Opinion
No. 05-17-00280-CV
03-21-2018
ERIC PO-CHI SHEN, Appellant v. CHEN ZHAO HUA, Appellee
On Appeal from the 160th Judicial District Court Dallas County, Texas
Trial Court Cause No. 15-02573
MEMORANDUM OPINION
Before Justices Bridges, Fillmore, and Stoddart
Opinion by Justice Stoddart
This is an accelerated appeal from an interlocutory order denying the special appearance filed by Eric Po-Chi Shen as to the claims of intervenor Chen Zhao Hua (Chen). This case began when REDDs, LLC sued Shen, a domicile of California, and a related entity for breach of a joint venture agreement and other causes of action. Shen did not challenge personal jurisdiction in that lawsuit. However, when Chen intervened in the lawsuit claiming ownership of the joint venture assets, Shen filed a special appearance as to Chen's claims. Shen argued those claims were severable from the original lawsuit and the court lacked personal jurisdiction over him. The trial court denied the special appearance following an evidentiary hearing.
We have jurisdiction pursuant to civil practice and remedies code section 51.014(a)(7). TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(7).
On appeal, Shen argues the trial court erred by denying his special appearance and by admitting certain evidence at the hearing. We conclude the trial court did not abuse its discretion by determining that Chen's claims are not severable from the original claims and therefore Shen's general appearance as to those claims waived his challenge to personal jurisdiction as to Chen's claims in intervention. We affirm the trial court's judgment.
BACKGROUND
On March 4, 2015, REDDs, LLC sued Shen and Roter Stein Anlagen AG, Ltd. (RSA) alleging several causes of action arising out of a commission agreement between REDDs and RSA for the purchase of several rare red diamonds. REDDs alleged the commission agreement created a joint venture whereby REDDs would provide its services to acquire the diamonds on behalf of RSA and, instead of its usual commission, receive thirty percent of the net proceeds if the diamonds were sold on the market or ten percent of the original purchase price if the diamonds were transferred for other reasons or held for five years. Pursuant to the agreement, RSA acquired the diamonds for a cost of $72 million in 2012. In August of 2013, Shen allegedly told REDDs that he had taken possession of the diamonds and transferred them to a third party to satisfy his personal financial obligations. Shen refused to honor the commission agreement and did not pay REDDs the ten percent commission. REDDs alleged that Shen used RSA as his alter ego, converted the diamonds for his personal use, and committed other torts. REDDs demanded an accounting of RSA's business regarding the joint venture. Additionally, REDDs asserted that Shen and RSA secured its services to acquire the diamonds as agents for an undisclosed principal. REDDs sought to impose a constructive trust or subrogation lien on the diamonds to secure its rights to a commission under the commission agreement and to impose liability on the undisclosed principal. Shen answered the lawsuit and raised several defenses, but did not challenge the court's personal jurisdiction.
More than a year after suit was filed, Shen filed a plea to the jurisdiction asserting that REDDs's claims were not ripe because RSA still owned the diamonds and never breached the commission agreement. Shen submitted an affidavit stating the diamonds had not been sold or otherwise transferred. He also stated the diamonds were delivered to a more secure location in Hong Kong, but ownership remained with RSA. REDDs responded with evidence that Shen told REDDs in August 2013 that Shen transferred the diamonds to pay a personal debt and was not abiding by the commission agreement. The trial court denied the plea to the jurisdiction on June 3, 2016.
Chen intervened in the lawsuit on July 18, 2016, seeking a declaration that he is the owner of the diamonds free and clear of any lien or constructive trust for the benefit of REDDs because Shen embezzled from Chen the funds used to purchase the diamonds. Shen allegedly purchased the diamonds as part of an elaborate scheme to embezzle funds from Chen to fund a lavish lifestyle. In total, Shen allegedly embezzled over $240 million from Chen. Chen asserted that when he discovered the fraud in 2013, Shen admitted his wrongdoing and signed a written acknowledgment of his obligation to repay Chen. The document, titled a certificate of debt, identified several luxury cars, properties, and other items, including the red diamonds, purchased with the embezzled funds. Chen demanded that Shen transfer the red diamonds to him. Chen then placed them in a secure storage facility in Hong Kong. Chen alleged that Shen used RSA and other entities as his alter egos to facilitate and hide his embezzlement activities and sought to pierce the corporate veils of those entities to recover the funds and property purchased with the funds. Additionally, Chen sought an accounting of Shen and RSA and to impose a constructive trust on all property acquired with the embezzled funds and to recover damages from Shen.
In response, Shen filed a special appearance contesting personal jurisdiction over him as to Chen's claims in intervention. Shen alleged that the claims were severable from REDDs's lawsuit and therefore his special appearance was timely. See TEX. R. CIV. P. 120a (special appearance may be filed as to entire case or any severable claim).
Shen then removed the intervention claims to federal court where he continued to assert his personal jurisdiction argument. However, the federal court determined it lacked subject matter jurisdiction and remanded the case without reaching the question of personal jurisdiction. After remand, the trial court conducted a two-day evidentiary hearing and denied the special appearance. The trial court did not file findings of fact and conclusions of law.
STANDARD OF REVIEW
While we review the denial of a special appearance de novo, the controlling issue in this appeal is whether, as alleged by Shen, Chen's claims are severable from REDDs's claims. This issue controls because Shen waived any challenge to personal jurisdiction by generally appearing as to the claims in REDDs's lawsuit. Personal jurisdiction, unlike subject matter jurisdiction, is a "waivable right" and "there are a 'variety of legal arrangements' by which a litigant may give 'express or implied consent to the personal jurisdiction of the court.'" Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n.14 (1985); see In re Fisher, 433 S.W.3d 523, 532 (Tex. 2014) (orig. proceeding). An appearance that does not comply with rule 120a is a general appearance and waives the party's objection to personal jurisdiction. TEX. R. CIV. P. 120a.1; Crystalix Group Intern., Inc. v. Vitro Laser Group USA, Inc., 127 S.W.3d 425, 427 (Tex. App.—Dallas 2004, pet. denied). A defendant enters a general appearance by (1) invoking the judgment of the court on a question other than jurisdiction; (2) recognizing an action is properly pending before the court; or (3) seeking affirmative action from the court. See Dawson-Austin v. Austin, 968 S.W.2d 319, 322 (Tex. 1998); Crystalix Group Intern., Inc., 127 S.W.3d at 427.
Therefore, unless Chen's claims are severable, Shen has generally appeared in this lawsuit and may not now challenge personal jurisdiction. TEX. R. CIV. P. 120a.1 ("Every appearance, prior to judgment, not in compliance with this rule is a general appearance."). We review a trial court's decision on whether a claim is severable under rule 120a for an abuse of discretion. Man Indus. (India) Ltd. v. Bank of Tokyo-Mitsubishi UFJ, Ltd., 309 S.W.3d 589, 591 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (applying abuse of discretion analysis to severability determination under rule 120a.1); see also Guar. Fed. Sav. Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 658 (Tex. 1990).
ANALYSIS
Rule 120a of the Texas Rules of Civil Procedure provides that "[a] special appearance may be made as to an entire proceeding or as to any severable claim involved therein." TEX. R. CIV. P. 120a(1). A claim is severable if (1) the controversy involves more than one cause of action, (2) the severed claim would be the proper subject of a lawsuit if asserted independently, and (3) the claim to be severed is not so interwoven with the remaining action that they involve the same facts and issues. F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 693 (Tex. 2007). The dispute on appeal focuses on the third requirement—whether Chen's claims are interwoven with the claims brought by REDDs.
The record shows the claims asserted by REDDs and Chen are interwoven and involve the same facts and issues. Both REDDs and Chen claim competing interests in the red diamonds at issue in this lawsuit. Although REDDs's claims arise out of the commission agreement, Chen asserts he has a superior right to the diamonds because the funds to purchase the diamonds were embezzled from Chen.
The parties dispute whether the diamonds were transferred in 2013. REDDs contends RSA transferred the diamonds, thereby triggering the commission payment under the terms of the commission agreement. Shen's affidavit in support of his plea to the jurisdiction, however, claimed that the diamonds were not transferred and remained in RSA's possession and control (stored in safe keeping in Hong Kong). Chen asserts he has possession and control of the diamonds after Shen transferred them and signed the certificate of debt.
Another common factual matter involves whether Shen was an authorized agent for Chen. REDDs alleged that Shen was acting as an agent for an undisclosed principal and asserts that Shen's actions were authorized by Chen. Chen contends Shen's actions were not authorized and amounted to embezzlement.
Furthermore, both REDDs and Chen allege alter ego claims against Shen seeking to pierce the corporate veil of RSA. Chen further asserts that RSA is merely one of several entities created and controlled by Shen to facilitate and hide his alleged wrongdoing. Shen argues that Chen's alter ego claims involve several entities in addition to RSA and thus are not interwoven with REDDs's claim. However, there is evidence that, at Shen's direction, funds were freely transferred in and out of these entities for his personal use. For example, a company called Red Stone Aluminum, Ltd. was created to provide money for a portion of the red diamonds while another entity, Provenance Trading, LLC signed the contract for the purchase. There is evidence the sole member of Provenance Trading was Shen's employee Louis Lee, but Shen stated in an affidavit he was an officer, manager, or director with authority to direct the actions of the entity. Lee testified that at Shen's direction, he signed letters offering to purchase the diamonds on behalf of Provenance Trading.
Based on the pleadings and the record, we conclude the trial court did not abuse its discretion by implicitly finding Chen's claims were not severable from the other claims in the lawsuit. See Man Indus., 309 S.W.3d at 592 ("trial court did not abuse its discretion in determining that the Bank's cross-claim was interwoven based on the issue of fraud and therefore not severable").
In his reply brief, Shen suggests that the severability requirement of rule 120a violates his due process rights if it allows the trial court to exercise personal jurisdiction over him on Chen's claims. However, his special appearance was based on the allegation that Chen's claims were severable and he never presented this alternative issue to the trial court. See TEX. R. APP. P. 33.1(a). Further, Shen consented to the trial court's personal jurisdiction as to REDDs's lawsuit when he did not timely file a special appearance. When "a party has consented to jurisdiction in a particular forum, the trial court's exercise of personal jurisdiction over it does not violate due process even in the absence of contacts with Texas." RSR Corp. v. Siegmund, 309 S.W.3d 686, 704 (Tex. App.—Dallas 2010, no pet.).
By failing to challenge personal jurisdiction in REDDs's lawsuit, Shen recognized the action was properly pending before the court. Because Chen's claims are not severable, Shen's appearance as to REDDs's claims constitutes a general appearance and waived his challenge to personal jurisdiction. See Man Indus., 309 S.W.3d at 593. The trial court did not err by denying Shen's special appearance. We overrule Shen's first issue.
We need not address the evidentiary objections raised in Shen's second issue because they do not concern the severance issue and are not necessary to the disposition of the appeal. See TEX. R. APP. P. 47.1.
CONCLUSION
The trial court did not abuse its discretion by concluding the claims in this lawsuit are so interwoven they involve the same facts and issues. Because Shen generally appeared in the lawsuit, the court properly denied the special appearance. We affirm the trial court's order.
/Craig Stoddart/
CRAIG STODDART
JUSTICE 170280F.P05
JUDGMENT
On Appeal from the 160th Judicial District Court, Dallas County, Texas
Trial Court Cause No. 15-02573.
Opinion delivered by Justice Stoddart. Justices Bridges and Fillmore participating.
In accordance with this Court's opinion of this date, the trial court's February 23, 2017 order denying appellant's special appearance is AFFIRMED.
It is ORDERED that appellee CHEN ZHAO HUA recover his costs of this appeal from appellant ERIC PO-CHI SHEN. Judgment entered this 21st day of March, 2018.