Texas Business Court Decision – Monday, April 21, 2025

No. 25-BC08A-0002  Jamie Tall, etc., et al. v. Scott Vanderhoef, et al. (Eighth Division, J. Bullard)

25-bc08a-0002-hall-v-vanderhoef-memorandum-opinion.pdf

Texas Theft Liability Act/Fraud/Fiduciary Duty. Defendant expelled plaintiff from Direct Care Source (DCS), an LLC they formed to complement HHI, a similar, affiliated business defendant owned and which employed plaintiff under an employment agreement signed by DCS, HHI and plaintiff. Plaintiff owed 30% of DCS until her expulsion under the company’s operating agreement. Plaintiff then brought this action alleging violations of the Texas Theft Liability Act (TTLA claim), breach of contract, fraud, and breach of fiduciary duty. Defendant filed a rule 91a motion to dismiss and a motion to stay the case pending disposition of an arbitration proceeding over plaintiff’s expulsion.

HELD:

(1) all of the challenged claims are legally cognizable under Texas law, and to prevail on its motion to dismiss, defendant must establish that the challenged claims are negated, under settled law, by the alleged facts;

(2) plaintiff has amended her pleadings and abandoned her claim that defendant breached her employment agreement, and that claim is no longer subject to dismissal under Rule 91a;

(3) with respect to the TTLA claim, plaintiff pleaded the elements of a cause of action – possessory right to property (distributions and profits), unlawful appropriation by defendant in violation of certain sections of the penal code, and damages as a result of the theft – and the claim is not legally baseless under Rule 91a.1;

(4) plaintiff’s individual and derivative fraud claims are not barred by the economic loss rule as they cover allegations of post-contract fraud and claims that defendant made material misrepresentations extrinsic from the agreement and so do not arise from a preexisting obligation covered by the parties’ operating agreement; the facts as alleged in plaintiff’s amended complaint do not prove that her fraud claims are entirely based on her allegations that defendant failed to fulfill is contractual obligations, and the motion to dismiss the claim must be denied; and

(5) the operating agreement eliminated all fiduciary duties defendant might have owed plaintiff, and  that claim is legally baseless under Rule 91a.1 and is dismissed.

The court does not award attorney’s fees or costs to either party.

With respect to defendant’s motion to toll all deadlines and stay proceeding pending arbitration of the dispute over plaintiff’s expulsion from DCS, plaintiff’s status as a member of DCS undergirds the majority of her claims and is inextricably interwoven with the issues in her lawsuit; because the arbitration and this suit have common questions of fact, staying proceedings on this suit while her status as a member of DCS is arbitrated would promote judicial efficiency and avoid the potential for inconsistent rulings and wasted judicial resources; with respect to plaintiff’s argument that defendants waived the right to arbitrate by their actions in this case, defendants engaged in limited judicial activities over a short period of time and filed their arbitration demand in the same month as this motion to dismiss; considering the totality of the circumstances, defendants’ conduct does not equate to substantial invocation of judicial process, and the motion to stay the matter pending arbitration is granted.