Personal jurisdiction found over corporate parent without veil-piercing

Originally published by Mike Northrup.

Ordinarily, when evaluating the contacts of distinct legal entities, the contacts of parent corporations and subsidiaries are evaluated separately for jurisdictional purposes, unless the corporate veil is pierced.  On first glance, that doesn’t appear to be what happened in Cornerstone Healthcare Group Holding, Inc. v. Nautic Management VI, L.P.  The key to understanding this opinion lies in the nature of the causes of action, and the fact that those causes of action arose before–or concurrent with–the creation of the subsidiary entities that were part of the overall transaction in question.

According to the allegations, several executives of Cornerstone identified Reliant Hospital Partners, LLC as a possible takeover target, and instead of presenting the opportunity to Cornerstone, took the opportunity to Nautic Management VI, a Delaware limited partner, and Nautic Partners, a management advisor that conducts due diligence on potential investments.  Nautic Management ultimately purchased Reliant (Old Reliant) and to facilitate the deal, it set up a chain of wholly-owned subsidiaries beginning with Reliant Holding Company, a Delaware company, which owned Reliant Pledgor, also a Delaware Company, which owned Reliant Opco Holding Corporation, also a Delaware Company. Reliant Pledgor and Reliant Opco owned Reliant Acquisitions, a Delaware company with its principle place of business in Texas.  Reliant Acquisitions purchased Old Reliant.   Following this acquisition, the Cornerstone executives who were involved in the Nautic transaction resigned from Cornerstone and joined Reliant Acquisitions.  Cornerstone brought suit accusing the executives of usurping corporate opportunities, misappropriating confidential information, and breaching fiduciary duties.  Cornerstone alleged that the Nautic entities and employees conspired and tortiously interfered.  Nautic Management and three funds it managed entered special appearances to contest personal jurisdiction.

The trial court granted the funds’ special appearances, but denied Nautic Management’s special appearance.  The court of appeals affirmed as to the funds’ special appearances but reversed as to Nautic Management, holding that Texas lacks jurisdiction.  The Texas Supreme Court granted Cornerstone’s petitions for review and reversed, holding that Texas has jurisdiction over the funds and over Nautic Management.

The supreme court’s opinion acknowledges that Cornerstone was not relying upon any veil-piercing theory to assert jurisdiction.  The opinion also acknowledges that the contacts of a parent and subsidiary  that are distinct entities cannot be attributed to one another.  Even so, the court found jurisdiction because the acquisition of Reliant and the creation of the various entities were all part of a single transaction to which the funds and Nautic Management were parties.  The court held that Cornerstone’s claims arose from the transaction itself which included purposeful contacts with Texas.  The court’s opinion may be found here.

 

 

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