Joe Formicola v. Virtual Integrated Analytics Solutions, LLC ( 2023 )

Reversed and Rendered and Memorandum Opinion filed May 11, 2023.
In The
Fourteenth Court of Appeals
NO. 14-22-00412-CV
JOE FORMICOLA, Appellant
V.
VIRTUAL INTEGRATED ANALYTICS SOLUTIONS, LLC, Appellee
On Appeal from the 189th District Court
Harris County, Texas
Trial Court Cause No. 2022-15877
MEMORANDUM OPINION
In this interlocutory appeal from the denial of a special appearance, the
question presented is whether the trial court has specific personal jurisdiction over a
nonresident defendant. Our answer is “no.” And because general personal
jurisdiction has not otherwise been asserted, we reverse the trial court’s order
denying the special appearance and render the judgment that the trial court should
have rendered, which is to dismiss all of the plaintiff’s claims asserted against the
nonresident defendant for want of personal jurisdiction. See Tex. Civ. Prac. & Rem.
Code § 51.104(a)(7) (interlocutory appeal); Tex. R. Civ. P. 120a (special
appearance).
BACKGROUND
The following discussion is based on the plaintiff’s live pleading, which
largely concerns allegations of misappropriated trade secrets.
The plaintiff, Virtual Integrated Analytics Solutions, LLC, is a Texas limited
liability company, and it sells products and services to a variety of technological
industries, including aerospace, telecommunications, and consumer electronics. One
of Virtual’s competitors is Optimal Designs Incorporated, a Texas corporation
controlled by James Reed, a Texas resident.
Virtual offered to purchase Optimal and hire Reed as a new director. Reed
accepted that offer, and he began working for Virtual before any purchase
documents between Virtual and Optimal were formalized. Virtual anticipated that
Reed would honor his agreement to formalize those documents, but each time the
documents were presented to him, Reed requested new terms or qualifications.
Meanwhile, even without a final purchase of Optimal, Virtual began to share
trade secrets with Reed. One trade secret concerned a profit-sharing agreement that
Virtual had been negotiating with Himarc Simulations, a California corporation. To
further that negotiation, Virtual tasked Reed with finalizing the procurement of
certain accounts with Himarc. But instead of pursuing those accounts on behalf of
Virtual, Reed sought other partnerships that included Optimal and excluded Virtual.
Reed first proposed a partnership with a prominent corporation in the industry,
but that corporation rejected Reed’s proposal. Reed then approached Joe Formicola,
a Michigan resident, and CAELynx, LLC, the Michigan limited liability company
that Formicola had founded. As Virtual alleged in its live pleading: “[Reed]
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contacted Defendant Formicola . . . and offered to deliver the misappropriated
Himarc partnership to Formicola and CAELynx. Formicola accepted the offer and
engaged in a business partnership with Reed built on [Virtual’s] confidential
information and business relationship.”
Virtual further alleged that CAELynx leveraged its new relationship with
Himarc to obtain a lucrative merger with Computer Aided Technology, LLC
(“CATI”), an Illinois corporation doing business in Texas. Formicola became a vice
president of CATI. Reed also began working for CATI, after first resigning from
Virtual and refusing to sell Optimal. CATI then began to poach several of Virtual’s
customer accounts, using confidential information misappropriated by Reed.
Virtual sued many parties. Against Formicola—who is the only defendant
involved in this interlocutory appeal—Virtual alleged the following causes of action:
violations of the Texas Uniform Trade Secrets Act, knowing participation in Reed’s
breach of fiduciary duty, tortious interference with existing and prospective business
relations, common law unfair competition, and unjust enrichment.
Formicola filed a special appearance, in which he argued that Virtual had
failed to plead sufficient facts to establish that the trial court could exercise either
general personal jurisdiction or specific personal jurisdiction. Formicola also filed
an affidavit, in which he averred that he is a Michigan resident, that he has only
visited Texas four times in his life, and that his most recent visit occurred five years
earlier (i.e., before the events alleged in this lawsuit).
Virtual filed a response, without any evidence attached. The response only
addressed specific personal jurisdiction.
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The trial court denied Formicola’s special appearance without entering any
findings of fact and conclusions of law. Formicola now challenges that ruling in this
interlocutory appeal.
ANALYSIS
Because there is no dispute that Formicola is a nonresident, the trial court
could only assert personal jurisdiction over him if the Texas long-arm statute
authorized the exercise of jurisdiction, and if such exercise was consistent with the
federal and state constitutional guarantees of due process. See Moki Mac River
Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007).
The Texas long-arm statute authorizes the exercise of jurisdiction over a
nonresident when the nonresident “does business in this state.” See Tex. Civ. Prac.
& Rem. Code § 17.042. The statute describes that phrase with three examples, but
the examples are not exhaustive. Id. Instead, they are provided “in addition to other
acts,” and that broad language has been construed to mean that the statute will “reach
as far as the federal constitutional requirements of due process will allow.” See Moki
Mac, 221 S.W.3d at 574–75. Consequently, in many cases, the analysis of whether
a Texas court may assert personal jurisdiction over a nonresident collapses into the
single inquiry of whether the exercise of jurisdiction comports with the limitations
of federal due process. Id. at 575.
The exercise of personal jurisdiction is consistent with federal due process
when the nonresident has established “minimum contacts” with the forum state, and
when the exercise of jurisdiction comports with traditional notions of fair play and
substantial justice. Id.
A nonresident establishes minimum contacts with this state when his
activities—regardless of where they occur—justify a conclusion that the nonresident
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could reasonably anticipate being haled into a Texas court. See M & F Worldwide
Corp. v. Pepsi-Cola Metro. Bottling Co., 512 S.W.3d 878, 886 (Tex. 2017).
The extent of the nonresident’s contacts can give rise to two types of personal
jurisdiction. See Moki Mac, 221 S.W.3d at 575. The first type is general jurisdiction,
which depends on the nonresident having made continuous and systematic contacts
with this state. Id. The second type is specific jurisdiction, which is established when
the nonresident’s purposeful contacts with this state give rise to or relate to the
nonresident’s alleged liability. Id. at 575–76.
In a challenge to either type of personal jurisdiction, the plaintiff and the
defendant bear shifting burdens of proof. See Kelly v. Gen. Interior Constr., Inc.,
301 S.W.3d 653, 658 (Tex. 2010). The plaintiff has the initial burden of alleging
sufficient facts to permit the trial court’s exercise of personal jurisdiction over the
defendant. Id. If the plaintiff satisfies that burden, then the burden shifts to the
defendant to negate every basis for jurisdiction alleged. Id. The defendant can satisfy
that burden on a factual basis by presenting evidence that he has had no contacts
with Texas, effectively disproving the plaintiff’s allegations. Id. at 658–59.
Alternatively, the defendant can show that even if the plaintiff’s allegations are true,
they are still legally insufficient to support the exercise of either general or specific
jurisdiction. Id. at 659.
In his special appearance, Formicola did not attempt to negate the trial court’s
jurisdiction on a factual basis. For instance, he did not produce any evidence
disproving Virtual’s allegations that he had received misappropriated trade secrets
from Reed. Instead, Formicola sought to negate the trial court’s jurisdiction on a
purely legal basis by arguing that Virtual’s allegations, if true, were insufficient to
establish both general personal jurisdiction and specific personal jurisdiction.
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In its response, Virtual only addressed whether the trial court had specific
personal jurisdiction over Formicola. Similarly, on appeal, Virtual has only defended
the trial court’s exercise of specific personal jurisdiction. We limit our analysis
accordingly. And because the jurisdictional issue in this case presents a question of
law, our review is de novo. See Searcy v. Parex Resources, Inc., 496 S.W.3d 58, 66
(Tex. 2016).
To support the trial court’s assertion of specific jurisdiction, the defendant’s
contacts with this state must show that the defendant purposefully availed himself
of the privilege of conducting activities within Texas, and that a substantial
connection exists between those activities and the operative facts of the litigation.
See M & F Worldwide Corp., 512 S.W.3d at 890. These are “co-equal components,”
which means that a trial court cannot exercise personal jurisdiction if either
purposeful availment or a substantial connection is lacking. See Moki Mac, 221
S.W.3d at 579.
There are three parts to the purposeful-availment inquiry. First, only the
defendant’s contacts with the forum are relevant, not the unilateral activity of
another party or a third person. Id. at 575. Second, the contacts relied upon must be
purposeful rather than random, fortuitous, or attenuated. Id. And third, the defendant
must seek some benefit, advantage, or profit by availing himself of the jurisdiction.
Id.
In addition to these rules, we must also consider the defendant’s contacts on
a claim-by-claim basis, unless all claims arise from the same contacts. See Moncrief
Oil Int’l Inc. v. OAO Gazprom, 414 S.W.3d 142, 150–51 (Tex. 2013).
Here, all of Virtual’s claims against Formicola arise from a single alleged
contact in Texas, which is that Formicola accepted an offer from Reed, a Texas
resident, to engage in a business relationship that was built on trade secrets
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misappropriated from Virtual, a Texas entity. Virtual did not allege that Formicola
ever came to Texas to meet with Reed regarding this business relationship. Similarly,
Virtual did not allege that Formicola agreed to operate this business in Texas, or that
he ever solicited any business customers in Texas. Virtual did not even allege that
Formicola had hatched the plan to misappropriate Virtual’s trade secrets. Quite the
opposite, Virtual alleged that Reed obtained the trade secrets from Virtual in Texas,
and then Reed approached Formicola in Michigan with a plan for their
misappropriation.
Reed’s unilateral activity cannot be attributed to Formicola for jurisdictional
purposes. The facts alleged in Virtual’s live pleading, even if true, do not
demonstrate that Formicola purposefully availed himself of the privilege of
conducting activities in Texas. Cf. Michiana Easy Livin’ Country, Inc. v. Holten,
168 S.W.3d 777, 794 (Tex. 2005) (concluding that a Texas court had no jurisdiction
over an Indiana retailer when the retailer’s only contact with this state was the
plaintiff’s unilateral decision to place an order from Texas).
Virtual counters that Formicola is subject to this state’s jurisdiction, even
though he did not perform any particular act here, because after Formicola learned
of the misappropriated trade secrets, he still knowingly elected to participate in
Reed’s scheme. But “a nonresident directing a tort at Texas from afar is insufficient
to confer jurisdiction.” See Moncrief, 414 S.W.3d at 157. Formicola’s mere
knowledge that a party in Texas would be affected by his decisions is also
insufficient. See Searcy, 496 S.W.3d at 69 (“Even if a nonresident defendant knows
that the effects of its actions will be felt by a resident plaintiff, that knowledge alone
is insufficient to confer personal jurisdiction over the nonresident.”).
Virtual also argues that four cases support the trial court’s exercise of personal
jurisdiction over Formicola.
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The first case cited by Virtual is Cornerstone Healthcare Group Holding, Inc.
v. Nautic Management VI, L.P., 493 S.W.3d 65 (Tex. 2016). That case involved
several nonresident defendants who created a Texas entity in order to purchase a
chain of inpatient rehabilitation facilities in Texas. The Texas Supreme Court ruled
that the nonresident defendants had purposefully availed themselves of conducting
business in Texas because they “specifically sought both a Texas seller and Texas
assets.” Id. at 73. Virtual contends that the facts of Cornerstone are materially
indistinguishable from the allegations in this case, but Virtual did not allege that
Formicola sought Texas assets. Instead, Virtual alleged that Reed initiated contact
with Formicola and proposed a business relationship built on misappropriated trade
secrets from Texas. We cannot agree that Cornerstone controls.
The second case cited by Virtual is Retamco Operating, Inc. v. Republic
Drilling Co., 278 S.W.3d 333 (Tex. 2009). The nonresident defendant in that case
argued that it was not subject to personal jurisdiction, even though it had been
assigned certain real property assets in Texas that were related to the litigation. The
Texas Supreme Court rejected that argument and held that the nonresident defendant
was subject to personal jurisdiction because the nonresident defendant had created a
“continuing relationship” with Texas. Id. at 399. Virtual suggests that Retamco is
analogous because Formicola’s relationship with Texas is ongoing, rather than
fleeting or isolated. But Virtual did not allege any ongoing contacts between
Formicola and Texas, and the real property assets in Retamco are qualitatively
different from the trade secrets involved here, which are just business customers. Id.
(“This ownership [of real property] also allows Republic to ‘enjoy . . . the benefits
and protection of Texas laws.’ Unlike personal property, Republic’s real property
will always be in Texas, which leaves no doubt of the continuing relationship that
this ownership creates.”). One of the customers, Himarc, was a California
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corporation. And there were no allegations that the remaining customers poached by
CATI, Formicola, and Reed were Texas entities.
The third case cited by Virtual is Nogle & Black Aviation, Inc. v. Faveretto,
290 S.W.3d 277 (Tex. App.—Houston [14th Dist.] 2009, no pet.). One of the
nonresident defendants in that case was a business entity that had contracted with a
Texas resident to perform engineering work in Texas. This court concluded that the
nonresident defendant had made a purposeful contact with Texas because the
nonresident defendant specifically chose to form a business relationship with the
Texas resident among other possible candidates, and because the nonresident
defendant had also used the Texas resident’s work in the broader marketplace. Id. at
283. Virtual seems to suggest that Nogle & Black Aviation is analogous because
Formicola also chose to form a business relationship with a Texas resident.
However, the similarity ends there. In Nogle & Black Aviation, this court
emphasized that there was purposeful availment because the nonresident defendant’s
contact with Texas “was not unilaterally initiated by the Texas resident.” Id. This
case presents the exact opposite situation. According to Virtual’s own pleadings,
Formicola did not unilaterally initiate contact with Reed, a Texas resident. Instead,
Reed initiated contact with Formicola, after Reed had already misappropriated
Virtual’s trade secrets.
The fourth and final case cited by Virtual is TravelJungle v. American
Airlines, Inc., 212 S.W.3d 841 (Tex. App.—Fort Worth 2006, no pet.). The
nonresident defendant in that case “screen-scraped” network servers located in
Texas, which had the effect of diminishing the plaintiff’s computer capacity. The
court of appeals held that the nonresident defendant was subject to personal
jurisdiction in Texas because the evidence showed that the nonresident defendant
purposefully directed its data-gathering activities towards network servers in Texas
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for commercial, profit-driven reasons. Id. at 850. Virtual argues that TravelJungle
provides “pertinent guidance” in this case, but Virtual never explains how the two
cases are even similar. In our view, TravelJungle has no apparent application to this
case because Formicola did not “screen-scrape” Virtual’s servers or otherwise
collect trade secrets from Virtual. Instead, Reed collected trade secrets from Virtual
and then shared them with Formicola.
Based on the foregoing, we conclude that the trial court erred by denying
Formicola’s special appearance because the facts alleged by Virtual are legally
insufficient to show that Formicola purposefully availed himself of the privilege of
conducting activities in Texas. In light of that conclusion, there is no need to consider
whether Formicola’s contacts with Texas have a substantial connection with the
litigation, because in either event, the trial court could not exercise specific personal
jurisdiction over Formicola, a nonresident. See Tex. R. App. P. 47.1.
CONCLUSION
The trial court’s order denying the special appearance is reversed and
judgment is rendered dismissing all of Virtual’s claims against Formicola for want
of personal jurisdiction.
/s/ Tracy Christopher
Chief Justice
Panel consists of Chief Justice Christopher and Justices Jewell and Spain.
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