Products Liability Law Daily Negotiation of indemnity agreement in Texas did not give Texas court jurisdiction over suit
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Monday, March 6, 2017

Negotiation of indemnity agreement in Texas did not give Texas court jurisdiction over suit

By John W. Scanlan, J.D.

The partial negotiation of a settlement agreement involving a non-resident company’s indemnity obligations of product liability claims to another company in Texas and substantial performance of that agreement in Texas did not give Texas courts specific jurisdiction over non-resident corporate defendants, the Texas Supreme Court held in reversing a decision by a Texas court of appeals. Because the appellate court did not reach issues involving general jurisdiction, these issues were remanded to the appellate court to consider general jurisdiction (M&F Worldwide Corp. v. Pepsi-Cola Metropolitan Bottling Co., Inc., March 3, 2017, Lehrmann, D.).

As part of a 1988 stock purchase agreement, Pneumo Abex, LLC agreed to indemnify Pepsi-Cola Metropolitan Bottling Co. for certain product liability claims, including asbestos claims. In 1995, Pneumo Abex became a wholly owned subsidiary of PCT International Holdings, Inc., which itself was a subsidiary of M&F Worldwide Corp. A newly created subsidiary of Mafco Consolidated Group LLC called MCG Intermediate Holdings, Inc. began managing some of the product claims brought against Pneumo Abex. In unrelated transactions, Cooper Industries, LLC and Mafco Worldwide assumed indemnity obligations to Pneumo Abex covering the same product claims for which Pneumo Abex owed indemnity to Pepsi. Cooper’s indemnity obligations to Pneumo Abex were administered separately from Mafco Worldwide’s obligations. Since 2004, Pneumo Abex has conducted no business obligations other than the rights and obligations related to the product claims.

From 2007 to 2010, Pneumo Abex, Cooper, and certain Mafco entities held discussions about their mutual obligations. In 2009, Mafco entity representatives traveled to Texas to meet with Cooper representatives about a plan to create a trust to assume ownership of Pneumo Abex, with asset contributions made by PCT International Holdings and Cooper. The trust would be part of the settlement of disputed claims between Pneumo Abex and Cooper; Cooper and Pneumo Abex would assert claims against each other in court and obtain approval of a settlement that would involve the trust being primarily liable for the product claims for which Cooper had indemnity obligations. In 2010, Pneumo Abex brought suit in New York against Cooper and an unrelated company, and settlement negotiations began. The parties did not conduct in-person discussions in Texas; most of the negotiations were carried out by individuals in New York or Washington, D.C. at the time, but the discussions also involved emails and phone calls between Mafco representatives and Texas-based Cooper representatives.

In 2011, a settlement was reached involving Pneumo Abex, the Cooper entities, and the Mafco entities, pursuant to which all claims among the parties and their affiliates regarding the product claims were released, the trust would be responsible for Pneumo Ibex’s indemnity obligations, and Cooper’s and Mafco’s indemnity obligations to Pneumo Abex would be terminated.

Later that year, Pepsi brought suit in Texas state court against M&F Worldwide Corp., MCG Intermediate Holdings, Inc., Mafco Worldwide Corp., Mafco Consolidated Group LLC, and PCT International Holdings, Inc. (the Mafco defendants) as well as Cooper Industries, LLC and a number of related entities (the Cooper defendants) for fraudulent transfer, tortious interference with the stock-purchase agreement, and conspiracy, alleging that the trust was underfunded and, as a result, Pneumo Abex was unable to meet its defense and indemnity obligations to Pepsi. The Mafco defendants filed special appearances, asserting that the Texas court lacked jurisdiction over them. The trial court denied their special appearances, and an appellate court affirmed, finding that the two trips to Texas in 2009 were dispositive of the issue as to whether the Mafco defendants had purposefully availed themselves of the privilege of doing business in Texas. According to the appellate court, because this settlement resulted in the execution of the settlement agreement involving the management of all product liability claims against Pneumo Abex by Integra Management Co., a Delaware company based in Texas and managed by a former Cooper employee based in Texas, an integral part of the alleged tort occurred in Texas and the Mafco defendants had sought out the benefits and protections of Texas laws.

Specific personal jurisdiction. The Texas trial court lacked specific jurisdiction over the Mafco defendants in this suit, the Texas Supreme Court determined. Their actions in negotiating, executing, and carrying out the settlement agreement did not constitute personal availment of the privilege of conducting business in Texas because they did not seek to do business, commit a tort, or allegedly cause injury to Pepsi in Texas. The settlement agreement called for a trust to be established under Delaware law to assume ownership of and responsibility for the indemnity obligations of Pneumo Abex and for a management company to manage its day-to-day affairs, but did not specify the management company or that it operate from a particular location. Although evidence suggested that the Mafco defendants knew that a Texas resident would manage the management company with which Pneumo Abex would contract, this knowledge did not constitute purposeful availment, and no evidence suggested that the Mafco defendants had any role in suggesting the management company, manager, or location. Pneumo Abex’s records and litigation databases were moved to Texas because one of the Mafco defendants had entered into a six-month consulting agreement with Integra and Pneumo Abex and because the agreement required some of the Mafco defendants to cooperate with the trust for nine months in making available documents and witnesses associated with defense of the product claims. Pepsi’s causes of actions did not arise from any activities that the Mafco defendants had purposefully directed toward the state, as there was no evidence supporting Pepsi’s statement that the Mafco defendants had established the trust to operate in Texas and indemnify them from Texas because its claims had nothing to do with the consulting agreement or the administration of the product claims, both of which involved non-parties to the suit.

The case is No. 15-0083.

Attorneys: Michael Andrew Heidler (Vinson & Elkins LLP) for M&F Worldwide Corp., Mafco Worldwide Corp., PCT International Holdings, Inc., Mafco Consolidated Group LLC and MCG Intermediate Holdings Inc. David Jack Levy (Morgan, Lewis & Bockius LLP) for Pepsi-Cola Metropolitan Bottling Co., Inc.

Companies: M&F Worldwide Corp.; Mafco Worldwide Corp.; PCT International Holdings, Inc.; Mafco Consolidated Group LLC; MCG Intermediate Holdings Inc.; Pepsi-Cola Metropolitan Bottling Co., Inc.

MainStory: TopStory JurisdictionNews DefensesLiabilityNews AsbestosNews TexasNews

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