In a follow-up decision to a 2023 Texas Supreme Court decision declining to grant mandamus compelling a multidistrict litigation court to dismiss them from the case, two private investor groups have prevailed at the Beaumont Court of Appeals.
TPC Group Litigation (No. 09-22-00159-CV; June 27, 2024) is the latest development in litigation stemming from a massive explosion at a petrochemical processing plant in Port Neches on Thanksgiving Eve, 2019. The accident resulted in more than 2,000 lawsuits with 7,000 plaintiffs, whose claims were consolidated in an MDL court in Orange County. Plaintiffs sued TPC Group, which owned the plant, and later added three co-defendants, including two private-investor groups, that indirectly owned TPC. Plaintiffs sought to hold the investors directly liable for their damages, alleging that in the interest of the bottom line they held up a turnaround at the plant that would have prevented the accident. The investors filed a Rule 91a motion to dismiss, which the MDL court denied. The Beaumont Court of Appeals affirmed. The investors filed a petition for writ of mandamus with SCOTX.
In that case, In re First Reserve Management, L.P.; First Reserve Corporation, L.L.C.; FR XII Alpha AIV, L.P.; FR XII-A Alpha AIV, L.P.; FR Sawgrass, L.P.; and Sawgrass Holdings, L.P. (No. 22-0227; delivered June 23, 2023), SCOTX denied to grant mandamus. While the investors’ mandamus petition was pending, TPC filed for bankruptcy protection in Delaware. The bankruptcy court approved a global settlement of the claims of unsecured creditors, including plaintiffs. TPC further released any claims it may have asserted against the investors, which the bankruptcy court ruled included plaintiffs’ veil-piercing and alter ego claims. The settlement thus barred plaintiffs from asserting those claims in litigation, but the bankruptcy court entertained plaintiffs’ negligent undertaking claim. It subsequently rejected the claim and directed plaintiffs to submit a revised pleading complying with the settlement plan, but nevertheless indicated doubts about the investors’ argument that the negligent undertaking claim was really a veil-piercing claim under another name. Both plaintiffs and the investors appealed the bankruptcy court’s order. TPC Group has since emerged from bankruptcy under an agreement to pay claimants from a fund of $30 million. As of the date of this report, about 9,500 claims await payment from the fund.
SCOTX declined to wade into the investors’ arguments about the veil-piercing and alter ego claims, since the bankruptcy court had enjoined plaintiffs from pursuing them. It further decided to let the MDL court figure out whether plaintiffs’ negligent undertaking claim could be disentangled from those claims, as the bankruptcy court suggested might be done. The question then became whether plaintiffs’ negligent undertaking claim could survive a Rule 91a motion to dismiss. This required the Court to determine whether the investors, who plaintiffs alleged directed the day-to-day operations of TPC, owed a legal duty of reasonable care to plaintiffs. At the same time, as Chief Justice Hecht observed, plaintiffs did not attempt to argue that the directors exercised control over TPC either through indirect ownership or the appointment of the board overseeing TPC. Those are standard corporate structure issues. Whether plaintiffs could state a cause of action, however, depended on specific factual allegations showing that the investors “undertook in other ways to run TPC’s day-to-day operations and, specifically, to delay the turnaround that could have prevented the explosions.”
In order to satisfy the notice-pleading rule, plaintiffs’ allegations have to do more than give notice of their legal theory. In this case, however, they “[made] no allegation that [the investors]—a group of entities that are distinct from Sawgrass Holdings GP—undertook to render services to TPC” and “their negligent-undertaking claim has no basis in law.” Even if the investors delayed the turnaround, as plaintiffs alleged, “an undertaking duty cannot be predicated on an omission, a promise that is not performed or relief on by the injured party, the failure to make an expenditure, or a parent’s supervision of its subsidiary’s financial and budgetary decisions” (citations omitted). Plaintiffs further presented no evidence that the investors “[themselves] decided whether to provide or withhold resources to TPC” or had any “authority… over TPC’s budget and expenses.” In short, Chief Justice Hecht wrote, “[p]laintiffs’ third amended petition makes many legal accusations but no factual allegations to show a cause of action with a basis in law against [the investors] for TPC’s conduct. The MDL court should have granted [the investors’] motion to dismiss.”
But, as Chief Justice Hecht indicated, the MDL court did not dismiss the investor groups from the case under Rule 91a. Instead, after the TPC bankruptcy was complete, it lifted the stay on the litigation against the other defendants, including the investor groups. The investor groups, all of whom are non-resident entities of various sorts, filed special appearances challenging the MDL court’s personal and specific jurisdiction over them. There is a very complicated-looking organizational chart in the court’s opinion, but suffice it to say that TPC Group, Texas, which operated the plan and took bankruptcy to manage direct liability for the explosions, stood at the end of an ownership structure that included three Cayman Islands limited partnerships and nine Delaware limited partnerships with principal places of business in Connecticut and elsewhere. At the top two tiers of the structure, each of these entities owned a percentage of the total direct or indirect investment in the holding company that owned TPC Group and the plant itself. Plaintiffs ran with the theory that because the two investment groups—First Reserve and SK—contributed two members each to a five-member board of managers (the “GP Board”) that oversaw TPC, they could be held directly liable for the plant’s torts on alter ego and veil-piercing theories. The MDL court agreed and denied the investor groups’ special appearances. The groups appealed.
In an opinion by Chief Justice Golemon, the court reversed and dismissed the investor groups from the MDL for lack of personal jurisdiction. First, the court held that the MDL court did not have general jurisdiction over any of the investors because none were organized in Texas or had a principal place of business here. One of them, First Reserve, maintained a Houston office, but “the fact that a non-resident defendant maintains a Texas office is not a sufficient basis for exercising general, or all-purpose jurisdiction” (citations omitted). The question then became whether specific jurisdiction could be based on whether any of the investors “purposefully avail[ed] themselves of the privilege of conducting activities” with Texas and Plaintiffs’ claims
“ar[ose] out of or relate[d] to those forum contacts” (citations omitted). Plaintiffs alleged that the GP Board, acting as TPC’s board, exercised day-to-day control over TPC’s operations, including the delay of maintenance that would have prevented the accident. Consequently, they argued, the investor groups, who “controlled” a majority of the GP Board, acted as TPC’s alter ego in the operation of the plant.
The court rejected this argument. Under Texas law parent and subsidiary companies are separate and distinct entities, and the mere presence of dual officers on boards of directors does not establish “whether, in degree and detail, actions directed to the facility by an agent of the parent alone are eccentric under accepted norms of parental oversight of a subsidiary’s facility” (citation omitted). In this case, however, Plaintiffs presented no evidence that the GP Board had anything to do with the day-to-day operations of the plant, just that they performed “activities that involve[d] the facility but [were] consistent with the parent’s investor-status, such as monitoring of the subsidiary’s performance, supervision of the subsidiary’s finance and capital budget decisions, and articulation of general policies and procedures.” The alter ego and veil-piercing theories thus came to nothing.
What of First Reserve’s Houston office and the fact that the GP Board held meetings there to as part of its oversight of TPC? As the court observed, ‘the facts surrounding the TPC plant explosion is not the ‘crux’ of the Investors’ alleged contacts with Texas, which include owning interests in separate and distinct entities and having directors on the GP Board that serve on TPC’s behalf.” Plaintiffs thus “failed to prove the purposeful availment condition require for the MDL court to exercise specific jurisdiction over First Reserve.” The MDL court thus had no jurisdiction over First Reserve or the other investors.
We’re not sure who is left in this case at this point, though recent news reports the existence of contractors retained to manage the “popcorn polymer” issue that allegedly caused the explosions.
