361 F. Supp. 3d 633
W.D. Tex.2019Background
- COFS (Utah) contracted to procure frac sand for Texas-based ProPetro; ProPetro deposited $4 million into two escrow accounts: $3M with Amegy Bank and $1M with Equity Liaison Company (ELC), managed by Dwayne Naumann.
- Bates Energy (Stanley Bates) represented it could supply sand; COFS alleges Bates and associates (including Mark Sylla, David Bravo, and newly formed FSU) never delivered sand and produced false BOLs/invoices.
- COFS alleges ELC/Naumann commingled and disbursed escrow funds without COFS authorization, transferring at least ~$652,000 to Bates, FSU, Sylla, ELC, and others.
- Procedurally COFS filed a Third Amended Counterclaim against Bates Energy, ELC, Naumann, Sylla, and others; Sylla moved to dismiss for lack of personal jurisdiction; ELC and Naumann moved to dismiss under Rule 12(b)(6).
- Court accepted TAC allegations as true for the motions and (1) denied Sylla’s Rule 12(b)(2) motion, finding specific jurisdiction based on purposeful contacts directed at Texas escrow funds and payments Sylla received; (2) granted in part and denied in part motions to dismiss ELC/Naumann, dismissing negligent misrepresentation claims and certain fraud/veil-piercing/restitution allegations with leave to replead.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over Sylla | Sylla’s Wisconsin acts (mine visits, formation/management of Texas LLC, receipt of payments from Texas escrow) targeted Texas and injured COFS there | Sylla’s relevant acts occurred in Wisconsin; no purposeful contacts with Texas supporting specific jurisdiction | Denied dismissal: specific jurisdiction exists—Sylla directed fraudulent scheme at identifiable Texas escrow funds and received payments from that account |
| Economic-loss rule (ELC) | Tort claims (fraudulent inducement, theft, breach fiduciary duty, etc.) survive because duties independent of contract (escrow fiduciary duties/statutory theft) exist | ELC: alleged wrongs are contract breaches; economic-loss rule bars tort recovery | Court: negligent misrepresentation dismissed (no independent injury pleaded); fraudulent inducement and theft/TLA, breach fiduciary duty, equitable accounting survive at pleading stage |
| Rule 9(b) fraud pleading | COFS alleges ELC/Naumann made pre-contract promises and committed fraud in performance (e.g., July 12 disbursement) | Defendants: fraud allegations are boilerplate, lumped, and lack time/place/speaker/details | Court: fraudulent inducement pleaded with sufficient particularity; general fraud claims as to many unauthorized transfers dismissed but fraud tied to the July 12 authorized disbursement survives; leave to replead other fraud specifics |
| Individual liability / veil piercing (Naumann) | COFS: Naumann acted individually (participation in disbursements, commingling) and is liable directly and via veil piercing | Naumann: acted only as ELC’s managing member; §21.223 shields him absent showing fraud for his direct personal benefit; many claims insufficiently pleaded against him individually | Court: allows common-law direct tort claims against Naumann for his own tortious acts where pled; dismissed veil-piercing allegations (failure to allege fraud primarily for Naumann’s direct personal benefit) and negligent misrepresentation and certain restitution allegations as to Naumann; leave to replead where noted |
Key Cases Cited
- Sangha v. Navig8 Ship Mgmt. Private Ltd., 882 F.3d 96 (5th Cir. 2018) (Texas long-arm analysis collapses into federal due-process minimum-contacts test)
- Walden v. Fiore, 571 U.S. 277 (U.S. 2014) (specific jurisdiction hinges on defendant’s own contacts with the forum, not plaintiff’s connections)
- Guidry v. United States Tobacco Co., 188 F.3d 619 (5th Cir. 1999) (specific jurisdiction may arise from single tortious act directed at forum when defendant purposefully avails itself)
- Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998) (fraudulent inducement claims are not barred by the economic-loss rule)
- Sharyland Water Supply v. City of Alton, 354 S.W.3d 407 (Tex. 2011) (economic-loss rule is context-specific; tort and contract duties may coexist)
- Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Servs., Inc., 787 F.3d 716 (5th Cir. 2015) (economic-loss rule can bar tort claims that depend entirely on contractual duties)
- Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986) (piercing the corporate veil where corporation used as sham to perpetrate fraud)
- Pervasive Software, Inc. v. Lexware GmbH & Co., 688 F.3d 214 (5th Cir. 2012) (plaintiff bears prima facie burden to establish personal jurisdiction; uncontroverted jurisdictional allegations accepted at pleading stage)