Fox Lake Animal Hospital PSP v. Wound Management Technologies, Inc.

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-13-00289-CV
FOX LAKE ANIMAL HOSPITAL PSP APPELLANT
V.
WOUND MANAGEMENT APPELLEE
TECHNOLOGIES, INC.
----------
FROM THE 96TH DISTRICT COURT OF TARRANT COUNTY
----------
MEMORANDUM OPINION 1
----------
Appellant Fox Lake Animal Hospital PSP, a business located in Illinois,
sent funds to Appellee Wound Management Technologies, Inc. (WMT), a Texas
corporation, under a convertible promissory note. The note, made on October
28, 2010, and due on February 28, 2011, allowed Fox Lake to convert any
portion of the outstanding balance into shares of WMT at a specified price per
1
See Tex. R. App. P. 47.4.
share. If Fox Lake converted only part of the balance, the note’s terms required
WMT to execute a new note for the unconverted portion. The note could be
prepaid at WMT’s option without penalty, but even in that case, Fox Lake could
“elect to keep all [its] convertible features through the Due Date.” If the note was
not paid back by the due date, the note called for WMT to pay Fox Lake a late
fee in the form of 2,000 shares per day of cashless warrants of WMT at a
specified price. The note’s terms called for WMT to make payments to Fox Lake
at its office in Illinois, stated that WMT received fair value for the note, and
waived any claim that any payment under the note constituted interest in excess
of the maximum rate allowed by law.
Fox Lake elected to take shares in partial payment and executed a
subscription agreement to that effect. WMT subsequently sued Fox Lake in
Texas on a claim for excessive interest in violation of the finance code. 2 Fox
Lake made a special appearance, which the trial court denied after a hearing.
Fox Lake now appeals from that order. Fox Lake argues in one issue that the
trial court erred by denying its special appearance. Because we hold that the
record supports the trial court’s denial of the special appearance, we affirm the
trial court’s order.
2
See Tex. Fin. Code Ann. §§ 305.001, .003, .004 (West 2006).
2
Standard of Review and Burden of Proof
Whether a trial court has personal jurisdiction over a nonresident
defendant is a question of law that we review de novo. 3 In deciding the
jurisdiction question, however, the trial court may be required to resolve
questions of fact. 4 If the trial court issues findings of fact and conclusions of law
on its denial of a special appearance, the appellant may challenge the fact
findings on legal and factual sufficiency grounds, and we may review those fact
findings for both legal and factual sufficiency. 5 When, as here, the trial court
does not issue findings of fact and conclusions of law in support of its ruling on a
special appearance, we imply all relevant facts necessary to support the
judgment that are supported by evidence. 6
The plaintiff has the initial burden to plead sufficient facts to confer
jurisdiction. 7 Once the plaintiff has done so, the burden shifts to the defendant to
negate all bases of personal jurisdiction pled by the plaintiff. 8 If the plaintiff fails
to plead facts bringing the defendant within the reach of Texas’s long-arm
3
Moncrief Oil Int’l Inc. v. OAO Gazprom, 414 S.W.3d 142, 150 (Tex. 2013).
4
BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex.
2002).
5
Id.
6
Moncrief, 414 S.W.3d at 150.
7
Id. at 149.
8
Id.
3
statute, the defendant need only prove that he or she does not live in Texas to
meet this burden. 9
Applicable Law
Establishing Personal Jurisdiction
Texas courts may exercise personal jurisdiction over nonresident
defendants (1) when the Texas long-arm statute authorizes it and (2) when doing
so is consistent with constitutional due-process guarantees. 10 The long-arm
statute extends personal jurisdiction “as far as the federal constitutional
requirements of due process will permit.” 11 Thus, the Texas long-arm statute
reaches as far as due process allows but no farther. 12
“The Due Process Clause protects an individual’s liberty interest in not
being subject to the binding judgments of a forum with which he has established
no meaningful ‘contacts, ties, or relations.’” 13 Personal jurisdiction meets
constitutional due process requirements when two conditions are met: (1) the
defendant has established minimum contacts with the state and (2) the exercise
9
George v. Deardorff, 360 S.W.3d 683, 687 (Tex. App.—Fort Worth 2012,
no pet.).
10
Moncrief, 414 S.W.3d at 149.
11
George, 360 S.W.3d at 687 (citations omitted).
12
See id.
13
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471–72, 105 S. Ct. 2174,
2181–82 (1985) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 319, 66 S.
Ct. 154, 160 (1945)).
4
of jurisdiction comports with traditional notions of fair play and substantial
justice. 14 Fox Lake does not make any argument on appeal regarding the
second requirement. We therefore confine our analysis to the first requirement.
Minimum Contacts
A nonresident defendant’s contacts with a state can give rise to either
general or specific jurisdiction. 15 A state has general jurisdiction over the
defendant when the defendant’s contacts are continuous and systematic, in
which case the forum state may exercise personal jurisdiction over the defendant
even if the plaintiff’s claim did not arise from or relate to activities conducted
within the forum state. 16 WMT alleged in its petition that the trial court had both
general and specific jurisdiction over Fox Lake, but at the hearing, it stated that it
was not asserting general jurisdiction. We therefore consider only whether Fox
Lake had minimum contacts with Texas to give rise to specific jurisdiction.
Specific jurisdiction exists when the claim arises from or is related to
activities purposefully conducted in the forum state. 17 Thus, to have minimum
contacts for purposes of specific jurisdiction, a nonresident defendant must by
some act have purposefully availed itself of the privileges of conducting activities
14
George, 360 S.W.3d at 687.
15
Id. at 687.
16
Id. at 687–88.
17
Moncrief, 414 S.W.3d at 150.
5
within Texas. 18 It is not enough, however, that the plaintiff alleged contacts
showing purposeful availment; in order for the defendant’s contacts to give rise to
specific jurisdiction, “there must be a substantial connection between those
contacts and the operative facts of the litigation.” 19 The “operative facts” are the
facts that would be the focus of the trial. 20
Texas’s long-arm statute authorizes Texas courts to exercise personal
jurisdiction over a nonresident defendant who “does business” in Texas. 21 Under
the statute, a nonresident “does business” in Texas if: the nonresident “[1]
contracts . . . with a Texas resident and [2] either party is to perform the contract
in whole or in part in this state.” 22 Thus, contracting with a Texas resident can
satisfy the Texas long-arm statute.
Merely contracting with a Texas resident, however, does not necessarily
establish the minimum contacts required in order for the exercise of personal
jurisdiction to comport with due process. 23 Due process requires that the acts
18
Id.
19
Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 585 (Tex. 2007).
20
See id.; DENSO Corp. v. Hall, 396 S.W.3d 681, 691 (Tex. App.—
Houston [14th Dist.] 2013, no pet.).
21
PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 166 (Tex.
2007)
22
Tex. Civ. Prac. & Rem. Code Ann. § 17.042 (West 2008).
23
Gordon & Doner, P.A. v. Joros, 287 S.W.3d 325, 332 (Tex. App.—Fort
Worth 2009, no pet.).
6
relied on to show minimum contacts must be purposeful rather than “random,
isolated, or fortuitous,” and in our analysis, “we consider the quality and nature of
the defendant’s contacts, rather than their number.” 24 Furthermore, the
defendant must seek some benefit, advantage, or profit by availing itself of the
jurisdiction. 25 And only the defendant’s contacts with the forum state count: a
defendant should not be haled into a jurisdiction solely as a result of the
“unilateral activity of another party or a third person.” 26
Analysis
Fox Lake’s sole issue is that the trial court erred by denying its special
appearance. In our analysis, we first look to see if WMT pled sufficient facts to
show that Fox Lake has contacts with Texas that give rise to personal
jurisdiction. WMT alleged that
1. Fox Lake engaged in acts doing business in Texas because it
contracted with WMT, a Texas resident, and the contract was to be
performed in part in this state. In this regard, WMT executed a
convertible promissory note with a principal amount of $39,000.00,
although the actual amount loaned was $25,000.00.
2. The $25,000.00 was sent by wire transfer to WMT’s bank
account at Branch Banking and Trust Company (BB&T).
3. WMT executed the promissory note in Texas.
24
Id. at 331; Wilkerson v. RSL Funding, L.L.C., 388 S.W.3d 668, 675 (Tex.
App.—Houston [1st Dist.] 2011, pet. denied).
25
Gordon & Doner, 287 S.W.3d 331.
26
Id.; George, 360 S.W.3d at 688.
7
4. The promissory note was personally guaranteed by nonparty
Scott Haire [CEO of WMT], and the guaranty states that it is
delivered by WMT and accepted by Fox Lake in Tarrant County,
Texas and is governed by Texas law.
5. The promissory note states that it is governed by Texas law.
6. The promissory note further provides that Fox Lake could
choose to convert any portion of the note’s outstanding balance into
WMT shares by surrendering the note for conversion and executing
an attached subscription agreement and a transfer form, and Fox
Lake subsequently converted a portion of the balance of the
promissory note into 80,000 shares of WMT.
7. To obtain the shares, Fox Lake executed the subscription
agreement, which states that it is governed by Texas law.
8. The subscription agreement was either mailed to WMT at its
Fort Worth address or sent by fax to WMT at that address.
9. By executing the subscription agreement, Fox Lake directed
WMT to issue share certificates from its Fort Worth office. From its
Fort Worth office, WMT caused its transfer agent located in Texas to
issue 80,000 shares of WMT to Fox Lake and send the 80,000
shares of stock to Fox Lake from Texas.
10. WMT paid Fox Lake $19,000.00 in partial satisfaction of the
promissory note, and the payment was made by wire transfer from
WMT’s BB&T bank account in Texas to Fox Lake.
11. When the promissory note was executed, Fox Lake caused a
wire transfer of $25,000.00 to be made to WMT’s bank account at
BB&T.
A number of these allegations relate to acts taken by WMT or another
party, not acts taken by Fox Lake. WMT’s payment to Fox Lake, WMT’s
selection of a transfer agent in Texas and having shares sent to Fox Lake by that
8
transfer agent, 27 and WMT’s execution of agreements are acts by WMT, not by
Fox Lake. Because only Fox Lake’s actions give rise to jurisdiction over Fox
Lake, we do not consider these allegations in determining whether WMT met its
pleading requirements. 28 Similarly, the guaranty that was given to Fox Lake was
made by a nonparty to this suit, and neither the terms of the guaranty nor the
performance of it are at issue in WMT’s claim against Fox Lake, and therefore we
do not consider it in our analysis. 29
Disregarding the guaranty and the unilateral acts of WMT, the contacts
alleged by WMT are: Fox Lake sent funds to WMT’s bank, and WMT’s bank
account is in Texas; 30 Fox Lake accepted a promissory note executed by WMT,
27
See Specht v. Dunavant, 362 S.W.3d 752, 756 (Tex. App.—Houston
[14th Dist.] 2011, no pet.) (stating the fact that a corporation’s stock transfer
agent was located in Texas was “merely fortuitous”); cf. Luxury Travel Source v.
Am. Airlines, Inc., 276 S.W.3d 154, 164 (Tex. App.—Fort Worth 2008, no pet.)
(considering the defendant’s act in deliberately inducing its Texas customers to
undertake activity in Texas as a relevant fact in the minimum contacts analysis).
28
See George, 360 S.W.3d at 688.
29
See Moki Mac, 221 S.W.3d at 585.
30
See Bissbort v. Wright Printing & Pub. Co., 801 S.W.2d 588, 589 (Tex.
App.—Fort Worth 1990, no writ) (stating that the nonresident defendant
“purposefully acted or consummated a transaction in Texas in initiating
negotiations with its telephone call to Bissbort, by executing and returning to
Texas a contract requiring it to make payment in Texas and by wiring the
$51,230.00 to Bissbort’s account with a bank in Texas” and holding that although
the defendant’s contacts with Texas were “few and limited,” “because of the
quality of those acts, particularly the act of wiring a large sum of money to a
Texas bank, [the defendant] has availed itself of the protection and remedies of
Texas law and Texas courts”) (emphasis added). But see Falcon Crest Aviation
Supply, Inc. v. Jet Mgmt., LLC, No. 14-11-00789-CV, 2012 WL 4364661, at *4
9
a Texas resident; the promissory note accepted by Fox Lake and the
subscription agreement executed by Fox Lake were both governed by Texas law;
Fox Lake chose to take 80,000 shares of a Texas company in payment on the
note; and Fox Lake mailed or faxed the subscription agreement to Texas. WMT
did not allege that Fox Lake solicited WMT’s business (in Texas or otherwise) or
that the contract negotiations took place within Texas.
When a suit arises out of a contract, as this one does, if the contract
contains a choice of law provision that makes the contract governed by the law of
the forum state, that provision alone is not enough to confer jurisdiction. 31 But
neither should it be ignored in considering “whether a defendant has
‘purposefully invoked the benefits and protections of a State’s laws’ for
jurisdictional purposes.” 32 And combined with other facts, it can show a
defendant’s “deliberate affiliation with the forum State and the reasonable
foreseeability of possible litigation there.” 33
Similarly, a nonresident’s entering into a contract with a Texas resident
does not alone necessarily confer jurisdiction over the nonresident, but the terms
(Tex. App.—Houston [14th Dist.] Sept. 25, 2012, no pet.) (mem. op.) (stating that
because the place of payment was dictated by the plaintiff’s unilateral choice, the
defendant’s sending payment to Texas did not support a finding of jurisdiction).
31
Burger King, 471 U.S. at 482, 105 S. Ct. at 2187.
32
Id.
33
Id.
10
of the contract and the parties’ dealings with each other in negotiating and
performing the contract should be considered in the minimum contacts
analysis. 34 Likewise, sending funds to Texas may not necessarily be enough on
its own to establish jurisdiction, 35 but it is a fact to be considered along with other
contacts. 36
As alleged by WMT, Fox Lake sent $25,000 to WMT in Texas, it entered
into agreements with a Texas resident that are governed by Texas law and
mailed them to Texas, and it invested in and is now part owner of a Texas
company. These alleged contacts substantially relate to the facts that WMT
would need to prove its claim at trial, a claim that is based on the contents of and
34
Id. at 478–79, 105 S. Ct. at 2185 (stating that “[i]f the question is whether
an individual’s contract with an out-of-state party alone can automatically
establish sufficient minimum contacts in the other party’s home forum, we believe
the answer clearly is that it cannot” but that “prior negotiations and contemplated
future consequences, along with the terms of the contract and the parties’ actual
course of dealing . . . must be evaluated in determining whether the defendant
purposefully established minimum contacts within the forum”).
35
Alenia Spazio, S.p.A. v. Reid, 130 S.W.3d 201, 213 (Tex. App.—Houston
[14th Dist.] 2003, pet. denied); see also Riverside Exports, Inc. v. B.R. Crane &
Equip., LLC, 362 S.W.3d 649, 654 (Tex. App.—Houston [14th Dist.] 2011, pet.
denied) (holding that the nonresident defendant did not have sufficient contacts
with Texas when its only contact was refunding a customer’s money to a bank
account in Texas; it was the plaintiff’s unilateral choice to have a bank in Texas,
and “given that [the plaintiff] chose its Texas domicile and chose to use a Texas
bank, it is hard to conceive how [the defendant] could refund the [plaintiff’s]
money without some contact with Texas”).
36
See Bissbort, 801 S.W.2d at 589.
11
performance of the promissory note and subscription agreement. 37 While Fox
Lake’s contacts with Texas as pled by WMT are limited, 38 when considered
together they are sufficient to meet WMT’s burden to plead facts to show specific
jurisdiction over Fox Lake. 39 The burden thus shifted to Fox Lake to negate
WMT’s jurisdictional allegations.
To negate WMT’s jurisdictional pleadings, Fox Lake stated in its sworn
special appearance that it is not a resident of Texas, it is a resident of Illinois, it
has never conducted business in Texas, and the transaction WMT complains of
and all negotiations related to it took place in Illinois. 40 Fox Lake also attached
the affidavit of Bohdan Rudawaski, Fox Lake’s representative. At WMT’s
objection, the trial court struck much of the affidavit, a ruling that Fox Lake does
37
See Moki Mac, 221 S.W.3d at 585 (requiring that there be a “substantial
connection” between the defendant’s contacts and the operative facts of the
litigation in order for personal jurisdiction to arise).
38
See Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333,
339 (Tex. 2009) (noting that “the minimum-contacts analysis is focused on the
quality and nature of the defendant’s contacts, rather than their number”).
39
See Bissbort, 801 S.W.2d at 589.
40
See Tex. R. Civ. P. 120a(1), (3) (providing that the special appearance
shall be made by sworn motion and shall be determined on the basis of the
pleadings, stipulations of the parties, filed affidavits and attachments, discovery,
and any oral testimony); A&J Printing, Inc. v. DSP Enters., L.L.C., 153 S.W.3d
676, 682 (Tex. App.—Dallas 2004, no pet.) (stating that the trial court could
consider the evidence set forth in the defendant’s verified special appearance);
Martinez v. Valencia, 824 S.W.2d 719, 723 (Tex. App.—El Paso 1992, no writ)
(considering the sworn special appearance as evidence in review of the trial
court’s ruling on the special appearance).
12
not challenge on appeal. The trial court’s ruling left only the following paragraphs
in evidence:
1. I am over the age of eighteen (18) and competent to make this
Affidavit. I reside in Lake County, Illinois and at no time did I go to
Texas and meet with anyone with [WMT]. My business, Fox Lake
Animal Hospital Hospital [sic] PSP, a veterinary clinic, is also an
Illinois entity.
2. When this deal first arose, I spoke with Scott Haire, the CEO
of [WMT], about its product. In this initial contact, Mr. Haire was at
his office located at 6400 N. Andrews Ave., #530, Fort Lauderdale,
FL 33309, during the call from animal hospital to him in Florida.
This evidence is not enough to negate the jurisdictional grounds alleged by
WMT. The sworn motion and affidavit establish that Fox Lake is not a resident of
Texas, that the contract negotiations did not take place in Texas, and that
Rudawski never met with anyone from WMT in Texas. But it does not address
any of the grounds alleged by WMT, such as Fox Lake taking shares of WMT,
sending funds to WMT in Texas, and entering into agreements governed by
Texas law. And none of the evidence offered by WMT and admitted by the trial
court at the hearing contradicted WMT’s grounds. Accordingly, we hold that the
trial court did not err by denying Fox Lake’s special appearance. We overrule
Fox Lake’s sole issue.
Conclusion
Having held that the trial court did not err by denying Fox Lake’s special
appearance, we affirm the trial court’s order.
13
/s/ Lee Ann Dauphinot
LEE ANN DAUPHINOT
JUSTICE
PANEL: DAUPHINOT, GARDNER, and GABRIEL, JJ.
DELIVERED: April 10, 2014
14