Baker Hughes Incorporated v. Robert E. Brooks ( 2013 )

Affirmed and Majority and Dissenting Opinions filed June 4, 2013.
In The
Fourteenth Court of Appeals
NO. 14-12-00534-CV
BAKER HUGHES INCORPORATED, Appellant
V.
ROBERT E. BROOKS, Appellee
On Appeal from the 333rd District Court
Harris County, Texas
Trial Court Cause No. 2012-02744
DISSENTING OPINION
Today the court is asked to determine whether the trial court erred in
dismissing a plaintiff corporation’s contract claims against an individual defendant
for lack of personal jurisdiction. The corporation, appellant Baker Hughes
Incorporated, asserts that appellee Robert E. Brooks consented to personal
jurisdiction by means of forum-selection clauses in the contracts under which
Baker Hughes seeks to recover in this case. Because Brooks was a party to these
contracts (and the forum-selection clauses contained within them) when the
contracts were signed, when this suit was filed, and when he was served with
citation, Brooks consented to personal jurisdiction, so the exercise of personal
jurisdiction over him in a suit to enforce the contracts would not violate the Due
Process Clause of the United States Constitution.
Brooks had the burden to show that he did not consent to personal jurisdiction
and that the Texas court’s exercise of personal jurisdiction over him would
violate the Due Process Clause, an issue governed by federal law.
In its petition, Baker Hughes asserted that Brooks was a party to the
Settlement Agreement and promissory note.1 Baker Hughes also asserted that
Brooks was bound by the forum-selection clauses in these two contracts, in which
the parties agreed to resolve disputes concerning these contracts in Harris County,
Texas. The Settlement Agreement purports to be an agreement between BJ
Services Company, a subsidiary of Baker Hughes, and Delphi Consulting, Inc., a
Louisiana corporation. Though Brooks signed the Settlement Agreement and
promissory note, the contracts reflect that he signed them on behalf of Delphi
Consulting, Inc., a Louisiana corporation, as its President.
In its petition, Baker Hughes asserted that there is no Louisiana corporation
named Delphi Consulting, Inc., and Brooks did not dispute this assertion. Instead,
in his special appearance, Brooks asserted that Delphi Consulting, Inc. was
erroneously described as a Louisiana corporation in the contracts and that Delphi
Consulting was actually a Delaware corporation. This Delaware corporation was
not in good standing with the state of Delaware either when the contracts were
signed in November 2010 or when suit was filed against Brooks and citation
served on him in January 2012. Shortly after Brooks was served with citation, this
Delaware corporation was brought back into good standing with the State of
1
Copies of the Settlement Agreement and promissory note were attached to the petition.
2
Delaware. Brooks attached a certificate from the State of Delaware showing that
Delphi Consulting—whose charter was previously void under Delaware law—was
currently in good standing and had paid all its franchise taxes.
In its response to Brooks’s special appearance, Baker Hughes submitted the
following testimony from Brooks’s deposition:
Delphi Consulting was an operator of two or three wells in
Mississippi in 1995 and did some business with BJ Services
Company at that time.
Delphi Consulting stopped serving as operator of these wells in
approximately 1997 and ceased doing business at that time.
Subsequently, Delphi Oil, Inc., a sister company to Delphi
Consulting was operating and doing business with BJ Services
Company. Nonetheless, BJ Services Company sent their bills
to Delphi Consulting, even though Delphi Oil, rather than
Delphi Consulting, was operating the wells.
Delphi Oil paid the invoices sent to Delphi Consulting.
Brooks noticed that the invoices were being sent to Delphi
Consulting rather than Delphi Oil, but continued doing business
in that manner.2
Brooks did not plead or prove that the forum-selection clauses are invalid or
unenforceable, nor did Brooks maintain that the claims in this case are not within
the scope of these clauses. Rather, Brooks asserted that these clauses are not
binding on him in his individual capacity and that he signed the Settlement
Agreement and promissory note only in his capacity as agent of Delphi Consulting.
Notably, Brooks had the burden of negating this basis of personal jurisdiction and
2
Brooks stated: ―We never asked them to bill Delphi Consulting, we never told them to bill
Delphi Consulting. They just did it and we thought, well, you know, they—you know, that the
big credit department can’t get this straight so we just pay them, you know, regardless of who
they bill.‖
3
showing that he did not consent to personal jurisdiction through these forum-
selection clauses.3 If Brooks is bound by these forum-selection clauses, then he
has consented to the exercise of personal jurisdiction over him in this case, and the
trial court should have denied his special appearance.4
The Supreme Court of Texas has held that Texas law allows Texas courts to
exercise personal jurisdiction over a defendant as long as the assertion of personal
jurisdiction does not violate the Due Process Clause of the United States
Constitution.5 Thus, the requirement that the exercise of personal jurisdiction
complies with state law and federal due process reduces to a single question of
whether the exercise of personal jurisdiction complies with federal due process.6
This is a question governed by federal law, rather than by state law.7
The issue is whether the federal Due Process Clause allows the exercise of
personal jurisdiction over Brooks based upon the forum-selection clauses, not
whether Brooks is liable on the claims Baker Hughes asserts against him.
Because today’s task is to determine jurisdiction, not liability, the court must
3
See Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007); Tri-State
Building Specialties, Inc. v. NCI Building Sys., L.P., 184 S.W.3d 242, 247 (Tex. App.—Houston
[1st Dist.] 2005, no pet.).
4
See Marrocco v. Hill, No. 14-10-01077-CV, 2011 WL 5009489, at *3–4 (Tex. App.—Houston
[14th Dist.] Oct. 20, 2011, pet. denied) (mem. op.); Tri-State Building Specialties, Inc., 184
S.W.3d at 247–49.
5
See Moki Mac River Expeditions, 221 S.W.3d at 575; Tri-State Building Specialties, Inc., 184
S.W.3d at 248.
6
See Moki Mac River Expeditions, 221 S.W.3d at 575; Tri-State Building Specialties, Inc., 184
S.W.3d at 248.
7
See Goodyear Dunlop Tires Operations, S.A. v. Brown, —U.S.—,—, 131 S. Ct. 2846, 2853–54,
180 L. Ed. 2d 796 (2011); D.J. Investments v. Metzler Motorcycle Tire Agent Gregg, Inc., 754
F.2d 542, 545 (5th Cir. 1985); Moki Mac River Expeditions, 221 S.W.3d at 575; Tri-State
Building Specialties, Inc., 184 S.W.3d at 248.
4
focus on the jurisdictional inquiry rather than ultimate liability on the claims
asserted. As Brooks himself points out in his appellate briefing, in determining
whether the Due Process Clause allows Texas courts to exercise personal
jurisdiction over Brooks in this case, this court is not to consider the merits of
Baker Hughes’s claims or whether Brooks may be held liable to Baker Hughes for
failure to pay the promissory note.8 Thus, the issue at hand is not whether Texas
law or Delaware law provides that Brooks may have liability on the promissory
note; the issue is whether, under federal due process law, Brooks may be held to
have consented to personal jurisdiction by means of the forum-selection clauses.9
Brooks did not carry his burden of showing that the exercise of personal
jurisdiction over him in this case would violate the Due Process Clause.
When Brooks signed the contracts containing the forum-selection clauses in
November 2010, Delphi Consulting was not in good standing, its charter was
―void,‖ and all powers conferred upon Delphi Consulting were inoperative.10
When Baker Hughes sued Brooks in January 2012, and had citation served on him
in the case under review, the status of Delphi Consulting was the same. Shortly
after being served and before Brooks filed his special appearance, Delphi
Consulting brought itself back into good standing, so that its charter was no longer
void and its corporate powers were restored.11 The court’s focal point in this
personal-jurisdiction analysis should not be on the restorative powers of Delaware
8
See Information Services Group, Inc. v. Rawlinson, 302 S.W.3d 392, 397–98, 407 (Tex. App.—
Houston [14th Dist.] 2009, pet. denied); Weldon-Francke v. Fisher, 237 S.W.3d 789, 792–94
(Tex. App.—Houston [14th Dist.] 2007, no pet.).
9
See Marrocco, 2011 WL 5009489, at *3–4; Information Services Group, Inc., 302 S.W.3d at
397–98, 407; Weldon-Francke, 237 S.W.3d at 792–94; Tri-State Building Specialties, Inc., 184
S.W.3d at 247–49.
10
See Del. Code Ann. tit. 8, § 510 (West 2013).
11
See Del. Code Ann. tit. 8, § 312(e) (West 2013).
5
law but on whether, under federal law, due process would be violated if a Texas
court exercised jurisdiction over one who signs contracts agreeing to a Texas
forum.
At the time Brooks signed the contracts with BJ Services Company and at
the time Baker Hughes sued Brooks to enforce them, Delphi Consulting (Brooks’
purported principal) was charterless and inoperative. Hence, Brooks was not
acting as agent vis--vis a third party but individually. Unless the third party
agrees otherwise, one who makes a contract with a third party purportedly as an
agent on behalf of a principal becomes a party to the contract if the purported agent
knows or has reason to know that the purported principal lacks capacity to be a
party to a contract.12 Brooks made contracts (the Settlement Agreement and
promissory note) with BJ Services Company, purportedly as an agent of Delphi
Consulting, Inc., a Louisiana corporation. Because BJ Services Company did not
agree otherwise, Brooks is a party to these contracts in his individual capacity if
Brooks knew or had reason to know that the purported principal lacked capacity to
be a party.13 And, he did.
According to his own testimony, Brooks knew that the entity that had been
dealing with BJ Services Company regarding the services and materials in question
was Delphi Oil—not Delphi Consulting. This testimony indicates that Brooks
signed the Settlement Agreement and promissory note knowing that Delphi Oil
should be the entity executing these agreements, and knowing that Delphi
Consulting had not been actively conducting business for a number of years.
Though Delphi Consulting still may have existed, Brooks, as President of Delphi
12
See Marrocco, 2011 WL 5009489, at *4, n.4.
13
See id.
6
Consulting, had reason to know that this corporation was not in good standing,14
that its charter was void, and therefore, that it lacked capacity to be a party to these
contracts.15
Applying these legal principles in the federal due-process analysis, Brooks
was a party to the Settlement Agreement and promissory note in his individual
capacity when he signed these contracts in November 2010, and when he was sued
and served with citation in January 2012. The forum-selection clauses in these
contracts, in unambiguous language, apply to all ―parties.‖16 Thus, in November
2010, and in January 2012, Brooks was bound by the forum-selection clauses and
consented to the exercise of personal jurisdiction over him by the Texas court.17
The majority concludes that, under Title 8, section 312(e) of the Delaware
Code, the renewal and revival of Delphi Consulting validates all contracts
purportedly entered into on behalf of Delphi Consulting.18 Even presuming that,
under Delaware law, the renewal and revival of Delphi Consulting retroactively
makes Delphi Consulting a party to the Settlement Agreement and promissory note
in lieu of Brooks, this conclusion does not change the fact that Brooks was a party
14
See id.
15
Brooks’s special appearance, which Brooks verified, contained a statement that ―[w]hen suit
was filed, it was learned that Delphi Consulting had fallen out of good standing in the State of
Delaware; however, it has been reinstated and is now in good standing.‖ In this statement,
Brooks stated that ―it was learned‖; he did not say ―I learned that Delphi Consulting had fallen
out of good standing.‖ In any event, this statement does not address whether Brooks had reason
to know that Delphi Consulting was not in good standing.
16
Both forum selection clauses apply to ―the parties,‖ an undefined term in each contract.
17
See Marrocco, 2011 WL 5009489, at *3–4; Tri-State Building Specialties, Inc., 184 S.W.3d at
247–49.
18
See Del. Code Ann. tit. 8, § 312(e). The majority also states that this renewal and revival
precludes Brooks from being liable on these contracts. But, as discussed above, whether Brooks
is liable on the contacts, is not at issue in this appeal. See Information Services Group, Inc., 302
S.W.3d at 397–98, 407; Weldon-Francke, 237 S.W.3d at 792–94.
7
to the contracts and consented to personal jurisdiction in Harris County, Texas,
from November 2010 through January 2012. Nor does this conclusion require this
court to retroactively erase Brooks’ consent to personal jurisdiction under federal
law for the purposes of determining whether the exercise of personal jurisdiction
over Brooks in this case would violate the Due Process Clause of the United States
Constitution.19 As explained above, Brooks was a party to the contracts and
consented to personal jurisdiction through the forum-selection clauses when
Brooks signed these contracts. And, Brooks was a party to the contracts when
Baker Hughes sued him to enforce them. Even when served with citation in this
case, Brooks was a party to these contracts. For these reasons, exercising personal
jurisdiction over Brooks in this case would not violate the Due Process Clause,
regardless of the operation of Title 8, section 312(e) of the Delaware Code.20
The majority cites the opinion of a Delaware Superior Court judge.21 But,
the part of the opinion on which the majority relies involves the construction of the
Delaware long-arm statute rather than a due process analysis.22 In addition, the
Delaware court found the long-arm statute and the Due Process Clause were
satisfied under another analysis, so the cited portion appears to contain only obiter
dicta.23
19
See Goodyear Dunlop Tires Operations, S.A., —U.S. at —, 131 S. Ct. at 2853–54; D.J.
Investments, 754 F.2d at 545; Moki Mac River Expeditions, 221 S.W.3d at 575; Tri-State
Building Specialties, Inc., 184 S.W.3d at 248.
20
See Marrocco, 2011 WL 5009489, at *3–4; Tri-State Building Specialties, Inc., 184 S.W.3d at
247–49.
21
See Plummer & Co. Realtors v. Crisafi, 533 A.2d 1242, 1245 (Del. Super. Ct. 1987).
22
See id.
23
See id. at 1245–48. Brooks cites ACS Partners, LLC v. Gross, No. 01-11-00245-CV, 2012
WL 1655547, at *4 (Tex. App.—Houston [1st Dist.] May 4, 2012, no pet.). As the majority
correctly points out, ACS Partners is not on point because it did not involve forum-selection
clauses and because it addressed a Texas statute that imposed liability on directors or officers of
8
For the reasons stated above, Brooks did not satisfy his burden of showing
that the exercise of personal jurisdiction over him would violate the Due Process
Clause of the United States Constitution.24 Accordingly, this court should reverse
the trial court’s granting of Brooks’s special appearance and remand for further
proceedings. Because it does not, I respectfully dissent.
/s/ Kem Thompson Frost
Justice
Panel consists of Justices Frost, Christopher, and Jamison. (Jamison, J., majority).
a corporation for certain corporate debts. See id. at *3–4.
24
See Marrocco, 2011 WL 5009489, at *3–4; Tri-State Building Specialties, Inc., 184 S.W.3d at
247–49.
9