Ascentium Capital LLC v. Hi-Tech the School of Cosmetology Corp., Joseph R. Licci, Cosmetology Career Center, L.L.C., and C323, LLC

Citation: 558 S.W.3d 824Docket: 14-17-00880-CV

Court: Court of Appeals of Texas; August 30, 2018; Texas; State Appellate Court

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Affirmed on August 30, 2018, in case NO. 14-17-00880-CV, Ascentium Capital LLC appealed the grant of a special appearance by C323, LLC, contesting the trial court's conclusion that it lacked general jurisdiction over C323. Ascentium argued that C323’s principal place of business was in Texas, citing conflicting evidence. The court found no abuse of discretion in granting the special appearance and dismissing Ascentium's claims against C323.

Ascentium’s predecessor loaned money to Hi-Tech the School of Cosmetology Corp., which later defaulted after selling its assets to C323, now operating the cosmetology school in Florida. C323 is a Florida limited liability company, managed by three members, including Texas resident John Turnage. Ascentium claimed general jurisdiction based on C323's Texas connections, including addresses listed for two managers in Texas and the assertion that C323 could be served via Turnage in Texas.

C323, in its defense, asserted that its principal operations are in Florida and that the Texas addresses are merely those of a shareholder. The trial court ruled in favor of C323 without issuing findings of fact. The legal framework for personal jurisdiction in Texas is governed by the long-arm statute, which requires minimum contacts with the state, ensuring that jurisdiction does not violate fair play and substantial justice principles. The court concluded that C323 did not establish the requisite minimum contacts with Texas to justify jurisdiction.

When assessing if a defendant has purposefully availed itself of conducting activities in Texas, three key rules apply: (1) Only the defendant’s own contacts are considered, not the actions of third parties; (2) The defendant's actions must be intentional rather than random; (3) The defendant must seek some benefit from the jurisdiction, implying consent to suit there. The standard for establishing personal jurisdiction differs between general and specific jurisdiction, with general jurisdiction applicable here. A court can exercise general jurisdiction over a limited liability company if it is organized under Texas law or has its principal place of business in Texas. This principal place of business, or "nerve center," is defined as where the company’s officers direct and coordinate activities. Additionally, a company's continuous and systematic contacts with Texas can render it essentially at home there.

The determination of personal jurisdiction over a nonresident defendant is a legal question reviewed de novo. If there are factual disputes regarding jurisdiction and no findings are made, all facts supporting the judgment are implied. Conflicting evidence necessitates upholding the trial court's resolution.

Ascentium raises four issues for review: (1) Whether C323 is subject to personal jurisdiction where its principal place of business is; (2) Whether a company's nerve center equates to its principal place of business; (3) If the Texas office of C323's CEO constitutes its principal place of business; and (4) Whether the trial court wrongly upheld C323's special appearance and dismissed claims due to lack of personal jurisdiction. The first two issues are undisputed, with both parties agreeing that a company is subject to general jurisdiction at its principal place of business. The principal place of business is typically the headquarters unless it does not serve as the actual center of control.

The parties are in disagreement over the location of C323's nerve center, with Ascentium claiming it is in Texas based on C323's principal address and the addresses of two of its three managers, both listed as Texas residents. Documentation from the Florida Department of State indicates that C323 is a Florida LLC with a principal address in Carrollton, Texas, where managers John Turnage and Steve Pollak are also listed. The company’s 2016 and 2017 annual reports refer to the Carrollton address as its "current principal place of business," signed by Turnage, while noting that the registered agent is in Florida.

C323 has the burden to challenge these claims for general jurisdiction either factually or legally. C323 disputes the assertion that Pollak resides in Texas and argues that its principal place of business is Miami, Florida, where it operates a cosmetology school. An affidavit from Gonzalez states that C323 has no Texas employees or property and has not conducted business in Texas. He clarifies that the Texas address is merely that of a shareholder and confirms Pollak's residence in North Carolina.

Ascentium counters this argument with documentation, including C323’s Articles of Organization, which lists the principal and mailing address as the same Texas location. The Articles, signed by Turnage, identify the company’s structure and members, including Pollak and Riser, who live outside Texas. Ascentium also presents evidence of service to Turnage at his Texas location, although this was at a different business entity's office. Gonzalez’s deposition reveals his role in managing the Miami school, further supporting C323’s claim of its business operations being solely in Florida.

Gonzalez indicated that he and his son negotiated the purchase of Hi-Tech’s assets from Turnage in Florida, where all student recruitment occurs and employees are hired from the Miami area. He confirmed that no employees travel to Texas and that C323 has no leases or loans from Texas companies, despite the school’s rent being paid from a Texas bank account. Gonzalez reported to Turnage, Riser, and Pollak, but was unsure of their ranking. He communicated compliance and financial matters to Riser in Maryland and educational issues to Turnage in Texas, although Turnage only provided suggestions and was not in charge of educational decisions, which were made in Florida. C323's operations are limited to a Florida school, with all employees based in Florida and no travel to Texas. The trial court found evidence suggesting that C323's nerve center is not in Texas, given the company's Florida asset acquisition and operational focus. 

Ascentium contended that C323's public filings identifying Texas as its principal address should be conclusive. However, C323 countered that mere filings do not establish a company's nerve center, as per Supreme Court precedent, which emphasizes the actual center of direction and control. C323's reliance on these filings and the interpretation of certain facts, such as payroll sourced from Florida versus rent from Texas, was challenged by Gonzalez's testimony, which highlighted the multifaceted nature of management reporting within the company.

Turnage is asserted by Ascentium to have direct communication with the Department of Education and the authority to bind the company, a claim contested by Gonzalez, who states that Riser and Pollak share similar authority. While Turnage is noted as the CEO and his office was previously the company's only location, these factors are not decisive. The company's principal place of business is determined at the time a suit is filed, which diminishes the significance of past business locations. Ascentium's arguments regarding C323's contacts with Turnage, a Texas resident, do not meet the minimum-contacts requirement, which focuses on the defendant's contacts with Texas itself rather than with Texas residents. Although Turnage formed the company and negotiated asset purchases, these actions occurred in Florida, not Texas. Testimony indicates that Turnage conducted employee interviews in Florida, further supporting the claim that C323's principal place of business is not in Texas. The trial court's implied finding that the principal place of business is outside Texas is backed by sufficient evidence, leading to the affirmation of the trial court's decision to grant the special appearance and dismiss the claims against C323.