Global Paragon Dallas, LLC and Ilan Zelnik v. SBM Realty, LLC

Reversed and Remanded and Opinion filed September 30, 2014.
In The
Fourteenth Court of Appeals
NO. 14-13-00974-CV
GLOBAL PARAGON DALLAS, LLC AND ILAN ZELNIK, Appellants
V.
SBM REALTY, LLC, Appellee
On Appeal from the 215th District Court
Harris County, Texas
Trial Court Cause No. 2013-01380
OPINION
In this interlocutory appeal, appellants Global Paragon Dallas, LLC and Ilan
Zelnik (collectively “Global Paragon”) challenge the trial court’s order granting a
special appearance filed by appellee SBM Realty, LLC. Global Paragon contends
the trial court erred in granting the special appearance because (1) SBM Realty
waived its special appearance, and (2) Global Paragon had pleaded sufficient facts
to establish specific jurisdiction over SBM Realty. We hold that the grant was
erroneous because SBM Realty entered a general appearance by obtaining a ruling
on its motion for new trial—an action inconsistent with its assertion that the trial
court lacked jurisdiction. Accordingly, we need not decide whether Global
Paragon established specific jurisdiction. We reverse the order granting the special
appearance and remand the case to the trial court for further proceedings.
BACKGROUND
Global Paragon sued SBM Realty, Alon Solomon (“Solomon”), and Yael
Solomon in district court in Harris County on January 8, 2013. Global Paragon
alleged that Solomon had unlawfully obtained funds from Global Paragon through
fraud and in violation of his fiduciary duty to Global Paragon, used the wrongful
gains to purchase property in North Carolina, and then fraudulently transferred the
North Carolina property to SBM Realty. Global Paragon alleged that SBM Realty
was an entity owned or controlled in whole or part by Solomon. 1
The trial court signed an order permitting substituted service on SBM Realty
and the other defendants on February 8. On June 17, Global Paragon filed a
motion for default judgment. The trial court granted a default judgment in favor of
Global Paragon on June 24, and it signed an amended default judgment on July 8. 2
On July 23, SBM Realty filed (1) a special appearance; (2) a motion to
vacate default judgment and for new trial, subject to its special appearance;3 and
1
Global Paragon filed a first amended petition on October 3, in which it additionally
alleged that there was no legitimate business purpose for the transfer of the North Carolina
property, and that SBM Realty was “an insider” to the fraudulent transaction. The theories
alleged by Global Paragon included fraud, fraud in a real estate transaction, breach of fiduciary
duty, conversion, unjust enrichment, declaratory judgment, defalcation, constructive
trust/equitable lien, and fraudulent transfer.
2
The amended judgment added an exhibit that had been inadvertently excluded.
3
The motion stated that it was “expressly subject to and without waiver of the special
appearance.”
2
(3) a notice that an oral hearing on its motion to vacate default judgment and for
new trial would occur on August 2. Solomon also filed a motion for new trial and
to set aside the default judgment.
SBM Realty’s special appearance alleged that Global Paragon had not met
its initial burden of pleading sufficient allegations to invoke personal jurisdiction
over SBM Realty. SBM Realty contended that the court had neither specific nor
general jurisdiction over it for Global Paragon’s claims, that Global Paragon had
failed to allege a purposeful act or transaction by SBM Realty that gave rise to a
cause of action, and that the suit offended traditional notions of fair play and
substantial justice.
SBM Realty’s motion for new trial contended it was entitled to a new trial
on the basis of Global Paragon’s insufficient jurisdictional allegations and, in the
alternative, that SBM Realty was entitled to a new trial under the factors
articulated in Craddock v. Sunshine Bus Lines, 133 S.W.2d 124 (Tex. 1939). SBM
Realty also filed a supplemental motion to vacate default judgment and for new
trial on July 24, adding contentions that a new trial was warranted because the
court had awarded unliquidated damages without adequate evidence or an
evidentiary hearing, and that the court erred by rendering a judgment that provided
Global Paragon with a double recovery.
On August 2, the trial court held the noticed hearing. The court observed
that there were multiple motions pending and noted that “[w]e have a special
appearance, so we’ll handle that first.” SBM Realty’s counsel responded that
“[i]t’s just the motion for a new trial,” to which the trial court replied “[a]ll right.”
Later that day, the trial court signed orders vacating the amended default
judgment and granting a new trial to SBM Realty and the other defendants. SBM
Realty filed a notice on August 20 that an oral hearing on its special appearance
3
would occur on October 4. Global Paragon filed a response to SBM Realty’s
special appearance on October 2. Global Paragon contended that SBM Realty had
waived its special appearance by failing to comply strictly with the due order of
pleading requirements of Rule 120a of the Texas Rules of Civil Procedure.4
At the October 4 hearing on the special appearance, Global Paragon
contended that a defendant enters a general appearance when, as here, he is
“presented with an opportunity to basically have the special appearance ruled on
and addressed first before he proceed[s] with the motion for a new trial [but]
decline[s] to do so.” SBM Realty contended that because its announcement for
trial in its motion to set aside the default judgment and for new trial was expressly
made subject to its special appearance, it had not made a general appearance.
SBM Realty emphasized that a defendant “should not be in a position where [it]
cannot challenge a default judgment because [it] want[s] to preserve the special
appearance.”
The trial court signed an order granting SBM Realty’s special appearance on
October 8. The trial court also denied Global Paragon’s motion for reconsideration
of the special appearance. Global Paragon filed a notice of interlocutory appeal,
and this appeal followed. 5 See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(7).
4
In the alternative, Global Paragon requested a continuance so the parties could conduct
jurisdictional discovery.
5
We note that after granting SBM Realty’s special appearance based on lack of personal
jurisdiction, the trial court also granted a motion to dismiss filed by SBM Realty based on lack of
subject-matter jurisdiction. Because this is an interlocutory appeal of the special appearance, the
trial court’s interlocutory determination that it lacked subject-matter jurisdiction—which did not
dispose of all pending claims against all parties—is not before us. We therefore do not consider
and express no opinion on the merits of SBM Realty’s motion to dismiss.
4
ANALYSIS
Global Paragon contends in its first issue that SBM Realty waived its special
appearance because it was heard and determined nearly two months after its
motion for new trial was heard and determined, and thus the trial court erred in
granting the special appearance. We agree.
I. We review de novo whether SBM Realty waived its special appearance
by failing to comply with Rule 120a.
Texas courts may exercise in personam jurisdiction over a nonresident
consistent with federal constitutional requirements of due process. Guardian
Royal Exch. Assur., Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226
(Tex. 1991). The requirement that a court have personal jurisdiction is waivable,
however, and “there are a variety of legal arrangements by which a litigant may
give express or implied consent to the personal jurisdiction of the court.” Conner
v. ContiCarriers and Terminals, Inc., 944 S.W.2d 405, 415 (Tex. App.—Houston
[14th Dist.] 1997, no writ) (quoting Burger King Corp. v. Rudzewicz, 471 U.S.
462, 472 n.14 (1985)). We review a trial court’s ruling regarding a party’s waiver
of the personal jurisdiction requirement under a de novo standard of review.
Moore v. Pulmosan Safety Equip. Corp., 278 S.W.3d 27, 32 (Tex. App.—Houston
[14th Dist.] 2008, pet. denied).
A party is considered to have entered a general appearance and therefore
consented to personal jurisdiction when the party “(1) invokes the judgment of the
court on any question other than the court’s jurisdiction, (2) recognizes by its acts
that an action is properly pending, or (3) seeks affirmative action from the court.”
Exito Elecs. Co. v. Trejo, 142 S.W.3d 302, 304 (Tex. 2004). Texas Rule of Civil
Procedure 120a provides a special appearance procedure by which a non-resident
defendant may “challenge a court’s jurisdiction without voluntarily subjecting
5
himself to the jurisdiction of the court or waiving any objections to the court’s
actions.” Conner, 944 S.W.2d at 409.
Rule 120a requires that “[s]uch special appearance shall be . . . filed prior to
. . . any other plea, pleading or motion,”6 and that any special appearance “shall be
heard and determined before . . . any other plea or pleading may be heard.”7 Tex.
R. Civ. Proc. 120a. Courts sometimes refer to these requirements as the due-order-
of-pleading requirement and the due-order-of-hearing requirement. See, e.g., Exito
Elecs. Co., 142 S.W.3d at 305 (discussing the due-order-of-pleading requirement);
Trenz v. Peter Paul Petroleum Co., 388 S.W.3d 796, 800 (Tex. App.—Houston
[1st Dist.] 2012, no pet.) (discussing the due-order-of-pleading and due-order-of-
hearing requirements); Klingenschmitt v. Weinstein, 342 S.W.3d 131, 133-34 (Tex.
App.—Dallas 2011, no pet.) (same).
A party who does not strictly comply with both requirements waives its
special appearance and consents to personal jurisdiction. Tex. R. Civ. P. 120a
(“Every appearance, prior to judgment, not in compliance with this rule is a general
appearance.”); Seeley v. Seeley, 690 S.W.2d 626, 627–28 (Tex. App.—Austin
1985, no writ) (“An individual who challenges the court’s jurisdiction by filing a
special appearance must follow strictly the provisions of Rule 120a to avoid
making a general appearance.”). Thus, in Liberty Enterprises, Inc. v. Moore
Transportation Co., 690 S.W.2d 570, 571–72 (Tex. 1985), because the defendant
6
The rule also permits other pleas, pleadings, and motions to be “contained in the same
instrument or filed subsequent thereto.” Tex. R. Civ. P. 120a. “The rule makes matters in the
same instrument and subsequent matters subject to the special appearance without an express
statement to that effect for each matter.” Dawson-Austin v. Austin, 968 S.W.2d 319, 322 (Tex.
1998).
7
The rule permits a safe harbor for “[t]he issuance of process for witnesses, the taking of
depositions, the serving of requests for admissions, and the use of discovery processes,” none of
which will constitute a waiver of the special appearance. Tex. R. Civ. P. 120a; Lisitsa v. Flit,
419 S.W.3d 672, 678 (Tex. App.—Houston [14th Dist.] 2013, pet. filed).
6
(1) announced in its motion for new trial that it was “ready to try [the] case when it
is properly set for trial,” and (2) agreed to the court’s order reinstating the cause of
action, the Supreme Court of Texas held that the defendant’s affirmative actions
constituted a general appearance. Id. (citing St. Louis & S.F.R. Co. v. Hale, 206
S.W. 75 (1918)).
The relevant inquiry “is not what a court does in response” to the
defendant’s action, but “whether a defendant truly seeks any affirmative action
from the court” by that action. Angelou v. African Overseas Union, 33 S.W.3d
269, 276 (Tex. App.—Houston [14th Dist.] 2000, no pet.); see also St. Louis &
S.F.R. Co., 206 S.W. at 75 (“It is not the fact that the motion to quash a citation or
service is sustained which operates as an appearance, but it is the fact that a
defendant appears and asks an adjudication, which makes the appearance.”
(internal quotation marks omitted)). A defendant may “obtain[] a hearing on a
motion that only seeks relief appurtenant to his special appearance” without
waiving his special appearance, but a defendant enters a general appearance if he
“obtains a hearing on a motion that seeks affirmative relief unrelated to his special
appearance before he obtains a hearing and ruling on his special appearance.”
Trenz, 388 S.W.3d at 802. The court must determine whether the relief requested
by the defendant is inconsistent with the assertion that the court lacks jurisdiction.
Dawson-Austin, 968 S.W.2d at 323.
II. SBM Realty waived its special appearance by first obtaining a ruling on
its motion for new trial.
Applying these principles in the default judgment context, some Texas
courts have recommended “that if a non-resident defendant discovers a default
judgment was entered, he should file a special appearance and then a motion for
new trial subject to his special appearance.” Puri v. Mansukhani, 973 S.W.2d
7
701, 707 (Tex. App.—Houston [14th Dist.] 1998, no pet.) (holding that the
“appellant did not make the same unqualified representation that he was ready to
go to trial that was found in Liberty Enterprises”). Courts have also permitted “the
setting of [a] motion for new trial for hearing on the same day as the special
appearance” without the action constituting a general appearance. Lang v. Capital
Res. Invs., I, LLC, 102 S.W.3d 861, 864 (Tex. App.—Dallas 2003, no pet.); see
also Silbaugh v. Ramirez, 126 S.W.3d 88, 94 (Tex. App.—Houston [1st Dist.]
2002, no pet.) (holding that merely setting a motion for hearing did not waive the
special appearance when the “motion was never heard or ruled on by the trial
court”).
But a party who “obtain[s] and participat[es] in hearings on requests for
affirmative relief from the trial court before obtaining a ruling on his special
appearance” violates rule 120a and waives his challenge to personal jurisdiction.
Trenz, 388 S.W.3d at 803. Compare Dawson-Austin, 968 S.W.2d at 323 (noting
that party challenging personal jurisdiction did not herself raise any of the matters
at the hearing but rather “reurged [her] motion for continuance throughout the
hearing”) and Lang, 102 S.W.3d at 865 (“[Defendant] did not participate in the
hearing on the motion for new trial and objected to the trial court’s decision to
proceed on the motion for new trial prior to ruling on the special appearance.”)
with Landry v. Daigrepont, 35 S.W.3d 265, 268 (Tex. App.—Corpus Christi 2000,
no pet.) (“Even though [defendant] acknowledged that the special appearance
‘need[ed] to precede’ any ruling on the motion for new trial, the record reflects that
he proceeded to argue the motion for new trial before the court ruled on the special
appearance.”).
8
Other than strictly following the procedure for challenging personal
jurisdiction in Rule 120a, a “non-resident defendant [has] only two options: he
[can] either appear and consent to jurisdiction or allow a default judgment to be
taken against him and attack the Texas judgment as being void if the plaintiff
brought suit in the defendant’s state to enforce the judgment.” Kawasaki Steel
Corp. v. Middleton, 699 S.W.2d 199, 201 (Tex. 1985).
Here, SBM Realty violated Rule 120a’s due-order-of-hearing requirement
and entered a general appearance because it obtained a ruling on its motion for new
trial before obtaining a ruling on its special appearance. See Landry, 35 S.W.3d at
268. SBM Realty contends that its “actions have been completely consistent with
the assertion that the trial court lacks jurisdiction.” To the contrary, a motion for
new trial is an acknowledgment of the court’s jurisdiction and a request to invoke
the court’s authority. 8 Moreover, although SBM Realty’s motion to vacate default
judgment and for new trial contains arguments that overlap to some extent with the
arguments in its special appearance, its July 24 supplemental motion for new trial
addresses the merits of the default judgment’s award of unliquidated damages and
contends that the judgment provides a double recovery. This challenge to the trial
court’s award seeks affirmative relief that the court could grant only if it had
jurisdiction. See Shapolsky v. Brewton, 56 S.W.3d 120, 140 (Tex. App.—Houston
[14th Dist.] 2001, pet. denied) (holding party waived special appearance by
seeking relief “at least partially unrelated to” special appearance); see also SBG
Dev. Servs., L.P. v. Nurock Group, Inc., No. 02-11-00008-CV, 2011 WL 5247873,
at *3 (Tex. App.—Fort Worth Nov. 3, 2011, no pet.) (holding party waived special
8
See, e.g., Boyo v. Boyo, 196 S.W.3d 409, 418 (Tex. App.—Beaumont 2006, no pet.)
(“When a party asks a court to set aside a judgment, that request is treated generally as a
submission to the jurisdiction of the Courts of this State.”); Anderson v. Anderson, 786 S.W.2d
79, 81 (Tex. App.—San Antonio 1990, no writ) (“A motion for new trial seeks to invoke the
authority of the court, while the special appearance necessarily challenges that same authority.”).
9
appearance by choosing to have motion to strike pleadings heard first where
motion was “not limited to” defects in jurisdictional allegations and sought
dismissal for reasons other than court’s purported lack of jurisdiction).
Indeed, if SBM Realty’s sole aim had been to vitiate the judgment on the
ground that the trial court lacked personal jurisdiction over it, it did not need to
seek a ruling on its motion for new trial first—a favorable ruling on its special
appearance would also have had the desired effect. We recognize that the motion
for new trial would have been overruled by operation of law 75 days after the trial
court’s amended default judgment was signed, and the trial court would have lost
plenary power to rule on the special appearance 30 days later, see Tex. R. Civ. P.
329b(c), (e), but there is no indication in our record that the parties were unable to
complete any necessary jurisdictional discovery and obtain a ruling within these
periods. 9
SBM Realty also contends that because it filed its motion for new trial
subject to and without waiver of the special appearance, its facts fall squarely
within our decision in Puri v. Mansukhani, and therefore all of its subsequent
actions were also subject to and without waiver of the special appearance. But
SBM Realty’s initial compliance with the due-order-of-pleading requirement does
not mean that it also complied with the due-order-of-hearing requirement.
Although we agree with SBM Realty that by making its motion for new trial
subject to its special appearance, it did “not make the same unqualified
9
Thus, this case does not present a situation in which the trial court—either on its own
motion or at the behest of a party other than a specially appearing defendant—sets aside a default
judgment or grants a new trial, thereby providing more time for jurisdictional discovery
concerning the special appearance. Cf. Lang, 102 S.W.3d at 864 –65 (holding defendant did not
waive special appearance when trial court ruled on motion for new trial over his objection);
Myers v. Emery, 697 S.W.2d 26, 29 (Tex. App.—Dallas 1985, no writ) (holding defendant did
not waive special appearance when trial court set aside default judgment on its own motion).
10
representation that [it] was ready to go to trial that was found in Liberty
Enterprises,” Puri, 973 S.W.2d at 707, such an announcement is not the only
action capable of constituting a general appearance.
Many courts of appeals have confronted facts similar to those here, and each
has held that a party waives its special appearance by seeking and obtaining a
hearing on a motion for new trial and securing a ruling on that motion before the
special appearance is determined. E.g., Phoenix Fireworks Mfg., Inc. v. DM
Plastics, Inc., No. 04-98-00209-CV, 1998 WL 354927, at *3 (Tex. App.—San
Antonio June 30, 1998, no pet.) (not designated for publication); Clements v.
Barnes, 822 S.W.2d 658, 659–60 (Tex. App.—Corpus Christi 1991), rev’d on
other grounds, 834 S.W.2d 45 (Tex. 1992); Steve Tyrell Prods., Inc. v. Ray, 674
S.W.2d 430, 437 (Tex. App.—Austin 1984, no writ). For example, the Thirteenth
Court of Appeals held in Landry v. Daigrepont that a party waived its special
appearance by proceeding to argue its motion for new trial before the court issued
a ruling on the special appearance. Landry, 35 S.W.3d at 268.
SBM Realty contends Landry is inapposite because Landry relied on Liberty
Enterprises, a case that was distinguished in Puri. We do not find Landry
inconsistent with the distinction we articulated in Puri, however. The supreme
court rested its holding in Liberty Enterprises on two acts by the defendant. The
court held that the defendant’s acts—announcing that it was ready to try the case
when it was properly set and agreeing to the court’s order reinstating the cause of
action—were inconsistent with its assertion that the trial court lacked jurisdiction.
Liberty Enters., Inc., 690 S.W.2d at 571–72. Puri distinguished Liberty
Enterprises because the defendant in Puri had not made the same unqualified
representation that he was ready to go to trial, having made his announcement
subject to and without waiver of his special appearance. Puri therefore stands for
11
the proposition that a party may announce ready subject to its special appearance
and the announcement will not be considered inconsistent with the assertion that
the trial court lacks jurisdiction. See Puri, 973 S.W.2d at 707.
Puri does not hold, however, that so long as a party announces ready subject
to its special appearance, none of its subsequent actions will constitute a general
appearance. Thus, Landry’s determination that actions other than filing the motion
may be inconsistent with contesting jurisdiction does not conflict with Puri.
Here, Global Paragon does not contend that SBM Realty’s filing of the
motion for new trial itself constituted a general appearance. Rather, Global
Paragon asserts that SBM Realty made a general appearance by setting its motion
for hearing, urging the court to grant a new trial at the hearing, and supplying a
form order granting the motion, which the trial court signed. These affirmative
actions are similar to the defendant’s act in Liberty Enterprises of “agree[ing] to
the court’s order reinstating the cause of action” and thereby “submit[ing] to the
court’s jurisdiction.” 690 S.W.2d at 571.
It is these subsequent actions by SBM Realty that distinguish this case from
Puri. The defendant in Puri filed a motion for new trial prior to obtaining a ruling
on his special appearance, but neither argued nor obtained a ruling on the motion.
Puri, 973 S.W.2d at 706 (“[Defendant’s] counsel was not prepared to go forward
on a hearing on appellant’s motion for new trial after the special appearance
concluded. [Defendant’s] counsel indicated [he] wanted a hearing, but none had
been requested . . .”). In contrast, SBM Realty set a hearing for its motion for new
trial, argued its motion, and was granted a new trial, all before it even set a hearing
for its special appearance. Cf. Lang, 102 S.W.3d at 865 (observing that although
defendant set a hearing on his motion for new trial the same day as a hearing on his
special appearance, defendant “objected [at the hearing] to the trial court’s decision
12
to proceed on the motion for new trial prior to ruling on the special appearance”);
Silbaugh, 126 S.W.3d at 94 (“Th[e] motion was never heard or ruled on by the trial
court.”).
Unlike Dawson-Austin v. Austin, in which the defendant “did not ask the
district court for a hearing on any of the matters she filed,” 968 S.W.2d at 323, the
trial court’s granting of SBM Realty’s motion for new trial in this case was in
response to SBM Realty’s own request. Although SBM Realty’s motion for new
trial stated that it was subject to the special appearance, by seeking and obtaining a
ruling on the motion for new trial before even setting the hearing on its special
appearance, SBM Realty did not treat that motion as subject to its special
appearance. Further, nothing in our record suggests that the trial court and Global
Paragon compelled SBM Realty to address and obtain a ruling on the motion for
new trial first. Cf. id. (noting that the defendant “reurged [her] motion for
continuance throughout the hearing” that that the plaintiff had requested and took
place prior to a ruling on the special appearance). SBM Realty itself set the
hearing on its motion for new trial in advance of the special appearance, and
argued its entitlement to relief on non-jurisdictional grounds.
For these reasons, we hold that SBM Realty entered a general appearance by
obtaining a ruling from the trial court on its motion for new trial prior to obtaining
a ruling on its special appearance. We therefore sustain Global Paragon’s first
issue on appeal.
13
CONCLUSION
Because the trial court erred in granting SBM Realty’s special appearance
after SBM Realty had entered a general appearance, we reverse the trial court’s
order granting the appearance and remand the case to the trial court for further
proceedings.
/s/ J. Brett Busby
Justice
Panel consists of Justices Boyce, Busby, and Wise.
14