Proskauer Rose LLP v. Pelican Trading, Inc., GMF Trading, LLC and George M. Fleming ( 2009 )

Reversed and Remanded and Memorandum Opinion filed February 3, 2009

Reversed and Remanded and Memorandum Opinion filed February 3, 2009.

In The

Fourteenth Court of Appeals

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NO.  14-08-00283-CV

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PROSKAUER ROSE LLP, Appellant

V.

PELICAN TRADING, INC., GMF TRADING, LLC AND GEORGE M.  FLEMING, Appellees

On Appeal from the 164th District Court

Harris County, Texas

Trial Court Cause No.  2007-56412

M E M O R A N D U M   O P I N I O N

This interlocutory appeal concerns a special appearance by a New York law firm in a fraud case.  The law firm, Proskauer Rose LLP, moved the trial court to dismiss it from the suit below because it claimed the court lacked personal jurisdiction.  The trial court denied the motion.

The case arises from a series of business deals by appellee George M. Fleming.  The deals were called APICO@ transactions, APICO@ standing for APersonal Investment Corporation.@  The object of these deals was to create a complex tax shelter that legitimately generated huge tax losses, and huge tax savings, that were far in excess of any actual minor economic losses. Appellees Pelican Trading, Inc., and GMF Trading, LLC, are tax shelters created as a result of these transactions.

Defendant Ernst & Young, LLP, which is not a party to this appeal, assisted Fleming=s entry into the PICO transactions.  Ernst & Young in turn arranged for Proskauer Rose to provide an opinion letter advising that the transactions amounted to a legitimate tax strategy that Amore likely than not@ would be upheld in court against a challenge by the I.R.S.  Proskauer Rose was engaged by Pelican, e-mailed several drafts to Pelican representatives for their review, and ultimately provided the sought-after opinion letter.  Later, however, the I.R.S. audited Fleming and the PICO transactions, resulting in Ahuge liabilities@ for Fleming.

Appellees sued Proskauer Rose and Ernst & Young jointly in Harris County district court for both common-law and constructive fraud, breach of contract (against Proskauer Rose only), breach of fiduciary duty, conspiracy, professional malpractice, and unjust enrichment.  Proskauer Rose specially appeared to challenge the trial court=s personal jurisdiction over it.  After a non-evidentiary hearing, the trial court denied the special appearance.  Proskauer Rose then filed this interlocutory appeal of the trial court=s order.  See Tex. Civ. Prac. & Rem. Code Ann. ' 51.014(a)(7) (Vernon 2008).  

Because the question of a trial court=s exercise of personal jurisdiction over a nonresident defendant is one of law, this court reviews a trial court=s determination on a request for a special appearance de novo.  Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007); Weldon‑Francke v. Fisher, 237 S.W.3d 789, 793 (Tex. App.CHouston [14th Dist.] 2007, no pet.).  The Texas long‑arm statute governs a Texas court=s exercise of jurisdiction over nonresident defendants.  Tex. Civ. Prac. & Rem. Code Ann. '' 17.041B.045 (Vernon 2008).  The plaintiff bears the initial burden of pleading sufficient allegations to invoke jurisdiction under this statute.  Moki Mac, 221 S.W.3d at 574; Markette v. X‑Ray X‑Press Corp., 240 S.W.3d 464, 466 (Tex. App.CHouston [14th Dist.] 2007, no pet.).  The nonresident defendant then assumes the burden of negating all bases of jurisdiction in those allegations.  Moki Mac, 221 S.W.3d at 574; Markette, 240 S.W.3d at 466.  The requirements of the Texas long‑arm statute are satisfied if an assertion of jurisdiction accords with federal due‑process limitations.  Moki Mac, 221 S.W.3d at 575; Markette, 240 S.W.3d at 467.  Under well-established federal due‑process requirements, personal jurisdiction is proper when the nonresident defendant has established minimum contacts with the forum state, and the exercise of jurisdiction comports with Atraditional notions of fair play and substantial justice.@  Moki Mac, 221 S.W.3d at 575 (quoting Int=l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)); Markette, 240 S.W.3d at 467. 

A nonresident defendant=s contacts can give rise to either general or specific jurisdiction.  Moki Mac, 221 S.W.3d at 575; Markette, 240 S.W.3d at 467. General jurisdiction is based on continuous and systematic contacts with the forum, no matter whether they relate to the case at hand.  Moki Mac, 221 S.W.3d at 575;  Markette, 240 S.W.3d at 467.  Specific jurisdiction, on the other hand, is based on purposeful contacts that do give rise or relate to the litigation.  Moki Mac, 221 S.W.3d at 575B76;  Markette, 240 S.W.3d at 467. In this case, the trial court did not specify whether Proskauer Rose=s contacts with Texas created either general or specific jurisdiction. 

Proskauer Rose does not practice in Texas; has no registered agent, offices, property, or employees in Texas; and does not advertise, solicit, or promote its services in Texas.  Such an absence of Acontinuous and systematic@ contacts with this state means that our courts cannot exercise general jurisdiction over Proskauer Rose.  See Moki Mac, 221 S.W.3d at 575;  Markette, 240 S.W.3d at 467.  So any exercise of personal jurisdiction in this case must be based on specific jurisdiction.  And for there to be specific jurisdiction, Proskauer Rose must have made minimum contacts with Texas by purposefully availing itself of the privilege of doing business here, and the firm=s liability must arise from or relate to those contacts.  See Moki Mac, 221 S.W.3d at 575B76;  Weldon‑Francke, 237 S.W.3d at 794; Markette, 240 S.W.3d at 467. 

There are three parts to a Apurposeful availment@ inquiry.  Michiana Easy Livin= Country, Inc. v. Holten, 168 S.W.3d 777, 785 (Tex. 2005);  Johns Hopkins Univ. v. Nath, 238 S.W.3d 492, 497 (Tex. App.CHouston [14th Dist.] 2007, pet. denied). First, only the defendant=s contacts with the forum are relevant, not the unilateral activity of another party or a third person.  Michiana, 168 S.W.3d at 785; see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).  Second, the contacts must be purposeful instead of merely fortuitous.  Michiana, 168 S.W.3d at 785.  Finally, through the contacts the defendant must be seeking some benefit, advantage, or profit.  Id. 

In support of its special appearance, Proskauer Rose submitted an affidavit in which its general counsel testified that:

$       Proskauer Rose is a partnership organized in the State of New York;

$       Proskauer Rose is not engaged in any activities that constitute doing business in Texas;

$       Proskauer Rose is not required to maintain a registered agent for service in Texas;

$       Proskauer Rose does not maintain a place of business, office, bank account, telephone number, or post office box in Texas;  Proskauer Rose does not have any employees, representatives, or agents within Texas;

$       Proskauer Rose does not own, lease, or control any real or personal property or assets located in Texas; and

$       Proskauer Rose does not solicit, advertise, or promote its services in Texas.

In response to Proskauer Rose=s special appearance, appellees submitted an affidavit by George Fleming in which he testified that he did not solicit Proskauer Rose to represent him or issue the PICO-transaction opinion letter.  Fleming also testified that Ernst & Young presented Proskauer Rose to him as the law firm it had enlisted to provide opinion letters on some of its PICO transactions.  Finally, Fleming testified that Ernst & Young had relayed information about his PICO transactions to Proskauer Rose through Ernst & Young employees based in Texas.  Along with this affidavit, appellees attached the following documents to their response:

$       a copy of an e-mail from Proskauer Rose to Tom Walsh (an officer of both Fleming & Associates and Pelican) transmitting the engagement letter, as well as a copy of the engagement letter itself which was addressed to Pelican=s Houston office;   

$       a copy of a letter from Pelican to Proskauer Rose transmitting the executed engagement letter, along with a copy of a check to Proskauer Rose for $100,000, drawn on Pelican=s Texas bank account;

$       a copy of an e-mail from Proskauer Rose to Walsh transmitting a draft tax-opinion letter;

$       a copy of an e-mail from Proskauer Rose to WalshCas well as two other lawyers of a Texas firm representing Fleming before the I.R.S.Ctransmitting a draft tax-opinion letter soliciting comments;

$       a copy of an e-mail from one of Fleming=s Texas attorneys to another Texas attorney in the same firm forwarding a red-lined version of Proskauer Rose=s draft opinion letter; and

$       a copy of an  e-mail from Proskauer Rose to Walsh transmitting a ACertificate of Facts@ concerning the PICO.

Taken together, the specific-jurisdiction evidence both sides submitted shows that, based on Ernst & Young=s recommendation, Pelican hired Proskauer Rose to review the PICO transactions and create the opinion letter; and  Proskauer Rose created drafts, presented them to Pelican for review, and ultimately delivered the opinion letter along with some other requested documents.  The appellees argue that the six contacts Fleming refers to in his affidavitCalong with Proskauer Rose=s alleged wrongful actsCare enough to create specific jurisdiction.

The circumstances of this case are like those we addressed in Markette v. X‑Ray X‑Press Corp.  In Markette, we addressed whether the actions of an Indiana attorney representing Texas residents in Indiana created purposeful contacts sufficient to create specific jurisdiction.  See 240 S.W.3d at 466B69.  The appellee in Markette arguedClike the appellees in this caseCthat the out-of-state attorney had committed malpractice, fraud, and breach of fiduciary duty by giving legal advice to Texas residents which ultimately led to a judgment against them.  The Markette appellee also argued that the attorney=s act of directing this advice, containing alleged misrepresentations, to Texas amounted to purposeful availment sufficient for specific jurisdiction.  We rejected this reasoning, holding that any legal advice provided by the attorney was created in IndianaCnot TexasCand that any torts allegedly Adirected@ at Texas could not form the basis for exercising specific jurisdiction.  Id. (citing Michiana, 168 S.W.3d at 790B92).

The communications outlined in Fleming=s affidavit do not qualify as the type of Apurposeful contacts@ required under Michiana and Markette to convey specific jurisdiction.  First, the engagement letter e-mailed from New York to Walsh was the result of Ernst & Young=s introduction of Proskauer Rose to Pelican.  Next, neither Pelican=s transmittal of the signed engagement letter to Proskauer Rose nor the accompanying check drawn on Pelican=s Texas bank qualifies as a Apurposeful@ contact because they were Pelican=s actions, not Proskauer Rose=s.  See Michiana, 168 S.W.3d at 785; Nath, 238 S.W.3d at 497.  For the same reason, Pelican=s Texas attorneys exchanging copies of the draft opinion letter is no Apurposeful@ act by Proskauer Rose.  

Also, the draft opinion letters and ACertificate of Facts@ transmitted both to Pelican and its Texas attorneys reflect legal services performed in New York, not Texas.  See Markette, 240 S.W.3d at 468B69.  We observed in Markette, in agreement with other Texas courts, that neither the mere existence of an attorney-client relationship between a resident client and an out-of-state attorney nor the routine correspondence and interactions attendant to that relationship are enough to confer personal jurisdiction.  Markette, 240 S.W.3d at 468 n.2; see also Geo‑Chevron Ortiz Ranch #2 v. Woodworth, No. 04‑06‑00412‑CV, 2007 WL 671340, at *3, 5 (Tex. App.CSan Antonio Mar. 7, 2007, pet. denied) (mem. op.);  Bergenholtz v. Cannata, 200 S.W.3d 287, 293B97 (Tex. App.CDallas 2006, no pet.); Klenk v. Bustamante, 993 S.W.2d 677, 682B83 (Tex. App.CSan Antonio 1998, no pet.)  disapproved on other grounds by BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789 (Tex.  2002); Myers v. Emery, 697 S.W.2d 26, 31B32 (Tex. App.CDallas 1985, no pet.).  The appellees attempt to distinguish Markette.  But an examination of the issues in both cases reveals that the Markette appellee and the appellees in this case make the same argumentCthat an out-of-state attorney=s communication into Texas of legal advice containing alleged misrepresentations or omissions constitutes purposeful availment.  We rejected this argument in Markette, and we do so again today.

The appellees= primary legal authority for personal jurisdiction in this case comes from the Fifth Circuit Court of Appeals= decision in Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208 (5th Cir. 1999).  In that case, the Fifth Circuit held that communications from a German lawyer to his Texas clientCalleged to contain fraudulent misrepresentations, promises, and omissions forming the basis for the suitCwere sufficient minimum contacts to create specific jurisdiction.  Id. at 215B16.  Specifically, the court stated, AWhen the actual content of communications with a forum gives rise to intentional tort causes of action, this alone constitutes purposeful availment. The defendant is purposefully availing himself of >the privilege of causing a consequence= in Texas.@  Id.  at 213.  But the Texas Supreme Court expressly rejected this Adirected tort@ rationale for Apurposeful availment@ six years later in Michiana Easy Livin= Country, Inc.  168 S.W.3d at 788B90.  And in both their response to Proskauer Rose=s special appearance and their brief to this court, the appellees fail to point to a single decision post-Michiana that provides authority for their Adirected tort@ theory.

Instead, they attempt to distinguish Michiana.  What makes that case different from this one, the appellees argue, is that the defendant in Michiana made his allegedly fraudulent misrepresentations during a single phone call initiated not by him, but by the plaintiff in Texas.  They contrast that with their allegations that Proskauer Rose Apurposefully directed its legal advice to Texas and purposefully withheld relevant information in the course of doing so.@  Still, it remains that Proskauer Rose=s legal advice was conceived in New York and found its way to Texas not because of any contact Proskauer Rose initiated.  Fleming states in his own affidavit that Ernst & Young presented Proskauer Rose to Pelican.  The appellees= Adirected tort@ theory is directly analogous to, and barred by, the holding of Michiana.

Because Proskauer=s very limited contacts with this state do not amount to Apurposeful availment,@ the trial court had no basis to exercise specific jurisdiction over Proskauer Rose.  See Moki Mac, 221 S.W.3d at 575B76;  Weldon‑Francke, 237 S.W.3d at 794; Markette, 240 S.W.3d at 467.  And because the trial court erred in denying Proskauer Rose=s special appearance, we reverse the trial court=s order and remand to the trial court with instructions to sever the order and dismiss all claims against Proskauer Rose for lack of personal jurisdiction.

/s/      Jeffrey V. Brown                                                                                      Justice

Panel consists of Chief Justice Hedges, and Justices Guzman, and Brown.