Chief Justice Salas Mendoza
In a dispute over a failed, ‘eleventh hour’ real estate financing arrangement, the El Paso Court of Appeals has reversed the trial court’s order granting Defendant’s special appearance, finding the fiduciary shield doctrine did not protect him since he failed to negate Plaintiffs’ tort claims against him.
Stephen Joseph Stancil and Mustard Seed Construction, LLC v. Mark G. Gillam, Frank Cantone, Kevin Gregg, Joseph Michael Smith, and Aaron Sele (No. 08-24-00365-CV; August 13, 2025) arose after Plaintiff contracted to purchase 55 acres of land in Taylor, Texas, valued at $2.4 million, for resale or development. Nearing the December 20, 2021 closing date, Plaintiff still lacked the capital needed to purchase the property, so he contacted Defendant, Mark G. Gillam, founder and president of MGE, a California-based financial advisor. Discussions began just 5 days before the closing date, with the Investors (Defendants Gregg, Smith, and Sele) agreeing to loan Plaintiff $2.7 million to purchase the property for 6% interest on the loan and a 10% equity interest in Mustard Seed Construction, LLC. The next day, Gillam formed MGE Venture I, LLC in Texas to hold Investors’ overall property interest. Defendant Frank Cantone, an MGE employee, sent the funds to a Texas escrow agent, but the parties disputed whether this act signified Defendants’ compliance with the contract or simply showed good faith while they continued investigating the potential investment. On the date of closing Defendants declined to move forward with the investment, citing potentially high arsenic levels in the soil caused by historic cotton farming. Refusing to further extend their contract, the property’s owner sold the property to Texas Multifamily Capital, LLC.
Plaintiff filed two suits, the first against the property’s owner, Texas Multifamily, and MGE Venture I, LLC, and this action against Defendants individually for breach of contract, breach of fiduciary duties, and fraud. In the first suit, the trial court entered summary judgment for the property’s owner. In this one, Defendants individually filed special appearances. Plaintiffs responded, moved to compel discovery, and moved to continue the special appearance until after they obtained more discovery. The trial court granted the special appearances and didn’t rule on the other motions. Plaintiffs sought interlocutory relief.
In an opinion by Chief Justice Mendoza, the El Paso Court of Appeals sustained Plaintiffs’ first issue as to their fraud claims against Gillam but dismissed all other claims against Defendants. The Texas long-arm statute grants state courts personal jurisdiction over nonresident defendants if (1) the defendant has established minimum contacts with the state, and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. “Minimum contacts” are established when (1) the defendant has “purposefully availed [him]self of the privilege of conducting activities within the forum State” (Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)), and (2) there exists “a substantial connection between those [forum] contacts and the operative facts of the litigation”. Moki Mac, 221 S.W.3d at 585.
The court rejected Plaintiffs’ first claim that “Gillam himself and ‘Mark Gillam Enterprises’[] consented to the jurisdiction of the State and Federal Courts of the State of Texas” by submitting the Uniform Application for Investment Adviser Registration to the SEC. The court noted that while MGE applied for registration and consented to service of process by the Texas Secretary of State, Mark Gillam as an individual did not. Plaintiffs then argued that Gillam established sufficient Texas contacts related to the “operative facts of the litigation” when he: (1) agreed via phone call to purchase and develop the property in return for a deed of trust, interest, and equity interest, (2) formed MGE Ventures I, LLC in Texas to hold loan proceeds and wired $400,000 from his own trust account to the Texas escrow agent. and (3) made fraudulent representations about the alleged contract and interfered with Plaintiffs’ contracts with the property owner and the escrow agent.
Gillam countered that he was protected by the Fiduciary Shield Doctrine because all of his negotiations were done on behalf of MGE Venture I, LLC. The Court upheld the fiduciary shield against Plaintiffs’ allegations that Gillam claimed false reasons to terminate the investment agreement and demanded the escrow agent return their funds, observing that they were simply contract claims recast as tort ones. Abruzzo, LLC v. Walesa, No. 04-12-00747-CV, 2013 WL 1225626, at *5 (Tex. App.—San Antonio Mar. 27, 2013, no pet.) (mem. op.). However, the fiduciary shield did not apply to Plaintiffs’ tort claims that Gillam made fraudulent representations to induce Plaintiffs to enter the contract or that he never intended to fulfill his contractual obligations. The Court explained that “[a] promise of future performance constitutes an actionable misrepresentation if the promise was made with no intention of performing at the time it was made.” Since Gillam also failed to negate Plaintiffs’ fraudulent representation claims, or show how exercising jurisdiction over him would not comport with fair play and substantial justice, the court reversed the lower court’s order dismissing those claims.
MGE Employee Cantone also raised the fiduciary shield, testifying that his only Texas contacts were in his capacity as an employee. He was not part of the discussions where any alleged fraudulent representations would have been made. Thus, the court held that he successfully negated jurisdictional grounds over the Plaintiffs’ contract claims and tort claims. Plaintiffs then urged the Court to impute the contacts of Gillam and Cantone to Investors, based on an alleged agency relationship. T court again declined. Though an “agent’s contacts with the forum are attributable to the principal … the contacts of an independent contractor are not.” So while Plaintiffs argued that Gillam and his Employee had actual and apparent authority to act for Investors, they failed to show Investors had the “right of control” necessary to establish an agency relationship.
The Court also overruled Plaintiffs’ second issue challenging the denial of their continuance motion on the basis that the motion for continuance and supporting affidavit failed to comply with Rule 120a(3), TRCP. Under the rule, courts may order a continuance to conduct discovery if the movant states by affidavit why it cannot present facts essential to justify his opposition to special appearance. Finding that Plaintiff failed to state why he could not present such facts in the affidavit, the court affirmed the trial court order denying the continuance.
The court reversed the trial court’s order granting Gillam’s special appearance concerning Plaintiffs’ fraudulent representation claims but affirmed in all other respects.
TCJL Intern Shaan Rao Singh researched and prepared this article.
