Opinion
No. 04-16-00610-CV
04-05-2017
Timothy STEIN, Appellant v. REVCAP, LLC, and Revere High Yield Fund LP, Appellees
MEMORANDUM OPINION
From the 216th Judicial District Court, Gillespie County, Texas
Trial Court No. 14288
Honorable N. Keith Williams, Judge Presiding Opinion by: Luz Elena D. Chapa, Justice Sitting: Sandee Bryan Marion, Chief Justice Marialyn Barnard, Justice Luz Elena D. Chapa, Justice AFFIRMED
Timothy Stein appeals the trial court's order denying his special appearance. His sole issue on appeal is that the trial court erred by denying his special appearance because the trial court lacks personal jurisdiction over him. We affirm the trial court's order.
BACKGROUND
Stein is a Missouri-licensed attorney who lives and works in Kansas. Stein represented Charles Trois, a Texas resident, in obtaining a loan from Revere High Yield Fund, LP, a Delaware limited partnership based in Connecticut. Before approving the loan, Revere required Trois to obtain a title insurance policy on the property Trois intended to use as security for the loan. Trois used real property located in Gillespie County, Texas, as security for the loan. To obtain a title policy for Trois, Stein engaged an escrow officer in Texas at a national title insurance company and provided her with documents and information regarding the loan. Based on the documents and information Stein provided, the title company issued a title commitment for the property located in Texas.
RevCap is Revere High Yield Fund's successor in interest. We refer to appellees as "Revere."
Revere alleged the information and documents Trois and Stein provided to them and the title insurance company represented the loan was sought for commercial purposes and the real property was not Trois's homestead. As part of the loan transaction, Stein sent Revere an opinion letter applying Texas law to the loan transaction. After Revere loaned Trois the money, Trois became delinquent on his payment obligations, and Revere sought to foreclose on Trois's property.
Trois sued Revere in district court in Gillespie County to prevent foreclosure, alleging the real property used to secure the loan is his homestead. Revere added Stein as a third-party defendant, alleging various misrepresentation and fraud claims against him. Stein filed a verified special appearance to object to the trial court's personal jurisdiction. Revere responded, emphasizing that Stein sent Revere an opinion letter applying Texas law to the loan transaction; communicated with his Texas-resident client, Trois; communicated with a Texas-based representative of the lender; engaged an escrow officer in Texas that provided title insurance based on Stein's representations; and assisted in closing the real estate transaction.
Revere did not allege any facts regarding the details of how Stein became Trois's attorney. Stein swore in his affidavit, which he filed in support of his special appearance, he "ha[s] not and do[es] not solicit, advertise, or promote [his] services in Texas." At the hearing on his special appearance, he explained he met Trois when he "was representing a client in Louisiana." According to Trois's deposition testimony, which Revere attached in response to Stein's special appearance and incorporated into the response by reference, Stein represented Trois on other matters including art collection, inheritance, and "fighting a battle in Italy with [Trois's] wife's family." The trial court denied Stein's special appearance, and Stein appeals.
PERSONAL JURISDICTION
For a defendant to be subject to personal jurisdiction in a Texas court, "(1) the defendant must have established minimum contacts with the forum state; and (2) the assertion of jurisdiction cannot offend traditional notions of fair play and substantial justice." Searcy v. Parex Res., Inc., 496 S.W.3d 58, 66 (Tex. 2016). There are two types of personal jurisdiction: specific jurisdiction and general jurisdiction. Id. at 67 "[S]pecific jurisdiction exists when the plaintiff's claims arise out of or are related to the defendant's contact with the forum." Id. (internal quotation marks omitted). General jurisdiction exists when the defendant's affiliations with the state are so continuous and systematic as to render it essentially at home in the forum state. Id. at 72-73.
A. Standard of Review
To establish personal jurisdiction, "[t]he plaintiff bears the initial burden of pleading sufficient allegations to bring a nonresident defendant within the provisions of the long-arm statute." BMC Software Belgium, N. V. v. Marchand, 83 S.W.3d 789, 793 (Tex. 2002); accord TEX. CIV. PRAC. & REM. CODE ANN. §§ 17.041-.045 (West 2015). A defendant challenging a Texas court's personal jurisdiction over it must negate all jurisdictional bases." BMC Software, 83 S.W.3d at 793. Whether a trial court has personal jurisdiction over a defendant is a question of law, which we review de novo. Id. at 794. When, as here, the trial court does not make findings of fact and conclusions of law, "all facts necessary to support the judgment and supported by the evidence are implied." Id. at 795. "When the appellate record includes the reporter's and clerk's records, these implied findings are not conclusive and may be challenged for legal and factual sufficiency in the appropriate appellate court." Id.
"The defendant can negate jurisdiction on either a factual or legal basis. Factually, the defendant can present evidence that it has no contacts with Texas, effectively disproving the plaintiff's allegations." Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 659 (Tex. 2010). "The plaintiff can then respond with its own evidence that affirms its allegations, and it risks dismissal of its lawsuit if it cannot present the trial court with evidence establishing personal jurisdiction." Id. (footnote omitted). "Legally, the defendant can show that even if the plaintiff's alleged facts are true, the evidence is legally insufficient to establish jurisdiction; the defendant's contacts with Texas fall short of purposeful availment; for specific jurisdiction, that the claims do not arise from the contacts; or that traditional notions of fair play and substantial justice are offended by the exercise of jurisdiction." Id.
B. Specific Jurisdiction
The parties primarily dispute whether the trial court has specific jurisdiction. For specific jurisdiction, the claims against the defendant must "arise out of" or be "related to" the defendant's contacts with the forum state, and the exercise of personal jurisdiction must not offend traditional notions of fair play and substantial justice. See Searcy, 496 S.W.3d at 66. "[S]ufficient minimum contacts exist when the nonresident defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws." Id. at 67 (internal quotation marks and formatting omitted).
In determining whether Revere satisfied its initial burden to allege sufficient facts, we may consider the original pleadings as well as the response to a special appearance. Touradji v. Beach Capital P'ship, L.P., 316 S.W.3d 15, 23 (Tex. App.—Houston [1st Dist.] 2010, no pet.). Revere attached exhibits to their response and incorporated those exhibits "as if fully set forth herein." We therefore consider whether Revere alleged sufficient facts to satisfy their initial burden with reference to the affidavits and depositions that were incorporated by reference. Because pleadings are not evidence, we consider only Revere's affidavits and depositions in determining whether the evidence supports the trial court's conclusion that it has personal jurisdiction. See Laidlaw Waste Sys. (Dall.), Inc. v. City of Wilmer, 904 S.W.2d 656, 660 (Tex. 1995).
1. The "Purposeful Availment" Requirement
The "purposeful availment" requirement is generally satisfied when the nonresident defendant could reasonably anticipate being haled into court in Texas based on either its connection with Texas or purposefully directing its conduct into Texas. Searcy, 496 S.W.3d at 67. Three "features" of purposeful availment in this context are: (1) "the relevant contacts are those of the defendant, and the unilateral activity of another person or a third party is not pertinent"; (2) "the contacts that establish purposeful availment must be purposeful rather than random, fortuitous, isolated, or attenuated"; and (3) "the defendant must seek some benefit, advantage, or profit by 'availing' itself of the jurisdiction." Id.
An out-of-state attorney's mere relationship and communication with a client who resides in Texas generally does not establish purposeful availment. Klenk v. Bustamante, 993 S.W.2d 677, 682 (Tex. App.—San Antonio 1998, no pet.), abrogated on other grounds by BMC Software, 83 S.W.3d 789. "[T]he non-resident attorney must take affirmative action to promote business within the forum state. Telephone calls and correspondence as activities directed at the forum state are generally insufficient. Not even isolated trips to the forum state during the representation, when coupled with the long-distance communication, amount to activities directed at the forum state." Id. (citations omitted). In Klenk, this court held the plaintiff did not establish purposeful availment when the defendants, out-of-state attorneys, represented a plaintiff, a Texas client, in a Texas- based securities investigation and made long-distance phone calls to the Texas client and the Securities & Exchange Commission's office in Fort Worth, Texas. Id. at 680-81, 683. This court held these contacts were insufficient because the attorneys did not "s[eek] clients or otherwise affirmatively promote[] personal business within Texas." Id. at 683.
But an out-of-state attorney may establish minimum contacts with Texas when there is more, such as an ongoing relationship of providing professional services. Trinity Indus., Inc. v. Myers & Assocs., Ltd., 41 F.3d 229, 230-31 (5th Cir. 1995). In Trinity Industries, the court held an out-of-state attorney established minimum contacts through "an ongoing relationship with a Texas client." Id. at 231. The out-of-state attorney in Trinity Industries represented the Texas client on several matters that involved the attorney traveling to Texas for meetings and appearing in federal court in Texas. Id. In addition, the court also considered it relevant that "payment was forthcoming from Texas." Id. Although the client in Trinity Industries solicited the out-of-state attorney, the out-of-state attorney not only voluntarily assumed the obligation of representing the Texas client, the out-of-state attorney also "continued the obligation of representing the Texas client." Id.
Because Texas's long-arm statute extends Texas trial courts' personal jurisdiction as far as federal due process requirements permit, "we rely on precedent from the United States Supreme Court and other federal courts, as well as our own State's decisions." BMC Software, 83 S.W.3d at 795.
Texas's long-arm statute provides "a nonresident does business in this state if the nonresident contracts . . . with a Texas resident and either party is to perform the contract in whole or in part in this state [or] . . . commits a tort in whole or in part in this state." TEX. CIV. PRAC. & REM. CODE ANN. § 17.042(1), (2) (West 2015). Fraudulent or negligent misrepresentation is tortious conduct and may be based on statements made to third parties. See Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577-78 (Tex. 2001); McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex. 1999). But to establish a trial court's personal jurisdiction, the defendant's execution of a contract or commission of a tort must also satisfy the "features" of purposeful availment. See Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 788-92 (Tex. 2005).
Stein is an out-of-state attorney who represented a Texas client in a matter involving Texas property and communicated with third parties in Texas as part of that representation. Because Revere did not allege facts or produce evidence that Stein sought clients or otherwise affirmatively promoted his legal services within Texas, Stein's mere representation of Trois is insufficient to establish sufficient minimum contacts with Texas. See Klenk, 993 S.W.2d at 683. But there is more. Stein, like the out-of-state attorney in Trinity Industries, had an ongoing relationship in which Stein rendered professional legal services to Trois. See 41 F.3d at 230-31. Stein continued the obligation of representing Trois in several matters, including Trois's loan transaction with Revere, as well as art collection, inheritance, and "fighting a battle in Italy with [Trois's] wife's family."
Although in Trinity Industries, the out-of-state attorney made several visits to Texas and appearances in federal court in Texas, the import of the Fifth Circuit's holding was the "ongoing" and "continuing" nature of the professional services rendered to a Texas resident. See id. 231 & n.9 (citing Bullion v. Gillespie, 895 F.2d 213 (5th Cir.1990), and T.M. Hylwa, M.D., Inc. v. Palka, 823 F.2d 310 (9th Cir.1987), to emphasize an "ongoing relationship" in context of medical and accounting services); see also Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 577 (Tex. 2007) ("[A]dditional conduct that may indicate whether a defendant purposefully availed itself of a particular forum include advertising and establishing channels of regular communication to customers in the forum state.") (emphasis added). Furthermore, personal jurisdiction may not be avoided "merely because the defendant did not physically enter the forum State." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985).
Asserting Revere's claim is based solely on Stein's representation of Trois, Stein does not account for Revere's allegations and evidence that he purposefully engaged an escrow officer in Texas, misrepresented the nature of the loan transaction and Trois's property in Texas to the escrow officer, and used the title commitment to obtain the loan from Revere. Stein asserts Revere hired the title insurance company, but he cites parts of the record that do not support his assertion. Instead, in the escrow officer's affidavit and deposition, excerpts of which Revere attached and incorporated into their pleadings by reference, she testified Stein engaged her; she served as Trois's escrow officer; Stein requested a title commitment for the loan transaction; and Stein represented the property was not Trois's homestead, which "was a requirement for title purposes to be able to insure the loan."
Such purposeful reaching out to a Texas entity to effectuate tortious conduct may establish purposeful availment. See Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 328 S.W.3d 545, 554 (Tex. App.—San Antonio 2010, pet. denied) (holding defendant purposefully availed itself when it reached out to a Texas resident and convinced him to stop working for a competitor and work for defendant). Revere further alleged Stein made misrepresentations to the escrow officer in Texas to obtain a title commitment and that the escrow officer relied on that misrepresentation in issuing the title policy. Revere pled and produced evidence that Stein (1) entered into a contract under which the title company's escrow officer performed services that Stein requested in Texas, and (2) committed part of the tort of fraudulent or negligent misrepresentation in Texas. See TEX. CIV. PRAC. & REM. CODE ANN. § 17.042(1), (2); Ernst & Young, 51 S.W.3d at 577-78; McCamish, Martin, Brown & Loeffler, 991 S.W.2d at 791.
Stein's alleged conduct in engaging the escrow officer in Texas and making misrepresentations to her satisfies the three purposeful availment "features" because his conduct was his own purposeful and unilateral contact. See Searcy, 496 S.W.3d at 67. Through Stein's purposeful conduct of engaging an escrow officer in Texas, Stein sought to and did obtain a title commitment, which Revere required for the loan. Through this purposeful conduct, Stein also obtained a $150,000 legal fee from the closing, which occurred in Texas and involved Texas real property. See id. Thus, Stein purposefully availed himself to the privilege of doing business in Texas and thereby established minimum contacts with Texas. See id.
2. The "Arise From or Relate To" Requirement
For a claim to arise from or be related to a defendant's minimum contacts, there must be a "substantial connection" between those contacts and the operative facts of the litigation. Id. at 70. The "substantial connection" standard is not as broad as "but-for" relatedness, and not as narrow as a proximate cause standard. Id. at 69. The operative facts of Revere's claims against Stein include their reliance and the escrow officer's reliance on fraudulent or negligent misrepresentations Stein made while representing Trois. Although the escrow officer testified she never communicated the misrepresentation to Revere, Revere alleged it would not have approved the loan without the title policy or if Stein had not misrepresented the nature of the real estate and purpose of the loan. And it is undisputed Stein obtained a title policy for the purpose of assisting Trois in obtaining the loan. Stein's alleged misrepresentations regarding the nature of the real estate and the purpose of the loan is therefore the central issue in the dispute between Trois and Revere and the dispute between Revere and Stein. Applying the "substantial connection" standard, we hold Revere's claims against Stein arise out of or are sufficiently related to Stein's minimum contacts with Texas. See id.
3. Traditional Notions of Fair Play & Substantial Justice
Stein argues the trial court's exercise of personal jurisdiction offends traditional notions of fair play and substantial justice. Relevant factors in this analysis sometimes include:
(1) the burden on the defendant; (2) the interests of the forum in adjudicating the dispute; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the international judicial system's interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several nations in furthering fundamental substantive social policies.Cornerstone Healthcare Grp. Holding, Inc. v. Nautic Mgmt. VI, L.P., 493 S.W.3d 65, 74 (Tex. 2016). When, as here, a defendant has minimum contacts with Texas, the exercise of personal jurisdiction will offend such notions only in rare cases. Id. We cannot say this is one of those rare cases. Stein did not produce any evidence regarding the burden on him. The record establishes Stein has retained Texas-based counsel and he was able to participate telephonically at the hearing on his special appearance. Stein is also an attorney who provides interstate legal services to a Texas client and, as part of his business, interacts with Texas-based companies from his office in Kansas. Any burden on Stein in defending against Revere's third-party claims is relatively minimal and does not outweigh Texas's interest in adjudicating Revere's allegations that Stein engaged a Texas title insurance company to commit fraud in the representation of a Texas client in which Texas real estate is central to the dispute. See id. Accordingly, we hold the trial court's exercise of personal jurisdiction comports with traditional notions of fair play and substantial justice. See id.
CONCLUSION
Because the trial court has personal jurisdiction over Stein, we affirm the trial court's order denying Stein's special appearance.
Luz Elena D. Chapa, Justice