Chandni I, Inc., a Texas Corporation Harshad Patel, an Individual Ashwin Patel, an Individual Sunil Patel, an Individual Manish Vanmali, an Individual El Paso Hospitality, LLC Mandeep, LLC Chandni Venture of Texas Inc., a Texas Corporation And Ujashiv Management, Inc., a Texas Corporation v. Dharmesh Patel

Citation: Not availableDocket: 08-18-00107-CV

Court: Court of Appeals of Texas; December 12, 2019; Texas; State Appellate Court

Original Court Document: View Document

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An interlocutory appeal was filed in the Court of Appeals for the Eighth District of Texas concerning the denial of Appellants’ motion to dismiss under the Texas Citizens Participation Act (TCPA). The Appellants, including Chandni I, Inc. and several individuals, argue five main points: 

1. The trial court erred by denying their motion to dismiss, asserting that Appellee’s claims of theft and fraud relate to their rights of free speech and association under the TCPA.
2. Appellee did not provide clear and specific evidence to establish a prima facie case for each essential element of his claims.
3. Appellee’s shareholder inspection claim was related to Appellants’ exercise of the right of petition, as the communications in question occurred during or pertained to a judicial proceeding.
4. Appellants demonstrated effective consent as a valid defense for the claims.
5. Appellants seek costs, attorney’s fees, and expenses.

The appeal originates from a derivative suit filed by Dharmesh Patel against the managers and directors of Chandni I, Inc. Patel's original petition, filed in March 2014, included claims for fraud and conversion, which he amended multiple times, ultimately including theft, fraud, and shareholder inspection claims in his fifth amended petition. Following the filing of the fifth amended petition in February 2018, Appellants filed a motion to dismiss in April 2018, claiming the basis for the claims was their exercise of free speech and petition rights. The trial court denied the motion and scheduled a hearing for assessing fees and sanctions against Appellants. The Appellants contest the timeliness of their motions, as Appellee argues that claims had been raised in prior petitions, thus exceeding the 60-day deadline for TCPA motions. The court addresses the timeliness issue first.

Review of a trial court's ruling on a motion to dismiss occurs de novo. Under the Texas Citizen’s Participation Act (TCPA), a party may file a motion to dismiss if the claim pertains to their exercise of free speech, petition, or association. The motion must be filed within 60 days of service of the legal action, defined broadly to include various judicial pleadings seeking relief. An amended petition introducing new claims based on new factual allegations resets the TCPA deadline, while an amendment lacking new claims does not. Additional factual details do not restart the 60-day clock if the essential allegations remain unchanged. 

In this case, Appellants argue they timely filed a motion to dismiss fraud and Texas Theft Liability Act claims in Appellee’s Fifth Amended Petition. Appellee contends these claims are identical to those in prior petitions and rely on the same essential facts. Although Appellants claim the Fifth Amended Petition includes a new fraud claim against Harshad Patel, Appellee asserts it mirrors claims from earlier petitions, differing only by omitting certain allegations against other defendants. Consequently, the motion to dismiss may be untimely if the claims are not considered new legal actions.

Harshad and other defendants are accused in the Third and Fourth Amended Petitions of various misconduct related to their management of Chandni I. Key allegations include: 1) using their corporate positions to secure loans with corporate assets as collateral, which were then misappropriated for personal investment properties competing with Chandni I; 2) unjustly distributing profits to themselves while excluding other shareholders; 3) obtaining personal loans from Chandni I without proper procedures; 4) hiding their actions by withholding corporate records; 5) misappropriating and mixing corporate funds to operate rival businesses; and 6) underreporting earnings and taking cash without authorization. 

These actions are claimed to have been deliberate, with misrepresentation and concealment of information leading the Appellee to invest based on misplaced trust, resulting in financial losses from not receiving expected distributions as a shareholder. The Fourth Amended Petition differs from the Third by asserting these claims derivatively for Chandni I rather than individually. The Fifth Amended Petition reiterates these claims against Harshad specifically, but does not introduce new legal theories or claims, merely narrowing the focus to Harshad alone. Consequently, the 60-day deadline for dismissing the fraud claim was not reset, rendering the Appellants’ motion to dismiss untimely.

Additionally, the Appellants argue that the theft claim under the Texas Theft Liability Act constitutes a new legal action that would reset the 60-day deadline under the Texas Citizens Participation Act (TCPA). They assert that the theft claim's requirement for proof of wrongful intent distinguishes it from the previously asserted conversion claim. However, the Appellee contends that the theft claim reflects the same essential allegations as the earlier conversion claim, indicating that merely renaming the claim does not reset the deadline. The text references a related case, Paulsen, which dealt with similar legal principles concerning claims and deadlines.

The professor's third amended petition for defamation consists of two counts. The first count reiterates allegations regarding letters sent about him, while the second count claims that a facsimile was sent to the Chief Disciplinary Counsel's office the day after the letter, including a cover sheet referencing his 'recent conduct' and bar number, which the professor argues implied professional misconduct and prompted an investigation. The attorney filed a motion to dismiss under the Texas Citizens Participation Act (TCPA), asserting the claim associated with her right to petition the State Bar. The professor countered that the motion was untimely since no new legal action had been initiated. The trial court denied the motion, and the attorney appealed, arguing that the defamation claim related to the cover sheet constituted a 'legal action' under the TCPA, resetting the 60-day period for dismissal motions.

The court of appeals ruled that allowing the 60-day period to reset with each amendment, regardless of new claims or parties, would undermine the TCPA's intent to enable early dismissal of claims that infringe on constitutional rights. The court acknowledged that while the third amended petition presented new information about the fax cover letter, it fundamentally relied on the same factual basis as the original claim. Thus, the addition of the new claim did not reset the TCPA's deadline, rendering the attorney's motion to dismiss untimely. The Appellants' argument that a 'new' claim was introduced when distinguishing between conversion and theft of corporate assets was similarly noted, defining 'conversion' as the unauthorized control over another's personal property.

A person commits theft by unlawfully appropriating property with the intent to deprive the owner of it, as outlined in TEX.PENAL CODE ANN. 31.03(a). Both conversion and theft involve unlawfully appropriating property with intent to deprive the owner. In the Fourth Amended Petition, the Appellee accused the Appellants of: 1) fraudulently taking $1.8 million from Chandni I and its shareholders without corporate authority; 2) misusing their managerial positions to willfully convert corporate funds for personal gain, including purchasing competing assets; and 3) violating the rights of Chandni I and its shareholders regarding the funds. The Fifth Amended Petition separates this into two claims: under the second cause of action, the Appellee claims the Appellants misused their positions to distribute loan proceeds of $1.8 million to themselves for personal purchases; under the third cause of action, it alleges theft under the Texas Theft Liability Act, asserting the Appellants knowingly converted Chandni I's funds for personal benefit, harming the corporation and shareholders. Despite slight variations in wording, the fundamental allegations are consistent between the two petitions. The attempt to bifurcate the claims does not reset the 60-day filing deadline under the TCPA, as the claims are based on the same essential facts. The TCPA aims to facilitate the quick dismissal of meritless lawsuits to protect defendants' constitutional rights. The Appellants' argument regarding new facts in the theft claim lacks merit, as they only cite additional details already present in the Fourth Amended Petition. Both petitions assert that the Appellants wrongfully distributed $1.8 million from Chandni I and misused those funds for personal benefit, infringing on the rights of the corporation and its shareholders.

Additional factual details in a subsequent petition do not reset the deadline under the Texas Citizens Participation Act (TCPA) if the essential allegations were present in a prior petition, leading to the conclusion that the motion to dismiss the theft claim was not timely filed. The court overruled Appellants’ first issue. Regarding Appellants’ third issue, they argued that Appellee's shareholder inspection claim was related to their exercise of the right to petition, as communications made during a judicial proceeding included an email from Appellants’ counsel denying a request for a shareholder inspection. Under the TCPA, a motion to dismiss can be filed if a claim relates to the exercise of free speech, petition, or association. The moving party must prove by a preponderance of evidence that the claim is related to these rights, with the court considering pleadings and affidavits. The term 'exercise of the right to petition' includes communications in judicial proceedings, defined broadly to encompass various forms of communication. If a defendant meets the initial burden under the TCPA, the plaintiff must present a prima facie case for each element of their claim to avoid dismissal. In his Fifth Amended Petition, Appellee claimed he was denied his right under the Texas Business Organizations Code to inspect company records. Appellants contended that the inspection request was part of a lawsuit and thus a discovery request, falling under judicial proceedings. They cited cases supporting their view that discovery-related communications are part of judicial proceedings; however, these cases were distinguishable as they involved direct actions tied to the initiation of lawsuits or formal discovery processes.

A letter requesting shareholder inspection was sent by Dharmesh Patel, a shareholder of Chandni I, Inc., to examine the corporation's financial condition and management practices under Texas Business Organizations Code 21.218. Although Appellants claimed the request was a discovery request and their response fell under the Texas Citizens Participation Act (TCPA), the court clarified that the demand was a statutory right unrelated to any ongoing litigation. The Appellants' email denying the inspection did not pertain to a judicial proceeding; thus, the trial court properly denied their motion to dismiss the shareholder inspection claim. Since Appellants did not meet their burden to prove the TCPA motion was timely or relevant to the right to petition, the court overruled their claims regarding the fraud and theft allegations and denied them costs and attorney’s fees. The trial court's judgment was affirmed.