A COOKBOOK FOR SPECIAL APPEARANCES IN TEXAS

A COOKBOOK FOR SPECIAL APPEARANCES IN TEXAS By Fred A. Simpson 1 Texas long-arm statutes and the special appearances they attract were recently reviewed in the Corpus Christi Court of Appeals. Justice Yañez s opinion is noteworthy for its holding and for its succinct and orderly statement of current Texas law on the procedure known as the special appearance. 2 The case is Bridgestone Corporation v. Lopez 3, and the issue is whether a Japanese tire manufacturer and its U.S. subsidiary are amenable to service in Texas in a lawsuit concerning a defective tire and a single vehicle automobile crash that took place in Mexico 4 in which only Mexican citizens were injured. The trial court s findings were affirmed on appeal, 5 based on principles of the single business enterprise doctrine. In her review, Justice Yañez investigated the law of special appearances, concluding that a Mexican corporation (and its U.S. parent) were the same party as the Japanese parent company as a single business enterprise, and that service was proper in Texas because the U.S. parent company had a tire testing and proving ground in Texas, notwithstanding the fact that the defective tire was manufactured and sold by the 1 Fred A. Simpson is a partner in the Houston Litigation Section of Jackson Walker L.L.P. who engages in appellate law, motion practice, insurance law, and arbitration and mediation. Mr. Simpson cautions that his views are not necessarily those of Jackson Walker or its clients. 2 See the author s previous writings on this subject: Fred A. Simpson and Deborah J. Selden, Evolution of the Special Appearance in Texas, Vol. 61, No. 1, TEXAS BAR JOURNAL, January 1998, p. 32. 3 Bridgestone Corp. v. Lopez, 131 S.W.3d 670 (Tex. App. Corpus Christi 2004, pet. filed 6/18/2004, No. 04-0563). There is other authority for imposing personal jurisdiction over the owner of a corporation where an alter ego situation is proved. (The burden to negate alter ego is also the Defendant s.) See Stauffacher v. Lone Star Mud, Inc., 54 S.W.3d 810, 815 (Tex. App. -- Texarkana 2001, no pet.). 4 Much of the analysis of special appearance is based on the opinion of Justice Yañez in EMI Music Mexico, S.A. de C.V., 97 S.W.3d 847 (Tex. App. -- Corpus Christi 2003, no pet). 5 Martha Huerta, J. 319 th District Court, Nueces County. -1-

Mexican subsidiary. The process of employing the single business enterprise theory resulted in the two higher corporate levels becoming subjected to Texas jurisdiction. Special Appearances Generally Whether a Texas court may impose in personum (or personal) jurisdiction over a nonresident is a question of law. 6 Personal jurisdiction is determined at a trial court hearing from evidence presented to the bench as the finder of fact. Included in the evidence are such things as (1) pleadings, (2) stipulations between the parties, (3) authenticated discovery, (4) affidavits and other written sworn testimony (and attachments thereto), and (5) oral testimony, if any. 7 When special appearances are denied at the trial court level, immediate appeal is available, without the need to wait until the end of trial. 8 Trial court findings of fact and conclusions of law are provided for in the appellate rules, but trial courts are not required to file them. 9 Doing Business in Texas A Texas court may only assert personal jurisdiction over a nonresident defendant when: (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) such exercise is consistent with due process guarantees in both the U.S. and Texas constitutions. 10 6 Bridgestone at 677, citing to Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 805-06 (Tex. 2002); BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). 7 8 9 TEX. R. CIV. P. 120a(3). TEX. CIV. PRAC. & REM. CODE ANN. 51.014(a)(7). See TEX. R. APP. P. 28.1. In the absence of findings of fact, all fact questions are presumed to have been found in favor of the trial court s ruling. See, Stauffacher v. Lone Star Mud, Inc., 54 S.W.3d 810, 815 (Tex. App. -- Texarkana 2001, no pet.), citing to Zac Smith & Co. v. Otis Elevator co., 734 S.W.2d 622, 666 (Tex. 1987). 10 EMI Music, Mex., S.A. de C.V. v. Rodriguez, 97 S.W.3d 847, 853 (Tex. App. -- Corpus Christi 2003, no pet). -2-

The long-arm statute authorizes jurisdiction over nonresident defendants doing business in Texas. 11 The statute lists a few items that constitute doing business, but that list is not inclusive: 1. contracting with a Texas resident if some of the performance is in Texas; 2. committing a tort in Texas, in whole or in part; and 3. recruiting Texans for employment through a Texas intermediary. The Real Test For Doing Business The Texas long-arm statute allows a Texas court to exercise personal jurisdiction over a nonresident defendant as far as the federal constitutional requirements of due process will allow. 12 For every state in the Union, due process is the key to the analysis. Due process permits Texas courts to exercise personal jurisdiction over defendants only if the defendants have some minimum, purposeful contacts with Texas, and if the exercise of jurisdiction by Texas will not offend traditional notions of fair play and substantial justice. 13 Nonresidents of Texas who purposefully avail themselves of the privileges and benefits of conducting business in Texas (such as protection of Texas law), are amenable to being sued in Texas. 14 But, there is an important qualification: nonresidents of Texas are not subject to personal jurisdiction in Texas because of mere random, fortuitous, or attenuated contacts. 15 11 12 13 14 15 TEX. CIV. PRAC. & REM. CODE ANN. 17.042. EMI, 97 S.W.3d at 854. (Minimum contacts are particularly important if defendant is from a foreign country.) -3-

Texas courts have the potential for jurisdiction over a nonresident on two bases: (1) specific jurisdiction, and (2) general jurisdiction. Specific Jurisdiction If alleged liability arises from or is related to specific activities conducted by defendants within Texas, specific jurisdiction may be established from those activities. 16 However, those activities must be purposefully directed at Texas so that defendants could foresee being haled into Texas courts. 17 The number of contacts, if any, by a particular defendant do not control; rather, the quality and nature of those contacts are what is important. 18 If plaintiffs assert specific jurisdiction, courts focus their analysis on the relationships between the defendants, the forum, and the specific litigation. 19 A defendant s single contact with Texas may be sufficient to establish specific jurisdiction when the cause of action arises from that single contact. 20 However, a substantial connection must exist between that particular single contact and the Texas cause of action brought against the defendant. 21 The concept of foreseeability of being haled into a Texas court is implicit in the requirement that there be a substantial connection between the nonresident defendant s action or conduct that was purposefully directed toward Texas. 22 16 17 18 19 20 21 22-4-

General Jurisdiction General jurisdiction demands a showing of substantial activities by the nonresident defendant in Texas, a more demanding minimum contacts analysis than required under the tests for specific jurisdiction. 23 For general jurisdiction to prevail, there must be continuous and systematic contacts between nonresident defendants and Texas. 24 Those types of contacts permit Texas courts to exercise in personum jurisdiction over nonresident defendants even if the causes of action did not arise from or relate to activities conducted by those nonresident defendants within Texas. 25 Fair Play and in personum Jurisdiction After Texas courts find that nonresident defendants have purposefully established minimum contacts with Texas sufficient to support either specific or general jurisdiction, Texas courts must then determine if any such exercise of jurisdiction comports with fairplay and substantial justice. 26 Although a fair-play analysis is separate and distinct from the issue of minimum contacts, the exercise of jurisdiction is unlikely to fail under a fair-play analysis because the preceding minimum contacts analyses already encompass so many considerations of fairness. 27 The factors courts must consider when performing fair-play analyses are these: 28 1. burdens imposed on nonresident defendants; 23 24 25 26 27-5-

2. Texas interest in adjudicating the disputes; 3. plaintiffs interests in convenient and effective relief; 4. interests of the interstate judicial system in obtaining resolution of controversies in the most effective manner; and, 5. the shared interests of the states in furthering fundamental substantive social policies. Burdens of Proof Plaintiffs bear the initial burden to plead sufficient facts to bring nonresidents within the scope of long- arm statutes. 29 Rebuttable presumptions then prevail as to the jurisdiction of Texas courts. 30 Unlike a trial, nonresident defendants bear the burden to negate all bases of personal jurisdiction alleged by plaintiffs. 31 The Standard of Review Although personal jurisdiction is a question of law, the standard of review on appeal is an interesting mixture: fact findings may be challenged on both legal and factual grounds. 32 For legal sufficiency, the usual standard of more than a scintilla applies. 33 However, if the trial renders a proper judgment on the special appearance, even for the wrong reason, a trial court s erroneous conclusion of law is not reversible error. 34 The 28 29 30 31 32 33 34 Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 806 (Tex. 2002). EMI, 97 S.W.3d at 853. Coleman, 83 S.W.3d at 806. Bridgestone, at 677.. -6-

appellate court also reviews the entire record at the trial court, not just the evidence that supports the trial court s legal conclusions. 35 Conclusions of law drawn by trial courts are reviewed de novo on appeal. 36 Although appellants may not challenge conclusions of law for factual insufficiency, appellate courts may review the correctness of legal conclusions drawn from the facts. 37 The normal rules for factual sufficiency of underlying evidence prevail, 38 however: by weighing all the evidence in the record, findings may be overturned on appeal only if they are so against the great weight and preponderance of the evidence as to be clearly wrong and unjust. 39 Grounds for the Bridgestone Decision The Corpus Christi Court of Appeals found single business enterprise after reviewing about one hundred findings of fact from the trial court. The essence of these findings established several of the non-exhaustive factors pertinent to an integration of resources and operations necessary to prove a common business purpose under the single business enterprise doctrine: 1. Common personnel of the various corporations. 2. Common offices and facilities. 3. Centralized accounting and an unclear allocation of profits and losses. 4. Payment of wages and rendition of services by one corporation for the other. 35 36 37 38 However, the Supreme Court of Texas may only review fact findings for legal sufficiency. See BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). 39 See Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996). -7-

5. Common business name. Conclusion Bridgestone is presently the subject of a petition for review to the Supreme Court of Texas. Issues presented in the petition to the Court concern whether the single business enterprise theory is a proper means for haling a nonresident corporation into a Texas court if that entity has not, in its own right, had sufficient minimum contacts to meet due process requirements of the constitutions of Texas and/or the United States. Specifically, the defendants would argue the same as they did in both the trial court and the intermediate court of appeals: the same rules for applying an alter ego theory should be followed when applying the single business enterprise theory 40 to determine whether Texas may exercise personal jurisdiction. The test, which fuses a parent and subsidiary for jurisdictional purposes, requires plaintiffs to prove the parent controls the internal business operations and affairs of the subsidiary. 41 However, the Supreme Court of Texas has said that the degree of parental control over the subsidiary must be greater than that normally associated with common ownership and directorship; the evidence must show that the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice. 42 40 41 42 See Bridgestone, at 683. Bridgestone, at 683, citing to BMC Software, 83 S.W.3d at 799. BMC Software, 83 S.W.3d at 799. -8-3659211v2