How the Texas Legislature saved billionaire John Paul DeJoria $123 million
Published; Dec. 19, 2019
The Texas billionaire wanted U.S. courts to throw out a hefty judgment won against him in Morocco. The law wasn’t on DeJoria’s side. So Texas legislators changed it.
As 2017 dawned, Texas billionaire John Paul DeJoria had a $123 million problem.
The shampoo and liquor magnate had swept into Morocco nearly two decades earlier to drill wells and reap profits in a coastal kingdom that had never struck it rich on oil. He had ample reason for optimism: a history of professional serendipity, millions in personal investment, and, perhaps most importantly, a budding business partnership with Moroccan royalty.
But the oil never materialized, and the deal disintegrated. DeJoria’s Moroccan business partners sued him for fraud. After years in the Moroccan courts, a judge ordered DeJoria and his partner to pay 969,832,062.22 Moroccan Dirhams — $123 million.
It wasn’t that he couldn’t afford it. DeJoria founded the hair care giant John Paul Mitchell Systems, with annual revenue now estimated at over $1 billion, and Patrón Tequila, which sold last year for $5.1 billion. In 2017, when his Moroccan bill was coming due, he was worth $3.1 billion.
But to DeJoria and his team, the judgment simply wasn’t fair. So the oil play had devolved — hadn’t he meant well? He’d been trying to make money certainly, but also to advance U.S.-Morocco relations. The Moroccan companies had already sapped millions — illegally and maliciously, he believed — and now they were demanding yet more cash. How could he get fair treatment in the Moroccan courts when he was up against a king?
By January 2017, the lawsuit had lasted more than 14 years in two hemispheres. If DeJoria wanted to win, he’d need a new venue to press his case. Change comes cheap, relatively speaking, at the Texas Legislature, where for a few hundred grand in lobbyists’ fees, a well-known billionaire might be able to tweak a pesky law and save himself millions. He turned to the Capitol.
Luckily, back home in Texas, DeJoria was a different kind of royalty.
King Mohammed VI of Morocco visits the White House in June 2000. John Paul DeJoria was among the guests at a dinner honoring the sovereign. REUTERS/William Philpott
A duster in Morocco
DeJoria knew the Morocco venture was risky. No commercially viable oil reserves had been discovered in the kingdom perched on Africa’s northern shore, even as its neighbors grew rich on the black gold.
But why not take a shot? Earlier ventures had won DeJoria a ridiculous fortune. He and a business partner, Michael Gustin, had already invested in the oil industry in South Texas. Morocco beckoned. DeJoria’s hopes were high.
The timing was right for Morocco, too. A young new monarch, King Mohammed VI, took control of the kingdom in July 1999, and was eager to prove himself. In June 2000, DeJoria — his ponytail then still as dark as his suit — attended a White House dinner honoring the new king. Weeks later they met in Morocco. The king pledged help for DeJoria’s project, and assured him that “money would not be an issue going forward,” DeJoria recalled in a 2013 affidavit.
Their optimistic estimates of Morocco’s potential oil reserves were based on an unconventional, proprietary technique that used aerial magnetic data. Other companies used similar techniques for initial explorations, but none leaned on it to the extent that Gustin did, the Wall Street Journal reported at the time. They partnered with a local company owned by a prince. As the king had promised, investments materialized. (“Honorable people,” DeJoria remembers thinking.)
By August 2000, the project was ready for launch. Appearing on television from the desert exploration site near the Algerian border, the king promised his subjects “copious and high-quality oil” — God’s gift to Morocco. He visited the site, wearing a beige suit and a hard hat labeled “His Majesty.” (Gustin walked beside him in coveralls.) Standing with DeJoria and Gustin, energy minister Youssef Tahiri declared that the oil there could supply the kingdom for 30 years.
It was an immediate stimulus to the country’s stagnant economy; Morocco’s stock market jumped nearly 10 percent.
But disaster loomed. By mid-September, Tahiri had been dismissed. A single test drill had hit barely enough oil to meet the kingdom’s needs for three months, the Economist reported that same month. International investors became skeptical.
The promised quantities of oil never materialized. By the following summer, the king had a political problem, DeJoria and Gustin a financial one.
Relationships had soured by then as well. The Moroccan press questioned whether the Americans had swindled their king. In 2001, Gustin was ousted from company leadership, and both he and DeJoria left the country, citing death threats. Neither would return.
In September 2002, Moroccan former associates sued Gustin, DeJoria and a number of others, claiming they had exaggerated their company’s value to induce investments, and unlawfully withdrawn money from company coffers. The proceedings dragged on for years. Even the simplest task — serving defendants with legal paperwork — proved baffling. In April 2004, a man claiming he’d been sent by a charity DeJoria patronized appeared at the billionaire’s mansion overlooking Lake Austin and insisted on hand-delivering a gift-wrapped package he said was a token of appreciation. It was the Moroccan lawsuit.
DeJoria and Gustin never appeared in court in Morocco, claiming in affidavits filed later that they feared for their lives. A French attorney they attempted to hire to represent them there declined, writing, “the potential risks to one’s welfare are unacceptable.”
In December 2009, a Moroccan court ruled against just Gustin and DeJoria, dismissing the other defendants. For fraud and mismanagement of the company, the judge ordered them to pay $123 million.
“We’re being used as the scapegoats,” DeJoria remembers thinking. The court had pinned the damages on just him and Gustin, DeJoria believed, because he was the highest-profile and wealthiest, though he insists his role was limited to being an investor. “My reaction was, ‘You’ve gotta be kidding.’”
Home field advantage
DeJoria had already lost his multi-million dollar personal investment in the Morocco project. But his lawyers thought they could stave off the $123 million judgment.
Before the Moroccan oil companies could collect, they’d need to persuade a court in the U.S. to recognize the ruling. DeJoria’s team struck first, asking a Travis County District Court in June 2013 to reject the Moroccan judgment. In August, the Moroccan companies moved the case to federal court in Austin.
Once there, DeJoria’s attorneys didn’t intend to re-litigate the Moroccan companies’ allegations, which they dismissed as claims of “garden variety corporate mismanagement.” Instead, they focused on an obscure, decades-old law: the Texas Foreign Country Money-Judgments Recognition Act.
That law, like versions in other states, dictates when courts here must recognize foreign money judgments, aiming to protect Texans from being swindled in courts that lack U.S. standards of justice.
So in federal court in Austin, they excoriated the Moroccan judicial system. Detailing the stealth-messenger incident, they argued DeJoria had never been properly served. And they insisted that Moroccan courts were unjustly beholden to the king. In 2012, about 1,000 Moroccan judges had staged a risky protest, demanding greater independence from the crown. How, DeJoria’s legal team demanded, could their client get justice in a country whose courts were tethered to his opponent?
“If justice is for sale in an ordinary civil case, it was completely out of reach for DeJoria,” his attorneys wrote in 2013 of the Moroccan proceedings. (Gustin, while originally named in the lawsuit, was dropped from it early on.)
At first, their arguments proved persuasive. U.S. District Judge James Nowlin sided with DeJoria in August 2014, citing “extensive evidence suggesting that Morocco’s judiciary is dominated by the royal family” which “had a political and economic interest in the outcome of the underlying case.”
But a higher court was not convinced.
“The Texas Recognition Act does not require that the foreign judicial system be perfect,” Chief Judge Carl Stewart wrote for a three-judge panel on the U.S. 5th Circuit Court of Appeals that overruled Nowlin in 2015. To win, he wrote, DeJoria would have to prove that Morocco’s courts were systematically unjust, not just problematic in this case.
It was a devastating ruling for DeJoria, and it left his opponents feeling confident.
John Lahad, a Houston attorney for the Moroccan oil companies, said the appeals court had rejected Dejoria’s most persuasive defenses. All that should have been left to do, he said, was sort out fees.
But DeJoria was not done fighting. Unsatisfied with his lawyers, he said he dropped them and brought in Craig Enoch, a former Texas Supreme Court justice and occasional lobbyist who leads a well-connected Austin law firm.
Enoch aimed high. In February 2016, he asked the U.S. Supreme Court to hear the case. When it declined, the case returned to federal court in Austin to resolve a few minor lingering questions.
But Enoch remained devoted to overturning a 5th Circuit opinion he saw as a travesty: How could a U.S. court fail to recognize individual due process?
Enoch needed another forum to press his case. By the end of 2016, with lawmakers gearing up for the 2017 legislative session, he’d found one. In 2005, a non-partisan national commission had recommended that states add new protections for U.S. litigants fighting foreign judgments, and more than 20 states already had.
His pitch was straightforward: Texas should follow their lead. If Enoch could get the Texas Legislature to revise state law on recognizing foreign judgements, DeJoria would have a second, better chance to have the Moroccan ruling tossed.
The approach was perfectly appropriate, Enoch said.
“If you think that the public will is different than how the statute got interpreted by a court, you go to the Legislature. And if the Legislature agrees that’s not the correct way, they will change it,” Enoch said. So they went to the Legislature, “just like any other citizen can go to the Legislature.”
Of course, DeJoria was not like other citizens.
A second front opens
In Austin, DeJoria’s sometimes home, where he and his wife still own property after selling off a $6.9 million, 7,500-square foot, 120-exotic animal, 1-bomb shelter ranch in 2016, the billionaire is known for his philanthropy. Now in his 70s, DeJoria is tall and slim, with a tan, weathered face, and a receding hairline. He grew up in East Los Angeles, where he ran with gangs (“We had push-button knives but we never stabbed anybody,” he once told Barbara Walters), and a high school teacher told him he’d never amount to anything. He struggled as a door-to-door-salesman (encyclopedias, medical equipment, life insurance) before founding John Paul Mitchell Systems and Patrón Tequila.
His net worth skyrocketed. He proposed to his second wife Eloise with 1,300 red roses (two truckloads). The billionaire likes to boast about his companies’ low turnover rates and high-quality products (he custom-engineered one of his many motorcycles to run on Patron tequila). He has said he doesn’t feel guilty living well because he gives back — to charities tackling Austin homelessness, the Los Angeles Boys and Girls Club near his childhood home, and to his own foundation.
“Success unshared is failure,” he often says.
Billionaire businessman John Paul DeJoria and wife Eloise Broady DeJoria at the 2017 Texas Medal of Arts Awards at the Bass Concert Hall at the University of Texas. The DeJorias were lauded for their corporate arts patronage in Texas. Feb. 22, 2017. Bob Daemmrich/BDP, Inc.
When Texas’ elite gathered in Austin one Wednesday in February 2017 for the biennial Texas Medal of Arts Awards, their first stop was the red (actually, pink) carpet. Next: mingling — lobbyists and lawmakers in gowns and tuxedos, waiters in white dinner jackets shopping canapes and wine. On the dinner tables, along with towering pink rose centerpieces and the salad course, were pledge cards soliciting donations as high as $10,000. Then-House Speaker Joe Straus was there with his mother. Karl Rove mingled with Larry Gatlin. Award winners received personally branded bottles of Veuve Clicquot.
DeJoria was there, too, along with his wife Eloise, a blonde in a luminescent silver gown. Awards medals draped their necks. While others were lauded for artistic achievements, the DeJorias were feted for financial contributions to the arts. They scuttled across the pink carpet an inch at a time, DeJoria posing with his usual peace sign. For the award show’s final number, in a Kenny Rogers tribute featuring the Gatlin brothers, Vikki Carr, Kris Kristofferson and others, the DeJorias danced on stage with the other award winners.
The Texas House had voted that morning to honor the award winners. Days earlier, a lawmaker in the House and another in the Senate had filed bills that could get DeJoria out of his little Morocco problem.
Beyond philanthropy, DeJoria and his wife are also known for spending their money in the dirtier world of politics — almost $400,000 since 1992 parcelled out on both sides of the aisle, according to state and federal records. He’s donated to candidates as far apart as U.S. Sen. Ted Cruz and Democratic presidential candidate Marianne Williamson, and to both the Republican National Committee and the Democratic Senatorial Campaign Committee.
DeJoria was already a well-known face in Austin by December 2016, when, with his chances of overturning the Moroccan judgment still looking iffy in court, he hired one of the capital city’s premier lobbying firms, Focused Advocacy. Its founder, Curt Seidlits, is a former chairman of the Texas House’s powerful State Affairs Committee and a common presence at the Capitol. On its website, the firm boasts “one of the richest networks of relationships in the advocacy industry.” It also commands a steep price: DeJoria paid two lobbyists between $50,000 and $99,999.99 each for less than a month of work in December 2016, and three lobbyists the same range each for about a year of work in 2017, state records show.
Their target was the money judgment recognition act that stymied DeJoria in court. If they could persuade the Legislature to change the law, DeJoria could return to the courts with a new rulebook.
Work on the bill started well before lawmakers were gaveled into session in January. The first step was finding the right sponsors. DeJoria’s lobbyists knew they needed attorneys comfortable with the complicated subject.
They landed on two East Texas Republicans, Sen. Bryan Hughes and Rep. Travis Clardy. It was a natural fit; both were attorneys generally aware of the issues from their own legal practices. Both men were also frequent recipients of Focused Advocacy’s PAC money, doled out to lawmakers in both parties to keep relationships warm and doors open.
Enoch brought the issue to Hughes before the session began.
“When I heard about what happened to [DeJoria] and how he was treated, I was incensed,” Hughes said.
It helped that many lawmakers knew, or at least knew of, DeJoria — especially after the February arts gala, which attracted much of the Capitol crowd. During the ceremony, DeJoria had a moment of on-stage grace: Kris Kristofferson, in his 80s, seemed unsteady on his feet, and DeJoria quietly ushered him up to receive his award, then guided him to his seat.
It made an impression on Clardy.
“That was a genuinely nice gesture,” Clardy recalled. But like Hughes, he insisted he and DeJoria “are not buds.”
“I don’t think he would know me from Adam’s off ox if we showed up somewhere,” Clardy said.
Clardy and Hughes each filed bills in mid-February, within a week of the gala.
Packaging was critical. The “Uniform Foreign-Country Money Judgments Recognition Act” was a mind-numbing mouthful capable of putting many a lawmaker to sleep. Like similar laws recommended by a non-partisan commission and adopted by other states, it gave U.S. litigants new protections against foreign courts, raising the bar foreign proceedings had to clear to earn recognition here. It did not mention DeJoria or his case, but it would give him another opportunity to get the judgment tossed.
In its most important provision, though, the “uniform” bill diverged from other states’ versions. Other states’ laws applied only to future cases. The bills filed on DeJoria’s behalf would be retroactive as well, so they would apply to his lingering Moroccan judgment. In pitching it to lawmakers, Enoch presented that critical provision as a procedural issue.
It was important that the law look backwards, Enoch said in an interview: “You can’t sit there and say, ‘Today, we’re concerned about individual due process, but not yesterday.’”
When they presented it before committees, lawmakers called the bill an “update,” a “repeal and replace piece of legislation that we can all get behind.” It sounded obvious, non-threatening, and, perhaps most importantly, fantastically boring. It sailed through a Senate committee in less than four minutes. Enoch was there to vouch for it; a committee took up the bill first to accommodate his schedule.
That the bill had been born of DeJoria’s floundering case was not lost on the lawmakers considering it — nor was there much attempt to keep that hidden. Enoch, who formally registered to testify on DeJoria’s behalf, sold the bill as a protection for Texans in “any number of cases.” But he and other advocates acknowledged that the only case they were aware of was DeJoria’s. “We have no idea” how many such cases were in Texas courts, he told a House committee.
In interviews, Clardy and Hughes acknowledged that they were aware of DeJoria’s case as they pushed the legislation — his case was what had brought the issue to their attention in the first place. But they insisted the proposal was not a single favor for a single billionaire, but an important protection for all Texans doing business abroad.
“The way [the Moroccan] court treated him is something that we would never allow in the United States,” Hughes said. “If we had to choose whether we’re going to take the side of a Texas company or a corrupt foreign court, we want that Texas company to be treated fairly.”
Hughes knew his proposal would change the rules while DeJoria was mid-game. But the starting rulebook, he said, “was manifestly unfair.”
Clardy made a similar point.
“Protecting Texans who are doing business internationally — that’s our job,” he said. “This was done with an eye towards the future. If you can’t help your friends, what good are you?”
The bill sailed out of the Senate. But in the House it confronted a John Smithee-shaped obstacle. The measured, bespectacled Amarillo Republican chaired the committee the bill would have to clear. Smithee, too, had met DeJoria at the function in February, just a quick handshake. A lawyer himself, and a lawmaker since decades before DeJoria had landed in court in Morocco, Smithee didn’t know much about the money judgement recognition issue, but he was skeptical of any measure labeled “uniform” when it was not. And it was dangerous, he said in an interview, to allow a wealthy litigant to turn a legal battle into a political one. Handing DeJoria a victory, he thought, would encourage others to try the same tack.
And DeJoria’s team encountered another problem. For months, Lahad, the longtime lawyer for the Moroccan companies, hadn’t known a second front had opened in the war. But when the bill came up in Smithee’s committee, he came to Austin to protest. It was his first time testifying at the Capitol (“unless the court has — excuse me, unless the committee has — any questions”) but his point stuck.
“It is fundamentally wrong to change, through legislation, the rights of parties that are currently in litigation,” Lahad told the committee. “Put another way: You cannot change the rules of the game in the third quarter.
Smithee made it clear to Clardy, and to the trio of DeJoria’s lobbyists, that the bill would not get through his committee with the retroactive provision DeJoria needed. But he knew even a chairman’s power is limited. And the lobbyists had already worked the bill pretty hard.
“Once it leaves the committee,” he told them, “I guess you can do whatever you want.”
The crucial amendment
On May 17, 2017, DeJoria’s bill was in the hands of the full Texas House, still lacking the one provision he really needed.
Clardy, who is so tall he had to adjust the podium microphone upwards, came to the front of the chamber to resuscitate the retroactive clause that was DeJoria’s best hope for a court win. He sped through a description of the bill, then offered an amendment: the axed retroactive provision, enticingly dubbed “the applicable procedural transition clause.”
Smithee followed, adjusting the microphone down, warning fellow lawmakers that Clardy’s change would “basically determine the winner of a lawsuit that’s currently pending.”
“Will this affect any ongoing litigation or lawsuits that are currently pending?” he asked Clardy, who stood across the room beneath the dais.
“To my mind, it does not. What it —”
“Do you know that it doesn’t?”
“I can’t say that it doesn’t, I can’t say that it does,” Clardy said. “I defer to our judiciary.”
Clardy stayed studiously vague, sprinting towards a vote that revived the amendment. With the whale now riding the barnacle, the bill passed overwhelmingly. When the governor signed it two weeks later, it was law.
DeJoria has donated $72,405 to Gov. Greg Abbott since 2012, but never given to Clardy or Hughes, state records show. But the two authors did receive contributions from the PAC affiliated with DeJoria’s lobbyists, both before the session ($1,000 each in early December) and after the session (another $2,500 each in the early summer). A few months later, in November, DeJoria gave $22,000 to the lobbyists’ PAC.
DeJoria’s legal team waited exactly four days to take its Capitol victory to court. Armed with the revised Texas statute, they were eventually able to convince the 5th Circuit to reverse itself and throw out the Moroccan judgment, despite what U.S. Circuit Judge Gregg Costa called “the whiff of home cooking.”
“There is a deep irony in allowing DeJoria to contend he was denied due process in Morocco when it was his lobbying efforts that changed the rules of the game midway through the proceedings in the United States,” Costa wrote. But “‘unfair does not always equal unconstitutional.’”
DeJoria insisted in an interview that “there is no comparison” between his lobbying efforts and what he called a corrupt Moroccan process.
“They didn’t pass a law for me,” DeJoria said in an interview. “They added to the law what they should’ve had in it already. This way, it protects me and all Texans.”
Still, for now, DeJoria is off the hook. The Moroccan companies have one more slim chance — on Monday, they asked the U.S. Supreme Court to hear the case, arguing it should not allow wealthy litigants to change the law mid-fight. But the high court hears a tiny fraction of the cases it’s asked to review.
More than likely, the case is over — and DeJoria, like any good businessman, has notched an impressive return on investment: less than half a million dollars in lobbying fees may well save him more than $100 million. DeJoria, ever the philanthropist, believes the new law will protect other Texans in similar fights.
“The rule of law is what won this case for me,” DeJoria said. “Not me and not the lobbyists. It was the rule of law.”
“Justice was done,” he said. “Even if it cost me a lot in attorneys’ fees.”