Opinion
01-22-00006-CV
12-29-2022
TECHNOX ENGINEERING AND SERVICES PRIVATE, LTD, Appellant v. SUNWOO CO., LTD. F/K/A SUNWOO ROBOTEC CO., LTD., Appellee
On Appeal from the 295th District Court Harris County, Texas Trial Court Case No. 2020-06784
Panel consists of Justices Goodman, Countiss, and Farris.
MEMORANDUM OPINION
APRIL L. FARRIS, JUSTICE
In this personal jurisdiction case, Sunwoo Co., Ltd. f/k/a Sunwoo Robotec Co., Ltd., a South Korean company, sued Technox Engineering and Services Private, Ltd., an Indian company, for fraudulent transfer, misappropriation of trade secrets, and civil conspiracy. Technox filed a special appearance, arguing that it lacked sufficient minimum contacts with Texas to subject it to personal jurisdiction. The trial court denied Technox's special appearance.
In one issue on appeal, Technox argues that the trial court erred in determining that it had personal jurisdiction because Technox was not subject to specific jurisdiction, was not subject to general jurisdiction, and was not the alter ego of its Texas-based wholly owned subsidiary. We affirm.
Background
Technox is an Indian company based in Haridwar, India, that manufactures products used in oil and gas drilling. Technox's president and controlling shareholder, Jason Legnon, lives in the greater Houston area. Technox also has a wholly owned subsidiary, BOSS Solutions, LLC, that is located in Houston. Sumit Dhawan, a BOSS chairman, resides in India.
BOSS is a retailer and distributor of oil and gas products, such as high-pressure treating irons, that are used in drilling operations. "Treating irons" include swivel joints, pup joints, elbows, valves, pipes, chokes, and manifolds. In 2017, BOSS established a relationship with K&S Flow Products Inc., a company that imports oil and gas products from manufacturers in South Korea. Eventually, K&S began supplying BOSS with oil and gas products from Sunwoo, a South Korean manufacturer of treating irons.
During BOSS's business relationship with Sunwoo, Legnon allegedly represented to Sunwoo that BOSS could help it become a supplier of products to large oil and gas companies such as Cameron International and Halliburton. According to Legnon, Cameron International had an "audit" process before it would agree to a supplier relationship. To ensure that Sunwoo could handle the volume of work, Sunwoo would be required to allow Legnon and Dhawan to audit Sunwoo's facilities and review Sunwoo's proprietary manufacturing and technical information. Sunwoo agreed. Legnon and Dhawan traveled to South Korea and inspected Sunwoo's facilities. Sunwoo also provided technical schematics and drawings to Legnon and Dhawan for their review. Sunwoo was never put in contact with Cameron International.
In late 2018, BOSS fell behind on its payments to Sunwoo. Despite repeated promises to pay its outstanding balance, by January 2019 BOSS owed over $3 million to Sunwoo. It is undisputed that BOSS did not pay off its outstanding balance.
In March 2019, Engrave Engineering and Services Private Ltd., an Indian company and a predecessor to Technox, purchased BOSS, its assets, and its liabilities for $250,000. Around this same time, Legnon acquired a 50% controlling interest in Engrave for a "nominal value." Engrave then changed its name to Technox. Legnon is Technox's current president. BOSS became a wholly owned subsidiary of Technox.
Technox manufactures high pressure treating irons, which it ships to BOSS in Texas. BOSS acts as Technox's "exclusive" retailer for Technox's manufactured goods in both Texas and the United States. BOSS resells products provided from Technox "to at least some customers located in Texas." Technox does not manufacture treating irons for any other retailer. BOSS averages around $350,000 per month in sales, and all those sales are goods manufactured by Technox.
In January 2020, Sunwoo sued BOSS, Legnon, and Dhawan. Among other allegations, Sunwoo alleged that the defendants had misappropriated its trade secrets by using the knowledge Legnon and Dhawan had gained through their audit of Sunwoo's facilities and their review of Sunwoo's proprietary information to manufacture their own treating irons. Sunwoo asserted claims for suit on a sworn account, money had and received, quantum meruit, conversion, negligent misrepresentation, fraud, civil conspiracy, and common-law and statutory claims for misappropriation of trade secrets. Sunwoo sought to pierce BOSS's corporate veil to hold Legnon and Dhawan liable for BOSS's obligations.
BOSS, Legnon, and Dhawan are not parties to this interlocutory appeal.
In September 2021, Sunwoo amended its petition to assert causes of action against Technox. Specifically, Sunwoo asserted common-law and statutory claims for misappropriation of trade secrets against Technox. Sunwoo also asserted a claim for fraudulent transfer under the Texas Uniform Fraudulent Transfer Act ("TUFTA"), alleging that Legnon, BOSS, and Technox violated TUFTA when Legnon and BOSS transferred BOSS's assets to Technox. Sunwoo also argued that the court should disregard Technox's corporate veil because Legnon and BOSS have used Technox as a sham to perpetrate a fraud on Sunwoo. Finally, Sunwoo asserted a civil conspiracy claim against all defendants.
Technox filed a special appearance, arguing that it lacked sufficient minimum contacts to subject it to personal jurisdiction in Texas. Technox argued that it is a resident of India, and it "does limited business in Texas." It also argued that Sunwoo failed to allege any facts that would bring Technox under the operation of the Texas long-arm statute. Technox further argued that, to the extent Sunwoo was alleging that Technox and BOSS should be considered alter egos of each other for jurisdictional purposes, no evidence could support a finding that Technox exercised an abnormal degree of control over BOSS. Technox did not attach any evidence to its special appearance.
Sunwoo filed a response to Technox's special appearance. Sunwoo argued that Technox has sufficient contacts with Texas. Specifically, Technox acquired BOSS, a Texas company, in March 2019; Legnon, a Texas resident, was Technox's president and controlling owner; BOSS was the "exclusive" retailer in Texas and the United States for the oil and gas products that Technox manufactures; Technox communicated with customers located in Texas; Technox had a "stocking warehouse" located in Houston; and Legnon regularly communicated with Technox employees in India from his office in Houston. Sunwoo argued that these contacts were purposeful and that its claims against Technox directly related to these contacts. As a result, the trial court could exercise specific jurisdiction over Technox. Sunwoo also argued that Technox's Texas contacts-either based on Technox's own contacts or BOSS's contacts imputed to Technox through an alter ego finding-were so extensive that it was subject to general jurisdiction.
Sunwoo also filed a motion to compel Technox to respond to jurisdictional discovery, arguing that Technox did not properly comply with Sunwoo's discovery requests. Sunwoo stated that it believed it had presented sufficient evidence to defeat Technox's special appearance, but it requested that the trial court, if it believed otherwise, order Technox to respond to jurisdictional discovery rather than grant the special appearance.
Sunwoo attached evidence to support its arguments. Sunwoo's jurisdictional evidence included responses to requests for admissions completed by BOSS and Technox; excerpts from the depositions of Legnon and Dhawan; email communications between customers and employees of Technox and BOSS; invoices and shipping records; documentation concerning Legnon's acquisition of shares in Engrave; and a screenshot from Technox's website.
The trial court denied Technox's special appearance. This interlocutory appeal followed. See TEX. CIV. PRAC. & REM. CODE § 51.014(a)(7) (allowing interlocutory appeal of order denying special appearance).
In this order, the trial court also sustained Technox's objection to the facts contained in one of the exhibits attached to Sunwoo's response to the special appearance. This exhibit was an order denying the special appearance of Engrave in a Texas federal district court proceeding. On appeal, Sunwoo does not argue that the trial court erred in this evidentiary ruling. We therefore do not address this exhibit in our analysis of the denial of Technox's special appearance.
Special Appearance
In its sole issue, Technox argues that the trial court erred by determining that it had personal jurisdiction over Technox and denying its special appearance. Technox argues that it is not subject to specific jurisdiction; it and BOSS are not alter egos of each other such that BOSS's Texas contacts can be imputed to Technox; and it is not subject to general jurisdiction.
On appeal, Sunwoo argues that Technox failed to contest specific jurisdiction in the trial court, and therefore we can affirm the trial court's judgment solely on that basis without addressing the merits of the specific jurisdiction analysis. In its special appearance, Technox argued that Sunwoo's amended petition was "bereft of any jurisdictional allegations" and Sunwoo failed "to plead sufficient facts bringing [Technox] within reach of Texas' long-arm statute." Technox argued that it was a resident of India, it did "limited business" in Texas, and it "does not have sufficient minimum contacts with the forum state as required under Texas' long-arm statute." Technox also argued that Sunwoo failed to allege any facts "that suggest that Technox performed any of the acts listed in the long-arm statute, or that Technox did anything else that constituted 'doing business' in Texas." It further argued that the exercise of jurisdiction required more than Sunwoo's "bare assertion" that Technox regularly ships oil and gas products into Texas. Sunwoo responded to Technox's special appearance and argued, among other things, that Technox was subject to specific jurisdiction on all Sunwoo's claims asserted against it. Although Technox did not address specific jurisdiction in its reply, the question of whether Technox was subject to specific jurisdiction was before the trial court. We therefore address the merits of whether the trial court can properly exercise specific jurisdiction over Technox.
A. Standard of Review and Governing Law
Whether a trial court has personal jurisdiction over a nonresident defendant is a question of law that we review de novo. Old Republic Nat'l Title Ins. Co. v. Bell, 549 S.W.3d 550, 558 (Tex. 2018). Resolving this question of law may require the trial court to decide questions of fact. Luciano v. SprayFoamPolymers.com, LLC, 625 S.W.3d 1, 8 (Tex. 2021). When, as here, the trial court does not issue findings of fact and conclusions of law, we presume that all factual disputes were resolved in favor of the trial court's decision unless they are challenged on appeal. Id. Whether undisputed jurisdictional facts establish jurisdiction is a question of law. Bell, 549 S.W.3d at 558.
Texas courts may exercise personal jurisdiction over a nonresident defendant if (1) the Texas long-arm statute authorizes courts to exercise jurisdiction and (2) the exercise of jurisdiction is consistent with federal due-process guarantees. Luciano, 625 S.W.3d at 8; Bell, 549 S.W.3d at 558. The long-arm statute provides:
In addition to other acts that may constitute doing business, a nonresident does business in this state if the nonresident:
(1) contracts by mail or otherwise with a Texas resident and either party is to perform the contract in whole or in part in this state;
(2) commits a tort in whole or in part in this state; or
(3) recruits Texas residents, directly or through an intermediary located in this state, for employment inside or outside this state.
TEX. CIV. PRAC. & REM. CODE § 17.042; Cappuccitti v. Gulf Indus. Prods., Inc., 222 S.W.3d 468, 479 (Tex. App.-Houston [1st Dist.] 2007, no pet.) (noting that list of activities that constitute "doing business" under section 17.042 is "not exclusive"). Allegations that the defendant committed a tort in Texas satisfies the long-arm statute, but the allegations must also satisfy due process requirements. Luciano, 625 S.W.3d at 8. "[T]he requirements for personal jurisdiction are satisfied if exercising jurisdiction comports with federal due-process limitations." Id.
To establish personal jurisdiction over a nonresident defendant, due process requires that the defendant establish "minimum contacts" with the forum state such that maintenance of the suit does not offend "traditional notions of fair play and substantial justice." Id. (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)); Bell, 549 S.W.3d at 559. A defendant establishes minimum contacts when it "purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws." Bell, 549 S.W.3d at 559 (quoting Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338 (Tex. 2009)). A defendant's activities "must justify a conclusion that the defendant could reasonably anticipate being called into a Texas court." Id. (quoting Retamco Operating, 278 S.W.3d at 338); Moncrief Oil Int'l Inc. v. OAO Gazprom, 414 S.W.3d 142, 152 (Tex. 2013).
When determining whether a defendant purposefully availed itself of the privilege of conducting activities in Texas, only the defendant's contacts with Texas are relevant, not the unilateral activities of another party or a third person. Bell, 549 S.W.3d at 559 (quoting Moncrief Oil Int'l, 414 S.W.3d at 151). Second, the contacts relied upon must be purposeful rather than random, fortuitous, or attenuated. Id. (quoting Moncrief Oil Int'l, 414 S.W.3d at 151). Finally, the defendant must seek some benefit, advantage, or profit by availing itself of conducting activities in Texas. Id. (quoting Moncrief Oil Int'l, 414 S.W.3d at 151); see Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 141 S.Ct. 1017, 1025 (2021) (stating that purposeful availment means contacts must show that defendant deliberately reached out beyond its home state, such as by exploiting market in forum state or entering contractual relationship centered in forum state). We consider the defendant's contacts as a whole and not in isolation, focusing on the nature and quality of the contacts. Citrin Holdings, LLC v. Minnis, 305 S.W.3d 269, 279 (Tex. App.-Houston [14th Dist.] 2009, no pet.).
A defendant's contacts with a forum can give rise to either general or specific jurisdiction. Luciano, 625 S.W.3d at 8. A court has general jurisdiction over a defendant when the defendant's contacts with Texas are so "continuous and systematic" that the defendant is "essentially at home" in Texas. Id. (quoting TV Azteca v. Ruiz, 490 S.W.3d 29, 37 (Tex. 2016)); see Ford Motor Co., 141 S.Ct. at 1024 (stating that corporate defendants are typically only subject to general jurisdiction in "its place of incorporation and principal place of business"). General jurisdiction requires "substantial activities within the forum." TV Azteca, 490 S.W.3d at 37. When a court has general jurisdiction over a defendant, it may exercise jurisdiction "even if the cause of action did not arise from activities performed in the forum state." Id. (quoting Spir Star AG v. Kimich, 310 S.W.3d 868, 872 (Tex. 2010)); see Ford Motor Co., 141 S.Ct. at 1024 (stating that, under general jurisdiction, claims asserted "need not relate to the forum State or the defendant's activity there").
Specific jurisdiction, on the other hand, "covers defendants less intimately connected with a State, but only as to a narrower class of claims." Luciano, 625 S.W.3d at 8 (quoting Ford Motor Co., 141 S.Ct. at 1024). The requirements to exercise specific jurisdiction are satisfied if the defendant purposefully avails itself of the privilege of conducting activities in the forum state, and the suit arises out of or relates to the defendant's contacts with the forum. Id. at 8-9 (internal citations and quotations omitted). When analyzing specific jurisdiction, we focus on the relationship between the forum, the defendant, and the litigation. Bell, 549 S.W.3d at 559; Moncrief Oil Int'l, 414 S.W.3d at 150. There must be a substantial connection between the defendant's Texas contacts and the operative facts of the litigation. Moncrief Oil Int'l, 414 S.W.3d at 156 (quoting Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 585 (Tex. 2007)). We analyze the defendant's jurisdictional contacts on a claim-by-claim basis. Id. at 150.
The personal jurisdiction inquiry involves a burden-shifting analysis. Bell, 549 S.W.3d at 559; Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex. 2010). The plaintiff bears the initial burden to plead allegations sufficient to confer jurisdiction. Luciano, 625 S.W.3d at 8; Fuji Elec. Co. v. Perez, 615 S.W.3d 508, 521 (Tex. App.-Houston [1st Dist.] 2020, no pet.) (stating that trial court may consider plaintiff's original pleadings and response to defendant's special appearance in determining whether plaintiff satisfied initial burden). Once the plaintiff has done so, the burden shifts to the defendant to negate all alleged bases of jurisdiction. Luciano, 625 S.W.3d at 8.
The defendant may negate the jurisdictional allegations on either a legal or factual basis. Kelly, 301 S.W.3d at 659. Factually, the defendant can present evidence demonstrating that it has no contacts with Texas, "effectively disproving the plaintiff's allegations." Fuji Elec. Co., 615 S.W.3d at 521 (quoting Kelly, 301 S.W.3d at 659). Legally, the defendant can negate jurisdiction by showing, for example, that the defendant's contacts with Texas fall short of purposeful availment or that the plaintiff's claims do not arise from or relate to the contacts. Kelly, 301 S.W.3d at 659.
B. Whether Technox Is Subject to Specific Jurisdiction
1. Whether Technox Purposefully Availed Itself of Conducting Business in Texas
The facts in this case are undisputed. In 2018, K&S began importing oil and gas products manufactured by Sunwoo, including treating irons, for BOSS. BOSS is located in the Houston area. BOSS submitted multiple purchase orders for products, and Sunwoo shipped those products to BOSS in Texas. Over the course of their business relationship, Sunwoo shipped millions of dollars' worth of products to BOSS. By early 2019, BOSS owed more than $3.5 million to Sunwoo, and it did not fully pay its outstanding balance.
In March 2019, while BOSS allegedly owed millions to Sunwoo, Engrave, an Indian company, acquired BOSS and its assets and liabilities for $250,000. BOSS became a wholly owned subsidiary of Engrave. Legnon, an officer of BOSS, undisputedly acquired a controlling 50% ownership interest in Engrave for "nominal value." Engrave changed its name to Technox at that time. Legnon became Technox's president. He does not, however, run Technox's daily operations.
BOSS admitted that Sunwoo's product drawings had been provided to Legnon at the time he owned an interest in Engrave; thus, the drawings were simultaneously disclosed to BOSS and Engrave. Legnon testified that Sunwoo's agent at K&S "openly gave [Legnon] documents knowing that, you know, that Engrave was BOSS."
In jurisdictional discovery, BOSS admitted that Engrave began supplying BOSS with manufactured products by March 2019. BOSS also admitted that it is the "exclusive U.S. retailer for Engrave's manufactured goods." Technox made similar admissions in its jurisdictional discovery responses. Specifically, Technox admitted that it manufactures treating irons; BOSS provided information to Technox concerning the manufacture of treating irons; it sells products to BOSS; it ships products to BOSS in Texas; BOSS resells the products sold to it by Technox "to at least some customers located in Texas"; and BOSS is the "exclusive" retailer of Technox's manufactured products in Texas and the United States.
In his deposition, Legnon testified that Technox manufactures treating irons and it does so "only" for BOSS. Legnon did not believe that a written agreement between BOSS and Technox existed concerning the sale of Technox's products "because of the simple fact that Technox owns BOSS." According to Legnon, Technox did not have any employees in the United States, but he also testified that, "at the end of the day, we're all Technox employees." Legnon agreed that BOSS is the exclusive retailer for Technox's products and Technox "couldn't sell products to anyone else unless [Legnon] said so." Legnon testified that BOSS's monthly sales average around $350,000, and he agreed that "[t]hose are all goods manufactured by Technox." The money BOSS received from sales "ultimately pays for all the products that comes out of Technox."
In his deposition, Dhawan testified that Technox "manufacture[s] the products for Jason [Legnon] in the U.S." Dhawan testified that Legnon told him that "[i]t is [Legnon's] company who is making the products that he wants to sell in the U.S."
On its website, Technox states that it is "a BOSS Solution company manufacturing Oil and Gas flow line equipments, marketing its product under the brand name BOSS." Technox further states that it has a manufacturing facility in Haridwar, India, and a "stocking warehouse" in Houston.
We agree with Sunwoo that the jurisdictional evidence demonstrates that Technox established minimum contacts with Texas and purposefully availed itself of the privileges of doing business here. Contrary to Technox's characterization of the evidence, Technox does more than maintain a subsidiary in Texas and ship "some product" to Texas. Instead, Technox acquired BOSS, a Texas company, and purchased its assets and liabilities. BOSS is Technox's "exclusive" retailer for the Texas and United States markets. BOSS resells Technox's products to "at least some customers in Texas." Technox does not ship the products that it manufactures to any other retailers. BOSS's monthly sales figures are driven entirely by Technox products.
This evidence establishes that this is not a case where Technox products ended up in Texas by happenstance. Instead, Technox (as Engrave) purchased a Texas entity and its assets, creating a relationship in which that Texas entity acts as the "exclusive" retailer for Technox products in the Texas and United States markets. This case is thus similar to Cornerstone Healthcare Group Holding, Inc. v. Nautic Management VI, L.P., 493 S.W.3d 65, 73-74 (Tex. 2016), in which the Texas Supreme Court held that nonresident private-equity funds were subject to specific jurisdiction for claims arising out of the purchase of a chain of Texas hospitals even though the purchase was accomplished through several levels of subsidiaries. The funds "targeted Texas assets in which to invest and sought to profit from that investment." Id. at 73. The funds therefore had "purposeful" contacts with Texas and sought "some benefit, advantage, or profit by availing [themselves] of the jurisdiction such that they impliedly consented to suit here." Id. (quotations omitted).
Likewise, this case is similar to Spir Star AG. In that products liability case, the Texas Supreme Court held that when an out-of-state manufacturer specifically targets Texas as a market for its products, the manufacturer is subject to products liability suits in Texas based on the product sold here, even if sales of the product are conducted through a distributor or affiliate located in Texas. See Spir Star AG, 310 S.W.3d at 874. "In such cases, it is not the actions of the Texas intermediary that count, but the actions of the foreign manufacturer who markets and distributes the product to profit from the Texas economy." Id.
Technox's purchase of BOSS and the exclusive retailer arrangement between the companies creates a continuing relationship between Technox and Texas. Technox deliberately reached out beyond its home state of India to exploit and serve the Texas market. See Ford Motor Co., 141 S.Ct. at 1025; see also Luciano, 625 S.W.3d at 9 ("Where the defendant has 'deliberately' engaged in significant activities within a state, he 'manifestly has availed himself of the privilege of conducting business there.'") (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76 (1985)); Moncrief Oil Int'l, 414 S.W.3d at 151 ("[S]ellers who reach out beyond one state and create continuing relationships and obligations with citizens of another state are subject to the jurisdiction of the latter in suits based on their activities.") (quotations omitted). We conclude that Technox's contacts with Texas were purposeful-not random, fortuitous, or attenuated-and were directed at seeking a benefit, advantage, or profit from Texas. See Bell, 549 S.W.3d at 559.
2. Whether Sunwoo's Claims Arise Out of or Relate to Technox's Texas Contacts
a. Sunwoo's Fraudulent Transfer Claim
Sunwoo alleged that Legnon knew that BOSS owed millions of dollars in overdue payment obligations to Sunwoo, but he sold BOSS to Engrave/Technox in March 2019 for $250,000. As part of this transaction, BOSS allegedly transferred all its assets, including "cash, inventory, accounts receivable, and proprietary information," but it did not receive reasonably equivalent value for this purchase. Legnon also allegedly acquired a controlling 50% ownership interest in Technox for "nominal value."
TUFTA provides that:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or within a reasonable time after the transfer was made or the
obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
(A) was engaged or was about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(B) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.
TEX. BUS. & COM. CODE § 24.005(A); see also id. § 24.002(3), (4) (defining "claim" as "a right to payment or property" and "creditor" as person "who has a claim"). Without an asset, no fraudulent transfer can occur under TUFTA. Retamco Operating, 278 S.W.3d at 341. TUFTA creates liability against "the person for whose benefit the transfer was made" and against "the first transferee of the asset" and "any subsequent transferee." Trigeant Holdings, Ltd. v. Jones, 183 S.W.3d 717, 726 (Tex. App.-Houston [1st Dist.] 2005, pet. denied).
In arguing that the trial court does not have specific jurisdiction over Sunwoo's fraudulent transfer claim, Technox contends that Sunwoo presented no evidence of BOSS's value at the time of the transfer, and thus Sunwoo did not establish that BOSS made the transfer to Technox without receiving reasonably equivalent value. See, e.g., First Nat'l Bank of Seminole v. Hooper, 104 S.W.3d 83, 86 (Tex. 2003) (noting that TUFTA allows "transfers to secure pre-existing debt as long as reasonably equivalent value is given for the asset that is transferred"). Technox also argues that Sunwoo failed to prove that a transfer of an asset occurred.
It is undisputed that Technox purchased BOSS and its assets for $250,000. However, whether this amount constitutes "reasonably equivalent value" relates to the merits of Sunwoo's fraudulent transfer claim, an inquiry that we do not undertake at the special appearance stage. See Moncrief Oil Int'l, 414 S.W.3d at 156 n.15 (stating that resolution of "merits issue," such as whether information received constitutes trade secrets, is "inappropriate at the jurisdiction stage"); see also Searcy v. Parex Res., Inc., 496 S.W.3d 58, 70 (Tex. 2016) (stating that courts must not equate jurisdictional inquiry with underlying merits of claim). We therefore need not address whether Sunwoo failed to present evidence that BOSS did not receive "reasonably equivalent value" when it transferred its assets to Engrave/Technox.
Sunwoo alleged that Technox received a transfer of BOSS-a Texas company-and BOSS's assets and liabilities at a time when BOSS allegedly owed millions of dollars to Sunwoo. As stated above, in response to Technox's special appearance, Sunwoo presented undisputed evidence that Technox (known as Engrave at the time) purchased BOSS, its assets, and its liabilities, for $250,000 in March 2019. At the same time, Legnon acquired a controlling interest in Engrave for a "nominal value," and Engrave changed its name to Technox.
"Without an asset, no fraudulent transfer can occur under the UFTA." Retamco Operating, 278 S.W.3d at 341. Proof of the asset transfer, as well as the valuation of the transferred assets, will be critical to Sunwoo's fraudulent transfer claim at trial. See TEX. BUS. & COM. CODE § 24.005(A); Retamco Operating, 278 S.W.3d at 341. Here, the assets allegedly fraudulently transferred are BOSS itself and all the assets that it owned. BOSS is a Texas company. The property involved in an allegedly fraudulent transfer is "an operative fact" of a fraudulent transfer claim, "or at the very least," the property "will have a substantial connection to the operative facts." See Retamco Operating, 278 S.W.3d at 340 (concluding that contacts were sufficient to demonstrate that alleged tort of fraudulent transfer occurred at least in part in Texas where defendant allegedly "received transfer of Texas real property from a Texas resident"); Trigeant Holdings, 183 S.W.3d at 72728 (concluding that specific jurisdiction existed when defendants, in Houston, allegedly purchased 100% equitable ownership of company entitling them to equitable ownership of Texas refinery owned by company and any proceeds from refinery, "the very assets at issue in this case").
Technox cites the Texas Supreme Court's decision in Bell as support for its argument that specific jurisdiction requires "more than just allegations that a fraudulent transfer involving a foreign defendant occurred in Texas." In Bell, the Texas Supreme Court held that Texas could not exercise specific jurisdiction over the plaintiff's fraudulent transfer claim, which involved the transfer of proceeds from the sale of a Texas property to a Louisiana resident. See 549 S.W.3d 560-65. In so holding, the court specifically distinguished Retamco Operating and this Court's decision in Trigeant Holdings, stating that both of those cases "involve the transfer of Texas-based assets to an out-of-state defendant, rather than the transfer of money, a fungible asset." Id. at 563-64. "[T]he determining facts in both cases were not simply the allegedly fraudulent transfers, but instead the transfers of Texas-based business operations and real property, which derive profit from Texas and create continuing connection with the state." Id. at 564.
The Texas Supreme Court noted that Bell "might have mirrored" Retamco Operating and Trigeant Holdings if Bell had transferred an interest in the Texas property itself to the out-of-state defendant. Id. Instead, Bell "transferred a fungible asset-money-with no continuing presence in Texas." Id. This case, which involves the alleged fraudulent transfer of BOSS, a Texas company with continuing operations in Texas, is more analogous to Retamco Operating and Trigeant Holdings than to Bell.
We conclude that there is a substantial connection between Technox's Texas contacts-acquisition of a Texas company that acts as Technox's exclusive retailer of Technox's manufactured products in Texas and the United States-and the operative facts of Sunwoo's fraudulent transfer claim. See Moncrief Oil Int'l, 414 S.W.3d at 156. We hold that the trial court properly determined that it could exercise specific jurisdiction over Sunwoo's fraudulent transfer claim.
b. Sunwoo's Misappropriation of Trade Secrets Claims
Sunwoo alleged that it owned trade secrets "in the know-how, techniques, methods, schematics, designs, manufacturing processes, supplier and vendor lists, and other engineering information used to create its oil and gas products." It further alleged that Technox had acquired its trade secrets through improper means after BOSS, Legnon, and Dhawan induced Sunwoo to disclose its trade secrets by misrepresenting that they could assist Sunwoo in obtaining contracts with large oil and gas companies. Technox allegedly used Sunwoo's trade secrets to manufacture the same products that Sunwoo manufactures. Technox ships these products to BOSS, its "exclusive retailer," in Texas for resale in the Texas and United States markets. Sunwoo alleged that it has been harmed by Technox's actions because Technox competes for the same customers as Sunwoo and can offer the products for sale at a lower price because it "spent no money developing the products."
To establish a claim for misappropriation of trade secrets, the plaintiff must show (1) the existence of a trade secret (2) that the defendant acquired through breach of a confidential relationship or through other improper means and (3) that the secret was used without authorization, (4) resulting in damages to the plaintiff. Universal Plant Servs., Inc. v. Dresser-Rand Grp., Inc., 571 S.W.3d 346, 360 (Tex. App.-Houston [1st Dist.] 2018, no pet.); Twister B.V. v. Newton Rsch. Partners, LP, 364 S.W.3d 428, 437 (Tex. App.-Dallas 2012, no pet.).
Liability for misappropriation of trade secrets "may be premised on disclosure or use of the secret." Twister B.V., 364 S.W.3d at 438; see TEX. CIV. PRAC. &REM. Code § 134A.002(3)(B) (defining "misappropriation" in Texas Uniform Trade Secrets Act). "Use" of a trade secret means "commercial use by which the offending party seeks to profit from the use of the secret." Sw. Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 722 (Tex. 2016); see Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444, 450-51 (5th Cir. 2007) ("As a general matter, any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant is a 'use' ....") (quoting RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 40 cmt. c (AM. LAW INST. 1995)). “[N]o statute or case law has limited liability to a trade secret's ‘first use.'” Twister B.V., 364 S.W.3d at 439. Additionally, liability for use of a trade secret is not "limited to one type of use- rather, liability for using a trade secret may be created in multiple ways." Id.
Technox contends that Texas courts may not exercise specific jurisdiction over Sunwoo's misappropriation of trade secrets claim because there is no substantial connection between that claim and Technox's Texas contacts. Technox argues that, even if Sunwoo's allegations are true, no actions relevant to Sunwoo's misappropriation claim occurred in Texas. Sunwoo is a South Korean company and Technox is an Indian company. Sunwoo's trade secrets were located in South Korea. Technox therefore argues that any alleged misappropriation of the trade secrets would have occurred in South Korea when Legnon and Dhawan audited Sunwoo's facilities, and any use of the trade secrets would have occurred in India, where Technox's manufacturing facility is located.
We do not agree that "use" of the trade secrets is as narrowly defined as Technox contends. The Dallas Court of Appeals' opinion in Twister B.V. v. Newton Research Partners is instructive. In that case, Newton alleged that one of its partners disclosed trade secrets to a division of Shell, which then allegedly disclosed the trade secrets to an affiliate and other companies including Twister, a company based in the Netherlands. See Twister B.V., 364 S.W.3d at 432. Twister allegedly used the trade secrets in its oil and gas products, which it "marketed and sold . . . in Texas and elsewhere." Id. Twister, in arguing that it was not subject to specific jurisdiction in Texas for Newton's misappropriation of trade secrets claim, contended its alleged use of the trade secrets occurred when the secrets were acquired and the products were manufactured in the Netherlands. Id. at 437. According to Twister, its marketing and sales contacts in Texas had no connection to the operative facts of the misappropriation claim because those contacts "did not create its liability." Id. at 437.
The Dallas Court disagreed with Twister and concluded that Newton's misappropriation claim was substantially connected to Twister's Texas contacts. Newton had alleged that Twister misappropriated its trade secrets by using them in Twister's oil and gas products, which Twister "offers for sale and sells these products in Texas." Id. at 439. The focus of the trial on Newton's misappropriation claim would include issues related to Twister's acquisition of the trade secrets and its incorporation of the trade secrets into its own products-acts that allegedly occurred in the Netherlands. Id. at 439-40. The trial would also, however, focus on "acts of Twister in Texas, such as how Twister allegedly used or disclosed the trade secrets through marketing and sales in Texas." Id. at 440. The Dallas Court declined to limit liability for use of a trade secret to the "first unauthorized use" of a trade secret, i.e., the alleged use of the trade secret through research, development, or manufacturing, which occurred in the Netherlands. Id. at 438-39. The court stated that "[w]hile the first unauthorized use of a trade secret may serve as one jurisdictional fact, that use does not preclude other uses from creating other jurisdictional facts." Id. at 439.
The court concluded that "[r]egardless of the merits of" Newton's allegations that Twister used or disclosed the trade secrets by marketing and selling products in Texas, "these alleged acts support liability for a misappropriation of trade secrets claim." Id. at 440. The court held that the operative facts of Newton's misappropriation claim were substantially connected to Twister's Texas contacts, and the trial court therefore properly denied Twister's special appearance with respect to that claim. Id.
Similarly, here, the trial on Sunwoo's misappropriation claim will involve issues related to Legnon's and Dhawan's alleged acquisition of Sunwoo's trade secrets in South Korea as well as Technox's alleged incorporation of those trade secrets into manufacture of its own oil and gas products at its facility in India. Sunwoo alleged that Technox used Sunwoo's trade secrets to manufacture its products, which it ships to BOSS in Texas. Sunwoo alleged that BOSS is Technox's "exclusive retailer" in Texas and the United States. Sunwoo alleged that Technox competes for the same customers as Sunwoo and that Technox is able to offer its products for sale at a lower price than Sunwoo because it does not have to account for development costs.
Sunwoo presented evidence to support these allegations. BOSS admitted that when Sunwoo provided product drawings to Legnon, Legnon had a 50% interest in Engrave (which later changed its name to Technox), and "the drawing was disclosed to Engrave simultaneously." In his deposition, Legnon agreed that the products Sunwoo had supplied to BOSS "are similar products to products that are produced at Boss Solutions."
In its responses to requests for admissions, Technox admitted that (1) it sells products to BOSS; (2) it ships products to BOSS in Texas; (3) BOSS "resells the products sold to it by Technox to at least some customers located in Texas"; and (4) Technox and BOSS have an "exclusive" relationship in which BOSS is the retailer for Technox's manufactured products in Texas and the United States. Legnon testified that Technox only manufactures products for BOSS. Legnon also agreed that BOSS is the exclusive retailer for Technox's products because Technox owns and controls BOSS, and Technox "couldn't sell products to anyone else unless [Legnon] said so." Legnon also testified that BOSS averages around $350,000 in monthly sales, and he agreed that those sales "are all goods manufactured by Technox." He further stated, "It's Boss's sales money that ultimately pays for all the products that comes out of Technox."
Sunwoo alleged and presented evidence that Technox improperly uses its trade secrets not merely by incorporating the trade secrets into Technox's products, but also by selling those products through BOSS to at least some Texas customers. These sales form the basis of Technox's income. Technox does not sell its products through any other retailer. See Moncrief Oil Int'l, 414 S.W.3d at 153 (concluding that out-of-state defendants' contacts relating to misappropriation of trade secrets claim were purposeful and substantial "because their activity 'was aimed at getting extensive business in or from the forum state'") (quoting Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 789-90 (Tex. 2005)).
Although acts occurring in South Korea and India are relevant to Sunwoo's misappropriation of trade secrets claim, acts occurring in Texas are also relevant to that claim. Sunwoo alleged and presented evidence that Technox "used" Sunwoo's trade secrets by shipping its products-containing the allegedly misappropriated trade secrets-to Texas for sale by BOSS to Texas and United States customers. See Sw. Energy Prod. Co., 491 S.W.3d at 722 (defining "use" of trade secret); Twister B.V., 364 S.W.3d at 438-39. We therefore conclude that Sunwoo demonstrated that the operative facts of its misappropriation claim are substantially connected to Technox's Texas contacts. See Moncrief Oil Int'l, 414 S.W.3d at 156; Twister B.V., 364 S.W.3d at 439-40. We hold that the trial court properly concluded that Technox is subject to specific jurisdiction on Sunwoo's misappropriation of trade secrets claim and therefore properly denied Technox's special appearance on this claim.
Due process requires that an out-of-state defendant have minimum contacts with the forum state such that maintenance of the suit does not offend traditional notions of fair play and substantial justice. See Luciano v. SprayFoamPolymers.com, LLC, 625 S.W.3d 1, 8 (Tex. 2021). On appeal, Technox does not argue that exercising jurisdiction over it would "offend traditional notions of fair play and substantial justice." We note that the Texas Supreme Court has stated that if a nonresident has minimum contacts with Texas, "rarely will the exercise of jurisdiction over the nonresident not comport with traditional notions of fair play and substantial justice." Moncrief Oil Int'l Inc. v. OAO Gazprom, 414 S.W.3d 142, 154-55 (Tex. 2013). Similarly, this Court has held that the defendant "bears the burden of presenting a compelling case that exercising jurisdiction over him would not be fair and just." Cappuccitti v. Gulf Indus. Prods., Inc., 222 S.W.3d 468, 480 (Tex. App.-Houston [1st Dist.] 2007, no pet.) (internal quotation marks omitted). Technox has not attempted to meet that burden here.
We overrule Technox's sole issue.
Because we conclude that Technox is subject to specific jurisdiction on Sunwoo's fraudulent transfer and misappropriation of trade secrets claims, we need not address whether Technox is subject to general jurisdiction or whether Technox and BOSS are alter egos such that BOSS's Texas contacts can be imputed to Technox. See TEX. R. APP. P. 47.1 (stating that court of appeals must hand down opinion that "addresses every issue raised and necessary to final disposition of the appeal"); Citrin Holdings, LLC v. Minnis, 305 S.W.3d 269, 279 (Tex. App.-Houston [14th Dist.] 2009, no pet.) (stating that court need not address general jurisdiction if it finds that defendant is subject to specific jurisdiction). Similarly, because we affirm the trial court's order denying Technox's special appearance, we need not remand the case to the trial court for Sunwoo to pursue its requested jurisdictional discovery.
Conclusion
We affirm the trial court's order denying Technox's special appearance.