Governor Greg Abbott and Business Court [Eighth Division] Judge Jerry Bullard
Taking up a case arising out of the Business Organizations Code, the Fort Worth [Eighth Division] of the business court has applied Rule 91a to dispose of some claims and stayed the litigation pending arbitration over the plaintiff’s status as a member of the LLC.
Jaime Tall, individually, and Jaime Tall, derivatively on behalf of Direct Care Source, LLC v. Scott Vanderhoef, Direct Care Source, and Heaven at Home, Inc. (Cause No. 25-BC08A-0002; April 21. 2025) arose from a falling out between majority and minority owners of a business. After several years of working together, Vanderhoef, who owned 70% of Direct Care Source (DCS), expelled Tall, a 30% owner and employee, pursuanat to DCS’s company agreement. That agreement (“the FARCA”) provided that unresolved disputes about a member’s expulsion must be arbitrated under AAA rules. Tall instead sued, asserting direct and derivative contract and tort theories. Valderhoef et al. started arbitration proceedings and moved to dismiss some of Tall’s claims under Rule 91a. Defendants also sought to stay the proceedings pending arbitration.
In an opinion by Judge Bullard, the court dismissed some claims and granted the motion to stay proceedings. Defendants sought to dismiss Tall’s breach of contract claim based on the employment agreement, her individual claim under the Texas Theft Liability Act (TTLA), her individual breach of fiduciary claim, and her individual and derivative fraud claims as having no basis in law. To that, Judge Bullard observed, required Defendants to “establish that the challenged claims are negated, under settled law, by the alleged facts.” Tall abandoned her breach of contract claim, so Judge Bullard moved on to the others.
As to the TTLA claim, Tall had to plead that she had a possessory right to property, that Defendants unlawfully appropriated it, and that she sustained damages from the theft. Specifically, Tall pleaded that Defendants violated the TTLA by misappropriating her 30% share of distributions, tax allocations, and profits. Defendants argued that since she didn’t have an interest in DCS’s property, the TTLA didn’t apply. Noting that at this stage Tall’s pleaded facts must be taken as true, however, Judge Bullard found that they didn’t negate Tall’s individual TTLA claim. Texas LLC law states that a membership interest is the property of a member, and that interest entitles the member to a share of profits and distributions. Vanderhoef thus failed to negage Tall’s TTLA claim.
Next up were Tall’s individual and derivative fraud claims. Tall alleged that Vanderhoef made material misrepresentations regarding his management of DCS that he knew were false, and that she justifiably relief on them to her detriment. Vanderhoef countered that her claims were barred by the economic loss rule, which “generally precludes recovery in tort for economic losses resulting from a party’s failure to perform under a contract when harm consists only of the economic loss of a contractual expectancy” (citation omitted). If Tall had a claim, it was for breach of the FARCA. But, as Judge Bullard pointed out, “the economic loss rule does not bar recovery for post-contract fraud—the type of fraud alleged by Tall, according to her response to the [Rule 91a] motion—when that alleged fraud is not derived from a preexisting obligation covered by contract” (citations omitted). Here Tall alleged that Vanderhoef made “verbal material misrepresentations extrinsic from the FARCA” that were not entirely derived from preexisting contractual obligations. Taking her pleadings as true, Vanderhoef didn’t establish that the economic loss rule applies.
As to the individual breach of fiduciary claim, however, the court determined that the FARCA itself eliminated all fiduciary duties he may have owed and, in any event, Texas law does not impose broad formal fiduciary duties between LLC members. Whether informal duties could have arisen was another question, but that would depend upon whether a special relationship of trust and confidence existed prior to and apart from the agreement between them (here the FARCA and the parties’ employment agreement). Further, the BOC leaves it up to the LLC’s governing documents to determine if fiduciary duties exist, and, as Tall didn’t allege any duty owed to her under the BOC, the FARCA, or another agreement, her claim failed and was dismissed.
Finally, Judge Bullard granted the motion to stay, except for its decision regarding the Rule 91a motions. “Tall’s status as a member of DCS undergirds the majority of her claims against Defendants and is inextricably interwoven with the issues in her lawsuit,” Judge Bullard wrote. Her claims boil down to the factual allegation that Vanderhoef defrauded her and DCS. Consequently, “staying proceedings while Tall’s status as a member of DCS is arbitrated would promote judicial efficiency and avoid the risk of inconsistent adjucations and the potential waste of judicial resources,” Judge Bullard concluded. He further rejected Tall’s argument that Vanderhoef has waived arbitration by substantially invoking the judicial process. Defendants engaged in only “limited activities, none involving extensive discovery or an eleventh-hour arbitration demand, in a three-month span before seeking arbitration.” Under SCOTX’s totality-of-the-circumstances test, Defendants didn’t go over the line.
