TBS Business Solutions USA, Inc. and Tewodros "Teddy" Sahilu v. Allco, Llc ( 2022 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
__________________
NO. 09-21-00146-CV
__________________
TBS BUSINESS SOLUTIONS USA, INC.
AND TEWODROS “TEDDY” SAHILU, Appellants
V.
ALLCO, LLC, Appellee
__________________________________________________________________
On Appeal from the 58th District Court
Jefferson County, Texas
Trial Cause No. A-207,203
__________________________________________________________________
MEMORANDUM OPINION
The Texas long-arm statute authorizes a Texas court to exercise
jurisdiction over a nonresident defendant in a lawsuit when the
defendant does business in Texas. 1 The plaintiff sued the defendants, a
California-based business and individual who were both residents of
California, alleging they did business in Texas and the long-arm statute
1Tex. Civ. Prac. & Rem. Code Ann. § 17.042.
1
authorized the court’s exercise of jurisdiction over them in Texas. The
defendants appeared through a special appearance, challenging the
plaintiff’s claim that a Texas court could enter a judgment that would
bind them because the trial court lacked jurisdiction over their persons.
After hearing the defendants’ special appearance, the trial court
found it had jurisdiction over the defendants and denied the defendants’
special appearance. Later, at the plaintiff’s request, the trial court
reduced its findings and conclusions supporting its ruling to writing. In
its written findings, the trial court found that the defendants “routinely
sell and distribute products” in Texas, and concluded the exercise of
jurisdiction over them in the suit would not “offend traditional notions of
fair play[.]”
The defendants, TBS Business Solutions USA, Inc. and Tewodros
“Teddy” Sahilu, its Chief Executive Officer, filed a timely, joint notice of
appeal after the trial court signed an order denying their special
appearance. 2 On appeal, the appellants filed a brief raising four issues to
support their arguments claiming the trial court’s order should be
2Id. § 51.014(7) (authorizing the interlocutory appeal of a district
court’s ruling that grants or denies a special appearance).
2
reversed. First, they argue that Allco failed to plead jurisdictional facts
sufficient to show they are subject to the jurisdiction of courts in Texas.
Second, they contend that because the litigation involves the plaintiff’s
contract with a business located in Texas rather than a contract between
the plaintiff and TBS, a company incorporated with its principal place of
business in California, the pleadings and evidence reveal the claims the
plaintiff brought against them are not substantially connected to the
operative facts of the litigation. Third, they argue the trial court’s
exercise of jurisdiction over them offends traditional notions of fair play
and substantial justice. And fourth, they contend the trial court erred in
concluding Sahilu’s unsworn declaration, which they used to verify their
Special Appearance, was noncompliant with the requirement of Rule
120a that special appearances be made by “sworn motion[.]” 3
To resolve the appeal, we must decide whether the appellants, both
of whom are residents of California, did business in Texas under the
Texas long-arm statute, and if so whether the trial court’s exercise of
jurisdiction over them complies with the requirements of due process. For
3Tex. R. Civ. P. 120a(1).
3
the reasons explained below, we conclude the trial court erred in denying
the special appearance. We reverse the trial court’s order, render
judgment granting the special appearance, and remand the case to the
trial court with instructions to dismiss TBS and Sahilu from the suit.
Background
After the Coronavirus (Covid-19) pandemic began, Allco, LLC
ordered one million N95 masks manufactured by the 3M Company from
a Texas-based business, Global Management Services, LLC, a medical
supply business and authorized distributor of 3M masks. Allco ordered
the masks from Global on March 31, 2020. To secure Global’s delivery of
the masks, Allco sent Global a deposit of $870,000 toward the $2,900,000
Global charged for the masks. Allco transferred $870,000 to Global’s bank
account via a wire transfer.
Global, which apparently didn’t have 3M masks in stock contacted
TBS, another authorized 3M distributor in California, seeking a source
of 3M, N95 face masks. On March 31, April 1, and April 6, 2020, Global
sent TBS three purchase orders for 3M masks. These three orders (had
the masks been delivered) would have allowed Global (had Global
complied with its agreement with Allco) to fulfill its agreement with Allco
4
and supply Allco with one million 3M masks. When Global sent TBS
these orders, TBS knew Global had agreed to sell Allco one million 3M
masks; even so, TBS disputed that it was a party to the agreement
between Global and Allco.
In all, the three purchase orders Global sent TBS, discussed above,
represent orders for 5.6 million N95 face masks manufactured by 3M.
The purchase orders show that Global expected to pay $5,423,250 for the
5.6 million masks. TBS accepted the three orders, and Global wired TBS
$5,423,250 to pay for them. But after receiving Global’s money, TBS
informed Global that it could not fill the orders through 3M. At Global’s
request, TBS turned to Makrite Industries Inc., an alternate supplier of
N95 masks, to supply Global with N95 masks manufactured by Makrite,
not by 3M.
To account for the change in manufacturers and the fact the
Makrite masks were nearly three times more expensive, Global sent TBS
a fourth purchase order, dated August 13, 2020. In that order, Global
ordered 1,000,000 Makrite N95 masks for $2,850,000. On August 19,
2019, Global’s president, Roger Morgan, signed TBS’s Purchase Order
Acknowledgment/Acceptance form, which is the same form that Global
5
had signed when TBS acknowledged it accepted Global’s previous three
orders. After TBS received the N95 masks from Makrite, pursuant to the
terms of Global’s purchase order, TBS shipped the masks to Global by
delivering them to a ground carrier so they could be delivered to Global
in Texas. And since Global had previously sent TBS around $5.4 million
to pay for orders TBS couldn’t fill with mask made by 3M, TBS applied
approximately $2.8 million of the $5.4 million Global had deposited to the
price TBS charged Global for the Makrite masks, refunding
approximately $2.6 million to Global.
Turning to Allco’s petition, Allco alleged that Global never sent it
any masks and that the defendants kept Allco’s $870,000 deposit even
though Allco demanded a refund. When negotiations among the parties
about refunding Allco’s $870,000 failed, Allco sued Global, Global’s
president (Roger Morgan), TBS, and Sahilu on nine claims: common-law
fraud, fraud by nondisclosure, conversion, statutory theft, breach of
contract, promissory estoppel, quantum meruit, vicarious liability, and
civil conspiracy.
After Allco sued, Morgan and Global failed to appear or to file
answers to Allco’s suit. So Allco defaulted Global and Morgan. That said,
6
after they were served, TBS and Sahilu appeared, and they filed a
combined Special Appearance and answer. The appellants supported
their Special Appearance with an unsworn declaration, signed by Teddy
Sahilu. In their Special Appearance, TBS and Sahilu (the appellants)
alleged that they are not residents of Texas, that TBS is incorporated and
has its principal place of business in California, and that TBS entered a
contract to sell face masks to Global, not to TBS. In his unsworn
declaration, Sahilu explained that TBS has no offices in Texas, that the
communications with Global were by phone or by email from TBS’s office
in California, and that he and TBS did not performed any of the work
related to TBS’s transactions with Global in Texas.
In TBS’s sworn motion, TBS alleged that when TBS determined it
couldn’t fill Global’s orders with 3M masks, it partially filled Global’s
request with N95 masks manufactured by Makrite Industries based on
Global’s instructions to do so. To account for the change in Global’s order
of masks, Global sent TBS a new purchase order and ordered one million
Makrite Industries N95 masks for $2.85 million. Based on that order,
TBS ordered the masks from Makrite Industries and charged Global for
the masks, crediting the cost of the order for Makrite masks against the
7
deposit it received from Global for the 3M masks and refunding the
balance due Global, around $2.6 million.
In their special appearance, the appellants alleged they had not
purposefully availed themselves of the privilege of conducting business
in Texas, and they listed specific facts, which generally speaking explain
why. Even though the trial court found Sahilu’s declaration defective, we
note the appellants alleged in their Special Appearance that “[t]he
incident on which the suit against TBS and Mr. Sahilu is based did not
occur in Texas, and TBS and Mr. Sahilu have had no contacts with Texas
in connection with this lawsuit, except to send the Makrite masks to
Global via interstate commerce.”
In response to the Special Appearance, Allco argued the trial court
could exercise specific jurisdiction over its suit because the appellants, in
selling the masks, “had actual knowledge that the Makrite masks . . .
were shipped to Texas.” Second, Allco claimed that by contracting with
Global—a Texas distributor—TBS should have reasonably expected the
masks would enter Texas. Allco concluded the exercise of personal
jurisdiction over TBS would not offend traditional notions of fair play
8
because contracts with Texas residents to supply face masks are of “great
interest to the state of Texas.”
When the trial court heard the special appearance, no one testified
or asked the trial court to consider evidence not already attached to the
pleadings on file. 4 Following the hearing, the trial court denied the
Special Appearance in a written order. Based on Allco’s request, filed
nearly a month after the hearing, the trial court issued Written Findings
of Fact and Conclusions of Law. In its request for findings, Allco asked
the trial court to find that Sahilu’s declaration was defective “because it
did not state that the facts set out in the pleadings were true and correct.”
Yet before requesting findings, Allco had never before pointed to any
defects in Sahilu’s declaration. After Allco requested and drafted
proposed findings of fact and conclusions of law, the trial court rubber
stamped Allco’s proposed findings and conclusions. In finding the facts,
the court found:
4Other than the pleadings on file when the hearing occurred, the
documents before the trial court when the hearing occurred are attached
either to Plaintiff’s Original Petition, Plaintiff’s Response in Opposition
to Special Appearance, and the combined Special Appearance and
Answer.
9
1. TBS Business Solutions USA, Inc. and Teddy Sahilu have
sold and delivered medical supplies and equipment to Global
Management Services, LLC, a Texas company located in
Stafford, Texas that routinely sell and distribute products in
the State of Texas. See Affidavit of Roger Morgan.
2. Global Management Services, LLC ordered the 3M masks
at issue in this case from TBS Business Solutions USA, Inc.,
which some were destined for end use in the State of Texas.
See Affidavit of Roger Morgan.
3. Teddy Sahilu indicated to Roger Morgan that he knew that
products sold to Global Management Services, LLC would be
for end use in the State of Texas. See Affidavit of Roger
Morgan.
4. Roger Morgan has personal knowledge that TBS Business
Solutions USA, Inc. had a reasonable expectation that
products distributed to Global Management Services, LLC
would enter the stream of commerce in the State of Texas. See
Affidavit of Roger Morgan.
5. TBS Business Solutions USA, Inc. shipped Makrite masks
directly to Houston, Texas as a part of this litigation. See
Affidavit of Roger Morgan.
6. Global Management Services, LLC and Roger Morgan have
coordinated with Texas OrthoSolutions, LLC and end users in
the State of Texas regarding purchasing equipment that is
distributed by Global Management Services, LLC and these
products enter into the stream of commerce in Texas. See
Affidavit of Ryan Armstrong.
7. TBS Business Solutions USA, Inc. and Teddy Sahilu have
done business with another (unnamed) Texas company in a
June 2020 transaction in which they contracted to sell
10
thermometers and isolation gowns to a company in Irving,
Texas. See Declaration of Tewodros “Teddy” Sahilu.
Relying on the above, the trial court then reached these six
conclusions.
1. Defendants purposefully availed themselves of the
privilege of conducting activities within Texas and the
claims against them in this litigation resulted from injuries
arising from their contacts with Texas.
2. The exercise of personal jurisdiction over Defendants do
not offend traditional notions of fair play and substantial
justice.
3. Defendants have sufficient minimum contacts with Texas
such that the exercise of jurisdiction is fair and reasonable.
4. Defendants also knew or reasonably anticipated that their
activities in Texas would render it foreseeable that they
may be “hailed into court” here.
5. Defendants knew that some of their products were in or
would wind up in Texas and intentionally acted to serve
Texas with these products.
6. The Declaration of Tewodros “Teddy” Sahilu, attached to
Defendants’ Special Appearance, did not verify the special
appearance as required by Texas Rules of Civil Procedure
120(a), as it was defective because it did not state that the
facts set out in the pleadings were true and correct.
11
Standard of Review
A nonresident defendant may object to the court’s authority to
exercise jurisdiction over the defendant’s person or property by filing a
special appearance meeting the requirements of Rule 120a. 5 Under Rule
120a, the trial court must decide the special appearance on “the
pleadings, any stipulations made by and between the parties, such
affidavits and attachments as may be filed by the parties, the results of
discovery processes, and any oral testimony.” 6 In deciding the motion, a
trial court may consider evidence and resolve disputed issues of fact tied
to resolving whether the trial court has personal jurisdiction over the
nonresidents who have challenged the court’s jurisdiction over them by
filing a special appearance. 7 When, as here, the trial court denies the
defendants’ special appearance and issues findings of fact and
conclusions of law to support its ruling, the findings may be challenged
on appeal on legal or factual sufficiency grounds. 8 We review a trial
5See Tex. R. Civ. P. 120a; Tex. Dep’t of Parks & Wildlife v. Miranda,
133 S.W.3d 217, 240 (Tex. 2004).
6Tex. R. Civ. P. 120a(3).
7BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex.
2002).
8Id.
12
court’s conclusions of law as legal questions. 9 Even though a party may
not challenge a trial court’s conclusions of law on grounds of factual
insufficiency, they may challenge a conclusion of law as incorrect.10
Should we determine that a conclusion of law is erroneous but despite
the error the trial court reached the correct ruling, the error—if the trial
court reached the right ruling anyway—would not require a reversal. 11
Texas courts may exercise jurisdiction over nonresident defendants
if the pleadings and evidence show the following:
• the Texas long-arm statute applies and authorizes a Texas
court to decide the case; and
• the court’s exercise of jurisdiction over a nonresident
defendant comports with the constitutional guarantees of due
process. 12
In its brief, Allco argues because the evidence before the trial court
shows specific jurisdiction exists over the defendants for its claims, the
trial court properly denied the special appearance. But the appellants
question whether the trial court has the authority to bind them to a
judgment, an issue that hinges on whether they have “the ‘minimum
9Id.
10Id.
11Id.
12Searcy v. Parex Res., Inc., 496 S.W.3d 58, 66 (Tex. 2016).
13
contacts’ necessary to create specific jurisdiction.” 13 The minimum
contacts “necessary to create specific jurisdiction focuses on the
relationship among the defendant, the forum, and the litigation.” 14 “For
a State to exercise jurisdiction consistent with due process, the
defendant’s suit-related conduct must create a substantial connection
with the forum State.” 15
Specific jurisdiction exists if the plaintiff’s claims arise from or
relate to the defendant’s purposeful contacts with the forum where the
plaintiff sued. 16 “A claim arises from or relates to a defendant’s forum
contacts if there is a substantial connection between those contacts and
the operative facts of the litigation.” 17 This standard “does not require
proof that the plaintiff would have no claim but for the contacts, or that
the contacts were a proximate cause of the liability.” 18 “Instead, we look
at what the claim is principally concerned with, whether the contacts will
13Walden v. Fiore, 571 U.S. 277, 283 (2014).
14Id. at 284 (cleaned up).
15Id.
16Cornerstone Healthcare Grp. Holding, Inc. v. Nautic Mgmt. VI,
L.P., 493 S.W.3d 65, 73 (Tex. 2016); see also Moki Mac River Expeditions
v. Drugg, 221 S.W.3d 569, 576 (Tex. 2007).
17TV Azteca v. Ruiz, 490 S.W.3d 29, 52 (Tex. 2016) (cleaned up).
18Id. at 52-53 (cleaned up).
14
be the focus of the trial and consume most if not all of the litigation’s
attention, and whether the contacts are related to the operative facts of
the claim.” 19
The parties bear shifting burdens of proof in the hearing on the
special appearance. 20 Under the burden-shifting standard, the plaintiff
must plead sufficient facts to bring the nonresident defendant within the
reach of the Texas long-arm statute. 21 If the plaintiff’s pleadings do not
show the plaintiff’s claims fall under the long-arm statute, “the defendant
need only prove that it does not live in Texas to negate jurisdiction.”22 On
the other hand, should the plaintiff plead facts sufficient to show the
defendant committed a tort or did business with the plaintiff and that
the business conducted in the State satisfied the requirements of due
process, the burden shifts to the defendant to negate the well-pled
allegations. 23
19Id. at 53 (cleaned up).
20Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex.
2010)
21Id.
22Id.658-59.
23See id. at 659.
15
Since the petition defines the scope of the lawsuit, “the defendant’s
corresponding burden to negate jurisdiction is tied to the allegations in
the plaintiff’s petition. 24 The defendant may “negate jurisdiction on
either a factual or a legal basis.” 25 “Factually, the defendant can present
evidence that it has no contacts with Texas, effectively disproving the
plaintiff’s allegations[,]” and on presenting evidence that it has no
contacts the burden shifts to the plaintiff to respond with evidence
“affirming its allegations” to avoid having the suit dismissed. 26 Or the
defendant may present a legal defense by showing
that even if the plaintiff’s alleged facts are true, the evidence
is legally insufficient to establish jurisdiction; the defendant’s
contacts with Texas fall short of purposeful availment; for
specific jurisdiction, that the claims do not arise from the
contacts; or that traditional notions of fair play and
substantial justice are offended by the exercise of jurisdiction.
One way the defendant may show the trial court cannot
exercise jurisdiction over the defendant’s person is by showing
that it has had no contacts with the forum. 27
24Id.
25Id.
26Id.
27Id.
16
Analysis
The Unsworn Declaration
Since deciding whether Sahilu’s Special Appearance met the
requirements of Rule 120a is a threshold issue, we must determine
whether the trial court erred in reaching that conclusion before we
address the appellants’ remaining issues. 28 On appeal, relying on Casino
Magic Corp. v. King, Allco argues the trial court could have denied the
appellants’ special appearance because the appellants failed to verify the
jurisdictional facts in their special appearance as true and correct, a
requirement of Rule 120a. 29 But even were Allco correct that Sahilu’s
declaration failed to verify the jurisdictional facts in the Special
Appearance (and it isn’t, as we later explain), defects in forms used to
support a special appearance may be cured if the opposing party objects.30
But here, Allco didn’t object to any alleged defects in Sahilu’s declaration
until after the hearing occurred; instead, it waited until nearly two weeks
28See Tex. R. Civ. P. 120a(1).
29Casino Magic Corp. v. King, 43 S.W.3d 14, 18 (Tex. App.—Dallas
2001, pet. denied).
30See Dawson-Austin v. Austin, 968 S.W.2d 319, 322 (Tex. 1998)
(noting that even the lack of a verification to support a special appearance
is curable under Rule 120a).
17
after the trial court denied the appellants’ Special Appearance, pointing
the alleged defect out for the first time when it asked the trial court to
conclude that because Sahilu’s declaration was defective, the declaration
failed to verify the Special Appearance.
To be sure, Sahilu’s Declaration lacks a jurat. So even though Allco
never complained the Declaration lacks a jurat, the Declaration Sahilu
filed does not function as an affidavit. 31 But even had Sahilu intended to
file an affidavit and left off the jurat, an affidavit filed without a jurat is
a defect that is subject to the rule of waiver since Rule 120a allows special
appearances to “be amended to cure defects.” 32 In other words, Allco
waived any errors in Sahilu’s declaration by never objecting to it until
after the trial court ruled on the appellants’ Special Appearance.
And even if Sahilu intended to file an unsworn declaration, and in
our view that’s what he intended, his unsworn declaration (absent a
timely objection to its form) made the appellants’ Rule 120a Special
Appearance a “sworn motion” under Texas law. Under section 132.001 of
31SeeTex. Gov’t Code Ann. § 312.011(1);
32Tex. R. Civ. P. 120a(1); Mansions in the Forest, L.P. v.
Montgomery Cty., 365 S.W.3d 314, 317 (Tex. 2012); Dawson-Austin, 968
S.W.2d at 321-22.
18
the Civil Practices and Remedies Code, an unsworn declaration
transforms a special appearance into a sworn motion. 33 With exceptions
not applicable here, section 132.001(a) provides: “[A]n unsworn
declaration may be used in lieu of a written sworn declaration,
verification, certification, oath, or affidavit required by statute or
required by a rule, order, or requirement adopted as provided by law.” 34
Given the above, the trial court’s conclusion that Sahilu’s
declaration didn’t verify the Special Appearance because (in the trial
court’s opinion) it was defective is legally incorrect and unsupported by
the record. The record shows that Sahilu did verify the facts in the
appellants’ Special Appearance. He declared:
I am a Defendant in the above-referenced lawsuit. I am over
18 years of age, of sound mind, and capable of making this
affidavit. The facts stated in this affidavit are within my
personal knowledge and are true and correct. I have also
reviewed the Special Appearance filed by me and
Defendant TBS Business Solutions USA Inc. (“TBS”) in
the above-referenced lawsuit, and according to my
personal knowledge, the facts stated therein are true
and correct. (emphasis added).
33Tex. Civ. Prac. & Rem. Code Ann. § 132.001.
34Id. § 132.001(a).
19
For all these reasons, we hold the trial court erred in concluding
that Sahilu’s Declaration “did not verify the special appearance” as
required by Rule 120a.
Specific Jurisdiction
In their first issue, the appellants argue that Allco failed to plead
jurisdictional facts showing their connection with Texas. According to
appellants, the “only jurisdictional allegations in [Allco’s] Original
Petition are conclusory statements that ‘[t]he court has personal
jurisdiction over Defendants because Defendants engaged in business in
Texas by contracting with a Texas resident’ and ‘Defendants committed
torts, which are the subject of this suit, in whole or in part in Texas.’”
Were those the only allegations relevant to the trial court’s jurisdictional
inquiry, we would agree that alone they cannot support the trial court’s
ruling. 35 But they don’t stand alone. When deciding a special appearance,
35E.g.,Doe v. Univ. of N. Tex. Health Sci. Ctr., No. 02-19-00321-CV,
2020 Tex. App. LEXIS 2817, at *8 (Tex. App.—Fort Worth Apr. 2, 2020,
pet. denied) (“[A] plaintiff does not meet the burden to plead facts
affirmatively demonstrating jurisdiction with conclusory allegations; as
we have held, if conclusory allegations were sufficient, ‘the jurisdictional
inquiry would become meaningless.’”) (quoting City of Forest Hill v.
Cheesbro, No. 02-18-00289-CV, 2019 Tex. App. LEXIS 1572, at *5 (Tex.
20
the court’s jurisdictional inquiry is not limited to one paragraph of the
pleadings. Instead Rule 120a requires the jurisdictional inquiry to
encompass the factual allegations in “the pleadings . . . and such
affidavits and attachments as may be filed by the parties, the results of
discovery processes, and any oral testimony.” 36 So even though the
appellants focus on one paragraph of the Plaintiff’s Original Petition to
argue Allco’s pleadings of jurisdictional facts were insufficient, the trial
court was not free to ignore the remaining allegations of fact in Allco’s
thirteen-page-long Original Petition or the factual allegations in Allco’s
thirteen-long-page Response in Opposition to Special Appearance. When
considering the matters encompassed by Rule 120a, we conclude the
pleadings and evidence, if taken as true, are sufficient to show the trial
court was authorized on the pleadings, had the pleadings been
undisputed, to exercise specific jurisdiction over at least one of Allco’s
nine claims.
App.—Fort Worth Feb. 28, 2019, no pet.) (mem. op.)); McLane v. Thomas,
No. 03-18-00439-CV, 2020 Tex. App. LEXIS 1964, at *20 (Tex. App.—
Austin Mar. 6, 2020, pet. denied) (“[C]onclusory allegations are not
sufficient to overcome sovereign immunity.”).
36Tex. R. Civ. P. 120a(3).
21
In issue two, the appellants contend their contacts with Texas are
insufficient under the pleadings and evidence before the trial court to
establish that the trial court could exercise specific jurisdiction over them
in the suit. As to Allco’s claims, the parties do not dispute that on March
31, 2020, Global agreed to sell Allco one million N95 face masks
manufactured by 3M for $2,900,000. To secure the sale, Allco sent Global
$870,000 in advance as a deposit toward its purchase of the masks.
Global, an authorized distributor of 3M masks, contacted TBS, a business
incorporated in California with its principal place of business there, to
fill orders Global was receiving from its customers, customers that
included Allco, for N95 face masks manufactured by 3M.
The evidence shows that between March 31, 2020, and August 13,
2020, Global sent four Purchase Orders to Allco for face masks. The first
three of these orders were for 3M masks, but the last order on August 13,
2020, was for N95 masks made by Makrite Industries, which Global told
TBS to order after learning that TBS couldn’t fill Global’s first three
purchase orders for 3M masks even though Global had already paid TBS
in advance for those orders and before TBS delivered the 3M masks that
were ordered.
22
In its petition, Allco alleged the “Defendants represented to [Allco]
that they were ready, willing, and able to provide the N95 masks upon
receipt of payment[.]” But there were no facts alleged about where TBS
or Sahilu allegedly made those representations to Allco. Simply put, Allco
alleged no facts claiming that Sahilu or any employees of TBS were in
Texas when these representations were made. And the facts Sahilu swore
to in his special appearance—that its business with Global was all by
phone or email from California—was undisputed. More than a decade
ago, the Texas Supreme Court rejected the “directed a tort” approach and
the “effects test,” the very tests Allco asked the trial court to apply (and
the court appears to have applied based on its findings of fact) in ruling
on the defendants’ special appearance. 37
Next, we turn to the jurisdictional evidence attached to Allco’s
pleadings. It shows that Global’s relationship concerning both the 3M
masks, which weren’t delivered, and the Makrite face masks, which were
delivered, were with TBS and its managing director, Sahilu. In other
37See Old Republic Nat’l Title Ins. Co. v. Bell, 549 S.W.3d 550, 564-
565 (Tex. 2018); Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d
777, 790-792 (Tex. 2005).
23
words, TBS’s and Sahilu’s relationships on these transactions were not
with Allco, and Allco’s evidence does not show otherwise. For instance,
every time TBS accepted Global’s purchase orders for 3M face masks,
TBS sent Global a “Purchase Order Acknowledgement/Acceptance” form,
which Global’s president, Roger Morgan, signed. Allco is not a party to
these agreements. The record contains no contract between TBS and
Allco obligating TBS to sell Allco any product, including 3M or Makrite
face masks.
Add to that, the following condition is in each of the Acceptance
forms that Morgan signed when purchasing 3M masks from TBS:
As the cases of COVID-19 accelerate across the United States
and Canada, 3M is receiving an increasing number of requests
for large-volume supply to support the healthcare industry
and national preparedness efforts. As a result, order status
and shipping dates could fluctuate based on supply. We value
your business and patience during this time. This is an
evolving situation and we are supplying the best manner
possible. We are dedicated to fulfilling all orders in a timely
manner.
So the written terms of Global’s and TBS’s agreements informed Global
that TBS’s ability to supply 3M masks could fluctuate based on supply
and that it would “supply in the best manner possible.” That statement
reflects TBS would supply customers like Global 3M masks given the
24
demands for them in the “best manner possible,” basically a best-efforts
term in filling Global’s orders. It doesn’t show that TBS represented to
Global that it had over 5 million N95 masks manufactured by 3M on hand
when Global issued the purchase orders in March and April 2020. And
while Allco attached an affidavit signed by Global’s president, Roger
Morgan, to its reply, Morgan never claimed that TBS ever told him that
it had millions of N95 face masks manufactured by 3M on hand when he
spoke to Sahilu or anyone at TBS. So despite Allco’s conclusory allegation
claiming “Defendants” represented “they” were ready, willing, and able
to supply 3M masks, allegations that are devoid of specifics are
insufficient to affirmatively demonstrate how TBS or Sahilu did business
or committed a tort in Texas. 38
We further conclude that the purchase orders attached to Allco’s
pleadings show that Global, a Texas business, reached into California by
ordering face masks under an order requiring TBS to ship the masks to
it by a common ground carrier so that Global could then use the masks
Doe, 2020 Tex. App. LEXIS 2817, at *8; Cheesbro, 2019 Tex.
38See
App. LEXIS 1572, at *5; McLane, 2020 Tex. App. LEXIS 1964, at *20.
25
in its business to fulfill its own agreements with its customers. 39 In other
words, TBS would have discharged its obligations under the purchase
orders for the 3M masks (had it obtained and delivered the masks) on
handing the masks to a common carrier in California, regardless of
whether California or Texas law were to apply to these three unfilled
purchase orders. 40 Our conclusion that TBS’s obligations would have
been discharged upon delivering the masks in California is reinforced by
the fact that Global left the box labeled “F.O.B. POINT” in the purchase-
orders blank. The term F.O.B. is a commercial term, which is defined by
California and Texas law as “free on board.” 41 Thus, under Global’s
purchase orders, the parties to the contract anticipated that the risk of
loss of the goods involved in the transaction passed to Global when TBS
delivered the masks to a common carrier in California, meaning the
39Cal. Com. Code § 2509(1)(a) (Deering, Lexis Advance through
Chapter 138 of the 2022 Regular Session); Tex. Bus. & Com. Code Ann. §
2.509(a)(1).
40Id.
41Cal. Com. Code § 2319(1) (Deering, Lexis Advance through
Chapter 175 of the 2022 Regular Session); Tex. Bus. & Com. Code Ann. §
2.31926
purchase orders did not require TBS to perform any part of the work
under the purchase orders in Texas. 42
Given the evidence about the nature of the relationship (or lack
thereof) between Allco and TBS as it relates to the purchase orders that
lie at the heart of the controversy, the question boils down to whether
Allco’s claims arise from or relate to TBS’s purposeful contacts with the
forum where Allco filed suit. 43 The answer is clearly no. Even though the
trial court improperly relied on the directed tort and effects test, both of
which tests have been rejected by the Texas Supreme Court, Allco led the
court into the error. Just because TBS knew the masks would end up in
Texas is insufficient without more than is shown in this record to support
the trial court’s conclusion that it had specific jurisdiction over TBS or
Sahilu because a product TBS sold ended up in Texas. 44
To support the exercise of specific jurisdiction over a defendant, the
jurisdictional evidence or allegations in the pleadings must establish the
42Id.
43Cornerstone Healthcare Grp. Holding, Inc., 493 S.W.3d at 73; see
also Moki Mac, 221 S.W.3d at 576.
44See Spir Star AG v. Kimich, 310 S.W.3d 868, 873 (Tex. 2010); see
also Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal., 480 U.S. 102,
107 (1987) (plurality opinion).
27
nonresident defendant engaged in conduct sufficient to demonstrate the
nonresident defendant reached beyond its own state, created a
continuing relationship with the resident of the other state, and the suit
is related to the nonresident’s activities. 45 Examples of conduct that show
a nonresident purposefully availed itself of a benefit or advantage in the
forum where the suit was filed include: (1) designing the product for the
market in the forum; (2) advertising for business in the forum; (3)
establishing channels for providing its customers with regular advice in
the forum; and (4) marketing products through a distributor who serves
as the nonresident’s sales agent in the forum. 46 Allco’s pleadings do not
allege that TBS designed any product, advertised in Texas, or that Global
was TBS’s sales agent in Texas. And even though the trial court found
that TBS and Sahilu “routinely sell and distribute products” in Texas,
the trial court based that finding on Roger Morgan’s affidavit. But all he
said in his affidavit was that “I have ordered medical supplies and
equipment from [TBS] in the past, namely 3M respirator masks.” While
Morgan’s affidavit does mention routine sales, he mentions routine sales
45Asahi, 480 U.S. at 112; Spir Star AG, 310 S.W.3d at 873.
46Id.
28
only in the context of Global’s business, not that of TBS: He swore: “My
company [Global] has routinely sold and distributed products in the state
of Texas for end use in the State of Texas, and thus, said products have
entered the stream of commerce in the State of Texas.” Even though
Morgan may have ordered medical supplies and equipment from TBS and
Sahilu in the past, his affidavit fails to show how Allco’s claims “arise out
of or relate to” TBS’s contacts in Texas on a case involving Global’s
alleged failure to return Allco’s deposit of $870,000 and where the
relationship between TBS and Global as to the 3M masks Global ordered
is a relationship that is centered in California, not Texas. 47
Here, it appears the trial court focused on the unilateral activity of
Global rather than the nonresident’s relationship with the forum in
ruling on the Special Appearance. But the jurisdictional analysis
requires courts to focus on the nonresident’s relationship to the forum,
not the unilateral activity of a third party. 48 And even when the
47See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 427 (1985);
Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338
(Tex. 2009).
48Luciano v. SprayFoamPolymers.com, LLC, 625 S.W.3d 1, 9 (Tex.
2021).
29
nonresident literally has a flood of contacts with the forum, “the exercise
of specific jurisdiction is prohibited if the suit does not arise out of or
relate to the defendant’s contacts with the forum.” 49 This concept—that
specific jurisdiction is confined to adjudicating issues deriving from or
connected with the controversy involved in the lawsuit—which courts
refer to as the relatedness inquiry, applies to all of Allco’s claims. 50
The heart of the dispute in the trial court was Global’s failure to
return Allco’s deposit of $870,000. In a sworn motion, the appellants
alleged that TBS was not “privy to any of Global’s clients’ purchase orders
or delivery information,” an allegation sufficient to shift the burden to
Allco to prove Allco was a party to the agreement between TBS and
49Id.at 14 (cleaned up).
50Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985) (“[A]n
individual’s contract with an out-of-state party alone [cannot]
automatically establish sufficient minimum contacts in the other party’s
home forum[.]”); Luciano, 625 S.W.3d at 14 (noting that a flood of
purposeful contacts is insufficient for a court to exercise specific
jurisdiction unless there is a nexus between the defendant, the litigation,
and the forum); TV Azteca, 490 S.W.3d at 46 (comparing the stream-of-
commerce cases with the directing-a-tort cases); Moncrief Oil, 414 S.W.3d
at 152 (“Texas’s interest in protecting its citizens against torts is
insufficient to automatically exercise personal jurisdiction upon an
allegation that a nonresident directed a tort from outside the forum
against a resident.” ).
30
Global involving Global’s purchase of 3M face masks. 51 But the
documents Allco attached to its pleadings do not show that Allco was a
party to the TBS/Global contract or that TBS was a party to the
Allco/Global contract. 52 And during the hearing on the appellants’ Special
Appearance, in response to a question from the court, Allco’s attorney
agreed that TBS had returned the money owed to Global after accounting
for Global’s obligation to pay TBS for delivering to Global one million
Makrite N95 masks.
To sum up: The evidence before the trial court shows that TBS and
Global conducted their business in California, not in Texas. Allco failed
to allege and prove the appellants’ contacts with Texas related to and
were connected in a substantial way to the facts of the litigation involving
the agreement between Global and Allco.
51See Kelly, 301 S.W.3d at 658 (noting the caselaw governing special
appearances “dictates that the plaintiff and the defendant bear shifting
burdens of proof); First Bank v. Brumitt, 519 S.W.3d 95, 102 (Tex. 2017)
(“As a general rule, the benefits and burdens of a contract belong solely
to the contracting parties, and no person can sue upon a contract except
he be a party to or in privity with it.”) (cleaned up).
52See Brumitt, 519 S.W.3d at 102 (placing the burden of proof on the
party who seeks to prove it is a third-party beneficiary to another’s
contract).
31
For the reasons explained above, we conclude TBS was not doing
business in Texas under the purchase orders Global issued to TBS. We
sustain the appellants’ second issue. Because resolving the appellants’
third issue would not provide appellants more relief, we need not address
that issue. 53
Conclusion
We overrule the appellants’ first issue, sustain issues two and four,
and conclude we need not reach issue three. We reverse the trial court’s
order denying the special appearance. We remand the case to the trial
court, with instructions that the trial court dismiss and then sever the
claims against the appellants, TBS Business Solutions USA, Inc. and
Tewodros “Teddy” Sahilu, from the claims against any other parties to
the suit.
REVERSED AND REMANDED.
_________________________
HOLLIS HORTON
Justice
Submitted on November 4, 2021
Opinion Delivered September 15, 2022
Before Golemon, C.J., Horton and Johnson, JJ.
53Tex. R.App. P. 47.1. (requiring opinions to address each issue that
is necessary to resolving the appeal).
32