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holding that when an alleged tort claim is predicated entirely on an underlying contract claim, if minimum contacts were insufficient to support specific jurisdiction over the contract claim, they are equally insufficient to support specific jurisdiction over the tort claim
Summary of this case from My Fabric Designs, Inc. v. F+W Media, Inc.Opinion
Civil Action No. 3:00-CV-1871-M.
August 3, 2001.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Dr. Suh's Motion to Dismiss for Lack of Personal Jurisdiction, filed September 20, 2000, his brief in support thereof, the Response and supporting brief, the Reply, supporting evidence, a Request for Court to Take Judicial Notice of New Authority, and a Response thereto. Plaintiff Goodworth Holdings, Inc. ("Goodworth") is a Texas corporation with its principal place of business in Dallas, Texas; its business is the management of assets. The only identified Defendant, Dr. M.W. Suh ("Dr. Suh"), is a Korean citizen who currently resides in Seoul, Korea. Goodworth alleges the breach of an oral joint venture agreement to pursue the purchase of shares of GG Telecom ("GNG"), a Korean telecommunications firm, from the Daehan Oil Pipeline Company ("DOPCO"), which was owned by the Korean government. Dr. Suh moves to dismiss this case for lack of personal jurisdiction, arguing that (1) no joint venture agreement ever existed; and (2) Defendant's contacts with the state of Texas are insufficient to establish personal jurisdiction over him in Texas. Having considered the record and the applicable law, for the reasons stated below, the Court GRANTS that portion of Defendant's Motion to Dismiss asking this Court to determine it has no personal jurisdiction over him, but transfers the entire case to the Northern District of California.
I. Background
In 1997, Dr. Suh lived in Monterey, California. While working as an independent consultant for a Korean corporation, LG Card Ltd., Dr. Suh twice visited Texas, once in June 1997 and again in August 1997. In 1998, Dr. Suh performed consulting work for CSC Financial Services ("CSC"), a Nevada corporation. For his work, he routinely mailed invoices to John Norman in CSC's Dallas office. Dr. Suh spent two days in Dallas in January 1998, in connection with his consulting work for CSC. Those visits were completely unrelated to the events involved in Plaintiff's suit.
In late 1998, while Mr. Norman, acting for CSC, was visiting Dr. Suh in California, they discussed the potential for a purchase of GNG stock. In June 1998, Dr. Suh, then in California, sent a facsimile about the GNG investment opportunity to a potential investment partner in Texas, Chris Ainsworth, President of Goodworth, whose name he had been given by Mr. Norman. On a later visit to California, Mr. Norman, accompanied by Mr. Ainsworth, discussed the GNG investment with Dr. Suh. Plaintiff alleges that throughout November and December 1998, Dr. Suh, Mr. Ainsworth, and Mr. Norman remained in contact about the GNG investment. Plaintiff further alleges that eventually an oral agreement was reached, whereby Dr. Suh, Mr. Norman, and Mr. Ainsworth, acting on behalf of Goodworth, agreed to participate equally in any venture capital acquisition of GNG's stock. Goodworth was to locate and introduce Dr. Suh to potential investors.
In February 1999, Mr. Norman contacted Dr. Suh in California and requested that Dr. Suh develop a business plan for GNG that Mr. Ainsworth could present to Hambrecht Quist ("HQ"), a California investment bank. Dr. Suh prepared such a plan, and sent it by e-mail to Goodworth's attorney, Joseph Galda, in Philadelphia, Pennsylvania.
On March 11, 1999, Mr. Galda e-mailed to Dr. Suh, in California, a letter and draft proposal for the joint venture agreement regarding the potential venture capital acquisition of GNG's stock. The letter proposed a telephone call for the next day to review the proposal, and expressly stated that if the proposal was not accepted by both parties by 5:00 P.S.T. on March 12, 1999, it would no longer be in effect. On March 12, 1999, Dr. Suh, in his California office, participated in the call, with Chris Ainsworth, Richard Ainsworth, (Chris's father), and Mr. Galda, acting as attorney for Goodworth. A dispute arose, and the proposal was never expressly accepted by all parties.
Shortly thereafter, Mr. Galda is alleged to have contacted Dr. Suh in California, to inform him that Richard Ainsworth, the owner of Goodworth, had objected to Goodworth's proposal, and that Mr. Galda would no longer be involved. Dr. Suh had no further contact with Mr. Galda, the Ainsworths, or anyone representing Goodworth.
Shortly after the March 12, 1999 call, Mr. Norman contacted Dr. Suh, in California, and told him that Mr. Norman and Mr. Ainsworth would be presenting the business plan Dr. Suh prepared to HQ. Sometime in April of 1999, Dr. Suh allegedly told Mr. Norman that the opportunity for investment in GNG had ended, and Dr. Suh had no further contact with Mr. Norman.
II. Pleading Requirements
To assert personal jurisdiction over a nonresident defendant, two preconditions must be satisfied: (1) the nonresident must be amenable to service of process under the Texas long-arm statute; and (2) the exercise of jurisdiction under Texas law must be consistent with due process. Holt Oil Gas Corp. v. Harvey, 801 F.2d 773, 777 (5th Cir. 1986). The Texas long-arm statute authorizes the exercise of jurisdiction over those who do business in Texas, which includes contracting with a Texas resident where either party is to perform the contract in whole or in part in Texas, or committing a tort in Texas. Tex. Civ. Prac. Rem. Code § 17.042.
The burden of establishing the district court's personal jurisdiction over the defendant rests on the plaintiff. D.J. Investments, Inc. v. Metzeler Motorcycle Tire Agent Gregg, Inc., 754 F.2d 542, 545 (5th Cir. 1985). To satisfy that burden, the plaintiff must present only a prima facie case. Any genuinely disputed issues of material fact must be resolved in the plaintiff's favor. Id.
III. Analysis and Decision
The Texas long-arm statute extends to the limits of due process under the United States Constitution. Guardian Royal Exchange Assur., Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991). Therefore, this Court must determine whether the assertion of jurisdiction over Dr. Suh in this case is constitutionally permissible. Due process limitations mandate that the Court consider: (1) whether Dr. Suh "purposefully availed himself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws;" and if so, (2) whether the exercise of jurisdiction comports with "fair play and substantial justice." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76. Furthermore, because Plaintiff argues that this Court has jurisdiction over Dr. Suh based on the alleged oral agreement, due process requires that Plaintiff "present prima facie evidence that (1) a contract to be performed in whole or in part within Texas existed between it and [defendant] and (2) the present suit arose out of that contractual agreement. Hydrokinetics, Inc. v. Alaska Mechanical, Inc., 700 F.2d 1026, 1027, fn. 1 (quoting Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 490-91 (5th Cir. 1974)).
A. Purposeful Availment
To establish the formation of a contract in Texas, Plaintiff must show: (1) an offer; (2) an acceptance; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution and delivery of the contract with the intent that it be mutually binding. Copeland v. Alsobrook, 3 S.W.3d 598, 604 (Tex.App.-San Antonio 1999, writ ref'd). Dr. Suh argues that Goodworth has failed to establish that a contract existed between the parties. Specifically, Dr. Suh argues that no written contract was ever formed, as evidenced by the draft proposal (with an automatic expiration term), which Dr. Suh never accepted.
On the other hand, Plaintiff argues that the parties had an oral agreement to participate equally in any venture capital acquisition of GNG's stock. Plaintiff further argues that it acted in accordance with that oral agreement in attempting to recruit investors for the acquisition.
Plaintiff has not shown a written contract between the parties. The draft proposal expired of its own terms. However, Plaintiff has made a prima facie showing of an oral contract for a joint venture between Plaintiff and Dr. Suh ("the Contract"). The next step in determining if jurisdiction lies in Texas requires a determination of (1) the place of contractual performance; and (2) the place of contracting and the law governing the contract. Jones v. Petty-Ray Geophysical, Geosource, Inc., 954 F.2d 1061, 1068 (5th Cir. 1992).
To establish the existence of a joint venture agreement, Plaintiff must prove the following elements: (1) a community of interest in the venture/partnership; (2) an agreement to share profits; (3) an agreement to share losses; and (4) a mutual right of control or management of the enterprise. See FDIC v. Claycomb, 945 F.2d 853, 858 (5th Cir. 1991). Although Defendant alleges that Plaintiff admits the Contract contemplated no sharing of losses between Goodworth and Dr. Suh, Plaintiff's Response states that Plaintiff and Defendant were to share equally in profits and losses under the alleged Contract. See Plaintiff's Response, ¶ 25.
1. Place of Contractual Performance
The Fifth Circuit has stated that the place of contractual performance is relevant in determining whether minimum contacts exist which satisfy due process requirements. Id. Under the terms of the alleged Contract, Dr. Suh's performance would have occurred in Korea and California. Specifically, Dr. Suh was to seek Korean government approval for a private purchase of the GNG stock. The only Texas activity contemplated by the alleged Contract was unilateral activity by Goodworth in soliciting investors. Plaintiff alleges that it solicited investors in both Texas and California. The Fifth Circuit has held that such unilateral activity is not sufficient in and of itself as a basis for personal jurisdiction over a nonresident defendant. See Jones, 954 F.2d at 1068-69. See also Barnstone v. Congregation Am Echad, 574 F.2d 286,288 (5th Cir. 1978) (holding that architect's work on drawings and models in the state of Texas for a synagogue in Maine constituted unilateral performance, and did not satisfy the requirement of contact by the defendant synagogue with the forum state). Here, Plaintiff's unilateral activities in Texas are not sufficient to bring Dr. Suh within this Court's jurisdiction.
2. Place of Contracting and Law Governing Contract
Two additional relevant factors in determining if Defendant engaged in purposeful activity in Texas are the place of contracting and the law governing the contract. See Southwest Offset, Inc. v. Hudco Publishing Co., 622 F.2d 149, 152 (5th Cir. 1980). The evidentiary record establishes that negotiations for the Contract took place over the phone or via facsimile between Goodworth, in Texas, and Dr. Suh, in California. The Fifth Circuit has held that the exchange of communications via telephone or fax are "insufficient to be characterized as purposeful activity invoking the benefits and protection of the forum state's laws." Hydrokinetics, Inc. v. Alaska Mechanical, Inc., 700 F.2d 1026 (5th Cir. 1983); accord, Dominion Gas Ventures, Inc. v. N.L.S., Inc., 889 F. Supp. 265, 268-69 (N.D. Tex. 1995).
No evidence was submitted by either party as to what law was to govern the alleged Contract. Presumably, this Court would apply California or Texas law, but the evidentiary record is insufficient for the Court to determine that issue at this time.
It is undisputed that Dr. Suh never came to Texas for discussions relating to the GNG investment. Since the telephone and facsimile communications are insufficient to show that any part of the negotiations for the Contract took place in Texas, this factor also does not establish the existence of that purposeful activity by Dr. Suh which is required to satisfy due process.
3. Additional Factors
Defendant argues that two additional factors are relevant in determining purposeful activity: (1) whether the nonresident initiated contract negotiations or solicited the Texas contract; and (2) the contemplated future consequences of the contract.
a. Initiation of Contract Negotiations
In determining if the defendant engaged in purposeful activity in the state, courts may also look to whether the nonresident initiated contract negotiations or solicited the contract. See, e.g., Burger King, 471 U.S. at 479; Beechem v. Pippin, 686 S.W.2d 356, 361-62 (Tex.App.-Austin 1985, no writ); 3-D Electric Co., Inc. v. Barnett Constr. Co., 706 S.W.2d 135, 142 (Tex.App.-Dallas 1986, writ ref'd n.r.e.). Plaintiff contends that Dr. Suh contacted Mr. Ainsworth via facsimile, thus initiating contract negotiations. This disputed fact must be resolved in Plaintiff's favor, but the Court concludes that that single contact of Dr. Suh with Texas is insufficient to meet due process requirements.
b. Future Consequences of Contract
Another factor for this Court's consideration in determining whether purposeful activity is present is the anticipated future consequence of the alleged Contract in Texas. See Burger King, 471 U.S. at 479. The only future consequence in Texas alleged by Plaintiff is unilateral activities, such as obtaining investors, to be performed by Good worth, possibly in Texas. As Defendant notes, this situation is the converse of the scenario in Burger King, where the nonresident defendant "entered into a carefully structured 20-year relationship that envisioned continuing and long-reaching contacts with [the plaintiff] in Florida." See id. at 480-81.
4. Tort Claims
In addition to its claim for breach of contract, Plaintiff alleges tort claims for breach of fiduciary duty, misrepresentation and deceit, and for violations of the Texas Securities Act. When an intentional tort is alleged, a single act by a defendant may be enough to confer personal jurisdiction, if the claim arises from that act. See Lewis v. Fresne, 2001 WL 506138, No. 99-20389 (5th Cir. May 14,2001) (holding that asserting allegedly false statements via telephone to Texas, and mailing of loan documents and stock certificates containing allegedly false statements to Texas constituted evidence of minimum contacts which supported personal jurisdiction). Nevertheless, when, as here, tort claims are dependent on the underlying contract claim, and the contacts with the forum do not actually give rise to the causes of action ( e.g., no fraudulent statements are alleged to have been made to Plaintiff in Texas), then those contacts, which are insufficient to constitute a basis for exercising general jurisdiction, are insufficient to constitute facts supporting specific jurisdiction over the tort claim. See Leonard v. USA Petroleum Corp., 829 F. Supp. 882, 890 (S.D. Tex. 1993); Colwell Realty Invest., Inc. v. Triple T Inns, Inc., 785 F.2d 1330, 1335 (5th Cir. 1986) ("The jurisdictional analysis must focus on whether USA Petroleum [Dr. Suh] directed its [his] action toward Texas.").
Without the alleged contract, Plaintiff could have no tort claims for breach of fiduciary duty, misrepresentation and deceit, or Texas Securities Act violations. The tort claims came into existence, if at all, only when Dr. Suh announced in April 1999 that a "lock-up" precluded bids for GNG. This statement, which Plaintiff alleges to be false, appears to have been communicated to Norman, in person in California. See Norman Affidavit, ¶ 11. The affidavits of Norman and Ainsworth do not connect that statement to Texas.
Plaintiff cites Collins v. Gospocentric Records, 2001 WL 194985, No. 00-1813 (N.D. Tex. Feb. 22, 2001), in support of its argument that this Court has jurisdiction over Defendant based on the tort claims, because of limited acts in Texas. However, Collins and Lewis are distinguishable from the case at hand. In Collins, the defendant accused of tortiously interfering with the contract was not actually a party to the contract with the plaintiff. Therefore, the only claim at issue in determining jurisdiction in Collins was the tort claim of interference with a third party's contract. Similarly, in Lewis, the parties had no contractual relationship when the alleged misrepresentation was made.
To the contrary, in this case, Plaintiff and Dr. Suh were parties to the alleged Contract; Plaintiff's tort claims would not have arisen but for the existence of the alleged Contract and the existence of the duty it allegedly created. Compare Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 213 (5th Cir. 1999). Therefore, if jurisdiction could not be predicated upon the alleged Contract without violating due process requirements, it similarly could not be predicated on the tort claims, all of which are predicated on the alleged existence of the Contract. See Leonard, 829 F. Supp. at 890.
5. Conclusion
Dr. Suh did not purposefully avail himself of the benefits of doing business in Texas. As the Supreme Court has held, a plaintiff's contract with an out-of-state party cannot by itself establish jurisdiction over the defendant in the plaintiff's forum. See Burger King, 471 U.S. at 478. In this case, an oral contract was allegedly made between Dr. Suh and a Texas corporation. Dr. Suh did not purposefully direct his activities toward Texas; rather, he negotiated with Goodworth for him to do work in Korea. The fact that Goodworth has a Dallas office, out of which it might do work anywhere, is a mere fortuity, which is insufficient to support jurisdiction over Dr. Suh in Texas.
B. Fair Play and Substantial Justice
Because the Court holds that Dr. Suh did not purposefully avail himself of the privilege of doing business in Texas, it is not necessary to determine whether the exercise of jurisdiction over Dr. Suh in Texas would satisfy traditional notions of fair play and substantial justice. In the alternative, however, the Court concludes that exercise of such jurisdiction would not satisfy those notions. See Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
IV. CONCLUSION
For the reasons stated above, the Court GRANTS Defendant Dr. Suh's Motion to the extent he sought a determination that the Court does not have personal jurisdiction over him. However, in recent filings, Plaintiff requested, as an alternative to dismissal, that the Court transfer this case to the Northern District of California. The Court agrees that under the circumstances present here, such a transfer is appropriate, and the case is therefore transferred to the Northern District of California.