Benxi Northern Steel Pipe Co., Ltd. v. Atlas Tubular, L.P. ( 2013 )

NUMBER 13-13-00102-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
BENXI NORTHERN STEEL
PIPE CO., LTD. Appellant,
v.
ATLAS TUBULAR, L.P., ET AL., Appellees.
On appeal from the 214th District Court
of Nueces County, Texas
MEMORANDUM OPINION
Before Justices Rodriguez, Benavides, and Wittig1
Memorandum Opinion by Justice Wittig
Appellant, Benxi Northern Steel Pipe Co., Ltd. (Benxi), brings this accelerated,
1
Retired Fourteenth Court of Appeals Justice Don Wittig assigned to this Court by the Chief
Justice of the Supreme Court of Texas pursuant to the government code. See TEX. GOV'T CODE ANN. §
74.003 (West 2005.)
interlocutory appeal of the trial court's order denying its special appearance. See TEX.
CIV. PRAC. & REM. CODE ANN. § 51.014(a)(7) (West Supp. 2011). The original plaintiff,
Royal Productions Co., Inc. (Royal), appellee, sued Benxi. Royal also joined Atlas
Tubular, L.P., (Atlas), Vass Pipe & Steel Co., Inc., (Vass), Commercial Metals Company
d/b/a Commercial Metals of Corpus Christi, (CMC), Shanghai MinMetals Materials &
Products Corps, (Shanghai), and Womble Company, Inc. (Womble), appellees.
Several of the appellees have cross-claims against Benxi for contribution or indemnity.
By four issues, appellant contends that: (1) the trial court erred as a matter of law in
overruling its special appearance; (2) erred as a matter of law in finding it engaged in
minimum contacts with Texas sufficient to subject it to specific jurisdiction; (3) erred as a
matter of law in finding that it purposefully sought to establish contacts with Texas; and
(4) the trial court’s exercise of jurisdiction offends the traditional notions of fair play and
substantial justice. We affirm.
I. BACKGROUND
Royal is a Texas corporation engaged in the oil and gas industry. It had a
master service agreement to purchase pipe from Atlas. Royal purchased 40,068 feet of
6-5/8” new Benxi pipe from Atlas. Contrary to Benxi’s mill certification that the pipe had
been hydrostatically tested, it was not. Two sections of pipe manufactured by Benxi
suffered a through-wall mill defect, which would have been discovered had the pipe been
tested, or even re-tested as Benxi represented. Evidence suggests no testing was
done by Benxi. According to Benxi, the supply chain originated with Benxi, then
Shanghai, CMC Dallas, Vass, and Atlas, then Royal. Womble applied a pipe coating
before the Vass transfer. While the pipe was purportedly sold to Shanghai FAS (free
2
along side) in Xingang, China (near Benxi’s manufacturing facility) in December 2006,
this was a purely paper transaction. Shanghai never took possession and the pipe was
shipped from China directly to the Port of Houston where CMC took delivery and in turn,
sold the Benxi pipe to Vass, then Atlas, in July 2007. Royal received the pipe in about
August 2007.
Dallas based CMC, a Texas corporation, had several personal contacts with
Benxi at its China plant, and received a Benxi catalog which showed Dallas, Texas as
the sole point of international sales to the United States. The Shanghai corporate
representative testified that Benxi sought additional sales to CMC Dallas. The
purchase orders from Shanghai to Benxi were for CMC Dallas Trading in Irving, Texas,
with delivery called for at the Port of Houston (the arrival port). Benxi did not
manufacture the pipe until it had the CMC order. After the Houston delivery and Royal’s
receipt, the pipe was installed in the Gulf of Mexico off the shore of Alabama. The mill
test certificate, which acts as a “birth certificate” for the pipe, specifically showed CMC as
the consumer and customer and the pipe’s destination as “Houston.”
II. APPLICABLE LAW
To render a binding judgment, a court must have both subject matter jurisdiction
over the controversy and personal jurisdiction over the parties. CSR Ltd. v. Link, 925
S.W.2d 591, 594 (Tex. 1996). Whether a court has personal jurisdiction over a
defendant is determined as a matter of law, which appellate courts review de novo.
BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). When, as
here, a trial court does not issue findings of fact or conclusions of law to support its
special-appearance determination, we presume that all factual disputes were resolved in
3
favor of the trial court's ruling. Id.
Texas courts have personal jurisdiction over a nonresident defendant when: (1)
the Texas long-arm statute provides for it; and (2) the exercise of jurisdiction is
consistent with federal and state due process guarantees. Am. Type Culture
Collection, Inc. v. Coleman, 83 S.W.3d 801, 806 (Tex. 2002). Our long-arm statute
reaches “’as far as the federal constitutional requirements for due process will allow.’”
Id. (quoting Guardian Royal Exch. Assur., Ltd. v. English China Clays, P.L.C., 815
S.W.2d 223, 226 (Tex.1991)). Consequently, the statute's requirements are satisfied if
exercising jurisdiction comports with federal due process limitations. Id.
If a defendant has never invoked the protections that a forum offers its residents,
or has no purposeful contact with it, the forum court's jurisdiction is confined. Spir Star
AG v. Kimich, 310 S.W.3d 868, 872 (Tex. 2010). Personal jurisdiction over nonresident
defendants is constitutional only when: (1) the defendant has established minimum
contacts with the forum state; and (2) the exercise of jurisdiction comports with traditional
notions of fair play and substantial justice. Id. (citing Int'l Shoe Co. v. Washington, 326
U.S. 310, 316 (1945); PHC–Minden, L.P. v. Kimberly–Clark Corp., 235 S.W.3d 163, 167
(Tex. 2007)).
Although the “fair play” and “substantial justice” test is imprecise, its import is
given light when viewed in the context of the “minimum contacts” a defendant has with
the forum. Id. (citing Int'l Shoe, 326 U.S. at 316). Significant contacts suggest that the
defendant has taken advantage of forum-related benefits, while minor ones imply that
the forum itself was beside the point. Id. When a nonresident defendant has
purposefully availed itself of the privilege of conducting business in a foreign jurisdiction,
4
it is both fair and just to subject that defendant to the authority of that forum's courts.
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1984).
A defendant's contacts with a forum can give rise to either specific or general
jurisdiction. CSR, 925 S.W.2d at 595. General jurisdiction exists when a defendant's
contacts are continuous and systematic, even if the cause of action did not arise from
activities performed in the forum state. Id.
A court has specific jurisdiction over a defendant if its alleged liability arises from
or is related to an activity conducted within the forum. Id. Unlike general jurisdiction,
which requires a “more demanding minimum contacts analysis,” id. at 595, specific
jurisdiction “may be asserted when the defendant's forum contacts are isolated or
sporadic, but the plaintiff's cause of action arises out of those contacts with the state.”
Spir Spar, 310 S.W.3d at 873 (citing Charles Alan Wright & Arthur R. Miller, FEDERAL
PRACTICE & PROCEDURE § 1067.5 (3d ed. 2002). In such cases, “we focus on the
‘relationship among the defendant, the forum[,] and the litigation.’” Moki Mac River
Expeditions v. Drugg, 221 S.W.3d 569, 575–76 (Tex. 2007) (quoting Guardian Royal,
815 S.W.2d at 228). Specific jurisdiction is appropriate when: (1) the defendant's
contacts with the forum state are purposeful, and (2) the cause of action arises from or
relates to the defendant's contacts. See Retamco Operating, Inc. v. Republic Drilling
Co., 278 S.W.3d 333, 338 (Tex. 2009).
The “touchstone of jurisdictional due process [is] ‘purposeful availment.’”
Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 784 (Tex. 2005).
Purposeful availment requires a defendant to seek some “benefit, advantage, or profit by
‘availing’ itself of the jurisdiction.” Id. at 785. Thus, sellers who reach beyond one
5
state and create continuing relationships with residents of another state are subject to
the specific jurisdiction of the latter in suits arising from those activities. Moki Mac, 221
S.W.3d at 575.
Notably, a seller's awareness “‘that the stream of commerce may or will sweep
the product into the forum State does not convert the mere act of placing the product into
the stream into an act purposefully directed toward the forum State.’” CSR, 925 S.W.2d
at 595 (quoting Asahi Metal Indus. Co., Ltd. v. Superior Ct. of Cal., 480 U.S. 102, 107
112 (1987) (plurality op.)). Precedent requires some “additional conduct”—beyond
merely placing the product in the stream of commerce—that indicates “an intent or
purpose to serve the market in the forum State.” Asahi, 480 U.S. at 112; see Moki Mac,
221 S.W.3d at 577; Michiana, 168 S.W.3d at 786.
As the United States Supreme Court stated in World–Wide Volkswagen Corp. v.
Woodson, purposeful availment of local markets may be either direct (through one's own
offices and employees) or indirect (through affiliates or independent distributors):
[I]f the sale of a product of a manufacturer . . . is not simply an isolated
occurrence, but arises from the efforts of the manufacturer . . . to serve
directly or indirectly, the market for its product in other States, it is not
unreasonable to subject it to suit in one of those States if its allegedly
defective merchandise has there been the source of injury to its owner or to
others.
444 U.S. 286, 297 (1980).
There are limitations inherent in this rule. First, it is limited to the specific
jurisdiction context, because stream-of-commerce analysis “is relevant only to the
exercise of specific jurisdiction; it provides no basis for exercising general jurisdiction
over a nonresident defendant.” Purdue Research Found. v. Sanofi–Synthelabo, S.A.,
6
338 F.3d 773, 788 (7th Cir. 2003); accord D'Jamoos ex rel. Estate of Weingeroff v.
Pilatus Aircraft Ltd., 566 F.3d 94, 106 (3rd Cir. 2009); Nuovo Pignone, SpA v.
STORMAN ASIA M/V, 310 F.3d 374, 380 (5th Cir. 2002) (citations omitted).
Second, specific jurisdiction is limited to claims that “arise out of or relate to” a
nonresident's forum contacts. Burger King, 471 U.S. at 472; Retamco, 278 S.W.3d at
338. In such cases, there must be a “substantial connection” between the defendant's
contacts and the operative facts of the litigation. See Moki Mac, 221 S.W.3d at 585.
So when a nonresident's only contacts with Texas involve indirect sales through a
distributor or subsidiary, specific jurisdiction is limited to claims arising out of those sales.
Spir Spar, 310 S.W.3d at 874–75.
Many transactions can be structured to avoid any benefit from or availment of
Texas law—but not all. Spir Spar, 310 S.W.3d at 875. A nonresident manufacturer
does not avoid Texas law merely by forming a Texas affiliate or utilizing a Texas
distributor to sell its products in Texas markets. Id. Just as manufacturers cannot
escape liability for defective products by selling them through a subsidiary or distributor,
neither can they avoid jurisdiction related to such claims by the same means. Id. The
question therefore is whether Benxi has purposefully directed acts towards Texas or
purposefully availed itself of the benefits and protections of Texas law. We conclude
that it has.
When an out-of-state manufacturer like Benxi specifically targets Texas as a
market for its products, that manufacturer may be subject to a product liability suit in
Texas based on a product sold here, even if the sales are conducted through a Texas
7
distributor or other channel.2 See Asahi, 480 U.S. at 112. In such cases, it is not the
actions of the Texas intermediary that count, but the actions of the foreign manufacturer
who markets and distributes the product to profit from the Texas economy. Spir Spar,
310 S.W.3d at 874.
We are mindful that it is the quality and nature of the contacts, rather than their
number (or the number of individual products ultimately shipped to the forum state), that
must be the focus of this analysis. Coleman, 83 S.W.3d at 806; Guardian Royal, 815
S.W.2d at 230 n 11. The record evidence conflicts as to the degree that Benxi
deliberately structured some of its business so that title to its goods transferred at foreign
or other state ports. Nevertheless, it demonstrably knew that the ultimate destination of
its pipes were largely in Texas. Benxi made numerous direct shipments to Texas as
discussed below. The defective pipes in question were specifically destined for a Texas
customer and delivered at the Port of Houston. In order for specific jurisdiction to
attach, there must be a substantial connection between Benxi and Texas resulting from
the action or conduct of the nonresident defendant purposefully directed toward the
forum state. Guardian Royal, 815 S.W.2d at 226.
Benxi’s contacts clearly exceeded the ephemeral contacts resulting from periodic
mailings based solely upon affiliation or membership, which were deemed insufficient in
National Industrial Sand Ass'n v. Gibson, 897 S.W.2d 769, 774 (Tex. 1995). Similarly,
these contacts are more than the single conversation and the purchase of products from
a Texas company found to be insufficient in BMC, 83 S.W.3d at 796. While there is
2
Royal’s claims are not limited to product liability. It also made claims for negligence, deceptive
trade practices, implied warranties, fraud, and fraudulent misrepresentations.
8
evidence that Benxi sometimes sought to structure its transactions to avoid the benefits
and protections of Texas laws, on many other notable occasions it did not, and therefore
we are not precluded from applying the legal fiction of consent. See Coleman, 83
S.W.3d at 808. Further, Benxi’s multiple admissions of direct and systematic contract
with its Texas and US customers stand in direct opposition to its position taken with both
the trial court and on appeal.
III. SPECIFIC JURISDICTION
Benxi and its opposite parties paint two very different pictures regarding specific
jurisdiction. According to Benxi, it dealt only with Shanghai, another Chinese company.
Benxi also claims CMC allegedly dealt only with Shanghai through two sales contracts
dated May 22, 2006 and May 27, 2006, which provided all disputes would be settled by
Chinese law and that the pipe was delivered to a dock in Tianjin, China. CMC’s
purchase orders to Shanghai included delivery terms of FAS in Xingang, China. CMC
hired and paid for the ships that carried the pipe from China to Houston. Further, Benxi
is not a Texas resident, it is organized and registered under Chinese law with its principal
office in China, and it does not maintain a registered agent for service in Texas.
According to Benxi, it has never maintained an office, plant, or warehouse in Texas, has
never owned or leased property in Texas, has never designed or manufactured products
in Texas, has not traveled to Texas, has no mailing address, phone listing or other
property in Texas, and in short, has no nexus to Texas. Benxi does admit “limited sales
of pipe to Texas based companies or foreign based companies” where product was
shipped to Texas between 2006 and 2008, the relevant time period. It admits twelve
sales of pipe to Texas-based companies or foreign-based companies with the product
9
shipped to Texas. Products were not shipped to Texas after 2008 because of
anti-dumping sanctions imposed by the United States Department of Commerce. The
original lawsuit was filed in 2008.
In the anti-dumping case, Benxi submitted information to the United States
International Trade Administration that was quite contrary to its position in this case.
There, it took the following inconsistent positions: (1) The first sale to the United States
was recorded on Benxi’s “accounts received ledger”; (2) Benxi Pipes directly exported all
merchandise sold to the United States during the period in question; (3) Benxi directly
exported all subject merchandise sold to the United States and there were no
intermediate parties involved in its United States sales; (4) Only Benxi was involved in
the production and sale of the merchandise; no subsidiaries or other affiliates were
involved in its sales; (5) All merchandise exported to the United States was produced by
Benxi; (6) The mill test certificate for the first sale was provided; (7) Exhibit 8 provided a
signed purchase order/contract between Benxi and its United States customer; it
illustrates there were no third parties involved in this transaction; and (8) In describing
how Benxi independently set prices, it stated it received inquiries for quotations and it
replied to such inquiries with quoted prices. (Emphasis added). If the price was
acceptable, the two parties completed the transaction and signed the contract. Benxi
provided email documentation to show independent price negotiations. These
admissions by Benxi were later confirmed and sworn to by the Chairman of the Board of
Benxi in his deposition in this case.
U.S. Customs’ documents showed some 140 shipments from Benxi into Texas
during the two years preceding the lawsuit. Benxi admitted in discovery that over
10
twenty-six million pounds of pipe were sold and shipped to Texas. In one year, the
Texas sales comprised about 5.4% of Benxi’s worldwide production. Other discovery
showed twelve purchase orders for more than 15.4 million pounds of pipe to be delivered
directly from Benxi to Sunbelt Group into the Port of Houston. Benxi sold pipe directly
to M.G. Mahar at the Port of Houston. Other documented direct sales from Benxi into
Texas included purchases from QT Trading, Insight Trading, Pipe & Tube Supplies, and
Arcelor. Texas-based CMC alone received some ninety-six shipments of Benxi pipe,
including the two specific orders which contained the defective untested pipe discussed
above.
At the relevant time, Benxi also maintained an interactive English website
available and accessible in Texas.3
The defective pipe in question was ordered through Shanghai specifically to fulfill
the order of CMC Dallas. Benxi sent the pipe to a Chinese port near its manufacturing
facilities in approximately December 2006. CMC loaded the pipe onto a cargo vessel
hired by CMC. The intermediary Shanghai never took possession of the pipe;
Shanghai’s role was purely paper work. The pipe then shipped directly to the Port of
Houston pursuant to CMC’s direction, where Vass in turn took delivery. Vass sold to
Atlas who in turn sold the pipe to Royal about August 2007.
Before Texas-based CMC decided to purchase Benxi pipe, it visited the Benxi
facilities in China on several occasions. Benxi provided a sales catalog to CMC
personnel. Benxi knew CMC was a customer of Shanghai, and hoped CMC would
3
The degree of interactivity, if any, is disputed.
11
purchase more Benxi products.4 Only after its direct contact with Benxi and inspection
of its facilities did CMC order pipe from Benxi. Purchase orders 59159 and 59178 to
Shanghai identify “CMC Dallas Trading” as the customer and listed the billing address in
Irving, Texas. “Houston, Texas, USA” was specifically designated as the discharge
port. The orders required both the Certificates of Origin and Mill Test Certificates,
prepared by Benxi, to state “Commercial Metals Company–CMC Dallas Trading” as the
customer. The contract clearly stated in English (and Mandarin) “CMC Dallas” and
made numerous references to “Houston” as the arrival port. The Benxi corporate
representative, general manager Wang, said Benxi did not care who Shanghai sold to
“unless it is specified in the contract with us.” CMC Dallas was specified in the contract.
In addition to the contract reference to CMC Dallas and delivery to Houston, the
mill certificates issued by Benxi showed the consumer and customer to be Commercial
Metals Company, Dallas Trading Division, and showed Houston as the destination for
the pipe.
CMC revisited Benxi three additional times in the relevant time period and
engaged in direct talks with Benxi about its Texas-bound products.
The mill certificates specifically represented that the pipes in question were
hydrostatically tested and met standards, which representations proved to be false.
Benxi also referred to the certificates as “Quality Assurance Certificates.” After some
earlier failures to properly test and certify its pipe, Benxi represented that the defective
pipe had been re-tested and passed. Before Royal received the defective pipe, CMC
4
The testimony was from the Shanghai corporate representative.
12
suspended its pipe orders with Benxi and resumed purchases only when Benxi assured
CMC that the pipe was re-tested. Expert testimony indicated that the pipe could not
have survived the testing and therefore the purported testing had not taken place. The
defect was a “through-wall mill defect.”
The trial court must often resolve questions of fact before deciding the
jurisdictional question. BMC Software, 83 S.W.3d at 794. In considering the denial of
a motion to dismiss for want of jurisdiction asserted during a special appearance, the
court determines only the issue of jurisdiction, not liability. Kelly v. Gen. Interior Const.,
Inc., 262 S.W.3d 79, 83 (Tex. App.—Houston [14th Dist.] 2008), rev'd in part, 301
S.W.3d 653 (Tex. 2010). Because the trial court did not issue findings of fact or
conclusions of law to support its denial of the special appearance, we presume that all
factual disputes were resolved in favor of the trial court’s ruling. BMC Software, 83
S.W.3d at 794.
The plaintiff bears the initial burden of pleading sufficient allegations to invoke the
jurisdiction of the Texas long-arm statute. Am. Type Culture, 83 S.W.3d at 807. The
nonresident defendant then has the burden of negating all bases of jurisdiction asserted
in the plaintiff's allegations. BMC Software, 83 S.W.3d at 793. The Texas long-arm
statute provides in pertinent part that a non-resident does business in Texas if it
“commits a tort in whole or in part in this state.” TEX. CIV. PRAC. & REM. CODE ANN. §
17.042(2). Royal’s pleadings contain sufficient allegations to invoke Texas jurisdiction.5
In Royal’s active pleading, its Eighth Amended Petition, it asserts Benxi negligently failed
5
Cross-claims against Benxi also invoke Texas jurisdiction.
13
to properly inspect, test, or provide non-defective materials, resulting in significant
damages to Royal. Under the DTPA, it pled defendants misrepresented the
characteristics, uses and benefits of the pipe sold to Royal, breached express and
implied warranties, and its conduct was a producing cause of property damage to Royal.
Royal similarly pled breach of contract, violation of implied warranties of merchantability
and fitness, and product liability by providing defectively manufactured or designed steel
pipe, which was not properly hydrostatically tested, or tested at all, which caused
damages to Royal.
A nonresident establishes minimum contacts with Texas by purposefully availing
itself of the privileges and benefits inherent in conducting business in the state. Moki
Mac, 221 S.W.3d at 575; Control Solutions, Inc. v. Gharda Chem. Ltd., 245 S.W.3d 550,
557 (Tex.App.─Houston [1st Dist.] 2007, no pet.). Benxi’s minimum contacts include
over one hundred sales to Texas customers, and tens of thousands of tons of product
sales including up to nearly 6% of its world-wide production during at least one year of
the relevant period.
Sellers who create “continuing relationships and obligations with citizens of
another state” are subject to jurisdiction based on their activities in the forum state.
Michiana, 168 S.W.3d at 785. Benxi exhibited such relationships with Texas-based
CMC with over ninety sales. Benxi personally met with CMC multiple times at its plant
in China to discuss purchases, sales, quality, testing, and the suspension of CMC
purchases due to lack of testing. Benxi assured CMC and Shanghai that questionable
pipe would be re-tested and quality assured. Benxi conducted ongoing business with
multiple other Texas entities.
14
Benxi’s contacts included furnishing mill certificates to the specifications of CMC
and following the explicit instructions of purchase orders numbers 59159 and 59178,
naming CMC Dallas as the customer for Benxi’s pipe, and specifying the Port of Houston
as the delivery site. These orders included the actual pipe delivered in Texas to Royal.
In Moki Mac, the supreme court set out three issues in determining whether a defendant
purposefully availed itself of the privilege of conducting activities in Texas:
First, only the defendant's contacts with the forum are relevant, not the
unilateral activity of another party or a third person. Second, the contacts
relied upon must be purposeful rather than random, fortuitous, or
attenuated. Thus, sellers who reach out beyond one state and create
continuing relationships and obligations with citizens of another state are
subject to the jurisdiction of the latter in suits based on their activities.
Finally, the defendant must seek some benefit, advantage or profit by
availing itself of the jurisdiction.
221 S.W.3d at 575 (internal citations and quotations omitted).
While Benxi’s contacts also included some unilateral activity, both its statements
to the United States Department of Commerce and its enumerated activities with CMC
and multiple other Texas-based entities illustrate deliberate and systematic first-party
involvement on its part. Contacts were purposeful and not random, fortuitous, or
attenuated acts, or the unilateral acts of third parties. See Michiana, 168 S.W.3d at
785. A nonresident manufacturer of products need not have offices or employees in the
forum state to meet the purposeful availment test. Id. Benxi fostered its relationship
with CMC Dallas, including multiple in-country personal meetings and over 100
shipments to in state customers. According to the testimony, Benxi specifically sought
increased sales in Texas, promised better quality control, and even assured that it would
be responsible for legal damages for any failed pipe.
15
Benxi argues that the trial court erred in applying the stream of commerce
doctrine, again citing World-Wide Volkswagen. This is because Benxi contends the
allegedly defective merchandise failed to meet the test that it “has there been the source
of injury to its owner or to others.” See World Wide Volkswagen 444 U.S. at 297. In
other words, Benxi argues the stream of commerce doctrine applies only when the harm
occurs in the forum state. We disagree. First, the trial court need not have applied the
stream of commerce doctrine in order to reach its conclusion that jurisdiction had been
obtained. Second, Benxi caused damages in Texas. And third, unlike the situation in
Moki Mac, 221 S.W.3d at 577, this was not a mere sale of a product to a Texas resident.
Due process requires that a nonresident defendant take action that is purposefully
directed toward the forum state. Id. Benxi did not sell its product in one state and then
end up being sued in a downstream state. Benxi knowingly, intentionally, and actively
marketed its products in Texas. The actual claimed defective and misrepresented pipe
was delivered to Texas customer CMC in Houston. Benxi engaged in multiple other
significant and purposeful availment as already discussed.
Benxi cites a memorandum opinion, Steron v. Yuma Exploration & Production
Co., No. 01-06-00414-CV, 2006 WL 2864478 (Tex. App.—Houston [1st Dist.] Oct. 5,
2006, no pet.) (mem. op.), in support of its position. In this case, Steron was a foreign
manufacturer that sold and shipped a batch of gate valves to a Louisiana company who
resold the valves to another Louisiana company, who in turn shipped one single valve to
a Texas customer. Id. at *1. The valve was later used for a project back in Louisiana
where it caused damage to a customer’s oil well. Id. Suit was filed in Texas. The
Houston court held the stream of commerce doctrine would be relevant to Louisiana
16
process, but not Texas. Id. The only forum alleged to be a source of injury was
Louisiana, and no allegations were made that the valve caused an injury in Texas. Id.
Here, Benxi marketed its products directly to a Texas resident, listed the Texas resident
as the customer, and shipped the products to Houston. Furthermore, in its pleadings,
Royal did not specify Alabama either as the source or sole source of injury. 6 Appellees
Atlas, Vass, CMC, Shanghai, and Womble all allegedly suffered injury from Benxi, and
have potential liability in Texas to Royal. They also correspondingly have
indemnification claims against Benxi in this forum. Damages occurred to Royal in both
jurisdictions.
Royal’s claims of deceptive trade practices, negligence, implied warranties, fraud,
fraudulent misrepresentation, and product liability all occurred in whole or in part in
Texas. Where an individual commits a tort in whole or in part in Texas, he satisfies the
jurisdictional requirements of the Texas long-arm statute. TEX. CIV. PRAC. & REM. CODE
ANN. § 17.042; Ring Power Sys. v. Int'l de Comercio y Consultoria, S.A., 39 S.W.3d 350,
353 (Tex. App.—Houston [14th Dist.] 2001, no pet.). For example, without Benxi’s false
representations of hydrostatic testing found in its Houston delivered mill certificates, the
defective pipes never would have left Texas and the later, extenuated damages to the
offshore pipeline in Alabama would have been averted. The elements of negligence,
deceptive trade practices, implied warranties, and products liability claims were complete
when Royal took delivery of the defective pipe in Texas.
This court has adopted the “substantial connection” standard and has held that
6
Royal suffered injury in Texas, although the more serious later damages to Royal occurred in the
Gulf of Mexico off the shore of Alabama. Royal’s initial claims matured upon receipt of the defective pipe.
The pipe was untested, not as represented, and contained a through-wall mill defect.
17
even a single Texas contact may support the exercise of specific jurisdiction if the suit
arises out of that contact; under this test, a substantial connection must exist between
the contact and the cause of action in the forum state. EMI Music Mexico, S.A. de C.V.
v. Rodriguez, 97 S.W.3d 847, 859 (Tex. App.—Corpus Christi 2003, no pet.). A
“substantial connection” between the nonresident defendant and Texas arises from the
action or conduct of the nonresident defendant purposefully directed toward Texas. Id.
(citations omitted); see also J & J Marine, Inc. v. Le, 982 S.W.2d 918, 923 (Tex.
App.—Corpus Christi 1998, no pet.). This is consistent with the supreme court holding
in Spir Spar, 310 S.W.3d at 874–75 (concluding that there must be a substantial
connection between the defendant’s contract and the operative facts and that similar
products sold would not create a substantial connection). Indeed, Benxi itself also
asserts the substantial connection principle in its argument.
Next, Benxi argues that even if the stream of commerce doctrine applies, Royal’s
claims are not substantially connected to Benxi’s Texas contacts. Benxi claims lack of
substantial connection because Shanghai was an intermediary, even though Benxi knew
Shanghai would sell and ship the pipe to CMC in Texas. It cites CMMC v. Salinas, 929
S.W.2d 435, 439 (Tex. 1996) in support of this argument. Unlike Benxi’s systematic
and significant involvement with Texas, CMMC's wine-producing equipment did not
regularly find its way to Texas. Id. No effort was made to market CMMC's equipment
in Texas, other than by advertisements in magazines with national circulation. Id. The
purchase was an isolated event. Id. “CMMC's mere knowledge that its winepress was
to be sold and used in Texas and its wiring the machine for use in the United States were
not sufficient to subject CMMC to the jurisdiction of Texas courts.” Id. The evidence
18
simply did not show “that CMMC designed products for use in Texas, or that it made any
effort to market them here, or that it took any other action to purposely avail itself of this
market.” Id. “There is no flow of products from CMMC to Texas; there is scarcely a
dribble.” Id. The case at bar is inapposite.
Benxi next cites Exito Electronics., Co., Ltd. v. Trejo, 166 S.W.3d 839, 855 (Tex.
App.—Corpus Christi 2005, no pet.), to support its position. There, we held that there
was “no direct evidence here that Exito–Taiwan's product would be delivered to Texas
retail stores or that it knew Texas consumers would purchase the cords. There is
further no evidence in this case to track the number of Exito–Taiwan's products sold in
Texas or that sales were regularly made by GE Lighting to retailers or consumers in
Texas.” Id. However, we also held that the trial court had general jurisdiction because
the company purposefully availed itself of the privilege of conducting activities in Texas
and could reasonably have anticipated being hailed into a Texas court. Id. (citing
Burger King, 471 U.S. at 475; World-Wide Volkswagen, 444 U.S. at 297).
Here, there is direct evidence that Benxi pipe was delivered to a specific Texas
customer at the Port of Houston. The number of sales was tracked, and sales were
regularly made, including the pipe in question. Benxi certified the pipe for the Texas
customer, specifically named the customer, a Texas port, and made quality assurances
to its Texas customer. Further, as Royal argues, Spir Spar holds that a manufacturer is
subject to specific personal jurisdiction in Texas when it intentionally targets Texas as
the market place for its products and the use of a distributor intermediary provides “no
haven from the jurisdiction of a Texas court.” Spir Spar, 310 S.W.3d at 871.
Benxi next argues from Moore v. Pulmosan Safety Equip. Corp., 278 S.W.3d 27,
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38 (Tex. App.—Houston [1st Dist.] 2008, pet. denied) (stating that no substantial
connection existed between nonresident defendant’s contacts with Texas and operative
facts for injury caused in Louisiana by product made in New York). The lack of
substantial connection was remarkably demonstrated by the fact that Pulmosan had not
done business in Texas, or elsewhere, since its dissolution in 1986. Id. at 32. The fact
that the product passed through Texas was not an operative fact, and under Moki Mac,
there was no substantial connection. Id. at 38 (citing Moki Mac, 221 S.W.3d at 588
(holding that the relationship between death on hiking trail in Arizona and defendant's
Texas promotional activities was too attenuated to satisfy specific jurisdiction's due
process concerns)).
In Moore, the appellate court was provided with the trial court’s findings of fact
and conclusions of law specifically finding no substantial connection. Id. The trial
court found that although there was purposeful availment, no substantial connection
existed because the plaintiff worked in and used Pulmosan's product in Louisiana. Id.
at 38. All the operative facts occurred in New York or Louisiana. Not so for Benxi.
The operative facts will first center on Benxi’s specific quality assurances made from
China to Texas that the pipe was hydrostatically tested, met specifications, and was for
purchase and use in a Texas-centered oil field application. Benxi specifically
manufactured the pipe for CMC Dallas. The mill test certificates were created by Benxi
and specifically named the Texas customer to be served through the Port of Houston.
Benxi personally met with employees and officers of CMC, Texas residents, Benxi
specifically represented to Shanghai, and by direct statement or inference to CMC,
Royal, and other customers, that the prior testing failures would be corrected.
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An email dated November 9, 2006 from Shanghai to Benxi, prior to the shipments
in question, noted the quality problems and that “we/Benxi Northern Steel Pipes Co., Ltd.
will assume full responsibility” for the current losses and bear corresponding losses as
well. The email made numerous references to Texas-based CMC and noted CMC
employees’ prior and forthcoming visits to Benxi. Notably, the email states CMC will
inform all clients to retest the “problematic steel pipes.” A partial compensation
payment of $200,000 to CMC was stated to be “the first installment of compensation for
the losses.” Benxi’s claimed improvements were communicated to CMC. Benxi was
told CMC was postponing payment for the 2,500 tons of goods shipped earlier.
Benxi responded by letter dated November 13, 2006. It claimed to have
performed a second pressure test and no quality problems were found. Benxi stated:
“We will be responsible for any quality problems of our products and bear the economic
losses resulting from such quality problems accordingly.” The letter closes: “For your
company and CMC, please do not worry about it!”
Unlike Moore, the elements of Royal’s claims were met when the quality-certified
defective pipe reached Texas and Royal.
Significantly closer in point is the Dallas case of Flanagan v. Royal Body Care,
Inc., 232 S.W.3d 369, 377 (Tex. App.—Dallas 2007, pet. denied). The evidence
showed that RBC's claim for contribution derived from a products-liability case in which
the Wards alleged that Microhydrin, containing Flanagan Microclusters and Crystal
Energy, were inadequately labeled and negligently marketed. Id. The evidence also
showed that Flanagan had to approve all labels and marketing of RBC's products
containing the inventions Flanagan Microclusters and Crystal Energy. Id. It further
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showed that Flanagan purposefully marketed its ingredients in Texas. Id. And a few
months after a business dispute ended the relationship between Flanagan Technologies
and RBC, Flanagan personally met with RBC in Texas to seek its business once again.
Id. The Dallas court concluded the evidence to be legally and factually sufficient to
show that Flanagan's potential liability arose from or related to its contacts with Texas.
Id.
Here, Royal’s claims are also attended by multiple cross-claims for contribution or
indemnity against Benxi. Although it is true that a greater part of Royal’s damages
occurred in the Gulf of Mexico, Benxi's claimed liability directly arose from or relates to its
minimum contacts with the forum state. Moki Mac, 221 S.W.3d at 576.
Finally, Benxi cites Michiana, 168 S.W.3d at 784, where, in a single transaction,
an RV was constructed and equipped outside Texas, was paid for outside Texas, and
was shipped to Texas at the plaintiff’s request and entirely at his expense. The solitary
purchase from the out-of-state dealer was initiated by the plaintiff to get a cheaper price.
Id. at 784. The supreme court held that “[b]ecause Michiana's only contact with Texas
was Holten's decision to place his order from there,” Texas lacked jurisdiction. Id. at
794. The gist of the opinion addresses the lack of purposeful availment. Id. at 786.
The case is not in point because Benxi’s contacts were purposeful and substantial in that
its activity “was aimed at getting extensive business in or from the forum state.” Id. at
789–90.
We conclude that the business interactions between Benxi and appellees were
not random, fortuitous, or attenuated contacts. See Coleman, 83 S.W.3d at 806;
Guardian Royal, 815 S.W.2d at 226. Rather, they were purposeful, substantial,
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systematic, and continuous, such that Benxi “purposefully availed” itself of the privilege
of conducting activities in Texas and could reasonably have anticipated being called into
a Texas court. See Burger King, 471 U.S. at 475; World–Wide Volkswagen, 444 U.S.
at 297. Benxi's claimed liability directly arose from or relates to its minimum contacts
with the forum state. See Moki Mac, 221 S.W.3d at 576. The trial court has specific
jurisdiction over Benxi because its alleged liability arises from or is related to an activity
conducted within the forum. CSR, 925 S.W.2d at 595.
IV. FAIR PLAY AND SUBSTANTIAL JUSTICE
In addition to minimum contacts, due process requires the exercise of personal
jurisdiction to comply with traditional notions of fair play and substantial justice.
Retamco, 278 S.W.3d at 338. If a nonresident has minimum contacts with the forum,
rarely will the exercise of jurisdiction over the nonresident not comport with traditional
notions of fair play and substantial justice. Id. at 341. We undertake this evaluation in
light of the following factors, when appropriate: (1) the burden on the defendant; (2) the
interests of the forum in adjudicating the dispute; (3) the plaintiff's interest in obtaining
convenient and effective relief; (4) the international judicial system's interest in obtaining
the most efficient resolution of controversies; and (5) the shared interest of the several
nations in furthering fundamental substantive social policies. Spir Spar, 310 S.W.3d at
878; Asahi, 480 U.S. at 113.
Benxi asserts it would be unduly burdened if it were required to litigate here. It
contends that it is a completely domestic Chinese company without employees or other
representatives or offices here. Texas and its laws are manifestly unfamiliar to Benxi.
Texas has minimal interest in the dispute where the pipe failed off the Alabama Gulf
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Coast. Royal’s interest will not be prejudiced because other defendants are present
and have not challenged jurisdiction. Benxi’s employees live in China and speak only
Chinese, thus requiring interpreters. Benxi largely structured its business to avoid
liability for sales by consummating most sales in China. And when it did contract with
Texas customers, it often specified that Texas law would not govern. In sum, Benxi
asserts it will be subject to unique burdens.
On balance, asserting personal jurisdiction over Benxi as to the product liability,
misrepresentations, fraud, negligence, and implied warranties claims, and notably
appellees’ cross-claims for contribution or indemnity, would not offend traditional notions
of fair play and substantial justice. See Spir Spar, 310 S.W.3d at 879. Subjecting
Benxi to suit in Texas certainly imposes a burden on it, but the same can be said of all
nonresidents. Distance alone cannot ordinarily defeat jurisdiction. Id. (stating that
distance alone ordinarily is not sufficient to defeat jurisdiction because modern
transportation and communication have made it significantly less burdensome for a party
to defend itself in a State where it engages in economic activity). Particularly given that
Benxi stated in correspondence it would “bear the economic losses” of the pipe defects,
the burden of litigating in Texas is not so severe as to defeat jurisdiction. The burden is
also mitigated by the convenience to the other parties of litigating in the forum where the
alleged misrepresentations and other related conduct were directed. The allegations
that the Benxi committed a tort in Texas against a resident implicates a serious state
interest in adjudicating the dispute. Keeton v. Hustler Magazine, Inc., 465 U.S. 770,
776, (1984) (state has an especial interest in exercising judicial jurisdiction over those
who commit torts within its territory).
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Texas maintains a world leadership role in the oil and gas industry and has a
heightened interest in the safety and efficacy of oil and gas extraction and delivery. It is
noteworthy that the Chinese company Shanghai did not raise Benxi’s myriad objections
and presumably would be disadvantaged to be subjected to yet another jurisdiction to
finally resolve the claims between itself and Benxi and the Texas pipe purchasers.
Benxi would have one half of the Chinese defendants litigate here and the other half in
China. Thus, the international system would be better served to resolve the claims by
and against Shanghai and against Benxi in the present forum. Not only would Royal
face an undue burden were it forced to litigate its claims against Benxi in China, but
because the claims against the other appellees will be heard in Texas, it would be more
efficient to adjudicate the entire case in the same place. See Retamco, 278 S.W.3d at
341 (“[The plaintiff] has an interest in resolving this controversy in Texas because that is
where the litigation began.”) Benxi’s letter of November 13, 2006 facially appears to
be an agreement to indemnify both Shanghai and CMC. Finally, because these claims
will be litigated with CMC, Atlas, Shanghai, Vass, and Womble in a Texas court, judicial
economy is promoted. Spir Star, 310 S.W.3d at 879). The assertion of jurisdiction
comports with both the interstate and international judicial system's interest in obtaining
the most effective resolution of the controversy and the other nations shared interest in
furthering fundamental substantive social policies.
We conclude that the burden on Benxi of litigating in a foreign jurisdiction is
minimal and outweighed by Texas' interests as well as international interests in
adjudicating the dispute in this single forum. Id. at 879–80.
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V. CONCLUSION
We overrule Benxi’s issues concerning specific jurisdiction. We need not
address the general jurisdiction issue. See TEX. R. APP. P. 47.1. We affirm the order
of the trial court denying Benxi’s special appearance.
DON WITTIG,
Justice
Delivered and filed the
12th day of December, 2013.
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