The Long Arm Reaches Into Sealed Court Files

The Court of Appeals has reversed the district court’s order sustaining the special appearance of an Iowa company formed by one of the plaintiff’s former employees. Interestingly, the opinion starts out with some discussion of a recurring problem in Texas practice — namely, the use and treatment of documents filed under seal. In this instance, much of the evidence necessary to determine the special appearance had been sealed by the trial court, including an exhibit that was “the only evidence of the terms of the relationship” between two of the defendants. The Court of Appeals resolved this difficulty by stating that it had made every effort to preserve the confidentiality of the designated materials, but that the appeal could not be decided without mention of some key jurisdictional facts. The lesson here appears to be that the Court will do what it can to preserve the litigants’ confidential information, but if the details are essential to the appeal, you can reasonably expect some of them to come out in an opinion that is a matter of public record.

Moving on to the merits of the special appearance, the evidence showed that Eco Technologies was an Iowa company that had all of its operations located in that state, but that it distributed its products to independent dealers in Texas and elsewhere. One of those dealers in Texas is owned by the plaintiff’s former employee Billy Cox, a Texas resident who also is a part owner of Eco Technologies itself. The plaintiff alleged that Eco Technologies and Cox had interfered with the plaintiff’s Texas contracts and unfairly competed with the plaintiff in Texas, and the Court held that those allegations were sufficient to bring Eco Technologies within the reach of the Texas long arm statute. Citing Iowa law, the Court held that as a member of a member-managed LLC, Cox was an agent of Eco Technologies, and that his recruitment of the plaintiff’s distributors in Texas to enter into relationships with Eco Technologies were jurisdictional contacts attributable to Eco Technologies. The company therefore fell short of its burden to negate the jurisdictional grounds alleged by the plaintiff. ¬†Accordingly, the Court of Appeals reversed the order sustaining the special appearance and remanded the case for further proceedings.

Masterguard, L.P. v. Eco Techs. Int’l LLC, No. 05-12-01318-CV