Opinion
No. 04-07-00482-CV
Delivered and Filed: April 9, 2008.
Appeal From the 131st Judicial District Court, Bexar County, Texas, Trial Court No. 1999-CI-11287, Honorable John D. Gabriel, Jr., Judge Presiding.
Affirmed.
Sitting: ALMA L. LÓPEZ, Chief Justice, KAREN ANGELINI, Justice, PHYLIS J. SPEEDLIN, Justice.
MEMORANDUM OPINION
In this interlocutory appeal, Retamco Operating, Inc. ("Retamco") challenges the trial court's order sustaining the special appearance by nonresident defendant, Douglas B. McCallum, L.L.C. ("DMLLC"). We affirm the trial court's order.
Factual and Procedural Background
Retamco initially sued Paradigm Oil, Inc. ("Paradigm"), Pacific Operators, Inc., and Pacific Operators of Texas, Inc. ("Pacific Operators") in 1999 for breach of contract and fraud associated with oil and gas interests located in Texas. In January 2000, while the suit was pending, Paradigm and Pacific Operators sold to Crimson Energy, L.L.C. ("Crimson") all of their right, title and interest in oil and gas leases located in Dimmitt and Webb County, Texas (the "Briscoe Lease"), but expressly retained an option to acquire an "undivided working interest in any [future] well." Later that year, Paradigm and Pacific Operators sold and assigned to DMLLC and Republic Drilling Company ("Republic") their reserved option to participate in the drilling of future wells on the Briscoe Lease (the "Assignment of Participation Option"). At the same time, Paradigm also assigned its remaining interest in oil and gas leases located in Fayette County, Texas (the "Assignment, Bill of Sale and Conveyance"). Four years later in November 2004, Retamco sued Republic and DMLLC and added them as defendants to its original lawsuit, claiming they were recipients of fraudulent transfers from Paradigm. Both Republic and DMLLC filed special appearances objecting to personal jurisdiction in Texas.
The Assignment, Bill of Sale and Conveyance involved roughly 50 leases and 23 wells in Fayette County.
Republic's special appearance was heard first. After a hearing based on allegations in Retamco's Eleventh Amended Original Petition, the trial court denied Republic's special appearance. Republic appealed and this Court reversed the trial court order and dismissed Republic from the lawsuit, finding no basis to confer specific jurisdiction. See Republic Drilling Co. v. Retamco Operating, Inc., No. 04-06-00727-CV, 2007 WL 913206 (Tex.App.-San Antonio Mar. 28, 2007, pet. filed). Thereafter, in April 2007, a hearing was held on DMLLC's special appearance based on the allegations in Retamco's Twelfth Amended Original Petition. The trial court granted DMLLC's special appearance. Retamco now appeals.
Applicable Law
A. Personal Jurisdiction Requirements
Texas courts may exercise " in personam jurisdiction over a nonresident if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of jurisdiction is consistent with federal and state constitutional due-process guarantees." Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007). Accordingly, determining whether a nonresident is subject to the personal jurisdiction of Texas courts requires a multi-level analysis involving both state and federal law. Id.
Under state law, the Texas long-arm statute enables courts to exercise jurisdiction over a nonresident defendant that "does business" in Texas. Tex. Civ. Prac. Rem. Code Ann. § 17.043-.044 (Vernon 1997); BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). Section 17.042 defines "doing business" as: (1) contracting by mail or otherwise with a Texas resident with performance either in whole or in part in Texas; (2) committing a tort in whole or in part in Texas; and (3) recruiting Texas residents, directly or through an intermediary located in Texas for employment inside or outside Texas. Tex. Civ. Prac. Rem. Code Ann. § 17.042 (Vernon 1997); see BMC Software, 83 S.W.3d at 795 (noting the activities listed in § 17.042 are not the exclusive means of "doing business" in Texas).
The United States Constitution, however, prohibits a court from exercising jurisdiction over a party that lacks minimum contacts with the forum. PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 166 (Tex. 2007). In order to exercise personal jurisdiction over a nonresident under federal due process guarantees, the nonresident defendant must have purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws. Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 784 (Tex. 2005). In making this determination, "only the defendant's contacts with the forum are relevant, " the contacts "must be purposeful rather than random, fortuitous, or attenuated, " and the "defendant must seek some benefit, advantage or profit by `availing' itself of the jurisdiction." Moki Mac, 221 S.W.3d at 575 (recognizing there are three parts to a "purposeful availment" inquiry).
Personal jurisdiction has been described as either specific — that is, based on contacts arising from the dispute at issue, or general — predicated on a party's "continuous and systematic" contacts with the forum. PHC-Minden, 235 S.W.3d at 166; BMC Software, 83 S.W.3d at 795-96. Specific jurisdiction exists if the nonresident defendant's alleged liability arises from or is related to activity conducted within the forum. Moki Mac, 221 S.W.3d at 576. Accordingly, to support an exercise of specific jurisdiction over a nonresident, the defendant's contacts must be "purposefully directed at" the forum state and have a "substantial connection" with the operative facts of the litigation. Id. at 577-79, 585.
By contrast, general jurisdiction has been described as "dispute-blind, " and is exercised "without regard to the nature of the claim presented." PHC-Minden, 235 S.W.3d at 168. To establish general jurisdiction, the defendant's contacts with the forum must be "continuous and systematic" so that the forum may exercise personal jurisdiction over the defendant even if the cause of action did not arise from or relate to activities conducted within the forum state. BMC Software, 83 S.W.3d at 796. Accordingly, general jurisdiction requires a "more demanding minimum contacts analysis" with a "substantially higher" threshold. PHC-Minden, 235 S.W.3d at 168.
B. Burden of Proof and Standard of Review
The plaintiff bears the initial burden of pleading facts sufficient to bring a nonresident defendant within the provisions of the long-arm statute. Moki Mac, 221 S.W.3d at 574. Upon filing a special appearance, the nonresident defendant then assumes the burden to negate all the bases of personal jurisdiction alleged by the plaintiff. Id. Whether a court has personal jurisdiction over a defendant is a question of law; however, the trial court frequently must resolve questions of fact before deciding the jurisdictional question. BMC Software, 83 S.W.3d at 794. On appeal, we review the trial court's findings of fact for legal and factual sufficiency; when the trial court does not issue any findings of fact or conclusions of law, all facts necessary to support its judgment which are supported by the evidence are implied in favor of the trial court's decision. Id. at 794-95. In conducting a legal sufficiency analysis, we review the evidence in the light most favorable to the challenged finding and indulge every reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). We credit favorable evidence if a reasonable fact finder could, and disregard contrary evidence unless a reasonable fact finder could not. Id. at 827. If there is more than a scintilla of evidence to support the finding, the legal sufficiency challenge fails. BMC Software, 83 S.W.3d at 795. In reviewing for factual sufficiency, we examine all evidence in the record and reverse only if the finding is so against the great weight and preponderance of the evidence as to be manifestly wrong or unjust. Carone v. Retamco Operating, Inc., 138 S.W.3d 1, 7 (Tex.App.-San Antonio 2004, pet. denied). We review the trial court's conclusions of law drawn from the findings of fact de novo. BMC Software, 83 S.W.3d at 794.
Analysis
Retamco argues the trial court improperly sustained DMLLC's special appearance because DMLLC failed to negate Retamco's allegations of personal jurisdiction under the Texas long-arm statute, and because Retamco pled and proved sufficient grounds to exercise both specific and general jurisdiction over DMLLC. According to Retamco, its pleadings and proof show that Douglas B. McCallum, the "sole member" of DMLLC, created a Colorado limited liability corporation to acquire real estate in Texas from its "sister" Texas corporation, Paradigm, to defraud Retamco — thereby committing a tort, in whole or in part, in Texas under the Uniform Fraudulent Transfer Act. Additionally, Retamco maintains that by knowingly and intentionally entering into the Assignment of Participation Option, DMLLC also assumed extensive obligations to indemnify Crimson, a Texas corporation, for liability arising out of the Briscoe Lease. Accordingly, Retamco contends DMLLC purposefully availed itself of the benefits and protections of the Texas forum when it assumed obligations performable in Fayette, Webb, and Dimmit Counties. DMLLC responds that the trial court properly sustained its special appearance because Retamco failed to allege and prove the commission of a tort by DMLLC in whole or in part in Texas, and DMLLC's alleged liability does not arise from, and is not related to, any contact DMLLC had with Texas.
DMLLC disputes that the Assignment of Participation Option imposed any such obligations on it; regardless, the controlling fact is that the assignment was part of the alleged fraudulent transaction.
A. Pleadings and Evidence Considered by Trial Court
Based on the affidavit of Douglas McCallum filed in support of DMLLC's special appearance, DMLLC is a Colorado limited liability corporation with its office and only place of business in Colorado. DMLLC is not authorized to do business in Texas, does not have a registered agent in Texas, does not advertise within Texas, does not sell or lease outside of Texas for use within Texas, does not own any personal property located in Texas, does not provide services in Texas, does not have a Texas telephone number, and does not and has not engaged in the exploration, production, financing, consulting or marketing of oil and gas properties in Texas. DMLLC's only connection to Texas is the alleged fraudulent transfer that occurred in October 2000 wherein DMLLC "acquired non-operating oil and gas lease interests from Paradigm through a transaction executed by [DMLLC] in Colorado." Factually, this evidence mirrors the facts developed in the prior appeal, Republic Drilling Co. v. Retamco Operating, Inc., with two exceptions — Republic received a greater interest than DMLLC, and Republic signed the documents at issue in California while DMLLC signed the documents in Colorado. See Republic, 2007 WL 913206, at *6.
Retamco argues that, despite the affidavit of Douglas McCallum, DMLLC failed to contradict the "86 separate acts" alleged in Retamco's Twelfth Amended Original Petition which are sufficient to confer both specific and general jurisdiction. Retamco cites to the 94 exhibits admitted at the special appearance hearing as evidence of the following acts by DMLLC: (i) it owns real property consisting of working interests in oil and gas leases, and related personal property, located in Webb, Dimmit, and Fayette Counties by virtue of the alleged fraudulent transfer; (ii) it has executed numerous documents (for example, "Division Orders" and "Transfer Orders") addressed to Texas business entities such as Crimson in Fort Worth, Texas, confirming its ownership interests or electing to participate in drilling new wells on the Briscoe Lease; (iii) it has paid expenses and received net revenue of $540, 192 from the Fayette County wells during the time period of 2000-2006;
We note that the relevant time period for assessing contacts for purposes of general jurisdiction ends at the time suit is filed. PHC-Minden, 235 S.W.3d at 169. Retamco filed suit against DMLLC in November 2004.
and (iv) it has solicited and paid for the services and counsel of a Texas lawyer, a Texas engineer, and Texas operators. In response, DMLLC argues that its contact with Texas is limited to its passive ownership of non-operating working interests in oil and gas leases located in Texas, and that is not sufficient to support personal jurisdiction. We agree with DMLLC. Accepting as true Retamco's allegations and evidence, DMLLC's contacts with Texas simply do not establish either specific or general jurisdiction. Moki Mac, 221 S.W.3d at 576; IRA Res., Inc. v. Griego, 221 S.W.3d 592, 597 (Tex. 2007) (proper focus is on nature and quality of contacts, not just quantity).
B. Specific Jurisdiction
It is undisputed that DMLLC's first arguable contact with Texas was its receipt of the interests conveyed by the two assignment documents (the Assignment of Participation Option and the Assignment, Bill of Sale and Conveyance). Despite the large number of "separate acts" alleged by Retamco, the claimed contacts with Texas all occurred at or after the transaction at issue. The acts can fairly be sorted into three categories: the ownership interests in Texas; the claimed profits and expenses associated with owning the Texas interests; and the numerous documents exchanged with Texas businesses incidental to ownership of those interests.
Examining first the ownership interests, Retamco asserts that DMLLC owns both real and personal property located in Texas, but admits that DMLLC holds only a non-operating working interest in the oil and gas leases and the only personal property it owns is the equipment related to the leases themselves. Furthermore, it is uncontradicted that DMLLC's only obligation as a non-operator is to pay its proportionate share of the expenses. In other words, there is no evidence that DMLLC in any way directs the operation of the oil and gas leases. DMLLC does receive a net profit, after expenses, based on its ownership interests.
Turning to the numerous documents, all the documents appear to be incidental to the fact that DMLLC owns an interest in the leases. The record confirms DMLLC executed transfer orders and division orders with Texas companies confirming its ownership interest, and also corresponded with Crimson in Texas regarding its election to participate in drilling new wells in Webb County. The documents also confirm that DMLLC received and apparently executed all the documents from its business address in Colorado.
For Texas to properly exercise specific jurisdiction, DMLLC's alleged contacts must arise from or be related to the operative facts of the litigation. Here, the operative facts are that Paradigm and Pacific Operators transferred non-operating working interests in the oil and gas leases, and a participation option, to DMLLC in October 2000 through documents executed outside of Texas. It is noteworthy that the panel in Republic did not decide the question of whether an alleged fraudulent transfer of assets located within Texas results in the commission of a tort in Texas, and we similarly do not reach that issue. Instead, Republic was decided based on due process limits and case law holding that "the purposeful-availment standard is not met when the sole contact takes place outside the forum state." Republic, 2007 WL 913206, at *6 (emphasis added) (citing Michiana, 168 S.W.3d at 787). Here, Paradigm and Pacific Operators transferred the participation options and non-operating working interests to DMLLC in a transaction wholly executed outside of Texas. The reasoning and holding of Republic thus leads us to similarly conclude that the alleged fraudulent transfer of oil and gas lease interests located within Texas through a transaction wholly executed outside of Texas does not meet the minimum contacts necessary for a Texas court to exercise specific jurisdiction. See Moki Mac, 221 S.W.3d at 575 (nonresident may purposefully avoid a particular jurisdiction by structuring transactions so as to neither profit from the forum's laws nor be subject to its jurisdiction) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)).
Paradigm and Pacific Operators executed the documents in California, while DMLLC executed the documents in Colorado.
Retamco relies on Trigeant Holdings, Ltd. v. Jones, 183 S.W.3d 717 (Tex.App.-Houston [1st Dist.] 2005, pet. denied), in support of its position that DMLLC is subject to the jurisdiction of Texas courts. Retamco argues that the facts of Trigeant are "identical to those in the case at bar." The panel in Republic, however, considered Trigeant and distinguished it, in part, as we do, because the transfer in Trigeant was executed in Houston, Texas. See Republic, 2007 WL 913206, at *6.
After our decision in Republic, Retamco amended its petition to allege the 86 separate acts previously discussed in its effort to establish jurisdiction over DMLLC. Based on the documentary evidence in this record, all of the 86 claimed contacts relied on by Retamco occurred after the assignments had been made, and are incidental to, and a passive reflection of, the ownership interests themselves. None of the 86 contacts arise from purposeful contact by DMLLC with Texas, and, at best, indirectly relate to the purported fraudulent transfer. Without a substantial connection with the alleged fraudulent transfer, these contacts fail to establish specific personal jurisdiction. See id. at 576.
C. General Jurisdiction
Retamco urges that this case is different from Republic because there is "more evidence in this record of DMLLC's activities in Texas." Accordingly, we next examine whether Retamco has established general jurisdiction. As previously discussed, DMLLC clearly had some continuing contacts with Texas after the alleged fraudulent transfer, which we have generally characterized as: (1) the actual ownership interests located in Texas; (2) the claimed profits and expenses derived from those interests; and (3) the numerous documents incidental to ownership of those interests. All the claimed contacts relate to DMLLC's non-operating working interests in the oil and gas leases, and, as previously stated, were not purposeful contacts directed at the state but, rather, were passive reflections of the ownership interests themselves. Although not directly dispositive of our jurisdictional analysis, we note that under the Texas Business Corporations Act a foreign corporation is not deemed to be transacting business in Texas for purposes of registering with the Secretary of State simply by reason of "[i]nvesting in or acquiring, in transactions outside of Texas, royalties and other non-operating mineral interests, and the execution of division orders, contracts of sale and other instruments incidental to the ownership of such non-operating mineral interests." See Tex. Bus. Corp. Act Ann. art. 8.01 (B)(13) (Vernon 2003). Based on the record before us, we cannot characterize DMLLC's overall contacts with Texas as establishing a pattern of continuing and systematic activity sufficient to support general personal jurisdiction. See PHC-Minden, 235 S.W.3d at 170-72 (trips to Texas by PHC-Minden employees, payments to 136 Texas vendors amounting to $1.5 million, and PHC-Minden contracts with Texas vendors fell short of the type of continuous, systematic contacts necessary to establish general jurisdiction).
Retamco also argues, without substantive analysis to explain or develop its contentions, that we are not bound by Republic because: (1) a petition for review is pending with the Texas Supreme Court; (2) Douglas McCallum is the sole member of DMLLC, and he is an individual defendant in this lawsuit and thus clearly subject to personal jurisdiction in Texas; and (3) there is no evidence that DMLLC has engaged in any "other" business activity other than the alleged fraudulent transaction at issue in this suit. We need not address these points because under Texas Rule of Appellate Procedure 38.1, an appellant's brief must put forth some specific argument and analysis showing that the record and the law support the appellant's contentions. See Tex. R. App. P. 38.1(h) (requiring appellant's brief to contain "a clear and concise argument for the contentions made, with appropriate citations to authorities and to the record").
Conclusion
In summary, we conclude there is sufficient evidence to support the trial court's implied finding that DMLLC's contacts with Texas do not establish either specific or general personal jurisdiction. Moki Mac, 221 S.W.3d at 576 (specific jurisdiction exists if the alleged liability arises from or is related to activity within the forum); BMC Software, 83 S.W.3d at 796 (general jurisdiction exists if contacts with forum are continuous and systematic). Accordingly, we affirm the trial court's order granting the special appearance of DMLLC.