Republic Drilling Company v. Retamco Operating, Inc.--Appeal from 131st Judicial District Court of Bexar County

MEMORANDUM OPINION
No. 04-06-00727-CV
REPUBLIC DRILLING CO.,
Appellant
v.
RETAMCO OPERATING, INC.,
Appellee
From the 131st Judicial District Court, Bexar County, Texas
Trial Court No. 1999-CI-11287
Honorable Johnny D. Gabriel, Jr., Judge Presiding

Opinion by: Karen Angelini, Justice

 

Sitting: Alma L. L pez, Chief Justice

Karen Angelini, Justice

Steven C. Hilbig, Justice

 

Delivered and Filed: March 28, 2007

 

REVERSED

 

This is an interlocutory appeal from an order denying the special appearance of Republic Drilling Corp. ("Republic"), a nonresident defendant. See Tex. Civ. Prac. & Rem. Code Ann. 51.014(a)(7) (Vernon Supp. 2005). We reverse the trial court's order.

 
I. Factual and Procedural Background

In August of 1999, Retamco Operating, Inc. ("Retamco") sued Paradigm Oil Inc., ("Paradigm"), PNB Securities Corp., and Pacific Operators Inc., seeking to recover damages and exemplary damages for breach of contract and fraud arising out of numerous oil and gas transactions in Texas. In October of 2000, Paradigm, a Texas corporation, assigned its interests in oil and gas leases for property located in LaFayette County, Texas to Republic, a California company, resulting in Paradigm's insolvency. (1) In November of 2004, Retamco learned of this transfer and filed its Ninth Amended Original Petition, alleging that Republic's receipt of the transferred interests was fraudulent. Republic filed a special appearance objecting to personal jurisdiction in Texas; however, after a hearing based on the allegations in Retamco's Eleventh Amended Original Petition, the trial court denied Republic's special appearance. (2) Republic now brings this interlocutory appeal, contending that the trial court erred in denying its special appearance.

II. Applicable Law
A. Standard of Review

In reviewing a trial court's ruling on a special appearance, we review the trial court's factual findings for legal and factual sufficiency and review the trial court's legal conclusions de novo. BMC Software, 83 S.W.3d at 794. And while all facts necessary to support the judgment and supported

by the evidence are implied when a trial court does not issue findings of fact and conclusions of law along with its special appearance ruling, when the appellate record includes the reporter's and clerk's records, these implied findings are not conclusive and may be challenged for legal and factual sufficiency. Id. at 795. When there is a legal sufficiency challenge, if there is more than a scintilla of evidence to support the finding, the no evidence point fails. Id.

B. Personal Jurisdiction and Due Process Requirements

Before a Texas court can exercise personal jurisdiction over a nonresident defendant, two requirements must be met: first, the Texas long-arm statute must authorize the exercise of jurisdiction; and second, the exercise of jurisdiction must be consistent with the guarantees of due process. See Tex. Civ. Prac. & Rem. Code Ann. 17.041-17.069 (Vernon 1997 & Supp. 2003); Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 806 (Tex. 2002), cert. denied, 537 U.S. 1191(2003); Tri-State Bldg. Specialties, Inc. v. NCI Bldg. Sys., L.P., 184 S.W.3d 242, 248 (Tex. App.--Houston [1st Dist.] 2005, no pet.) (citing BMC Software, 83 S.W.3d at 795). The Texas long-arm statute permits Texas courts to exercise jurisdiction over a nonresident defendant that does business in Texas and defines "doing business" as follows:

(1) contracting by mail or otherwise with a Texas resident with performance either in whole or in part in this state;

(2) commission of a tort in whole or in part in this state; or

(3) recruitment of Texas residents, directly or through an intermediary located in this state, for employment inside or outside this state.

 

Tex. Civ. Prac. & Rem. Code Ann. 17.042 (Vernon 1997).

Nevertheless, federal constitutional requirements of due process limit the power of the state to exercise personal jurisdiction over a nonresident. See Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991). Thus, to satisfy the due process test, a plaintiff must also show that the nonresident defendant purposely established minimum contacts with the forum state and, that the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Magic House AB v. Shelton Beverage, 99 S.W.3d 903, 908 (Tex. App.-- Dallas 2003, no pet.) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76 (1985) and Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990)).

The issue of whether a nonresident defendant purposely established "minimum contacts" with the forum state requires the court to consider whether the nonresident defendant "purposefully availed himself of the privilege of conducting activities within the forum state, thereby invoking the benefits and protections of its law." Magic House AB, 99 S.W.3d at 908 (citing BMC Software, 83 S.W.3d at 795). The underlying rationale for the "purposeful availment" requirement is to prevent situations where a nonresident defendant is subjected to personal jurisdiction in the forum state "based solely on random, fortuitous, or attenuated contacts." Magic House AB, 99 S.W.3d at 908 (citing Guardian Royal, 815 S.W.2d at 226). Rather, the exercise of personal jurisdiction of a nonresident defendant should be based on activity that supports the conclusion that the defendant should have reasonably anticipated being subjected to the court, regardless of whether the defendant's actions consisted of direct acts within the forum or conduct outside the forum. Schlobohm, 784 S.W.2d at 357.

C. Specific Jurisdiction

A nonresident defendant's contacts with a forum can give rise to either specific jurisdiction or general jurisdiction. Guardian Royal, 815 S.W.2d at 227-28. However, in the present case, Retamco argues that Republic's contacts with Texas gave rise to specific jurisdiction rather than general jurisdiction; accordingly, we need not address Republic's arguments concerning general jurisdiction. Specific jurisdiction requires the nonresident defendant's activities to have been "purposefully directed" to the forum and the litigation to have resulted from or relating to those activities. Id.; Schlobohm, 784 S.W.2d at 357. The minimum-contacts analysis for specific jurisdiction is somewhat narrow, focusing on the relationship among the defendant, the forum, and the litigation. Guardian Royal, 815 S.W.2d at 227-28; Schlobohm, 784 S.W.2d at 357. For purposes of the minimum-contacts analysis, it is the quality and nature of the defendant's contacts, and not their number, that is germane. Am. Type Culture Collection, Inc., 83 S.W.3d at 806. Further, foreseeability is an important, but not determinative, consideration in deciding whether the nonresident defendant has purposefully established 'minimum contacts' with the forum state. BMC Software, 83 S.W.3d at 795; see Burger King Corp., 471 U.S. at 475.

Finally, personal jurisdiction requires that the exercise of jurisdiction comport with traditional notions of fair play and substantial justice. See BMC Software, 83 S.W.3d at 795 (citing Int'l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945)). In determining whether the exercise of jurisdiction will offend traditional notions of fair play and substantial justice, the following factors are considered: (1) the burden on the nonresident defendant; (2) the forum state's interest in adjudicating the dispute; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental, substantive social policies. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980); Guardian Royal, 815 S.W.2d at 228. Although consideration of the fair-play analysis is separate and distinct from the minimum-contacts issue, it is unlikely that the exercise of jurisdiction will fail the fair-play analysis because the minimum-contacts analysis encompasses so many considerations of fairness. Schlobohm, 784 S.W.2d at 357-58.

III. Analysis
A. Retamco's Allegations

Retamco's Eleventh Amended Original Petition alleged that in October of 2000, while this litigation was pending and with full knowledge of Retamco's claims, Paradigm fraudulently transferred to Republic, oil and gas leases covering lands in Fayette County, Texas. Retamco also alleged fraudulent concealment, conspiracy, joint enterprise, joint venture, single business enterprise, and alter ego based on the "fraudulent transfer" at issue. In essence, Retamco relies solely on its allegation that Republic was the knowing recipient of a fraudulent transfer of oil and gas leases in support of its position that the trial court had specific jurisdiction over Republic and maintains that since Republic failed to negate the Uniform Fraudulent Transfer Act ("UFTA") claim as a basis of jurisdiction that the trial court properly denied its special appearance.

B. Is A Single Tortious Act Sufficient
To Confer Specific Jurisdiction?

In Michiana Easy Livin' County, Inc. v. Holten, 168 S.W.3d 777, 788 (Tex. 2005), the Texas Supreme Court addressed the issue of whether specific jurisdiction could be established based solely on a nonresident's alleged misrepresentations in a telephone call with a Texas resident. Mr. Holten, a Texas resident, purchased an RV by phone from an outlet store that only did business in Indiana. Id. at 784. Holten contacted the company in Indiana, sent his payment to Indiana, paid for delivery from Indiana to Texas, and agreed to resolve any disputes in Indiana; however, when a dispute arose following statements made by the dealer during a phone call initiated by Holten, Holten filed suit in Texas. Id.

In considering whether Michiana was subject to personal jurisdiction in Texas, the Court noted the difficulty in basing jurisdiction on where a defendant "directed a tort" instead of the defendant's contacts and maintained that the proper analysis was one that focused "solely on the actions and reasonable expectations of the defendant." Id. This, the Court opined, would eliminate the confusion of the roles of the judge and jury created by "directed-a-tort jurisdiction" which equates the jurisdictional inquiry with the underlying merits. Id. The Court applied a "minimum contacts analysis," relying upon three factors in considering whether the defendant had satisfied the requirements of purposeful availment: 1) the defendant's conduct and connection with the forum; 2) whether the acts relied upon were purposeful; and, 3) whether the defendant sought some benefit, advantage, or profit by "availing" itself of the jurisdiction. Id. at 785.

Ultimately, the Supreme Court found that because Michiana's only contact with Texas was Holten's decision to place his order from there, the Court of Appeals erred in finding Michiana established sufficient minimum contacts and had purposefully availed itself of the privilege of conducting activities within the State of Texas. Id. The Court emphasized that "it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Id. at 784 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958) (emphasis in original)).

The Court in Michiana went on to disapprove of those opinions that held that "specific jurisdiction turn[ed] on whether a defendant's contacts were tortious rather than [on] the contacts themselves." Id. at 791-92, disapproving, Mabry v. Reid, 130 S.W.3d 385, 389 (Tex. App.--Beaumont 2004, no pet.) ("affirming order granting special appearance as some evidence supported trial court's factual determination that either there was no settlement agreement or it was not fraudulent"); Boissiere v. Nova Capital, LLC, 106 S.W.3d 897, 904 (Tex. App.--Dallas 2003, no pet.) ("affirming order denying special appearance as some evidence supported trial court's factual determination that nonresidents committed misrepresentation"); French v. Glorioso, 94 S.W.3d 739, 746-47 (Tex. App.--San Antonio 2002, no pet.) ("affirming order granting special appearance as some evidence supported trial court's factual determination that nonresident never made any misrepresentations to resident"); Runnells v. Firestone, 746 S.W.2d 845, 851-52 (Tex. App.--Houston [14th Dist.] 1988), writ denied, 760 S.W.2d 240 (Tex. 1988) ("affirming order granting special appearance as some evidence supported trial court's factual determination that there was no contract")). Although the Court allowed that in some circumstances a single contact may meet the purposeful-availment standard, it stressed that the standard is not met when it involves a single contact taking place outside the forum state. Michiana, 168 S.W.3d at 787.

Shortly after the decision in Michiana, the Houston Court of Appeals was presented with a case factually similar to the present case wherein the court considered whether a nonresident defendant's activities, involving an allegedly fraudulent transfer, were purposefully directed towards Texas so as to confer specific jurisdiction. Trigeant Holdings, Ltd. v. Jones, 183 S.W.3d 717(Tex. App.--Houston [1st Dist.] 2005, pet. denied). In Trigeant Holdings, Jones and Brass, both Texas residents, jointly executed a secured promissory note for $15,200,000 and thereafter, invested these funds in Sentry Refining, Inc., a refinery owned by both Jones and Brass. Id. at 721. Jones and Brass eventually defaulted on the note and were sued by the Federal Deposit Insurance Corporation ("FDIC") for the balance owed. Id. Jones settled the case by personally paying $13,700,000 to the FDIC and further, agreed to divest himself of all ownership interest in Sentry Refining, Inc., transferring full ownership to Brass. Id. In exchange, Brass executed three promissory notes to Jones to secure repayment of the $13,700,000 personally extended by Jones. Id.

Jones and Brass later entered into an amended settlement agreement with respect to the debt owed to Jones by Brass, which provided that Brass would not be personally liable on the payment on two of the three notes totaling $6,525,000. Id. The amended agreement also provided that the payment on the two notes was to come from profits, distributions, or liquidation proceeds derived from Brass's interest in a refinery located in Corpus Christi, Texas that was controlled by Trifinery Joint Venture ("TJV"), a Texas company in which Brass owned a 50% interest and into which Brass had transferred the assets of Sentry Refining, Inc. Id. Throughout several years, Brass represented to Jones that TJV was not profitable; therefore, it could not make distributions to its shareholders or payments to Jones. Id. Further, Brass did not make any payments to Jones on the promissory notes. Id. In 1994, TJV transferred all of its interest in the Corpus Christi refinery to Trifinery Petroleum Services ("TPS"), another Texas company in which Brass also owned a 50% interest. Id. Brass later bought the other one-half-interest, giving him 100% ownership of TPS's assets. Id. at 721-22. Jones sued, seeking to enforce the terms, obligations and conditions in the settlement agreement pertaining to Brass's repayment to Jones. Id. at 722. Jones also asserted claims for breach of contract and breach of implied covenant of good faith and fair dealing. Id.

While Jones's suit against Brass was pending and pursuant to an asset purchase agreement executed in Houston, Texas, TPS sold its interest in the Corpus Christi refinery for less than half of its fair market to Trigeant, Ltd., a Florida company in which Brass's son, also a Texas resident, owned a 48.51% interest. Id. Jones joined Trigeant, Brass Jr., TJV and TPS to the suit pending against Brass Sr., alleging the parties had fraudulently transferred the refinery asserts and its proceeds to various entities to avoid paying him the proceeds. Id. Trigeant filed a special appearance alleging that the trial court lacked jurisdiction because "1) the Trigeant Holdings entities were formed and continued to exist under the laws of Florida and were not residents of Texas, no formal meetings took place in Texas, and the Trigeant Holdings entities did not conduct business in Texas; 2) the sale of the Trifinery assets was not made for the Trigeant Holdings entities' benefit and the Trigeant Holdings entities did not engage in any specific acts within Texas in connection with the asset sale; and 3) Jones's allegations were insufficient to confer jurisdiction." Id. Additionally, Trigeant's Vice President testified that Trigeant was a Florida limited liability company; it had no agents or employees in Texas; it did not maintain a place of business in Texas; all meetings were conducted in Florida; it did not conduct business, own property, or have bank accounts in Texas; its sole office was in Florida; and it hadn't engaged in business with Jones or Brass and had not received a conveyance of any assets from TPS or of any assets formerly belonging to TPS. Id. at 723.
The trial court denied Trigeant's special appearance and the Court of Appeals affirmed. Id. at 724. The Court of Appeals found that since "it [was] possible for Jones to obtain a remedy against the Trigeant Holdings entities under the UFTA if it [was] found, as alleged by Jones, that they received fraudulently transferred assets in bad faith and in complicity with Sanford Brass," then pursuant to the Texas long-arm statute, a Texas court could exercise personal jurisdiction over Trigeant. Id. at 727. Although, Retamco relies on this language in support of its position that Trigeant is controlling, the court in Trigeant did not end its inquiry upon finding that the allegation of a fraudulent transfer was sufficient to confer personal jurisdiction pursuant to the Texas long-arm statute. Id. Instead, the court went on to find that Trigeant Holdings entities had sufficient minimum contacts with Texas for the trial court to exercise specific jurisdiction over them by virtue of the fact that Trigeant executed the Capitalization Agreement in Houston, Texas, and further, purchased and received a 100% equitable ownership of Trigeant, and thereby "equitable ownership of the very assets at issue in this case-the Corpus Christi, Texas refinery and any proceeds from this refinery." Id. Moreover, although Trigeant was a Florida company, at least one of its owners was a Texas resident. Id. Thus, the court stated,"[b]y participating in a Texas transaction involving the transfer of Texas-based assets to allegedly defraud a Texas resident, the Trigeant Holdings entities purposefully availed themselves of the benefits and privileges of conducting business in Texas." Id. at 728.

C. Discussion

Republic appeals the trial court's denial of its special appearance, arguing that Retamco failed to plead sufficient facts to confer specific jurisdiction on Republic, a nonresident. Retamco responds that "[a]n allegation that a party has committed a tort, in whole or in part, in the State of Texas, sufficiently alleges a basis for [the] exercise of personal jurisdiction over the defendant." However, Retamco does not specify in its pleadings how the fraudulent transfer was effected "in whole or in part, in the State of Texas." Nevertheless, even if we were to assume, for example, that the transfer of assets located in Texas resulted in the commission, in part, of a tort in the State of Texas, this is not the end of the discussion, but rather the beginning, as federal constitutional requirements of due process limit the power of the state to exercise personal jurisdiction over a nonresident. See Guardian Royal Exch., 815 S.W.2d at 226. Thus, Retamco was also required to show that Republic purposely established minimum contacts with the forum state and, that the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Magic House AB, 99 S.W.3d at 908. Further, as Retamco is claiming that Republic's contacts with Texas gave rise to specific jurisdiction, to satisfy the due process test, Retamco was also required to show that Republic's contacts were "purposefully directed" to the forum and that the litigation resulted from or related to those activities. See Guardian Royal, 815 S.W.2d at 227-28; Magic House AB, 99 S.W.3d at 908. Here, the record reflects that Republic is a nonresident corporation, providing construction and drilling services outside the State of Texas; it does not have a place of business in Texas; it does not maintain an agent in Texas; it does not have an office in Texas; it does not advertise in Texas; it does not own personal property in Texas; it does not provide any services or work in Texas; it does not have a telephone number in Texas; it does no marketing or selling of any kind in Texas; it has not engaged in exploration, production, financing, consulting, or marketing of oil and gas properties in Texas; it does not have any partnerships or joint ventures with anybody in Texas; it has never performed operations in Texas; and, it has never done business in Texas.

The only "contact" Republic appears to have had with the State of Texas was the single transaction wherein Republic acquired non-operating oil and gas leases in Fayette County. (3) However, unlike Trigeant, the present transaction was executed not in Texas but in California and Colorado, in what appears to be a deliberate attempt to "purposefully direct" contact outside the forum state. Trigeant, 183 S.W.3d at 727. Further, Retamco does not direct this court to any other contacts that would evidence a showing that Republic's activities were "purposefully directed" to this forum, nor does our review of the record disclose any such contacts. Guardian Royal Exchange, 815 S.W.2d at 223. And while Retamco relies on Trigeant in support of its position that the single contact by Republic in receiving a fraudulent transfer of oil and gas leases is sufficient to confer specific jurisdiction in the present case, we are mindful that Michiana directs that the purposeful-availment standard is not met when the sole contact takes place outside the forum state. Michiana, 168 S.W.3d at 787.

IV. Conclusion

Accordingly, we reverse the order of the trial court.

 

Karen Angelini, Justice

 

1. Retamco obtained a final judgment against Paradigm in the amount of $16,424,321.00, as well as a final judgment against Pacific Operators in the amount of $16,424,321.00, a final judgment against Pacific Texas in the amount of $16,424,321.00, and a final judgment against Finley in the amount of $16,616,109.00.

2. The record reflects that the trial court denied Republic's Special Appearance on July 25, 2006 and no Findings of Fact and Conclusions of Law were issued. See BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002)(when a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied).

3. Article 8.01 B (13) of the Business Corporation Act provides that a foreign corporation shall not be considered to be transacting business in this state by reason of "[i]nvesting in or acquiring, in transactions outside of Texas, royalties and other non-operating mineral interests, and the execution of division orders, contracts of sale and other instruments incidental to the ownership of such non-operating mineral interests." Tex. Bus. Corp. Act Ann. art. 8.01 B (13) (West 2007).