington”) allegedly met Lee at an emerging leaders' program and the two developed a social and business relationship. (Id. at ¶ 11-12). From January 2020 to February 2021, Renowned and CJC entered into a series of commercial transactions concerning a variety of chemical compounds. (Id. at ¶ 13). Renowned alleges that CJC breached its contractual obligations for four separate transactions, discussed individually below. (Id. at ¶ 15-16).

A. The ISO Loads Contract

In January 2020, Renowned alleges that it ordered “five tanker loads of isopropyl alcohol,” inviting CJC to evenly split the profits if it agreed to pay half of the costs. (Id. at ¶ 20). CJC allegedly agreed. (Id.). The venture proved successful, yielding a net profit of approximately $270,000.00. (Id. at ¶ 21). Of the proceeds, however, CJC purportedly received $252,291, whereas Renowned received less than $21,000. (Id. at ¶ 22). Renowned contends that CJC owes additional sums in the amount of $ 119,402.02 pursuant to the agreement between the parties, a fact they claim is supported by Lee's email communications in both September 2020, and February 2021. (Id. at ¶¶ 23-25).

B. Purchase Order J522

In the spring of 2020, Lee allegedly informed Renowned that CJC had a possible sale for a large amount of hand sanitizer, to which Renowned expressed an interest. (Id. at ¶¶ 27-28). Defendants allegedly never provided the name of the prospective customer to Renowned; however, Renowned was later informed that Viachem, Ltd. (“Viachem”) was negotiating on the prospective customer's behalf. (Id. at ¶ 29). Lee and Covington allegedly had several discussions about the possible transaction in which Lee was “adamant” that once CJC submitted a purchase order to Renowned, Renowned was responsible for meeting the delivery timeline in the orders, and if Renowned failed to do so, that CJC would lose the contract with the prospective customer. (Id. at ¶ 30). Lee also agreed to provide Renowned with a “substantial deposit” when placing the order for the hand sanitizer. (Id.).

In the same discussions, Lee purportedly requested that Renowned take the necessary steps to prepare for the prospective customer's expected demand, but Covington stated that he would not agree to do so absent a purchase order. (Id. at ¶ 31). Lee responded that CJC would not issue a purchase order to Renowned until it had received a purchase order from the prospective client. (Id.).

On May 13, 2020, CJC allegedly requested that Renowned execute a non-circumvention agreement stipulating that it “not contact, deal with, negotiate, or participate in any transactions with any of the contracts without first entering a written agreement with the Party who provided such contact unless that Party gives prior written permission,” and Renowned agreed to do so. (Id. at ¶ 32). A week later, Lee emailed Renowned asking how many jugs of sanitizer Renowned could allocate to the prospective customer and how quickly Renowned could begin delivering 100,000 gallons of sanitizer to the prospective customer per week. (Id. at ¶¶ 33-34). On May 22,2020, Lee allegedly sent a text message to Covington explaining that CJC expected a purchase order from the prospective customer that day. (Id. at ¶ 35). The same day, CJC, allegedly via Lee as the only CJC representative involved in the discussions, issued Purchase Order J522 (“POJ522”) for 150,000 one-gallon containers of hand sanitizer to be delivered on May 26, 2020, for a total purchase price of $2,175,500. (Id. at ¶¶ 36-39).

Due to the quick turnaround, Renowned claims that it had to stop other work to fulfill the purchase order and purchase thousands of labels, containers, and pumps before receiving the deposit from CJC. (Id. at ¶¶ 42-44). Renowned also had to negotiate with its packaging vendor to arrange capacity for the order and order thousands of gallons of hand sanitizer from its chemical supplier. (Id.). Renowned informed CJC that the hand sanitizer for POJ522 would be ready for pickup on time and that additional gallons were in production to be completed later in the week. (Id. at ¶ 47). Covington sent Lee a message requesting the deposit to help cover costs and explained that Renowned would have to halt production if the money was not delivered as soon as possible. (Id. at ¶¶ 48-50). Lee allegedly responded that CJC had not received the money from the prospective customer as of May 27, 2020, and that production should be halted if the money didn't come by the next day. (Id. at ¶¶ 51-52).^[1]

On May 28,2020, Lee copied Covington on an email to Viachem, the party negotiating on behalf of the prospective customer, which allegedly indicated that neither Viachem nor the prospective customer had approved Renowned as a vendor for hand sanitizer. (Id. at ¶ 54). Renowned, accordingly, was unaware that either the May 26 delivery date was a “fiction” or that CJC did not have a finalized deal with the prospective client and had no way of knowing this due to the non-circumvention agreement. (Id. at ¶ 56). Upon learning this information, Renowned instructed its packing vendor to cease work on the order (after having completed nearly 32,000 one-gallon containers) and instructed its chemical supplier to stop production of the hand sanitizer. (Id. at ¶ 57).

CJC took delivery of 7,840 containers, while Renowned sold 4,920 gallons of hand sanitizer in an attempt to mitigate damages. (Id. at ¶ 60-61). After Renowned cancelled the orders with its vendors, Defendants allegedly provided Renowned with an “advance” of $275,000 due to Renowned's resulting financial situation. (Id. at ¶ 64). CJC, however, purportedly failed to pay Renowned the sums due under POJ522, disputes the existence of a binding contract, and has further requested reimbursement or of $275,000.^[2] (Id. at ¶ 62-63). Renowned remains in possession of the remaining hand sanitizer prepared for the order. (Id. at ¶ 75).

C. Purchase Orders BL4938 and BL4939

On May 29, 2020, CJC allegedly issued purchase orders BL4938 and BL4939 to Renowned, each requesting fifty 265 gallon-totes of hand sanitizer gel at $11 per gallon. (Id. at ¶ 76-78). Renowned prepared the order, but CJC allegedly has never taken possession or paid for either order. (Id. at ¶ 79-80).

II. Procedural History

Renowned filed suit against CJC and Lee, bringing breach of contract and promissory estoppel claims against CJC, along with various fraud claims against both Defendants. Defendants subsequently filed the instant motion to dismiss Counts IV and V-fraud and promissory estoppel, respectively-of Renowned's Second Amended Complaint, arguing lack of jurisdiction over Lee, improper venue, and failure to state claims upon which relief can be granted. (Doc. No. 40).

III. Legal Standards

A. Lack of Personal Jurisdiction Under Rule 12(b)(2)

When a district court rules on a Rule 12(b)(2) motion without a hearing, the plaintiff must make a prima facie showing of jurisdiction. Johnston v. Multidata Sys. Int'l Corp., 523 F.3d 602, 609 (5th Cir. 2008). The court may consider the contents of the record, including affidavits or other recognized methods of discovery, in deciding whether to exercise personal jurisdiction. Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). Generally, the court accepts the plaintiff's non-conclusory, uncontroverted allegations as true and resolves conflicts between the facts contained in the parties' affidavits in the plaintiff's favor. Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 868 (5th Cir. 2001).

A federal court may exercise personal jurisdiction over a non-resident defendant if: (1) the long-arm statute of the forum state allows the exercise of personal jurisdiction over the defendant; and (2) the exercise of personal jurisdiction over that defendant is consistent with Fourteenth Amendment to the United States Constitution. Mullins v. TestAmerica, Inc., 564 F.3d 386, 398 (5th Cir. 2009). The two-part jurisdictional inquiry collapses into a single step in this forum because the Texas long-arm statute extends to the limits of federal due process. Tex. Civ. Prac. & Rem. Code § 17.042; Johnston, 523 F.3d at 609; Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990). To meet the requirements of due process, the plaintiff must demonstrate: (1) that the non-resident purposely availed himself of the benefits of the forum state by establishing minimum contacts with the state; and (2) that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. Mullins, 564 F.3d at 398.

“Minimum contacts” can give rise to either specific personal jurisdiction or general personal jurisdiction. Lewis v Fresne, ...