Not your Father s Personal Jurisdiction

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1 Not your Father s Personal Jurisdiction An update on Texas personal jurisdiction law in the 21 st century Presented by: Katherine Elrich Cobb Martinez Woodward PLLC

3 Personal Jurisdiction Then Pennoyer v. Neff, 95 U.S. 714 (1877) Domicile/Presence: defendants could be sued in their domicile State OR any State in which they were present Principles of Sovereignty: States are co-equal sovereigns

4 Personal Jurisdiction Then International Shoe Co. v. Washington, 326 U.S. 310 (1945) Fairness replaced sovereignty principles Non-residents could be sued outside their home State if they had certain minimum contacts such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. Personal Jurisdiction found on a claim brought by the State of Washington to collect employment taxes against non-resident shoe company, who employed salesmen in Washington

5 Personal Jurisdiction Then General Jurisdiction Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952) Philippine corporation temporarily moved its headquarters to Ohio during WWII. Corporation s President resided in Ohio, corporate records were kept in Ohio, director meetings were held in Ohio, accounts were held in Ohio banks and all key business decisions were made in Ohio.

6 Personal Jurisdiction Then World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980) New York residents purchased new car from non-resident and while driving through Oklahoma to Arizona, car caught fire after being struck by another car. Products liability action filed in Oklahoma but US Supreme Court held no jurisdiction Due Process clause of the 14 th Amendment limits the power of a state court to render a valid judgment against a non-resident Judgment in violation of due process is void Court remains faithful to the interstate federalism embodied in the Constitution. States have sovereign power to try causes in their courts

7 Personal Jurisdiction Then Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984) General Jurisdiction: all-purpose / dispute-blind jurisdiction Specific Jurisdiction: case-linked jurisdiction requiring the claim arise from or be related to the defendant s contacts with the forum State No Specific Jurisdiction because the wrongful death claim arose out of a crash in Peru and was not related to the nonresident defendant s contacts with Texas No General Jurisdiction found when: CEO engaged in contract-negotiations in Houston, TX Accepted checks drawn on a Houston bank account Purchased helicopters, equipment and training services from Texas entity Sent employees to Texas for training

8 Personal Jurisdiction Then Calder effects test Calder v. Jones, 465 U.S. 783 (1984) Libel case where the Court found that National Enquirer reporters, who lived and worked in Florida, were subject to jurisdiction in California where the publication had a significant readership, where the plaintiff resided and where the plaintiff would feel the brunt of the injury from the libelous article. Case was used to find jurisdiction where defendants target or aimed intentional conduct towards plaintiffs in another State

9 Personal Jurisdiction Then Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985) Specific Jurisdiction found over a non-resident franchisee with a 20-year franchise relationship with Burger King, a Florida corporation, and when the franchise agreement contained a Florida choice-of-law provision Minimum Contacts + Fair Play & Substantial Justice Minimum Contacts: Purposeful & related to the claims pled

10 Personal Jurisdiction Then Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987) 4-justice plurality opinion by O Connor Stream-of-Commerce theory: merely putting product into the stream of commerce, with awareness that the product would be marketed in forum State was NOT enough Additional conduct (aka stream-of-commerce plus theory) Designing product for forum State Advertising in forum State Establishing distribution channels in forum State Providing regular advice to customers in forum State Marketing product through distributor serving forum State

12 outdated

13 Before

14 Now

15 Personal Jurisdiction Now Six-Pack of U.S. Supreme Court Personal Jurisdiction Cases General Jurisdiction Specific Jurisdiction Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011) J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873 (2011) Daimler AG v. Bauman, 134 S. Ct. 746 (2014) Walden v. Fiore, 134 S. Ct (2014) BNSF Railway Co. v. Tyrrell, 137 S. Ct (2017) Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct (2017)

16 Personal Jurisdiction Now General Jurisdiction Goodyear Dunlop Tires Operations, S.A. v. Brown 564 U.S. 915 (2011) Continuous & Systematic Contacts with forum State must render the non-resident essentially at home in that State Examples: where an individual was domiciled, or where a corporation was headquartered or incorporated Perkins (general jurisdiction) / Helicopteros (no general jurisdiction) Stream of commerce theory was not applied to general jurisdiction

17 Personal Jurisdiction Now General Jurisdiction Daimler AG v. Bauman, 134 S. Ct. 746 (2016) Re-affirms the standard in Goodyear General Jurisdiction requires the defendant to be essentially at home in the forum State Examples: where an individual was domiciled, or where a corporation was incorporated or has its principal place of business Exceptional case: Perkins

18 Personal Jurisdiction Now General Jurisdiction BNSF Railway Co. v. Tyrrell, 137 S. Ct (2017) Re-iterated at home test Employee sued BNSF, employer, for on-the-job injury under FELA, which authorized suit to be filed in a State where the business was doing business BNSF had 2,000 employees & 2,000 miles of railroad track in forum State No General Jurisdiction over Railway Company in Montana because it was not incorporated in Montana and does not maintain its principal place of business in Montana.

19 Personal Jurisdiction Now Specific Jurisdiction J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873 (2011) Stream-of-commerce Jurisdiction followed Asahi stream-of-commerce plus 4-justice plurality opinion by Justice Kennedy Relied on State sovereignty No jurisdiction over an English manufacturer of an allegedly defective machine that caused injury in New Jersey

20 Personal Jurisdiction Now Specific Jurisdiction Walden v. Fiore, 134 S. Ct (2014) Unanimous opinion authored by Justice Thomas Issue: Whether directing tortious activity toward plaintiffs who are located in a different state subjects the non-resident to personal jurisdiction in that state. Answer: NO Restricted Calder v. Jones effects test Mere knowledge that the brunt of the alleged harm would be felt or have effects in the forum state is insufficient to confer specific jurisdiction

21 Personal Jurisdiction Now Specific Jurisdiction The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant s conduct connects him to the forum in a meaningful way. Walden v. Fiore, 134 S. Ct. 1115, 1125 (2014).

22 Personal Jurisdiction Now Specific Jurisdiction Due process limits on the State s adjudicative authority principally protect the liberty of the nonresident defendant not the convenience of plaintiffs or third parties. Walden v. Fiore, 134 S. Ct. 1115, 1122 (2014).

23 Personal Jurisdiction Now Specific Jurisdiction Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct (2017) Mass action torts 600 plaintiffs mostly out-of-state and injured out-of-state California lacked specific jurisdiction for the out-of-state claims There must be an affiliation between the forum and the underlying claim an activity or occurrence that takes place in the forum State Rejected the argument that factual similarity between the in-state and out-of-state claims could give jurisdiction over the entire mass action. Convenience will not trump a defendant s due process rights

24 What about Texas personal jurisdiction law?

25 Texas Personal Jurisdiction Law Texas courts may exercise jurisdiction over a non-resident defendant only if the nonresident defendant does business in Texas. PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163 (Tex. 2007). What does the phrase does business in Texas mean?

26 Texas Personal Jurisdiction Law Doing business in Texas has been defined by: Texas long-arm statute AND Federal and State constitutional guarantees of due process Cornerstone Healthcare Grp. Holding, Inc. v. Nautic Mgmt. VI, L.P., 493 S.W.3d 65, 70 (Tex. 2016); PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163 (Tex. 2007).

27 Texas Personal Jurisdiction Law The Texas long-arm statute has been interpreted to extend personal jurisdiction only as far as the federal and state constitutional guarantees of due process. Cornerstone Healthcare Grp. Holding, Inc. v. Nautic Mgmt. VI, L.P., 493 S.W.3d 65, 70 (Tex. 2016)

28 Texas Personal Jurisdiction Law What are the federal and state constitutional guarantees of due process?

29 Texas Personal Jurisdiction Law Minimum Contacts with Texas Fair Play and Substantial Justice PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 166 (Tex. 2007)

30 Texas Personal Jurisdiction Law Minimum Contacts: Specific Jurisdiction General Jurisdiction

31 Texas Personal Jurisdiction Law Critical to the analysis of contacts: Quality of contacts Nature of contacts NOT the number of contacts Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 807 (Tex. 2002)

32 Specific Jurisdiction Non-resident s activities were purposefully directed to Texas AND The contacts substantially relate to the claim Moncrief Oil Int l, Inc. v. OAO Gazprom, 414 S.W.3d 142, (Tex. 2012); Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, (Tex. 2007); Michiana Easy Livin Country, Inc. v. Holten, 168 S.W.3d 777, 790 (Tex. 2005).

33 Specific Jurisdiction Michiana Easy Livin Country, Inc. v. Holten, 168 S.W.3d 777 (Tex. 2005) Key case for specific jurisdiction Allegations of misrepresentation made by a non-resident over the phone to a Texas resident will not suffice for specific jurisdiction. Focus: what is purposeful availment for minimum contacts?

34 Specific Jurisdiction Purposeful Availment 1. Only defendant s contacts with Texas matter (not the contacts of plaintiff or anyone else) 2. The acts must be purposeful (not random, isolated or fortuitous) 3. The defendant must seek some benefit, advantage or profit by availing himself of the Texas jurisdiction. Michiana Easy Livin Country, Inc. v. Holten, 168 S.W.3d 777, 785 (Tex. 2005)

35 Specific Jurisdiction What Texas Courts have said is NOT considered for purposeful availment Plaintiff is a Texas resident Injurious effects of the out-of-state conduct are felt in Texas Contracting with a Texas resident Contacts of an agent acting on behalf of the principal Searcy v. Parex Res., Inc., 496 S.W.3d 58, (Tex. 2016); Michiana, 168 S.W.3d at

36 Specific Jurisdiction When considering the injurious effects, the jurisdictional focus wrongly shifts from the relationship among the defendant, the forum, and the litigation to the relationship among the plaintiff, the forum and the litigation. Michiana Easy Livin Country, Inc. v. Holten, 168 S.W.3d 777, 790 (Tex. 2005)

37 Specific Jurisdiction In rejecting the directed-a-tort jurisdictional theory, the Texas Supreme Court has warned that such theory implicates an erroneous rule: guilty residents can be sued here, innocent ones cannot. Michiana Easy Livin Country, Inc. v. Holten, 168 S.W.3d 777, 791 (Tex. 2005)

38 Personal Jurisdiction Now Recall this Quote from U.S. Supreme Court in Walden: The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant s conduct connects him to the forum in a meaningful way. Walden v. Fiore, 134 S. Ct. 1115, 1125 (2014).

39 Specific Jurisdiction Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569 (Tex. 2007) Focus relatedness The contacts MUST be related to the claims at hand. Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 585 (Tex. 2007)

40 Specific Jurisdiction Relatedness How related?

41 Specific Jurisdiction Substantially Related [T]here must be a substantial connection between [the defendant s] contacts and the operative facts of the litigation. Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 585 (Tex. 2007)

42 Specific Jurisdiction What are operative facts? Facts on which the trial court will focus to prove the liability of the non-resident defendant Northern Frac Proppants, II, LLC v NF Holdings, LLC, 2017 Tex. App. LEXIS 7100 *23-24 (Tex. App. Dallas July 27, 2017, no pet.)

43 Specific Jurisdiction 2016 Triple Play TV Azteca, S.A.B. de C.V. v. Ruiz, 490 S.W.3d 29 (Tex. 2016) Searcy v. Parex Resources, Inc., 496 S.W.3d 58 (Tex. 2016) Cornerstone Healthcare Group Holding, Inc. v. Nautic Management VI, L.P., 493 S.W.3d 65 (Tex. 2016)

44 Specific Jurisdiction TV Azteca, S.A.B. de C.V. v. Ruiz, 490 S.W.3d 29 (Tex. 2016) Defamation case involving a Mexican broadcast company that allegedly defamed a Texas resident Signals were broadcast from Mexico and received in South Texas Broadcaster knew the broadcast could be received in Texas but that was not sufficient for jurisdiction Subject-and-source test Analogized to stream-of-commerce products liability cases Considered additional conduct of broadcasters to determine if broadcast was purposeful: Sending personnel to Texas to promote programs, Deriving substantial revenue by selling advertising to Texas businesses and Attempting to distribute programs and increase popularity in Texas

45 Specific Jurisdiction Searcy v. Parex Resources, Inc., 496 S.W.3d 58 (Tex. 2016) Business tort claims about the sale of out-of-state assets by non-resident Thousands of s and communications with a Bermudian entity s executives based in Texas s and communications in Texas were simply fortuitous because the seller had executives here in Texas Focus of the transaction revolved around the out-of-state (Columbian) oil and gas assets that a Canadian company wanted to buy

46 Specific Jurisdiction Cornerstone Healthcare Grp Holding, Inc. v. Nautic Mngt VI, L.P., 493 S.W.3d 65 (Tex. 2016) Involved non-resident equity funds, who placed money into a Texas corporation for the purpose of purchasing hospitals located in Texas from a Texas seller, and sought to profit from this investment Re-affirmed Texas s law on alter ego jurisdiction but concluded this was not an alter ego case Contacts of distinct legal entities, including parents and subsidiaries, must be assessed separately unless the corporate veil is pierced Distinguished Searcy where the seller s Texas presence was merely coincidental because the nonresident buyer was not specifically seeking a Texas seller or Texas assets Here, the non-residents were subject to specific jurisdiction because they spearheaded a transaction that targeted Texas Assets (i.e. Texas hospitals) from a Texas seller Claims related to Texas contacts

47 Specific Jurisdiction 2017 M&F Worldwide Corp. v. Pepsi-Cola Metropolitan Bottling Co., Inc., 512 S.W.3d 878 (Tex. 2017) No specific jurisdiction in a complex factual transaction where defendants entered into a settlement agreement with Texans to settle a New York lawsuit. Court considered the forum selection clause as evidence that no local availment was intended

48 Specific Jurisdiction Examples of purposeful availment in business torts: Nonresident defendant comes to Texas and acquires tangible personal property or acquires intangibles such as trade secrets with an intent to do more business in Texas. Nonresident defendant remains outside of Texas but acquires or causes the acquisition of Texas real estate or Texas businesses. Northern Frac Proppants, II, LLC v NF Holdings, LLC, 2017 Tex. App. LEXIS 7100 *23-24 (Tex. App. Dallas July 27, 2017, no pet.)

49 Specific Jurisdiction But if the nonresident Does not come to Texas, Does not seek out Texas business, or Does not acquire real or business operations located in Texas Then Northern Frac Proppants, II, LLC, 2017 Tex. App. LEXIS 7100 at *23-24

50 NO Purposeful Availment

51 General Jurisdiction General jurisdiction is dispute blind High Bar / More demanding minimum contacts analysis Contacts must be so continuous and systematic that the nonresident is at home in Texas Daimler AG v. Bauman, 134 S.Ct. 746, 751 (2014); PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163 (Tex. 2007); Northern Frac Proppants, II, LLC v NF Holdings, LLC, 2017 Tex. App. LEXIS 7100 *10-11 (Tex. App. Dallas July 27, 2017, no pet.)

52 General Jurisdiction Texas Supreme Court s Hypothetic Inquiry to Frame the Issue: [A]re the corporate defendant s actual activities in California so pervasive and extensive that it should be amenable to the adjudicatory jurisdiction of California for a hypothetical employment discrimination claim filed by a New York citizen employed at corporate headquarters in New York? Or, with respect to a foreign corporation, do the corporation s actual California contacts support jurisdiction even for a hypothetical cause of action arising from its sale of a product in Germany that injured a German citizen? PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 169 (Tex. 2007)

53 General Jurisdiction No longer enough to find a nonresident does business in the forum State A corporation that operates in many places can scarcely be deemed at home in all of them. Otherwise, at home would be synonymous with doing business tests framed before [the test for personal] jurisdiction evolved. Daimler AG v. Bauman, 134 S. Ct. 746, 762 n. 20 (2014).

54 General Jurisdiction For an Individual For an individual, the paradigm forum for the exercise of general jurisdiction is the individual s domicile. Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014); Bristol-Myers, 137 S. Ct. at 1780; Northern Frac Proppants, II, LLC, 2017 Tex. App. LEXIS 7100 at *11.

55 General Jurisdiction Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014); Bristol-Myers, 137 S. Ct. at 1780; Northern Frac Proppants, II, LLC, 2017 Tex. App. LEXIS 7100 at * For a Corporation With respect to a corporation, the place of incorporation and principal place of business are paradig[m]... bases for general jurisdiction.

56 General Jurisdiction Where is the principal place of business? Where the corporation s high level officers direct, control and coordinate the corporation s activities Corporate Nerve Center Hertz Corp. v. Friend, 559 U.S. 77, (2010); Daimler, 134 S. Ct. 746, 760 (2014).

57 General Jurisdiction Truly Exceptional Circumstance The Perkins Facts Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014) (citing to Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 447 (1952) as the example of the truly exceptional circumstances).

58 Alter-Ego/Veil-Piercing Jurisdiction Jurisdiction over one entity does not equal jurisdiction over a related entity or individual To fuse two entities or an entity and individual together, the plaintiff bears the burden to prove: Control over the internal business operations and affairs of the other entity Degree of control is greater than that normally associated with common ownership and directorship The two entities or entity and individual cease to be separate Cornerstone Healthcare Grp. Holding, Inc., 493 S.W.3d at 71-72; PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, (Tex. 2007); Northern Frac Proppants, II, LLC, 2017 Tex. App. LEXIS 7100 at *14-15

59 Alter-Ego/Veil-Piercing Jurisdiction Fiduciary Shield Doctrine Contacts made by an agent on behalf of the principal cannot be asserted as against the agent. Nicholas v. Tseng Hsiang Lin, 282 S.W.3d 743, 750 (Tex. App. Dallas 2009, no pet.)

60 Internet Jurisdiction

61 Internet Jurisdiction Supreme Court has not decided a case solely on virtual contacts TV Azteca s stream-of-commerce analysis may give us insight Courts of Appeals consider 3 categories of Internet activity: Websites used for transacting business Passive websites used only for advertising Interactive websites that allow for the exchange of information Nature and quality of internet contacts are evaluated on sliding scale Northern Frac Proppants, II, LLC, 2017 Tex. App. LEXIS 7100 at 56; Reiff v. Roy, 115 S.W.3d 700, (Tex. App. Dallas 2003, pet. denied)

Fairness Fair Play & Substantial Justice Court need not reach this analysis if no minimum contacts Daimler notes fairness factors come into play for specific not general jurisdiction Factors: The

62 Fairness Fair Play & Substantial Justice Court need not reach this analysis if no minimum contacts Daimler notes fairness factors come into play for specific not general jurisdiction Factors: The burden on non-resident Forum State s interest in adjudicating the dispute Plaintiff s interest in obtaining convenient & effective relief Interest on interstate judicial system in obtaining the most efficient resolution of the controversies Shared interest of the several states in furthering substantial social policies. Cornerstone, 493 S.W.3d at 74; Moncrief, 414 S.W.3d at 155.

63 Burden of Proof Who bears the burden of proof? Plaintiff has initial burden to plead jurisdictional facts Non-resident defendant must negate all jurisdictional facts pled by plaintiff Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, (Tex. 2010)

64 Burden of Proof Non-resident meets his burden of proof by Factually = presenting evidence disproving of jurisdictional allegations Legally = showing that the alleged facts are legally insufficient to establish the court s personal jurisdiction Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 659 (Tex. 2010)

65 Burden of Proof But what about alter ego claims? Shifting burdens Plaintiff bears the burden of pleading AND proving alter ego PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 173 (Tex. 2007); Northern Frac Proppants, II, LLC, 2017 Tex. App. LEXIS 7100 at *14

66 Practical Effects of the Personal Jurisdiction Now Laundry lists of lack of contacts may be irrelevant except to show the exceptional circumstances described in Perkins General Jurisdiction has greater predictability and consistency U.S. Supreme Court s opinions limiting personal jurisdiction impact State law because State long-arm statute extends only as far as Constitutional due process will allow Likely, will see less assertions of general jurisdiction and more focus on specific jurisdiction Specific jurisdiction fact-intensive

68 Presented by: Katherine Elrich Cobb Martinez Woodward PLLC

In The Court of Appeals Fifth District of Texas at Dallas. No CV

Affirmed and Opinion Filed June 5, 2014 S In The Court of Appeals Fifth District of Texas at Dallas No. 05-11-01730-CV CORNERSTONE HEALTHCARE GROUP HOLDING, INC, Appellant V. RELIANT SPLITTER, L.P., NAUTIC