The Dallas (1st Division) Business Court has granted special appearances of two-thirds of the defendants in a massive fraud case originally filed in Dallas County district court.
Riverside Strategic Capital Fund I, L.P.; RSCF Blocker True Health, LLC; and RSCF I-A Blocker True Health, LLC v. CLG Investments, LLC; et al. (No. 25-BC01-0006; 2025 Tex. Bus. 33; August 19, 2025) arose the loss of Plaintiffs’ $50 million investment in a health care entity when the entity, True Health Group LLC (THG), went bankrupt with the loss of more than $84 million. Plaintiffs brought suit against 30 defendants in a Dallas County district court for alleged misrepresentations in the Securities Purchase Agreement (SPA) between the parties. A smaller subset of defendants removed the case to business court. Plaintiffs’ pleading didn’t allege any specific jurisdictional facts as to individual defendants, though they later relief on allegations that THG’s predecessor, True Health Diagnostics, LLC had business operations in Texas with Texas hospitals, and that defendants knew about that business when they chose to invest in the company. Twenty out-of-state defendants (OSDs) filed special appearances.
Plaintiffs claimed that each OSD (1) knowingly invested in an entity that had substantial business connections to Texas, (2) designated an agent in the form of CLG Investments, LLC, (3) consented to jurisdiction by signing the THG LLC Agreement, (4) waived their objection to personal jurisdiction by appearing generally in the bankruptcy trustee’s litigation in Texas, and (5) four OSDs had additional contacts related to their work with THG. The Court divided these claims into those relating to minimum contacts as they pertain to Texas and the present lawsuit (1, 2, and 5), and those not based on pre-suit contacts maintained by the OSDs (3 and 4). The OSDs argue that Plaintiffs’ petition failed to allege sufficient facts establishing jurisdiction over any of them, that the court cannot consider factual allegations outside the pleadings in determining personal jurisdiction, and, in the absence of such jurisdictional facts, all they had to do to get out of the case was prove they were non-residents.
In an opinion by Judge Whitehill, the court granted the special appearances. As a preliminary matter, the court concluded that Plaintiffs failed to plead specific, non-conclusory jurisdictional allegations for any OSD, justifying dismissal of the OSDs without further ado. Although Plaintiffs attempted to make up for the failure to plead specific jurisdicitonal evidence by submitting it in its briefing, “the court need to consider the allegations or evidence submitted” that way. The appropriate remedy for the failure to plead, or course, is to amend the pleadings, but Plaintiffs didn’t do that, despite being alerted to the problem by the OSDs’ brief. Consequently, when the OSDs each proved out-of-state residence, the inquiry was over.
In the interest of completeness, Judge Whitehill observed that even if the court were to consider Plaintiffs’ additional allegations and evidence, they would still lose. Plaintiffs asserted that the OSDs fostered a “continuing relationship” by investing in a Texas company, thereby establishing sufficient minimum contacts. But unlike in the cases Plaintiffs relief on in their briefing (one of which included breach of partnership agreement and tort claims and other real property interests in Texas), the dispute at hand “[did] not arise out of [the OSDs’] investment in THG and alleged fraud in the SPA,” but Plaintiffs’ investment. There was thus no “substantial connection between these contacts (defendants’ investment in THG) and the operative facts of this litigation.” Plaintiffs further failed to present any evidence of the OSDs’ direct contact with any plaintiff in Texas or elsewhere, that any OSD was present in Texas when they signed the SPA, or that the SPA required any party to perform in Texas. And the mere fact that THG was headquartered in Texas was neither here nor there because “it is not an operative fact of Riverside’s claims and THG’s contacts cannot be imputed against its individual owners.”
Riverside’s second argument alleged that CLG Investments LLC was the agent and attorney-in-fact for the OSDs, so its “jurisdictional contacts with respect to the SPA [were] therefore imputed to the [OSDs].” While it was true that CLG was a Delaware LLC with its principal place of business as Frisco, Texas, CLG’s location was irrelevant. Even if it was, the court added, Plaintiffs failed to allege or present evidence that CLG took any specific action in relation to the OSDs’ alleged misrepresentations. As to Plaintiffs’ allegations that four of the OSDs performed work for THG in Texas, traveled to Texas to conduct its business, and conducted other business “directed towards Texas,” none of them were in Texas during the operative period of the litigation (THG was headquartered in Virginia). The Court thus found that none of them had been residents of Texas at the time of the execution of the SPA, possessed specific connections with Texas in connection with the SPA, or made misrepresentations surrounding the SPA. No minimum contacts, no specific jurisdiction.
Riverside then made two non-contacts-based arguments. The first offered the slightly disjointed reasoning that OSDs consented to jurisdiction based on a separate agreement than the SPA. The court rejected the argument out of hand, though Judge Whitehill indulged Plaintiffs’ mention of a forum-selection clause in that agreement that specified Dallas County state or federal courts as the forum for disputes. Unfortunately, as Judge Whitehill pointed out, Plaintiffs cherry-picked language from the forum selection clause making it clear that it applied only to claim under that particular agreement and had nothing to do with the SPA (which had its own forum selection clause specifying a Delaware forum). Their second non-contact argument invoked a prior business court decision in Primexx Energy Opportunity Fund, LP v. Primexx Energy Corp, which held that defendants waived their challenge to personal jurisdiction in the second proceeding (which was “essentially a continuation of the first”) by virtue of their general appearance in the initial suit. Just because the OSDs appeared in the bankruptcy trustee’s litigation in Texas didn’t mean they waived their objections to jurisdiction in this wholly distinct litigation. In any event, the court noted, the trustee litigation arose partly out of the THG LLC Agreement (not the SPA), which had a mandatory venue provision that “arguably foreclosed those defendants’ ability to object to jurisdiction in that case.” The court thus granted the OSDs’ special appearance and dismissed them from the case.
TCJL Intern Satchel Williams researched and prepared the first draft of this article.
