© 2017 The Texas Lawbook.
By Allen Pusey
The Supreme Court of Texas ruled Friday that a Texas court has no jurisdiction over non-resident defendants in a lawsuit filed by Pepsi-Cola Metropolitan Bottling Company Inc.
The court ruled that neither routine discussions involving Texas lawyers nor the administration of a trust fund in Texas changed the fact that the underlying misconduct alleged by Pepsi—fraudulent transfer and tortious interference—occurred as the result of a settlement agreement reached in New York.
The ruling reverses and remands a judgement by the 14th Court of Appeals in Houston.
The court noted that even by Pepsi’s narrative, the case against these particular defendants doesn’t belong in Texas. “Even if the evidence supports a finding that during those negotiations [in Texas] defendants ‘planned’ to later commit such tortious conduct,” the court held, “The transactions giving rise to those torts simply did not occur in Texas.”
The dispute in Texas was spun from on-going litigation over legal liabilities assumed by companies that took over the business of a former manufacturer of “friction products”—brakes. The petitioners—M&F Worldwide Corp., MCG Intermediate Holdings Inc., Mafco Worldwide Corp. and several other companies—were represented by a team from Vinson & Elkins headed by Harry Reasoner and Michael Heidler. Pepsi Cola was represented by a team from Morgan Lewis.
The Texas case, filed by Pepsi in a Harris County court, arose from a series of events following a 1988 stock-purchase agreement between corporate predecessors of both Pepsi and Pneumo Abex. Under that agreement, Pneumo—a friction products manufacturer— pledged to indemnify Pepsi for asbestos-related claims.
Pepsi sued two groups of defendants, subsidiaries of Cooper Industries and McAndrews & Forbes Holding Inc. Pepsi claimed that a series of transactions between those companies left Pneumo’s indemnity obligations to Pepsi underfunded. The Cooper companies were not involved in the appeal.
In 2010, Pneumo filed suit in New York to stop Cooper Industries from creating a joint venture they believed was designed to strip away Cooper’s ability to fund Pneumo’s continuing asbestos liabilities. And in a subsequent settlement, the New York court approved a trust to continue funding for Pneumo’s liabilities.
As the result of negotiations in New York, Washington, DC and Texas, Cooper agreed to pay $307.5 million as part of the trust funding. And when a former Cooper employee who resided in Texas was hired to manage the trust, Pepsi filed its suit in Houston, alleging that the settlement agreement was part of a scheme to eliminate the continuing indemnification of Pepsi.
The Case: M&F Worldwide Corp., et al. v. Pepsi-Cola Metropolitan Bottling Company, Inc. (No. 15-0083)
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