Opinion=20
issued July 27, 2006
In The
Court of Appeals
For The
First District of =
Texas
NO. 01-05-00665-CV
__________
HIGHLAND CAPITAL=20
MANAGEMENT, L.P.; ML CBO IV (CAYMAN) LTD.; PAMCO CAYMAN, LTD.; PAM =
CAPITAL=20
FUNDING, L.P.; FAMCO VALUE INCOME PARTNERS, L.P.; AND FAMCO =
OFFSHORE LTD.;=20
Appellants
V.
RYDER =
SCOTT=20
COMPANY AND ROBERT A. HEFNER III, Appellees
On =
Appeal from=20
the 151st District Court
Harris =
County,=20
Texas
Trial =
Court Cause=20
No. 2003-39194
O P I =
N I O=20
N
<=
/SPAN>Appellants,=20
Highland Capital Management, L.P.; ML CBO IV (Cayman) Ltd.; Pamco =
Cayman,=20
Ltd.; Pam Capital Funding, L.P.; Famco Value Income Partners, =
L.P.; and=20
Famco Offshore Ltd., challenge the trial court=E2=80=99s rendition =
of summary=20
judgments in favor of appellees, Ryder Scott Company =
(=E2=80=9CRyder Scott=E2=80=9D) and=20
Robert A. Hefner III (=E2=80=9CHefner=E2=80=9D), in =
appellants=E2=80=99 suit for negligent misrepresentation and =
fraud. In their first =
issue,=20
appellants contend that the trial court erred in granting summary=20
judgments in favor of Ryder Scott and Hefner on grounds that =
appellants=20
did not have standing to pursue their claims. In their second =
issue,=20
appellants contend that the trial court erred in granting Ryder =
Scott=E2=80=99s=20
motion to transfer venue. We affirm in part and reverse and remand =
in=20
part.
Factual and=20
Procedural Background
&nbs=
p;In=20
their second amended petition, appellants allege that =
in 1996 Seven Seas Petroleum, Inc. =
(=E2=80=9CSeven=20
Seas=E2=80=9D), an oil and gas =
company=20
engaged in the exploration and development of oil and gas =
properties in=20
Colombia, operated and maintained a significant working interest =
in the=20
Guaduas Oil Field, located approximately 60 miles northeast of =
Bogata,=20
and, as such, assumed all responsibilities for the exploration,=20
development, and production from this field.
=
In=20
January 1998, Seven Seas began trading on the American Stock =
Exchange,=20
requiring Seven Seas to report its reserve estimates, using the =
definition=20
of =E2=80=9Cproved reserves=E2=80=9D provided in Rule 4-10(a) of =
Regulation S-X of the=20
Securities Exchange Act of 1934 in its filings with the United States =
Securities=20
and Exchange Commission (=E2=80=9CSEC=E2=80=9D). ![3DFootnote](3D"")
Seven Seas hired Ryder Scott, a=20
reservoir-evaluation consulting firm, to prepare reports on Seven =
Seas=E2=80=99=20
proved-reserve estimates.
<=
/SPAN>Seven=20
Seas, on March 31, 1998, filed its =
=E2=80=9CForm 10-K,=E2=80=9D which=20
stated, based on information incorporated from Ryder=20
Scott=E2=80=99s proved-reserve estimate =
reports, that Seven=20
Seas=E2=80=99 proved-reserve estimates for the Guaduas Oil Field =
were 32.2 million=20
barrels, with a value of $144.9 million. Seven Seas filed similar =
10-K=20
forms on March 31, 1999, March 30, 2000, =
and April 2,=20
2001, each reporting Seven Seas=E2=80=99 =
year-end=20
proved-reserve estimates for the Guaduas Oil Field =
based on =
information=20
incorporated from Ryder Scott=E2=80=99s reports.
In its April 16, 2002 Form 10-K, Seven Seas reported=20
proved-reserve =
estimates for=20
the Guaduas Oil Field of 47.6 million barrels, with a value of =
$272.3=20
million.
<=
/SPAN>In=20
reliance upon the information contained in Seven Seas=E2=80=99 =
10-K forms, which=20
incorporated figures from Ryder Scott=E2=80=99s reserve=20
reports, appellants, =
between 1999=20
and 2002, purchased unsecured =E2=80=9Csubordinated =
notes,=E2=80=9D or interests in such=20
notes, issued by Seven Seas to fund the expansion of its=20
operations.
The terms of these =
subordinated notes allowed Seven Seas to subsequently issue senior =
=E2=80=9Csecured notes.=E2=80=9D In order to fund the drilling of =
a well and to finance=20
its business operations, Seven Seas, in July 2001, =
issued an additional $45 million in =
secured=20
notes.
Chesapeake Energy Corporation=20
(=E2=80=9CChesapeake=E2=80=9D) purchased =
one-half of these=20
secured notes. A group of investors, including Hefner, who was =
serving as=20
Chairman and Chief Executive Officer of Seven =
Seas, purchased the other one-half of these =
secured=20
notes. Hefner personally =
purchased $15=20
million of the secured notes.
=
On=20
August 14, 2002, Seven Seas, based on Ryder =
Scott=E2=80=99s reserve report for the period =
ending June 30,=20
2002, revised its proved reserves downward from its previous =
reports to=20
16.3 million barrels. Because Seven Seas =
was no=20
longer able to meet its financial obligations, a group of =
unsecured=20
creditors, including appellants, on December 20, =
2002, filed an involuntary petition for =
relief against=20
Seven Seas under Chapter 7 of the United States Bankruptcy=20
Code
in the United States Bankruptcy Court =
for the=20
Southern District of Texas, Houston Division (=E2=80=9CBankruptcy =
Court=E2=80=9D). The=20
case was converted into a Chapter 11
case, and, on January 14, 2003, the =
Bankruptcy=20
Court appointed a trustee to represent the interests of Seven =
Seas=E2=80=99=20
creditors, equity holders, and other interest =
holders.
&nbs=
p;The trustee filed =
a=20
complaint, on March 31, 2003, in an=20
adversary proceeding in=20
Bankruptcy Court against=20
Seven Seas=E2=80=99 secured lenders, including Chesapeake, and, on =
August 14,=20
2003, the trustee amended his complaint to include claims against =
Seven=20
Seas=E2=80=99 former officers and directors, including Hefner =
(hereinafter=20
referred to as the =E2=80=9CD&O litigation=E2=80=9D). The =
claims filed in this=20
adversary proceeding related to the issuance of the secured notes =
by Seven=20
Seas, the trustee alleged Hefner breached duties owed to Seven =
Seas and=20
its creditors, and the trustee sought to effectively void the =
security=20
interests held by Chesapeake and Hefner and to recover damages, in =
part,=20
from Seven Seas=E2=80=99 directors and officer=E2=80=99s insurance =
carrier.=20
On August 4, 2003, the Bankruptcy Court =
entered an=20
=E2=80=9COrder Confirming Chapter 11 Trustee=E2=80=99s Second =
Amended Plan of=20
Reorganization for [Seven Seas].=E2=80=9D The Confirmation Order =
provided, in=20
relevant part:
Injunction-Discharged =
Debts. The=20
commencement or continuation of any action, or the employment of =
process=20
with respect to any debt discharged hereunder, or an act to =
collect,=20
recover or offset any debt discharged hereunder other than in the =
manner=20
provided in the Plan, as a personal liability of the Debtor or =
property of=20
the Estate be, and is hereby, forever enjoined.
Additionally, as part of the plan of=20
reorganization, Chesapeake =
entered into a=20
settlement with Seven Seas, and Seven Seas released its claims =
against=20
Chesapeake. Hefner remained a defendant in the adversary =
proceedings in=20
the Bankruptcy Court. Ryder Scott has never been named a defendant =
in the=20
adversary proceedings in Bankruptcy Court.
=
On January 27, 2003, a few weeks after =
Seven Seas=20
entered bankruptcy, appellants filed suit in Dallas =
County,=20
Texas against Ryder Scott for negligent=20
misrepresentation. Ryder Scott then filed a motion to transfer =
venue to=20
Harris County, Texas, and, after the trial court granted the =
motion and=20
transferred the case, appellants filed a second amended petition, =
adding=20
Chesapeake and Hefner as defendants. In their second amended =
petition,=20
appellants asserted against Ryder Scott claims of=20
negligent misrepresentation, fraud, aiding fraud under the Texas=20
Securities Act,
and=20
aiding and abetting fraud, and against Chesapeake and=20
Hefner claims of conspiracy to defraud and =
aiding and=20
abetting fraud. Appellants=20
alleged that in =
preparing=20
the reserve estimates incorporated into Seven=20
Seas=E2=80=99 10-K=20
forms filed with the SEC, Ryder Scott =E2=80=9Chad not faithfully =
applied the=20
parameters set forth by the SEC for the calculation of proved =
reserves.=E2=80=9D=20
More specifically, appellants alleged that even though Ryder Scott =
reported that vast areas of the Guaduas field contained proved =
reserves,=20
=E2=80=9CRyder Scott knew these reserves had not been proved under =
the SEC=E2=80=99s=20
guidelines and Ryder Scott had no idea whether these reserves =
existed or=20
could ever be commercially developed.=E2=80=9D =
Appellants further =
asserted=20
that, under the relevant business practices, Ryder Scott =
=E2=80=9Cknew or should=20
have known that its proved-reserve estimates for Seven Seas would =
be=20
examined and relied upon=E2=80=9D by appellants in making their =
decisions to=20
acquire or hold their investments in the subordinated=20
notes.
<=
/SPAN>In=20
support of its negligent misrepresentation claim, appellants =
asserted that=20
Ryder Scott owed them a duty to use reasonable care and competence =
in=20
obtaining, calculating, or communicating the proved-reserve =
estimates,=20
that Ryder Scott breached this duty, and that as a result =
appellants lost=20
almost all of their investments in the subordinated notes. In =
support of=20
their fraud claim, appellants asserted that they relied on Ryder =
Scott=E2=80=99s=20
misrepresentations to their detriment and that Ryder Scott knew that the =
information=20
regarding Seven Seas=E2=80=99 proved-reserve estimates was false =
or that Ryder=20
Scott made the representations with reckless disregard. In support =
of=20
their Texas Securities Act claim, appellants asserted that Ryder =
Scott was=20
liable as an aider of fraud in the sale of the securities. In =
support of=20
their conspiracy and aiding and abetting claims, appellants =
asserted that=20
Chesapeake, Hefner, and Seven Seas entered into a common plan to =
defraud=20
them by issuing and purchasing secured notes =E2=80=9Cin order to =
decrease the=20
assets available to investors in the [subordinated] =
notes,=E2=80=9D that they=20
accomplished this fraud by employing the material =
misrepresentations and=20
omissions in Ryder Scott=E2=80=99s reserve reports, and that they =
used those=20
reports to induce appellants to purchase interests in the =
subordinated=20
notes or to refrain from selling their interests in the notes. =
Appellants=20
further asserted that Chesapeake and Hefner knew that Ryder =
Scott=E2=80=99s=20
reserve estimates were false or were made with reckless disregard. =
<=
/SPAN>Chesapeake=20
removed appellants=E2=80=99 state court claims to the United =
States District Court=20
for the Southern District of Texas, and the removed claims against =
Chesapeake were ultimately consolidated into an adversary =
proceeding in=20
the Bankruptcy Court. Chesapeake then filed a motion to dismiss =
the=20
claims, arguing that appellants=E2=80=99 claims against it had =
been released under=20
the terms of the plan of reorganization previously approved by the =
Bankruptcy Court.
<=
/SPAN>Ryder=20
Scott and Hefner did not remove appellants=E2=80=99 state court =
claims against=20
them. Instead, on June 8, 2004, Hefner filed a summary judgment =
motion=20
asserting that appellants lacked standing to sue him because the =
trustee=20
for Seven Seas had exclusive standing to bring the claims being =
asserted=20
by appellants. Hefner further asserted that equitable principles=20
underlying bankruptcy required that summary judgment be granted so =
that=20
the trustee could assert appellants=E2=80=99 claims in order to =
ensure that all of=20
Seven Seas=E2=80=99 creditors were treated equally. On July 15, =
2004, Ryder Scott=20
filed its own summary judgment motion, stating that it was joining =
Hefner=E2=80=99s motion and asserting =
that the=20
grounds presented in Hefner=E2=80=99s motion applied equally to=20
it.
=
On=20
July 26, 2004, the trustee filed a complaint for injunctive relief =
in=20
another adversary proceeding in the Bankruptcy Court seeking to =
enjoin=20
appellants from prosecuting their state court claims against =
Hefner=20
pending the outcome of the trustee=E2=80=99s claims against Hefner =
and others in=20
Bankruptcy Court. On August 6, 2004, the Bankruptcy Court entered =
a=20
preliminary injunction stating:
=
(i) the=20
claims against Hefner in the State Court Action are sufficiently =
related=20
to the [Trustee=E2=80=99s] claims against Hefner in Civil Action =
No. 03-5693=20
pending in the United States District Court for the Southern =
District of=20
Texas, Houston Division . . . ;
=
(ii) the=20
[Trustee=E2=80=99s] claims and the [state court claims] against =
Hefner are claims=20
to the same money, in the possession of Hefner, as a result of the =
same=20
acts; and
=
(iii) the=20
[Trustee] should have the first opportunity to recover on its =
claims=20
against Hefner on behalf of all creditors of the estate of [Seven=20
Seas].
The Bankruptcy =
Court found=20
that Seven Seas would be irreparably harmed if the preliminary =
injunction=20
was not issued =E2=80=9Cdue to the possible reduction of =
funds=E2=80=9D available to Seven=20
Seas and to the other parties if appellants were allowed to =
proceed=20
independently with their claims against Hefner. It also found that =
appellants would not be harmed by the issuance of a preliminary =
injunction=20
because, as creditors of the estate of Seven Seas, they would =
benefit from=20
any recovery obtained in the D&O litigation. The Bankruptcy =
Court=20
noted that it would =E2=80=9Cset a hearing on final adjudication =
of who may=20
proceed.=E2=80=9D It then =E2=80=9Cpreliminarily enjoined =
[appellants] from further=20
prosecution of their claims against Hefner in the State Court =
Action=E2=80=9D and=20
stated that the preliminary injunction =E2=80=9Cshall remain in =
full force and=20
effect until such time as the [Bankruptcy] Court enters a Final =
Judgment=20
in this adversary proceeding.=E2=80=9D
=
In=20
the adversary proceeding concerning the removed claims against =
Chesapeake,=20
the Bankruptcy Court, on February 23, 2005, issued a final judgment dismissing =
appellants=E2=80=99=20
claims against Chesapeake. The Bankruptcy Court also entered a =
separate=20
order, which applied in both adversary proceedings, denying remand =
of the=20
claims against Chesapeake and denying the modification of the =
preliminary=20
injunction that it had previously entered enjoining appellants =
from=20
prosecuting their claims against Hefner in the state court action. =
The=20
Bankruptcy Court issued a memorandum opinion
in support of its final judgment and =
order. In its=20
memorandum opinion, the Bankruptcy Court summarized the procedural =
history=20
of the dispute as follows:
[A]bout three months after the =
confirmation of the=20
chapter 11 plan, Plaintiffs amended their petition in the State =
Court=20
Lawsuit to add Chesapeake and Hefner as defendants. The admended =
petition=20
alleges that Chesapeake and Hefner and the other directors =
conspired and=20
generally cooperated to inflate the reserve reports, thus =
overstating the=20
value of the company, thus allowing the issuance of Secured Notes, =
and=20
thus damaging Plaintiffs. The amended petition seeks damages for=20
securities fraud, fraud, conspiracy, and aiding and abetting=20
fraud.
<=
/SPAN>When=20
it was added as a defendant, Chesapeake removed the State Court =
Lawsuit=20
and filed a motion to enforce the order confirming the chapter 11 =
plan,=20
most prominent of which is the settlement and release of =
Chesapeake.=20
Subsequently, Chesapeake and Seven Seas filed an adversary =
proceeding that=20
seeks an injunction against Plaintiffs=E2=80=99 pursuit of =
directors and the=20
D&O coverage, asserting that those claims are property of the =
estate,=20
which are being pursued in the United States District Court for =
the=20
Southern District of Texas in case # 03-5693.
<=
/SPAN>Plaintiffs=20
do not assert that they had any direct contact or communications =
with=20
Hefner, Chesapeake, or the other directors. Plaintiffs allegations =
of harm=20
are that Chesapeake, Hefner, and the other directors acted in =
concert to=20
mislead investors in general about the value of Seven =
Seas=E2=80=99 proven=20
reserves by working in concert with Ryder Scott to publish =
inflated=20
reserve reports.
In determining that the claims against =
Chesapeake=20
should be dismissed and that the injunction as to Hefner should =
not be=20
modified, the Bankruptcy Court summarized its analysis as=20
follows:
<=
/SPAN>In=20
summary, whether a claim is property of the estate depends on the =
nature=20
of the injury and whether the debtor could have raised the claim =
under=20
state law as to the commencement of the case. If Chesapeake and =
Hefner=20
conspired to create claims with collateral rights senior to other=20
creditors, then the harm is generalized to all creditors. Not only =
=E2=80=9Ccould=20
have=E2=80=9D the Debtor raised the claims against Chesapeake, and =
Hefner, the=20
Debtor did raise =
those=20
claims. Therefore the claims against Chesapeake and Hefner are =
property of=20
the estate.
<=
/SPAN>Plaintiffs=20
argue that they may pursue the claims because they have rights =
under state=20
law that are independent of the Debtor=E2=80=99s rights. That =
argument=20
misperceives the test. In virtually all of the Fifth Circuit cases =
discussed above, both the debtor and a creditor had the ability to =
bring=20
an action. The extensive discussion by the Fifth Circuit assumes =
that both=20
have the right to bring the action. The decision that the state is =
the=20
proper party to bring the action is made by a reference to =
bankruptcy=20
principles, especially an avoidance of chaotic multiple actions in =
multiple jurisdictions and a race to judgment and execution on the =
judgment. Under the principles described above, the Debtor has the =
right=20
to bring that action; it is the property of the =
estate.
<=
/SPAN>Appellants=20
timely filed a notice of appeal of the Bankruptcy Court=E2=80=99s =
judgment and=20
order, and the appeal is currently pending in the Southern =
District of=20
Texas, the same court where the D&O litigation against Hefner =
remains=20
pending.
<=
/SPAN>Based=20
on the Bankruptcy Court=E2=80=99s final judgment, order, and =
opinion, Hefner=20
supplemented his summary judgment motion and asserted that the =
opinion=20
barred appellants from pursuing their claims against him. Hefner =
contended=20
that the Bankruptcy Court stated =E2=80=9Cunequivocally that =
[appellants=E2=80=99] claims=20
against Hefner are property of the Bankruptcy Estate and cannot be =
pursued=20
by [appellants] in this or any other forum.=E2=80=9D =
<=
/SPAN>Ryder=20
Scott also filed a supplemental motion on the same basis, even =
though the=20
Bankruptcy Court expressly stated in its =
opinion:
ACTION AGAINST RYDER SCOTT WAS NOT=20
REMOVED
It is the Court=E2=80=99s understanding =
that claims=20
against Ryder Scott were not removed. Therefore, this decision has =
no=20
effect on any claim against Ryder Scott that does not affect =
Chesapeake or=20
Hefner.
<=
/SPAN>In=20
separate orders, the trial court granted Ryder Scott=E2=80=99s =
supplemental=20
summary judgment motion and Hefner=E2=80=99s summary judgment =
motion without=20
opinion.
Standing
<=
/SPAN>In=20
their first issue, appellants=20
argue that the trial court erred in granting summary judgment in =
favor of=20
appellees because (1) appellees failed to establish as a matter of =
law=20
that appellants lacked standing to pursue their claims against =
Ryder Scott=20
and Hefner; (2) the Bankruptcy Court opinion is inapplicable to=20
appellants=E2=80=99 claims against Ryder Scott; and (3) Seven =
Seas=E2=80=99 bankruptcy=20
filing did not exterminate appellants=E2=80=99 =E2=80=9Cpersonal =
state law claims=E2=80=9D against=20
non-debtors or =E2=80=9Cassign appellants=E2=80=99 state law =
claims to Seven=20
Seas.=E2=80=9D
<=
/SPAN>Appellants=20
assert that =E2=80=9Cit is axiomatic=E2=80=9D that =E2=80=9Cas the =
parties that purchased and held=20
the notes in reliance on Ryder Scott=E2=80=99s false =
proved-reserve estimates,=E2=80=9D=20
they would have standing to pursue Ryder Scott and Hefner, who =
they allege=20
conspired to misrepresent the proved reserves, for their damages =
caused in=20
reliance on the representations. Appellants further assert that =
their=20
pleadings met every element for standing under Texas law. In =
regard to the=20
Bankruptcy Court opinion, appellants emphasize that it is =
completely=20
inapplicable to their claims against Ryder Scott because their =
claims=20
against Ryder Scott are not addressed in the plan and are not =
being=20
pursued by the trustee, and the Bankruptcy Court expressly stated =
that its=20
opinion did not apply to appellants=E2=80=99 state claims against =
Ryder=20
Scott. =
=
Ryder=20
Scott and Hefner contend that appellants lack standing to pursue =
their=20
claims against them because appellants=E2=80=99 claims are based =
on general harm=20
to all creditors and, thus, are property of the Seven =
Seas=E2=80=99 bankruptcy=20
estate and belong exclusively to the trustee. Both Ryder Scott and =
Hefner=20
rely heavily on the Bankruptcy Court=E2=80=99s opinion dismissing =
appellants=E2=80=99=20
claims against Chesapeake and denying the modification of its =
preliminary=20
injunction as to appellants=E2=80=99 claims against =
Hefner.
Hefner also =
asserts that=20
=E2=80=9C[i]n a line of cases stretching over 20 years,=E2=80=9D =
the Fifth Circuit =E2=80=9Chas=20
consistently held that claims of general harm to =
creditors=E2=80=94however those=20
claims may be characterized by individual plaintiffs=E2=80=94may =
be brought only=20
by the bankruptcy trustee.=E2=80=9D See =
Pam Capital Funding, L.P. v. =
Nat=E2=80=99l Gypsum Co. (In=20
re Kevco), 309 B.R. 458 =
(Bankr.=20
N.D. Tex. 2004), aff=E2=80=99d 113 Fed. App=E2=80=99x 29 =
(5th Cir. 2005); In re=20
Schimmelpennick, 183 F.3d 347 (5th Cir. 1999);=20
Schertz-Cibolo-Universal City Indep. Sch. Dist. v. Wright (In =
re=20
Educators Group Health Trust), 25 F.3d 2181 (5th Cir. 1994); =
S.I.=20
Acquisition, Inc. v. Eastway Delivery Serv., Inc. (In re S.I.=20
Acquisition), 817 F.2d 1142 (5th Cir. 1987); American =
Nat=E2=80=99l Bank v.=20
MortgageAmerica Corp., 714 F.2d 1266 (5th Cir. 1983). =
Ryder Scott cites these cases as well, =
and asserts=20
that appellants=E2=80=99 claims =E2=80=9Care both derivative =
claims that belong to Seven=20
Seas=E2=80=99 bankruptcy estate, and claims asserting a =
generalized injury to the=20
bankruptcy estate that affects all =
creditors.=E2=80=9D
<=
/SPAN>=E2=80=9CThe=20
term =E2=80=98property of the estate=E2=80=99 includes =
=E2=80=98all legal or equitable interests=20
of the debtor in property as of the commencement of the=20
case.=E2=80=99=E2=80=9D In re Educators=20
Group Health Trust, 25 F.3d 1281, 1283 (5th Cir. 1994) =
(citing 11 U.S.C. =C2=A7 =
541(a)(1)=20
(1988)). =E2=80=9CAll legal or equitable =
interests=E2=80=9D=20
includes causes of action. Id. A trustee has =
exclusive=20
standing to assert a cause of action belonging to the =
bankruptcy=20
estate. See Antonov v. Walters, 168 S.W.3d 901, =
904=E2=80=9305 (Tex.=20
App.=E2=80=94Fort Worth 2005, pet. denied) (=E2=80=9COnce a claim =
belongs to the=20
bankruptcy estate, the bankruptcy trustee, as the estate =
representative,=20
has exclusive standing to assert the claim=E2=80=9D). In =
determining whether a=20
cause of action is property of the estate, a court must consider =
whether=20
under state law the debtor could have asserted the action as of =
the=20
commencement of the case. See In re Educators Group Health =
Trust,=20
25 F.3d at 1284. In conducting this inquiry, however, a court must =
also=20
consider the nature of the injury alleged, i.e., whether the =
injury to the=20
plaintiff is a direct or a derivative harm. Id. As the =
Fifth=20
Circuit has explained:
If a cause of action alleges only =
indirect harm to=20
a creditor (i.e., an injury which derives from harm to the =
debtor), and=20
the debtor could have raised a claim for its direct injury under =
the=20
applicable law, then the cause of action belongs to the estate.=20
Conversely, if the cause of action does not explicitly or =
implicitly=20
allege harm to the debtor, then the cause of action could not have =
been=20
asserted by the debtor as of the commencement of the case, and =
thus is not=20
property of the estate.
Id. (internal =
citations=20
omitted).
<=
/SPAN>With respect to =
claims=20
asserted against directors and officers of a corporation, =
including=20
Hefner, the Bankruptcy Court recited in its =
opinion:
The estate created =
pursuant=20
to section 541 succeeds to any right of action the debtor =
corporation may=20
have to recover damages for misconduct, mismanagement, or neglect =
of duty=20
by a corporate officer or director. Thus, it has been held that =
the=20
trustee may prosecute a cause of action based on the fraud of the=20
officers, directors, or shareholders for fiduciary misconduct, =
unlawful=20
diversion of assets, or upon a statutory liability created by the =
law of=20
the state of incorporation.
Memorandum Opinion =
at *4=E2=80=935=20
(citing Collier on=20
Bankruptcy, 15th ed., =
=C2=A7 541.08[5]).
=
Here,=20
the trustee brought suit against Hefner in Bankruptcy Court related to Seven Seas=E2=80=99 =
issuance and=20
Hefner=E2=80=99s subsequent purchase of the secured notes. The =
trustee alleged=20
Hefner breached duties owed to Seven Seas and its=20
creditors, including =
appellants, and,=20
as a result of Hefner=E2=80=99s breach of these duties, the =
trustee sought =E2=80=9Cto=20
avoid [Hefner=E2=80=99s] security interests,=E2=80=9D =E2=80=9Cto =
obtain a judgment against . . .=20
Hefner for damages,=E2=80=9D and to recover damages from =
=E2=80=9Cits directors and its=20
Directors and Officer=E2=80=99s Insurance Carrier.=E2=80=9D =
Similarly, in the state court lawsuit,=20
appellants asserted that =
Hefner=20
committed the torts of conspiracy and aiding and abetting by =
entering into=20
a common plan to defraud them by issuing and purchasing secured =
notes in=20
order to decrease assets available to the holders of the =
subordinated=20
notes. We conclude that =
the nature=20
of the injury for which relief is sought against Hefner in state =
court,=20
which can be described as the depletion of Seven Seas=E2=80=99 =
assets to the=20
detriment of appellants, as well as all other creditors of Seven =
Seas, is=20
derivative of Seven Seas=E2=80=99 direct =
injury.
<=
/SPAN>Our=20
conclusion is supported by the fact that the trustee in Bankruptcy =
Court=20
is effectively seeking, as a remedy for Hefner=E2=80=99s alleged =
breach of his=20
duties to Seven Seas and its creditors, to void the security =
interests=20
held by Hefner, which appellants allege in their state court =
lawsuit that=20
Hefner created as part of his common plan to defraud them. If the =
trustee=20
is successful in his claims against Hefner in Bankruptcy Court, =
Hefner=E2=80=99s=20
interests in any secured distribution from Seven Seas=E2=80=99 =
bankruptcy estate=20
would be effectively voided. See MortgageAmerica, 714 F.2d =
at 1275=20
(holding that action under the Uniform Fraudulent Transfers Act =
belongs to=20
estate because debtor was stripped of assets, causing derivative =
injury to=20
plaintiff creditor). As succinctly noted by the Bankruptcy Court, =
=E2=80=9CIf . .=20
. Hefner conspired to create claims with collateral rights senior =
to other=20
creditors, the harm is generalized to all creditors. Not only =
=E2=80=98could have=E2=80=99=20
[Seven Seas] raised the claims against . =
. .=20
Hefner [in state court], [Seven Seas] did raise those =
claims.=E2=80=9D Memorandum=20
Opinion at *8. In accord with the =
Bankruptcy Court=E2=80=99s opinion, and with the principles set =
forth by the Fifth=20
Circuit in In re Educators Group Health Trust, 25 F.3d at =
1284,=20
we conclude that =
the claims=20
asserted by appellants in state court against Hefner are the =
property of=20
Seven Seas=E2=80=99 bankruptcy estate. Accordingly, we hold that =
the trial court=20
did not err in granting summary judgment in favor of Hefner.=20
=
However,=20
the summary judgment granted in favor of Ryder Scott presents a =
different=20
issue. First, we note that the Bankruptcy Court expressly stated =
in its=20
opinion that its decision had no effect on any claim against Ryder =
Scott.=20
Memorandum Opinion at *12. Second, appellants=E2=80=99 claims =
against Ryder Scott=20
cannot be characterized as =E2=80=9Cproperty of the =
estate=E2=80=9D because Seven Seas=20
could not have asserted these claims at the commencement of its=20
bankruptcy. See In re Educators Group Health Trust, 25 F.3d =
at=20
1284. For example, appellants=E2=80=99 misrepresentation and fraud =
claims against=20
Ryder Scott are based on appellants=E2=80=99 reliance on =
Ryder Scott=E2=80=99s=20
representations concerning Seven Seas=E2=80=99 proved-reserve=20
estimates and on =
appellants=E2=80=99=20
damages, i.e. their loss of their investments in the=20
subordinated notes based on their reliance. These claims against =
Ryder=20
Scott are based on a direct harm to appellants, not a derivative =
harm to=20
Seven Seas. For example, in In re Educators Group Health=20
Trust, the Fifth =
Circuit, finding=20
that the plaintiff=E2=80=99s negligent misrepresentation and fraud =
claims belonged=20
solely to the plaintiffs, =
noted:
=
We=20
do agree, however, with the plaintiff school districts=E2=80=99 =
contention that=20
some of the causes of action allege a direct injury to themselves, =
which=20
is not derivative of any harm to the debtor. For example, the =
plaintiff=20
school districts allege in . . . the complaint that the defendants =
intentionally misrepresented to them the financial =
situation of=20
EGHT, and that they materially relied on such representations to =
their=20
detriment. To the extent that this cause of action and others =
allege a=20
direct injury to the plaintiff school districts, they belong to =
the=20
plaintiff school districts and not the estate.
25 F.3d at 1284.
=
Similarly,=20
appellants=E2=80=99 Texas Securities Act claim arises from =
appellants=E2=80=99 purchase=20
of securities. See Tex. Rev. Civ. Stat. Ann. =
art.=20
581.33-A(2), C(2), D(1), and F(2)=20
(Vernon Supp. 2005). Here, the parties agree that Seven Seas could =
not=20
pursue the same remedies under this Act. =
=
The causes of action asserted by =
appellants=20
against Ryder Scott are similar to those asserted by the plaintiff =
in=20
Caplin v. Marine Midland Grace Trust Co. of New York, which =
were=20
determined not to be =E2=80=9Cproperty of the estate.=E2=80=9D 406 =
U.S. 416, 92 S. Ct.=20
1678 (1972). In Caplin, the Supreme Court held =
that a=20
bankruptcy trustee did not have standing to bring claims against =
an=20
indenture trustee on behalf of debenture holders. Id. at =
434, 92 S.=20
Ct. at 1688. The debtor in Caplin issued debentures, =
pledged to=20
limit its debt-equity ratio, and, in order to demonstrate =
continuing=20
compliance with this pledge and other requirements of the =
indentures,=20
agreed to file an annual certificate of compliance with an =
indenture=20
trustee. Id. at 417=E2=80=9318, 92 S. Ct. at 1680. When the =
debtor entered=20
bankruptcy, the bankruptcy trustee conducted an investigation that =
revealed that the indenture trustee may have =E2=80=9Ceither =
wilfully or=20
negligently failed to fulfill its obligations under the =
indenture=E2=80=9D because=20
the debtors=E2=80=99 certificates of compliance were fraudulent =
and based on=20
grossly overvalued appraisals of the debtor=E2=80=99s property. =
Id. at 419,=20
92 S. Ct. at 1681. The bankruptcy trustee alleged that the =
indenture=20
trustee should have known or did know about the inflated appraisal =
and=20
filed suit against the indenture trustee on behalf of the =
debenture=20
holders, =E2=80=9Cseeking to recover the principal amount of the =
outstanding=20
debentures as damages for [the indenture trustee=E2=80=99s] =
alleged bad-faith=20
failure to compel compliance with the terms of the =
indenture.=E2=80=9D Id.=20
at 420, 92 S. Ct. at 1681. The Supreme Court, holding that the =
bankruptcy=20
trustee lacked standing to bring the action on behalf of the =
debenture=20
holders, stated that =E2=80=9Cnowhere in the statutory scheme is =
there any=20
suggestion that the [bankruptcy] trustee is to assume the =
responsibility=20
of suing third parties on behalf of debenture holders=E2=80=9D and =
=E2=80=9Cthere is=20
nothing in the section that enables [the bankruptcy trustee] to =
collect=20
money not owed to the estate.=E2=80=9D Id. =
<=
/SPAN>Likewise,=20
here, we conclude that the trustee in the Bankruptcy Court would =
not have=20
standing to pursue claims against Ryder Scott. Not surprisingly, =
no such=20
claims have been made in the bankruptcy proceedings by the =
trustee. The=20
fact that appellants represent a large number of creditors who =
purchased=20
subordinated notes based on alleged misrepresentations made by =
Ryder Scott=20
does not convert appellants=E2=80=99 personal state law claims =
into claims that=20
belong to or are property of the bankruptcy estate. See In re =
Educators=20
Group Health Trust, 25 F.3d at 1285 n.4 (stating that it has =
=E2=80=9Cneither=20
held nor implied that a cause of action belongs to the estate =
simply=20
because it could be brought by many creditors, as opposed to only=20
one=E2=80=9D).
Accordingly, we hold that the trial =
court erred in=20
granting summary judgment in favor of Ryder =
Scott.
<=
/SPAN>We=20
overrule appellants=E2=80=99 first issue in regard to Hefner, and =
sustain=20
appellants=E2=80=99 first issue in regard to Ryder =
Scott.
Venue
<=
/SPAN>In their second issue, appellants argue =
that the=20
trial court erred in granting Ryder Scott=E2=80=99s motion to =
transfer venue. In=20
their original petition, appellants asserted that venue was proper =
in=20
Dallas County because all or a substantial part of the events =
giving rise=20
to their claims occurred in Dallas County. Ryder Scott filed =
a motion=20
to transfer venue, objecting to venue in Dallas County. Ryder =
Scott denied=20
that Dallas County is where all or a substantial part of the =
events or=20
omissions occurred and sought to transfer venue to Harris County =
on the=20
ground that =E2=80=9CHarris County is the county in which all or a =
substantial=20
part of the events or omissions giving rise to =
[appellants=E2=80=99] alleged=20
claims occurred and/or because Harris County is where Ryder Scott=20
maintains a =E2=80=98principal office.=E2=80=99=E2=80=9D =
=
Appellants=20
filed a response to Ryder Scott=E2=80=99s motion, and attached the =
affidavit of=20
Kurt Plumer. In his affidavit, Plumer testified that he was the =
portfolio=20
manager of appellant Highland Capital, that his responsibilities =
included=20
researching, analyzing, evaluating, and making recommendations =
regarding=20
potential investments, that the other plaintiffs in the lawsuit =
were funds=20
managed by Highland Capital, and that he was the person =
principally=20
responsible for evaluating the financial information related to =
the=20
acquisition of the senior subordinated notes issued by Seven Seas. =
As part=20
of his research, Plumer examined the 10-K forms filed by Seven =
Seas with=20
the SEC for year ends of 2000 and 2001. These 10-K forms included=20
estimated net proved oil reserves based upon reports prepared by =
Ryder=20
Scott, and the 10-K form for year end 2001 contained a provision =
stating=20
that Ryder Scott consented to the incorporation of its reserve =
report in=20
the 10-K form. The 10-K forms for 2000 and 2001 reference the =
senior=20
subordinated notes. Plumer stated that in reliance upon Ryder Scott=E2=80=99s =
estimates, he=20
determined that it was =E2=80=9Cfeasible=E2=80=9D to acquire =
interests in the subordinated=20
notes, that he made a recommendation in support of this =
acquisition to=20
Highland Capital in accordance with this determination, and that =
the=20
credit committee approved this recommendation and acquired the=20
subordinated notes.
<=
/SPAN>In=20
regard to Dallas County, Plumer testified:
<=
/SPAN>All=20
of the information I received regarding Ryder Scott=E2=80=99s =
estimates of Seven=20
Seas=E2=80=99 net proved oil reserves, I received at my Highland =
Capital office=20
which is located in Dallas County, Texas. All of the reliance that =
I=20
placed upon Ryder Scott=E2=80=99s estimates of Seven Seas=E2=80=99 =
net proved oil reserves=20
in making my recommendation . . . occurred in Dallas County,=20
Texas.
<=
/SPAN>All=20
of the information which was received by the Capital Committee at =
Highland=20
Capital regarding Ryder Scott=E2=80=99s estimates . . . was =
received by the=20
Capital Committee at the offices of Highland Capital in Dallas =
County,=20
Texas. All of the reliance that was placed upon Ryder =
Scott=E2=80=99s estimates of=20
Seven Seas=E2=80=99 net proved oil reserves in making its decision =
to make=20
investments . . . occurred in Dallas County, Texas. Furthermore, =
the=20
decision to make the investment in the . . . senior subordinated =
notes=20
that are involved in this lawsuit was also made in Dallas County, =
Texas.=20
Additionally, all of the information received regarding Ryder =
Scott=E2=80=99s=20
estimates . . . and all reliance thereon in making decisions to =
refrain=20
from selling the acquired interests . . . occurred in Dallas =
County,=20
Texas.
<=
/SPAN>Ryder=20
Scott also filed evidence in support of its motion to transfer =
venue.=20
Ryder Scott attached the affidavit of Thomas L. Gardner, vice =
president of=20
Ryder Scott, in which Gardner testified that between 1997 and =
2002, Ryder=20
Scott prepared estimates and reports for Seven Seas. The reports =
were=20
prepared for the exclusive use of Seven Seas, and at Seven =
Seas=E2=80=99 request,=20
which was made in Harris County, Ryder Scott agreed to allow Seven =
Seas to=20
include Ryder Scott=E2=80=99s estimated proved reserves in Seven =
Seas=E2=80=99 10-K forms=20
filed with the SEC for year ends 2000 and 2001. Gardner also =
testified=20
that Ryder Scott=E2=80=99s principal place of business is Harris =
County and that=20
all of the work Ryder Scott performed for Seven Seas that is the =
basis of=20
this lawsuit =E2=80=9Cwas done exclusively in Harris =
County.=E2=80=9D Gardner=20
explained:
<=
/SPAN>Ryder=20
Scott reviewed and analyzed Seven Seas=E2=80=99 production data in =
Harris County,=20
Texas; Ryder Scott met with and interviewed Seven Seas=E2=80=99 =
employees in=20
Harris County, Texas; Ryder Scott prepared its estimates and =
reports in=20
Harris County, Texas; and Ryder Scott delivered its reports to =
Seven Seas=20
in Harris County, Texas.
<=
/SPAN>In=20
addition, all of Ryder Scott=E2=80=99s communication with Seven =
Seas regarding=20
Ryder Scott=E2=80=99s work occurred in Harris County, Texas, =
including Seven Seas=E2=80=99=20
request for permission to include Ryder Scott=E2=80=99s estimated =
proved reserves=20
. . . in the Form 10-K that Seven Seas filed with the [SEC] . . . =
and=20
Ryder Scott=E2=80=99s consent to Seven Seas=E2=80=99 requests. No =
aspect of Ryder Scott=E2=80=99s=20
work for Seven Seas was performed in Dallas County,=20
Texas.
<=
/SPAN>Ryder=20
Scott has no contact or communications with Plaintiffs in Dallas =
County,=20
Texas and prior to the filing of this lawsuit, was completely =
unaware of=20
the existence or identity of the Plaintiffs and of their =
transactions=20
involving Seven Seas=E2=80=99 . . . unsecured =
notes.
The Dallas County district court granted =
Ryder=20
Scott=E2=80=99s motion without opinion, and transferred the case =
to Harris County.=20
After the transfer, appellants added Hefner as a=20
defendant.
<=
/SPAN>=E2=80=9CPlaintiffs=20
are accorded the right to choose venue first.=E2=80=9D =
Chiriboga v. State Farm=20
Mut. Auto. Ins. Co., 96 S.W.3d 673, 677 (Tex. =
App.=E2=80=94Austin 2003, no=20
pet.). When a defendant challenges the plaintiff=E2=80=99s choice =
of venue, the=20
plaintiff has the burden to present prima facie proof that venue =
is=20
maintainable in the county of suit. Tex. R. Civ. P. =
87(2)(a), (3)(a);=20
Chiriboga, 96 S.W.3d at 678. If the county chosen by plaintiffs in a =
lawsuit=20
was a county of proper venue, then a county to which a suit is =
transferred=20
=E2=80=9Ccannot be a county of proper venue as a matter of =
law.=E2=80=9D Wilson v. Tex.=20
Parks & Wildlife Dep=E2=80=99t, 886 S.W.2d 259, =
261=E2=80=9362 (Tex. 1994);=20
Jaska v. Texas Dep=E2=80=99t of Protective and Regulatory =
Servs., 106=20
S.W.3d 907, 910 (Tex. App.=E2=80=94Dallas 2003, no =
pet.). Affirming a trial court=E2=80=99s =
granting of a motion to=20
transfer venue, when the original county the plaintiff selected =
had been a=20
county of proper venue, would =E2=80=9Ceviscerate the =
plaintiff=E2=80=99s right to select=20
venue.=E2=80=9D Wilson, 886 S.W.2d at 261. Thus, we conduct =
a de novo=20
review of the trial court=E2=80=99s granting of the motion to =
transfer venue, and=20
we must look to determine whether there is any probative evidence =
that=20
venue would have been proper in Dallas County. See id. If =
so, it=20
was reversible error for the Dallas County court to have =
transferred venue=20
to Harris County. Jaska, 106 =
S.W.3d=20
907
<=
/SPAN>The=20
parties agree that the general permissive venue statute is =
applicable=20
here. See Tex. =
Civ. Prac.=20
& Rem. Code Ann. =C2=A7 15.002 (Vernon 2002). Section =
15.002(a)(1)=20
provides that venue is permissive in the county where =E2=80=9Call =
or a=20
substantial part of the events or omissions giving rise to the =
claim=20
occurred.=E2=80=9D Id. In this case, we must determine =
whether there is any=20
probative evidence that =E2=80=9Call or a substantial part =
of=E2=80=9D the events giving=20
rise to this lawsuit=E2=80=9D occurred in Dallas County, and thus =
appellants=E2=80=99=20
choice of venue in Dallas County was proper.
<=
/SPAN>In=20
addressing the scope of the current venue statute, which provides =
for=20
proper venue in counties where =E2=80=9Call or a substantial part =
of the events or=20
omissions giving rise to the claim occurred,=E2=80=9D we note that =
the predecessor=20
venue statute provided for venue =E2=80=9Cin the =
county in which all or=20
part of the cause of action accrued or in the county of =
defendant=E2=80=99s=20
residence . . . . =E2=80=9D Act of May 18, 1995, 74th Leg., R.S., =
ch. 138, =C2=A7 1,=20
1995 Tex. Gen. Laws 978 (amended 1995) (current version at Tex. Civ. Prac. & Rem. Code =
Ann.=20
=C2=A7 15.002(a)(1) (Vernon 2002)). The amended venue =
statute =E2=80=9Cnarrowed=20
the number of counties in which venue could be maintained to those =
with a=20
substantial connection to the lawsuit.=E2=80=9D Chiriboga, =
96 S.W.3d at=20
681. Under the =
predecessor=20
statute, a plaintiff could maintain venue in a county where any =
part of a=20
cause of action accrued, =E2=80=9Cno matter how unimportant the =
connection might=20
be.=E2=80=9D Id. The amended statute =E2=80=9Crequires that =
the basis for venue be=20
a =E2=80=98substantial part=E2=80=99 of the cause of action at =
issue.=E2=80=9D Id. Although=20
we should not attempt to choose the =E2=80=9Cbest venue=E2=80=9D =
when conducting our de=20
novo review, we must determine whether the substantiality =
threshold=20
provided in section 15.002(a)(1) has been satisfied. See=20
id.
=
Here,=20
the only =E2=80=9Cevent=E2=80=9D cited by appellants is that their =
portfolio manager=20
=E2=80=9Creceived=E2=80=9D and reviewed Seven Seas=E2=80=99 10-K =
forms, which apparently were=20
filed with the SEC and were available to the public, in Dallas =
County,=20
Texas. However, appellants do not explain how he =
=E2=80=9Creceived=E2=80=9D the 10-K=20
forms, which indisputably were not even filed by Ryder Scott, and =
there is=20
no allegation that Ryder Scott directed the SEC forms to =
appellants or to=20
Dallas County. Although appellants assert that Ryder =
Scott=E2=80=99s reports were=20
incorporated into these 10-K forms, there is no allegation that =
appellants=20
met with or spoke with anyone from Ryder Scott or even Seven Seas =
in=20
Dallas County, or that Ryder Scott or Seven Seas directed the 10-K =
forms=20
to appellants in Dallas County. The evidence presented by Ryder =
Scott,=20
which is undisputed, is that all of the work performed =
by Ryder Scott for =
Seven=20
Seas that is the basis of this lawsuit, including the reviewing =
and=20
analyzing of Seven Seas=E2=80=99 production data, the interviewing =
of Seven Seas=E2=80=99=20
employees, and the preparing of its reports, occurred in Harris =
County,=20
Texas. =
Appellants=E2=80=99 suit, according=20
to appellants=E2=80=99 own petition, is based on Ryder =
Scott=E2=80=99s failure to follow=20
the parameters set forth =
by the=20
SEC in calculating the proved-reserve estimates =
incorporated by Seven Seas =
into its 10-K=20
forms filed with the SEC. This evidence =
supports an=20
implied finding by the Dallas County district court that there was =
no=20
probative evidence that =E2=80=9Call or a substantial part =
of=E2=80=9D the events giving=20
rise to this lawsuit occurred in Dallas County. Accordingly, we =
hold that=20
the Dallas County district court did not err in transferring the =
case to=20
Harris County.
<=
/SPAN>We find the primary case cited by =
appellants to be=20
distinguishable. In Hyman Farm Serv. Inc. v. Earth Oil & =
Gas=20
Co., 920 S.W.2d 452, 456 (Tex. App.=E2=80=94Amarillo 1996, no =
pet.), the court=20
stated that in a fraud claim, =E2=80=9Cvenue may be sustained in =
the county where=20
the words are heard by the person defrauded.=E2=80=9D However, =
Hyman was=20
decided under the predecessor version of the permissive venue =
statute and,=20
more significantly, the case was centered on the allegation that a =
seller=20
directly made misrepresentations to a buyer during a phone =
conversation.=20
Id. The court held that venue was proper in the county in =
which the=20
buyer was located during the conversation. Id. In this =
case, the=20
allegations are focused on misrepresentations contained in SEC =
documents=20
that were filed by Seven Seas, not Ryder Scott, based on =
information=20
incorporated from reports prepared by Ryder Scott in Harris =
County. There=20
is no evidence that Ryder Scott directly contacted appellants in =
Dallas=20
County or that Ryder Scott was even aware that its reports would =
be relied=20
upon in Dallas County.
<=
/SPAN>We=20
overrule appellants=E2=80=99 second issue.
Conclusion
<=
/SPAN>We=20
affirm in part and reverse and remand in part for proceedings =
consistent=20
with this opinion.
&=
nbsp; &n=
bsp; &nb=
sp; &nbs=
p; =
; =
Terry=20
Jennings
&=
nbsp; &n=
bsp; &nb=
sp; &nbs=
p; =
; =
Justice
Panel consists of Justices Jennings, =
Hanks, and=20
Higley. |