In a case arising from an alleged scheme to rig the April 2023 Texas Lottery (which created quite a stir in the Legislature this session and resulted in the abolition of the Lottery Commission and transfer of its duties to TDLR), the Austin (Third) division of the business Court has determined that it has jurisdiction over a civil lawsuit against the perpetrators brought by the winner of the May 2023 lottery.

Jerry B. Reed v Rook TX, LP (No. 25-BC03A-0007; 2025 Tex. Bus. 23; June 18, 2025) arose from allegations that (aptly-named) Rook manipulated the April 2023 Texas Lottery and won $95 million as a result. Reed won the $7.5 million jackpot in May 2023 but sued Rook in Travis County, alleging that he would have won $102.5 million if Rook hadn’t cheated. Specifically, Reed asserted that Rook misrepresented the creation date of the entity that claimed the $95 million prize and the date that it received the ticket. He further asserted that Rook was created as a “vehicle” to hide the identity of the entities and individuals who conspired to “rig” the lottery. Rook removed Reed’s lawsuit to the business court under § 25A.004(b)(2), Government Code, which provides that the court has jurisdiction in “an action regarding the governance, governing documents, or internal affairs of an organization.” Reed moved to remand on the basis that the action was “about a fraudulent scheme to rig the Texas Lottery and a subsequent misrepresentation made to the State of Texas” and did not require any reference to internal governance or governing documents.

In an opinion by Justice Andrews, the court denied Reed’s motion to remand. Observing that the statutory term “action” refers to “the lawsuit or judicial proceeding generally, as opposed to only individual causes of action or theories of liability.” Parsing the relevant statutory definitions, Judge Andrews stated that “when the amount in controversy requirement is met, Section 25A.004(b)(2) gives this Court jurisdiction over a lawsuit or judicial proceeding (‘action’) concerning or respecting (‘regarding’) the management and direction of an organization’s affairs (‘governance’), the documents adopted to govern its formation and internal affairs (‘governing documents’), its ownership or membership interests (‘internal affairs’), or the rights, powers, and duties of its governing persons, officers, owners, or members (‘internal affairs’).”

Reed alleged that Rook violated several statutory provisions by intentionally and knowingly influencing the selection of a winner and participating in a fraudulent conspiracy, chiefly that Rook was created to claim the winnings while concealing the identities of the fraudsters. These allegations, Judge Andrews wrote, implicate Rook’s management and direction, the validity of its formation, and the duties of its governing persons. In other words, “is it a legitimate business or a shell created to perpetuate a fraud?” Reed also charged that Rook misrepresented the date of its formation and the date Rook received the winning ticket and that Rook didn’t exist when it claimed the winning ticket. This allegation also went to the “legal documents adopted to govern Rook’s formation,” i.e. the certificate of formation. The fact that a governing document is a public record, Judge Andrews continued, did not “undermine the Court’s jurisdiction,” nor did the fact that “a public website posts an entity’s formation date online does not divorce that date from the governing document that effectuates the underlying formation and is the basis for the posted date.” (Reed claimed that the posting showed that Rook was formed in mid-June, after it claimed the prize.)

Part of Rook’s argument involved the application of the Delaware statute concerning the formation of a limited partnership. This statute generally requires the filing of a certificate of formation, as in Texas, but the date of filing does not determine the date of formation. That can only be determined from the certificate itself. Consequently, “[d]isputes over the validity and effectiveness of a limited partnership’s formation and certificate of formation necessarily revolve around the partnership’s governing documents and internal affairs.” To the extent that Reed brought the date of formation into dispute, he likewise brought into dispute “Rook’s governance, governing documents, or internal affairs.” Reed further argued that § 25A.004(b) only applies to “internal disputes” between partners, owners, shareholders, and managers, not to claims by third parties. Judge Andrews rejected this argument as well, noting that the statute is broader than that in that it covers a business’s governance or governing documents. More to the point, the statute doesn’t saythat its application is so limited.

Reed again tried to argue that his causes of action for money had and received, negligence per se, conspiracy, and other derivative claims are about fraud, not corporate governance. But what Reed was trying to achieve in the lawsuit, Judge Andrews noted, was to recover for himself the $95 million Rook received from its general and limited partners. This “necessarily implicates their rights and duties as partners,” she wrote. Reed could only recover from the partners on his conspiracy theory if an analysis of its corporate documents and governance demonstrated that “a conspiracy can exist among a limited partnership, its general partner, and/or its limited partners.” Those were not issues “tangential” to Reed’s fraud claims. In any event, Judge Andrews “decline[d] to superimpose any judicially crafted predominance or centrality requirements onto the statute. If the Legislature had wanted to include a predominance requirement in the statute, it could have done so. It is not the Court’s role to write additional requirements into the statute.”

Finally, Judge Andrews ruled that the court’s jurisdiction extended to the entire action, not just to parts of it. All of Reed’s theories against each of the Rook partners involve Rook’s governance, governing documents, or internal affairs. Reed did not plead facts purporting “to be independent grounds for recovery under the same causes of action and against all defendants.” More importantly, § 25A.004 “does not compel the Court to granulate each of Reed’s causes of action into every individual factual basis for liability he alleges in support of the cause.”  The court denied Reed’s motion to remand.

This case is a must read for its interpretation of § 25A.004(b) and the scope of the business court’s jurisdiction over actions regarding governance, governing documents, or internal affairs. It makes it pretty clear that if a plaintiff brings a business entity’s organization or management into dispute, regardless of how artfully a plaintiff may be in an effort to avoid the business court, the court will see right through it.

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