Summary
describing general and specific jurisdiction
Summary of this case from Law Firm of Donald Wochna, LLC v. Am. Frontier Mgmt., LLCOpinion
NO. 03-16-00309-CV
02-21-2018
WaterWorks Corral Creek, LLC and Saltwater Disposal Systems, LLC, Appellants v. AquaTech Saltwater Disposal LLC d/b/a Aqua Tech Water & Disposal, LLC and Eric Schmitz, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-15-001943 , HONORABLE KARIN CRUMP, JUDGE PRESIDING MEMORANDUM OPINION
In this interlocutory appeal, appellants WaterWorks Corral Creek, LLC and Saltwater Disposal Systems, LLC—both limited liability companies organized pursuant to North Dakota laws and with their principal places of business in Florida—assert that the trial court erred by denying their special appearance. WaterWorks and Saltwater (or collectively, "the WaterWorks entities") entered into a letter of intent with appellee AquaTech Saltwater Disposal LLC d/b/a Aqua Tech Water Disposal, LLC ("AquaTech") concerning AquaTech's contemplated acquisition of their saltwater disposal wells. The acquisition never occurred, and WaterWorks and Saltwater subsequently sold the wells to a different entity, NGL Energy Partners, LP. AquaTech and appellee Eric Schmitz (AquaTech's sole owner and managing member), both Texas residents, sued WaterWorks and Saltwater, alleging claims for breach of contract, tortious interference with existing contract, tortious interference with prospective business relationship, and civil conspiracy. WaterWorks and Saltwater filed a special appearance, which the trial court denied. We will reverse and render judgment granting the special appearance and dismissing WaterWorks and Saltwater from the lawsuit because we hold there is neither specific nor general jurisdiction over the WaterWorks entities for the claims asserted against them.
AquaTech and Schmitz also sued NGL Water Solutions DJ, LLC f/k/a High Sierra Water Solutions, LLC and NGL Energy Partners, LP (collectively, the "NGL Defendants") and Capital Energy Advisors, Inc. ("Capital Advisors"). None of those defendants are parties to this interlocutory appeal, so except where noted, references to "defendants" mean WaterWorks and Saltwater. Also, except where noted, references to AquaTech also include Schmitz.
BACKGROUND
Saltwater disposal wells are disposal sites for water collected as a byproduct of oil and gas production. Underground rock formations that are oil and gas reservoirs usually contain significant amounts of saltwater. The saltwater left after the oil and gas production must be carefully disposed of in a manner that will not pollute usable-quality groundwater. One method for disposing of saltwater is to inject it into other underground rock formations that do not produce oil or gas and that are isolated from usable-quality groundwater.
AquaTech is a business that focuses on owning and operating saltwater disposal wells throughout Texas. Schmitz, AquaTech's sole owner and managing member, resides in Dallas, Texas, and also maintains AquaTech's principal office there. WaterWorks and Saltwater were each formed to develop, own, and operate a single saltwater disposal well. Both wells are located in North Dakota. In his affidavit filed with WaterWorks and Saltwater's special appearance, Reece Lansberg, a manager of the two LLCs, averred that all of the LLCs' assets were located in North Dakota and that all services provided in connection with the wells had been conducted in North Dakota. The sole exception was that some of the books and records of the companies were maintained in Ohio and Florida, in addition to North Dakota.
Except where a factual dispute is noted, the facts in this section are undisputed facts taken from the parties' pleadings and the special-appearance briefing, exhibits, and affidavits presented to the trial court.
Reece Lansberg and Brent Lansberg are brothers, and Reece averred that both are managers of WaterWorks and Saltwater. For clarity, we will refer to them by their first names.
The dispute between the parties arose from negotiations of a potential purchase of the WaterWorks and Saltwater wells by AquaTech. According to AquaTech and Schmitz, they learned that WaterWorks and Saltwater had two disposal wells and other assets available for sale for $23.5 million, a price AquaTech and Schmitz considered to be "a steep discount." AquaTech and Schmitz desired to purchase these assets and then in turn planned to resell the WaterWorks and Saltwater assets along with a package of similar assets that they owned in Texas "at the fair market price of $35 million, and would retain the difference of $11.5 million."
It is unclear from the record what the fair-market value of the Texas assets was.
In September 2013, Schmitz contacted Reece about possibly purchasing the two wells, along with the lease and permit for another well and a pending permit, lease, and well bore for a fourth well (the "WaterWorks assets" or "wells"). The initial communications between Schmitz, Reece, Brent, and Steve Liebel (another member of the WaterWorks and Saltwater LLCs) were conducted exclusively by telephone and other electronic means. The initial discussions led to the execution of a letter of intent on October 6, 2013.
The letter of intent to acquire the WaterWorks assets contained a noncircumvention provision that is the basis for AquaTech and Schmitz's breach-of-contract claim against WaterWorks and Saltwater. The provision contemplated AquaTech's potential sale of the assets to third parties and accordingly provided as follows:
Non-Circumvention. [AquaTech] may elect to sell all or a portion of the Properties upon Closing to its investors, associates, or others ("Third Parties"). To further such transaction, Purchaser may introduce and identify such Third Parties to [WaterWorks and Saltwater]. [WaterWorks and Saltwater], beginning on the date of this LOI and continuing for a period of two (2) years thereafter, agrees not to contact, or initiate contact, or respond to any contact, either directly or indirectly, with any of the Third Parties, or the individuals, companies, or representatives of companies; or contacts, representatives, agents, conduits or facilitators related to any of the Third Parties, with regard to a sale of the Properties excluding persons that [WaterWorks and Saltwater] ha[ve] an existing business relationship with prior to the date of this agreement.According to AquaTech and Schmitz, this provision prohibited WaterWorks and Saltwater "from discussing a potential sale of any Available Assets [for the next two years] with any buyer that [AquaTech and Schmitz] introduced or identified."
Following the execution of the letter of intent, Reece averred that he met in North Dakota with a representative of Central Energy Partners at AquaTech's urging. Central Energy Partners was a potential buyer of the wells from AquaTech, and the Central Energy Partners representative traveled to North Dakota to view the WaterWorks assets. Then, in November 2013, Brent traveled to Dallas at AquaTech's invitation to meet with Central Energy Partners. Brent testified at his deposition that AquaTech or Schmitz purchased his plane ticket to Dallas, that he met with Central Energy Partners one afternoon, and that the meeting was for "us to get to know them; them to get to know us." In his affidavit, Reece averred that the meeting lasted approximately two hours and "was in the nature of an exploratory discussion about the [WaterWorks] and [Saltwater] disposal wells, a general discussion about the state of the Bakken area, and possible opportunities for further saltwater development in North Dakota. The meeting also included a discussion about post-closing management of the wells."
Reece further averred that all subsequent discussions involving AquaTech and Schmitz's possible purchase of the wells from the WaterWorks entities "were conducted remotely by phone or means of electronic communication." Brent testified regarding the due diligence and various draft agreements circulated between the parties that "our communication was mostly with our attorneys." He could not recall whether there were conference calls with the other parties.
In fall 2013, while negotiating to buy the wells from the WaterWorks entities, AquaTech and Schmitz had contacted Johan Themaat at NGL Water Solutions DJ, LLC f/k/a High Sierra Water Solutions ("NGL Water") about potentially purchasing the wells from AquaTech and Schmitz once they had acquired them. AquaTech and Schmitz provided NGL Water and NGL Energy Partners, LP ("NGL Energy") with financial and operational information related to the wells, and AquaTech, Schmitz, and NGL Water executed a "Mutual Confidentiality and Nondisclosure Agreement." AquaTech and Schmitz assert in their brief (without citation to the record) that an NGL officer advised them in February 2014 that NGL Water and NGL Energy were no longer interested in acquiring the wells because they did not have the resources to engage in the deal. Reece avers in his affidavit that the only prospective purchasers that were ever identified by AquaTech and Schmitz were "Central Energy Partners, BNN Energy (a Colorado company), and affiliates thereof." Although AquaTech and Schmitz assert that during the course of their negotiations with WaterWorks and Saltwater, WaterWorks and Saltwater learned that AquaTech and Schmitz were negotiating the resale of the wells to the NGL Defendants, AquaTech and Schmitz do not refute Reece's statement and Brent's deposition testimony that AquaTech and Schmitz did not identify NGL Water and NGL Energy to WaterWorks and Saltwater as prospective purchasers.
The letter of intent between the WaterWorks entities and AquaTech stated that "[t]he Parties will enter into a formal Purchase and Sale Agreements [sic] ('PSAs') for each of the two wells within thirty (30) days of the date of this Letter." The letter was executed on October 6, 2013, making November 5, 2013, the date agreed upon for executing a purchase-and-sale agreement. The term of the letter of intent was for thirty days "or until execution of the [Purchase and Sale Agreements]." The letter of intent further provided that the closing of the deal would be no more than thirty days after the expiration of the sixty-day due-diligence period, which would have been January 4, 2014. Some of the draft agreement documents circulated among the parties in late 2013 and January 2014 contemplated that Central Energy Partners would ultimately purchase the wells from AquaTech. At some point, however, Central Energy Partners dropped out of the deal. WaterWorks and Saltwater never signed a purchase-and-sale agreement with AquaTech and Schmitz, and they never closed a final deal to sell the wells to AquaTech and Schmitz. Brent testified that the WaterWorks entities did not "do the deal with AquaTech . . . [b]ecause AquaTech couldn't perform."
Brent further testified that after the sale to AquaTech did not close and Central Energy Partners was no longer a potential purchaser from AquaTech, Schmitz had "communicated with Reece and asked Reece if he could have a little bit of time to try to put a Houston group in place of Central, that he had them teed up; and they were ready to go." E-mails between Schmitz, Brent, and Reece in early May 2014 show that Schmitz had sent Brent and Reece a letter of intent between BNN Energy and AquaTech to review. In his response to Schmitz, Brent stated that he thought it made sense to negotiate certain issues at the letter-of-intent phase instead of the contract phase because those issues could be "deal breakers," further stating, "As I'm sure you appreciate, we don't want to spend more money negotiating another sale that doesn't happen." Reece averred that all discussions about selling the wells to AquaTech and Schmitz ceased in late spring 2014.
In June 2014, WaterWorks and Saltwater executed a services agreement with Capital Energy Advisors, Inc. ("Capital Advisors"), a Texas corporation. Under the terms of the agreement, WaterWorks engaged Capital Advisors to market and sell the wells. Capital Advisors approached approximately ten entities about selling the wells. In August 2014, Capital Advisors contacted Jim Winter at NGL Water to notify him that the wells were for sale. In November 2014, WaterWorks and Saltwater sold the wells to NGL Energy.
AquaTech and Schmitz filed suit in Travis County, Texas, against WaterWorks, Saltwater, NGL Water, NGL Energy, and Capital Advisors, alleging claims for breach of contract, promissory estoppel, tortious interference with existing contract, tortious interference with prospective business relationships, and civil conspiracy. In particular, they asserted that the trial court has personal jurisdiction over WaterWorks and Saltwater because they purposefully availed themselves of the privileges and benefits of conducting business in Texas by entering into a contract with Texas residents AquaTech and Schmitz that was performed in whole or in part in Texas or by committing a tort in whole or in part in Texas. See Tex. Civ. Prac. & Rem. Code § 17.042 (long-arm statute listing some activities that constitute doing business in Texas). WaterWorks and Saltwater filed a special appearance challenging the trial court's jurisdiction, and AquaTech and Schmitz filed a response opposing the special appearance. After a hearing, the trial court denied the special appearance. WaterWorks and Saltwater requested that the trial court file findings of fact and conclusions of law, but none were filed. This appeal followed.
LEGAL FRAMEWORK
Texas courts may assert jurisdiction over nonresident defendants "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); see Tex. Civ. Prac. & Rem. Code § 17.042 (Texas long-arm statute). The broad language of the Texas long-arm statute allows Texas courts to exercise personal jurisdiction over nonresident defendants to the extent permitted by the federal constitutional requirements of due process. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). Accordingly, "the requirements of the Texas long-arm statute are satisfied if an assertion of jurisdiction accords with federal due-process limitations." Moki Mac, 221 S.W.3d at 575. Thus, we rely on precedent from the United States Supreme Court as well as our own State's decisions when determining whether a nonresident defendant has met its burden to negate all bases of jurisdiction. BMC Software, 83 S.W.3d at 795.
A court's exercise of jurisdiction over nonresident defendants comports with federal due-process requirements if the nonresidents have established "minimum contacts" with the forum state and the exercise of jurisdiction "does not offend 'traditional notions of fair play and substantial justice.'" M & F Worldwide Corp. v. Pepsi-Cola Metro. Bottling Co., 512 S.W.3d 878, 885 (Tex. 2017) (quoting Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014) (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945))). We focus on the nonresident defendants' activities and expectations when deciding whether it is proper for a Texas court to exercise jurisdiction over them. Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338 (Tex. 2009) (citing International Shoe, 326 U.S. at 316). The minimum-contacts analysis requires that nonresident defendants "purposefully avail" themselves of the privilege of conducting activities within Texas, thus invoking the benefits and protections of our laws. American Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 806 (Tex. 2002) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)). The nonresident defendants' activities, "whether they consist of direct acts within Texas or conduct outside Texas, must justify a conclusion that the defendant[s] could reasonably anticipate being called into a Texas court." Id. What matters for the minimum-contacts analysis is the quality and nature of the defendants' contacts, not their number. Id.
The "purposeful availment" inquiry has three components. Moki Mac, 221 S.W.3d at 575. First, we must consider only the nonresident defendants' contacts with the forum, not the unilateral activity of another party or a third person. Id. (citing Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 785 (Tex. 2005)). Second, the contacts on which jurisdiction is based must be purposeful—not random, fortuitous, or attenuated. Id.; see also Burger King, 471 U.S. at 475-76 & n.18; World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). Third, the nonresident defendants must seek some benefit, advantage, or profit by availing themselves of the jurisdiction and the benefits and protections of the forum's laws. Moki Mac, 221 S.W.3d at 575; see also Michiana, 168 S.W.3d at 785. "By contrast, a nonresident may purposefully avoid a particular jurisdiction by structuring its transactions so as neither to profit from the forum's laws nor be subject to its jurisdiction." Michiana, 168 S.W.3d at 785; see also American Type, 83 S.W.3d at 808 (explaining that legal fiction of implied consent to jurisdiction no longer applies when nonresident purposefully structures transactions to avoid benefits and protections of forum's laws). "The nub of the purposeful availment analysis is whether a nonresident defendant's conduct in and connection with Texas are such that it could reasonably anticipate being haled into court here. Purposeful availment involves contacts that the defendant 'purposefully directed' into the forum state." Searcy v. Parex Res., Inc., 496 S.W.3d 58, 67 (Tex. 2016) (quoting Guardian Royal Exch. Assur., Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 228 (Tex. 1991)).
Minimum contacts with the forum state may give rise to either general or specific jurisdiction. TV Azteca v. Ruiz, 490 S.W.3d 29, 37 (Tex. 2016). A court may assert general jurisdiction over nonresident defendants whose "affiliations with the State are so 'continuous and systematic' as to render them essentially at home in the forum State." Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919, 924 (2011) (explaining that "[f]or an individual, the paradigm forum for the exercise of general jurisdiction is the individual's domicile; for a corporation, it is an equivalent place, one in which the corporation is fairly regarded as at home"). This test requires "substantial activities within the forum" and presents "a more demanding minimum contacts analysis than for specific jurisdiction." BMC Software, 83 S.W.3d at 797. If continuous and systematic contacts give rise to general jurisdiction, a court may exercise jurisdiction over the nonresident defendants "even if the cause of action did not arise from activities performed in the forum state." TV Azteca, 490 S.W.3d at 37 (quoting Spir Star AG v. Kimich, 310 S.W.3d 868, 872 (Tex. 2010)).
In contrast, specific jurisdiction exists only if the alleged liability arises out of or is related to the defendants' purposeful activities in the forum. Moncrief Oil Int'l Inc. v. OAO Gazprom, 414 S.W.3d 142, 150 (Tex. 2013). In other words, the "[s]pecific-jurisdiction analysis has two co-equal components. For specific-jurisdiction purposes, purposeful availment has no jurisdictional relevance unless the defendant's liability arises from or relates to the forum contacts." Moki Mac, 221 S.W.3d at 579. When specific jurisdiction is alleged, the minimum-contacts analysis focuses on the relationship among the defendant, Texas, and the litigation to determine whether the claim arises from or is related to Texas activity. Id. at 575-76 (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984)). A claim arises from or relates to nonresident defendants' forum contacts if there is a "substantial connection between those contacts and the operative facts of the litigation." TV Azteca, 490 S.W.3d at 52 (quoting Moki Mac, 221 S.W.3d at 585).
STANDARD OF REVIEW
Whether a court has personal jurisdiction over a defendant is a question of law. BMC Software, 83 S.W.3d at 794. "The trial court frequently must resolve questions of fact before deciding the jurisdiction question." Id. On appeal, we review de novo the trial court's determination to grant or deny a special appearance, but we may also be asked to review the trial court's resolution of a factual dispute. Id. When the trial court does not issue findings of fact and conclusions of law, we imply all facts necessary to support the judgment that are supported by the evidence. Id. at 795.
As an initial matter, we note that here the relevant facts are generally not disputed. See American Type, 83 S.W.3d at 806. WaterWorks and Saltwater characterize their challenge to specific jurisdiction as challenging the legal and factual sufficiency of the evidence supporting the trial court's determination that specific jurisdiction exists. However, we will construe their challenge as a challenge to the trial court's legal conclusions drawn from the facts because while the parties dispute the significance of certain underlying facts, neither side points to facts material to the jurisdictional determination that are actually in dispute. See BMC Software, 83 S.W.3d at 794 (holding factual disputes are reviewed for legal and factual sufficiency while trial court's legal conclusions drawn from facts are reviewed de novo for their correctness).
Under the Texas long-arm statute, the plaintiff bears the initial burden of pleading sufficient allegations to confer jurisdiction over nonresident defendants. Moncrief Oil, 414 S.W.3d at 149. The long-arm statute allows the exercise of personal jurisdiction over a nonresident defendant who:
(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;Tex. Civ. Prac. & Rem. Code § 17.042. Allegations that satisfy our long-arm statute do not necessarily satisfy the United States Constitution; the statute's broad language extends only as far as federal due-process requirements allow. See Michiana, 168 S.W.3d at 788.
(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.
Here, AquaTech pleaded that WaterWorks and Saltwater entered into contracts with AquaTech and with Capital Energy Advisers (both Texas residents) to be performed in Texas and that WaterWorks and Saltwater committed torts by interfering with AquaTech's nondisclosure agreement with the NGL Defendants and by interfering with AquaTech's prospective business relationship with the NGL Defendants for the acquisition of the WaterWorks and Saltwater wells. AquaTech further asserted in its response to WaterWorks and Saltwater's special appearance that they recruited Capital Energy for employment in Texas. These allegations satisfy AquaTech's initial burden of pleading allegations sufficient to confer jurisdiction over the WaterWorks entities under the long-arm statute. See Tex. Civ. Prac. & Rem. Code § 17.042; see also, e.g., Lombardo v. Bhattacharyya, 437 S.W.3d 658, 679 (Tex. App.—Dallas 2014, pet. denied) (holding allegation of committing tort in Texas satisfied minimal initial pleading burden to confer jurisdiction under long-arm statute). Because AquaTech and Schmitz carried their initial pleading burden, the burden shifted to WaterWorks and Saltwater to negate the alleged jurisdictional bases. See Retamco, 278 S.W.3d at 337. To defeat personal jurisdiction on a legal basis, the defendant must show that "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." Kelly v. General Interior Constr., Inc., 301 S.W.3d 653, 659 (Tex. 2010).
ANALYSIS
In this case, AquaTech has asserted all of the grounds in the Texas long-arm statute and argues that both specific and general jurisdiction exist. WaterWorks and Saltwater, however, contend that they neither have committed any acts in Texas that constitute purposeful availment sufficient to establish specific jurisdiction, nor do they have continuous and systematic contacts with Texas sufficient to establish general jurisdiction. They also contend that the exercise of jurisdiction over them would offend traditional notions of fair play and substantial justice.
I. Specific jurisdiction
A forum state has specific jurisdiction over a nonresident defendant when the defendant's purposeful "activities in the forum state themselves 'give rise to the liabilities sued on.'" Searcy, 496 S.W.3d at 67 (quoting International Shoe, 326 U.S. at 317). Accordingly, we analyze both whether the defendants' contacts with Texas were purposeful and whether any purposeful contacts are "substantially connected to the alleged operative facts of the case." Id. at 67, 70. Specific jurisdiction must be established on a claim-by-claim basis unless all the asserted claims arise from the same forum contacts. Moncrief Oil, 414 S.W.3d at 150-51 (analyzing tortious-interference claims separately from trade-secrets claim). The Fifth Circuit has explained the reason that a claim-by-claim analysis is required:
This result flows logically from the distinction between general and specific jurisdiction and is confirmed by the decisions of our sister circuits. If a defendant does not have enough contacts to justify the exercise of general jurisdiction, the Due Process Clause prohibits the exercise of jurisdiction over any claim that does not arise out of or result from the defendant's forum contacts.Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 274-75 (5th Cir. 2006). Although courts are not required to conduct a claim-by-claim analysis if all the claims arise from the same forum contacts, we analyze the contacts separately here because we determine that AquaTech's breach-of-contract claim arises from separate alleged jurisdictional contacts than its tort claims.
A. Breach-of-contract claim
AquaTech alleged in its live pleading that WaterWorks and Saltwater breached the letter of intent by discussing a potential sale of the wells with the NGL Defendants, whom it alleges it had introduced or identified to WaterWorks and Saltwater. The NGL Defendants are in Colorado; WaterWorks and Saltwater are in North Dakota. Although AquaTech alleges that it introduced or identified the NGL Defendants to WaterWorks and Saltwater, AquaTech has not alleged that it introduced or identified the NGL Defendants to WaterWorks and Saltwater at a physical meeting or by other means of communication in Texas. Nor has AquaTech alleged that any discussion of the potential sale between the NGL Defendants and WaterWorks and Saltwater occurred at a physical meeting in Texas. Instead, AquaTech asserts that the alleged breach arises out of the letter of intent itself and the communications between it and the WaterWorks entities concerning the proposed sale of the wells to it (and the potential resale to Central Energy Partners), as well as out of WaterWorks and Saltwater's relationship with Capital Advisors. WaterWorks and Saltwater argue that neither the letter of intent and their communications with AquaTech concerning the contemplated sale of the wells nor their relationship with Capital Advisors satisfy the requirements of purposeful availment. We will consider whether WaterWorks and Saltwater's conduct was purposely directed towards or occurred in the forum and whether it has a "substantial connection" with "the operative facts of the litigation." Moki Mac, 221 S.W.3d at 584-85.
(1) Letter of intent
As for the letter of intent itself, "[s]tanding alone, entering a contract with a Texas resident does not necessarily establish minimum contacts sufficient to support personal jurisdiction." Hoagland v. Butcher, 474 S.W.3d 802, 815 (Tex. App.—Houston [14th Dist.] 2014, no pet.); see also, e.g., Burger King, 471 U.S. at 478-79. We consider the parties' "prior negotiations and [the transaction's] contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing" when evaluating a contract and determining whether the defendant purposefully established minimum contacts with the forum. Burger King, 471 U.S. at 478-79 (holding that party who sought out and negotiated with foreign corporation for purchase of long-time franchise purposefully established minimum contacts).
In this case, WaterWorks and Saltwater did not seek out AquaTech; AquaTech came to them. Thus, the letter of intent's connection to Texas only resulted from the fortuitous fact that AquaTech resided in Texas and wanted to buy the North Dakota wells. The letter of intent contemplated a 60-day due-diligence period, after which AquaTech would provide a nonrefundable earnest-money deposit that would be applicable to the purchase price if the transaction proceeded to closing. Had the deal proceeded to closing, AquaTech would have purchased and operated the wells located in North Dakota.
Nothing in the terms of the letter of intent required performance in Texas. WaterWorks and Saltwater were obligated under the terms of the letter of intent to provide AquaTech with reasonably requested information and "the opportunity to inspect, investigate and audit the assets, liabilities, contracts, and operations of [WaterWorks and Saltwater] and the Properties [located in North Dakota]," and AquaTech's access was to occur "in a reasonable manner during normal business hours." The evidence reflects that the parties exchanged due-diligence documents and draft purchase-sale agreements electronically. To the extent that those documents were received by AquaTech in Texas, AquaTech's receipt of those documents in Texas is a function of its location in Texas, not a purposeful choice by WaterWorks and Saltwater to avail themselves of the benefits of doing business in Texas. Furthermore, we note that documents sent and received electronically are able to be viewed anywhere that the viewing party has electronic access. See Searcy, 496 S.W.3d at 74-75 (explaining voluminous electronic communications do not establish purposeful availment if quality and nature of communications is such that Texas residents could have been based anywhere and had same interactions with nonresidents). While the letter of intent provided AquaTech with the option of retaining certain employees in North Dakota, no further business relationship between AquaTech and WaterWorks and Saltwater either in North Dakota or in Texas was contemplated after the sale of the wells. Cf. Hoagland, 474 S.W.3d at 815 (holding nonresident defendant subject to personal jurisdiction "in connection with litigation arising from a contract specifically designed to benefit from the skills of a Texas resident who performs contractual obligations in Texas"). Instead, the letter of intent contained a noncompetition clause precluding the members and owners of the WaterWorks entities from owning or operating a saltwater well or disposal facility within a twenty-mile radius from the wells for a period of three years following the sale's closing and a nonraiding provision precluding the WaterWorks entities from employing any of their former employees for a period of six months following the sale's closing.
AquaTech also asserts as a purposeful contact the WaterWorks entities' subsequent negotiations with AquaTech and Central Energy Partners (a potential buyer also by happenstance located in Texas whom AquaTech introduced to the WaterWorks entities), which were generally contemplated by the letter of intent. The letter of intent provided that AquaTech "may elect to sell all or a portion of the Properties upon closing to its investors, associations, or others ('Third Parties'). To further such transaction, [AquaTech] may introduce and identify such Third Parties to [WaterWorks and Saltwater]." The negotiations among AquaTech, Central Energy Partners, and the WaterWorks entities primarily involved the electronic exchange of various drafts of an asset-purchase agreement and associated documents contemplating AquaTech's subsequent resale of the wells to Central Energy Partners. AquaTech initiated and paid for Brent's sole visit to Dallas at which he was introduced to Central Energy Partners. Reece averred in his affidavit that all subsequent discussions about AquaTech's possible purchase of the wells "were conducted remotely by phone or means of electronic communication."
AquaTech argues that we should conclude that the WaterWorks entities purposefully availed themselves of the benefits and protections of Texas's laws because several drafts of the proposed asset-purchase agreement contained provisions allowing Texas as a jurisdictional forum as well as North Dakota (while applying Delaware or North Dakota law). In addition, some draft related side agreements contained provisions allowing Texas as a jurisdictional forum for the resolution of disputes related to those agreements. We acknowledge and discuss in more detail below that we consider forum-selection and choice-of-law provisions when analyzing "whether a defendant has 'purposefully invoked the benefits and protections of a State's laws' for jurisdictional purposes." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 482 (1985). In this case, however, we do not find them indicative of purposeful availment when they are contained in draft agreements that were still being negotiated and were never consummated.
We conclude that these communications do not constitute purposeful availment. Furthermore, the communications among the parties about a possible sale to AquaTech followed by a subsequent possible resale to Central Energy Partners are not substantially connected to the operative facts of AquaTech's breach-of-contract claim asserting that WaterWorks and Saltwater later breached the noncircumvention provision of the letter of intent by discussing the sale of the wells with the NGL Defendants. See TeleVentures, Inc. v. International Game Tech., 12 S.W.3d 900, 910 (Tex. App.—Austin 2000, pet. denied) (holding that "[t]he exchange of communications between TeleVentures and IGT in the course of developing and carrying out the contract is in itself insufficient to constitute purposeful availment of the benefits and protections of Texas law"); see also Moki Mac, 221 S.W.3d at 584-85 (establishing "substantial connection to operative facts" as degree of relatedness required to support specific jurisdiction). We further conclude that nothing in the terms of the contract or the parties' actual course of dealing suggests that WaterWorks and Saltwater sought some Texas-specific benefit from entering into a letter of intent contemplating the sale of their North Dakota wells to a party who unilaterally initiated the contact with them and happened to be in Texas and who contemplated reselling those wells to another party who happened to be in Texas.
The parties do not assert any connection, and there is nothing in the record that shows any connection, between Central Energy Partners and the NGL Defendants.
(2) Capital Advisors
AquaTech also asserts that the following activities are purposeful contacts from which the breach-of-contract claim arises: (1) WaterWorks and Saltwater's engaging Capital Advisors (a Texas resident) to market the wells to potential buyers; (2) Capital Advisors' marketing of the wells to potential buyers, some of whom are located in Texas; (3) Capital Advisors' negotiating the sale of the wells to NGL Energy; and (4) WaterWorks and Saltwater's sale of the assets to NGL Energy. AquaTech's theory on appeal is that the WaterWorks entities' services agreement with Capital Advisors was itself a breach of the letter of intent and that it also ultimately led to the WaterWorks entities' discussion of the wells with the NGL Defendants and the sale of the wells to NGL Energy. We will consider whether these activities were purposely directed towards or occurred in the forum and whether they have a "substantial connection" with "the operative facts of the litigation." Moki Mac, 221 S.W.3d at 584-85.
We note that in AquaTech's response to the special appearance, it asserts these activities are additional breaches of the letter of intent without explanation of how they constitute breaches of the letter of intent. The only breach-of-contract claim pleaded in the petition is that WaterWorks and Saltwater breached the noncircumvention provision of the letter of intent by discussing the sale of the wells with the NGL Defendants, whom AquaTech asserts were "Third Parties" as defined in the letter and whom AquaTech asserts it introduced or identified to WaterWorks and Saltwater. "Because the plaintiff defines the scope and nature of the lawsuit, the defendant's corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff's pleading." Kelly v. General Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex. 2010). And "[i]f the plaintiff's evidence does not fall within the scope of the factual allegations in the pleading, then the plaintiff should amend the pleading for consistency." Id. at 659 n.6. AquaTech did not amend its pleading to allege other breaches of the letter of intent. Accordingly, we will consider the additional evidence of these activities that AquaTech presented and will assess whether these activities are purposeful contacts from which the breach-of-contract claim, as alleged, arises. See id. at 658 & n.4.
AquaTech asserts that the WaterWorks entities' contract with Capital Advisors constitutes purposeful availment because the WaterWorks entities initiated contact with Capital Advisors and the contract was negotiated and performed in Texas. We will consider together the WaterWorks entities' engagement of Capital Advisors and Capital Advisors' marketing of the wells to potential buyers because Burger King directs us to consider "prior negotiations and [the transaction's] contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing" when considering whether a contract with a resident party constitutes purposeful availment. 471 U.S. at 479. WaterWorks and Saltwater engaged Capital Advisors in June 2014 to market the wells after their contemplated sale to AquaTech did not close in January 2014 and all discussions with AquaTech had stopped in late spring 2014.
As noted above, entering a contract with a Texas resident, standing alone, does not necessarily establish minimum contacts that are sufficient to support personal jurisdiction. See, e.g., id. at 478-79. Although the WaterWorks entities engaged Capital Advisors, the terms of the services agreement between the parties were negotiated via e-mail and phone calls, similarly to the letter of intent's negotiation. There is no evidence that anyone from WaterWorks and Saltwater ever met with Capitol Advisors in Texas. No terms in the 120-day agreement (with 90-day renewal if legitimate offer in place) required performance in Texas. Under the terms of the agreement, the WaterWorks entities engaged Capital Advisors to "act[] as an independent contractor on a contracting service basis" and gave it the exclusive right to market and sell the wells. The services to be provided by Capital Advisors included marketing, consulting, data compilation, and coordination of printing and reproduction services to offer the wells for sale to their database and network of buyers. The evidence reflects that Capital Advisors communicated with its network of buyers via e-mail, so the brokers working for Capital Advisors could have been anywhere when they sent e-mails marketing the wells. See Searcy, 496 S.W.3d at 74-75. Prospective buyers who signed a confidentiality agreement were provided with electronic information that the WaterWorks entities provided about the wells.
The evidence in the record shows that some potential buyers in Capital Advisors' network were located in Texas and some potential buyers were located elsewhere.
Importantly here, in addition to lacking any required performance in Texas, the agreement included a North Dakota choice-of-law provision and a North Dakota forum-selection clause. While such provisions standing alone are insufficient to confer jurisdiction, we should consider them when analyzing "whether a defendant has 'purposefully invoked the benefits and protections of a State's laws' for jurisdictional purposes." Burger King, 471 U.S. at 482. "[I]nsertion of a clause designating a foreign forum suggests that no local availment was intended." Michiana, 168 S.W.3d at 792. The evidence reflects that the WaterWorks entities specifically requested this provision be included in the agreement. On this record, we conclude that WaterWorks and Saltwater did not purposefully avail themselves of the benefits and protections of Texas's laws. Id. at 785 ( "[N]onresident[s] may purposefully avoid a particular jurisdiction by structuring [their] transactions so as neither to profit from the forum's laws nor be subject to its jurisdiction."); see also American Type, 83 S.W.3d at 808.
Some of the prospective buyers contacted by Capital Advisors happened to be located in Texas. AquaTech argues that we should consider all of Capital Advisors' communications with Texas prospective buyers to be the WaterWorks entities' contacts for purposes of the jurisdictional analysis. While there is evidence that the WaterWorks entities' managers knew some of Capital Advisors' network of buyers would likely be in Texas, "such knowledge is insufficient to constitute purposeful availment." M&F Worldwide Corp., 512 S.W.3d at 889 (holding that nonresident settlement-agreement party's knowledge that another party would be contracting with company located in Texas to manage claims as required by agreement not enough to constitute purposeful availment when "agreement did not call for specific management company or require that it operate from any particular location"); Michiana, 168 S.W.3d at 787 (holding that nonresident defendant's sale of RV to Texas resident with knowledge that RV would be taken to Texas was insufficient to confer jurisdiction). Nothing in the terms of the services agreement required Capital Advisors to find a Texas buyer for the wells. See Searcy, 496 S.W.3d at 73 (holding that nonresident defendant's negotiations with Texas company to purchase oil and gas assets in Colombia did not confer specific jurisdiction when nonresident defendant "did not specifically seek out a Texas seller or Texas assets, let alone attempt[] to meddle with a contract governed by Texas law or develop a Texas business").
AquaTech argues that we should impute all of Capital Advisors' acts in Texas to the WaterWorks entities because they engaged Capital Advisors to act as their agent to market the wells, relying on Capital Finance & Commerce AG v. Sinopec Overseas Oil & Gas, Ltd., 260 S.W.3d 67, 79 (Tex. App.—Houston [1st Dist.] 2008, no pet.), which itself relied on IRA Resources, Inc. v. Griego, 221 S.W.3d 592, 597 (Tex. 2007). Leaving aside the fact that the contract specifically provides that Capital Advisors is being hired as an independent contractor, "Texas law does not presume agency, and the party who alleges it has the burden of proving it." IRA Resources, 221 S.W.3d at 597 (holding that record did not show that nonresident corporation controlled alleged agent and thus agent's actions could not subject nonresident to jurisdiction). While the record shows that the WaterWorks entities engaged Capital Advisors to market the assets, the record does not show that the WaterWorks entities controlled the means and details of Capital Advisors' marketing efforts. See Capital Fin., 260 S.W.3d at 85 ("The essential feature of agency is the right of control."). Here, an additional critical fact is that the WaterWorks entities were not specifically seeking a Texas buyer for the wells or specifically directing marketing activities here. See Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 785-86 (Tex. 2005); Moki MacRiver Expeditions v.Drugg, 221 S.W.3d 569, 577 (Tex. 2007) ("[T]he facts alleged must indicate that the seller intended to serve the Texas market.").
AquaTech also argues that WaterWorks and Saltwater's negotiation of the sale of the wells to NGL Energy through Capital Advisors resulted in specific contacts with Texas when the WaterWorks entities communicated with Capital Advisors about the sale and Capital Advisors communicated with NGL about the sale. AquaTech further asserts without explanation that the asset-purchase agreement selling the wells to NGL Energy is a contact with Texas. None of these are contacts that establish purposeful availment. As the court explained in Searcy, "[d]iscussions that focused on acquiring some non-Texan assets are a far cry from purposeful availment of Texas's jurisdiction." Id. at 74-75. Similarly to the facts in that case, the Capital Advisors "employees involved could, quite literally, have been based anywhere in the world," and the WaterWorks entities "would presumably have interacted with [Capital Advisors] in the same way as they did with its employees here." Id. While the WaterWorks entities initiated the relationship with Capital Advisors, they intentionally structured that relationship to not profit from the laws of Texas or be subject to its jurisdiction. See id. at 75.
WaterWorks and Saltwater's engagement of Capital Advisors, which resulted in the marketing of their assets and their negotiations with and ultimate sale of the assets to NGL Energy, was not a transaction by which they sought "to launch operations in Texas or reap the benefits of the Texas economy." Id. at 74. Ultimately, specific "jurisdiction is proper when a defendant has 'envisioned continuing and wide-reaching contacts' in the forum state." Id. at 74 (quoting Burger King, 471 U.S. at 480). We hold that the WaterWorks entities' engagement of Capital Advisors to market their assets does not meet this test, and consequently, they did not purposefully avail themselves of the benefits, privileges, or profits of engaging with Texas. See id. at 74-75. Having determined that the WaterWorks entities' engagement of Capital Advisors to market the assets and Capital Advisors' marketing of the assets and assisting with negotiations and the sale of the assets to NGL Energy do not constitute purposeful availment, we need not analyze whether these activities have a substantial connection to the operative facts of the litigation. See Moki Mac, 221 S.W.3d at 579 (explaining that purposeful availment and substantial connection of minimum contacts to operative facts of litigation are co-equal components of specific-jurisdiction analysis). Accordingly, we conclude that the trial court lacks specific jurisdiction over WaterWorks and Saltwater as to the breach-of-contract claim.
B. Tortious-interference claims
AquaTech relies on many of the same activities by the WaterWorks entities to support the exercise of specific jurisdiction over its claims that WaterWorks and Saltwater tortiously interfered with AquaTech's nondisclosure agreement with the NGL Defendants, which contained a noncircumvention provision, and that WaterWorks and Saltwater tortiously interfered with the prospective business relationship between AquaTech and the NGL Defendants. AquaTech asserts that we should consider the WaterWorks entities' contract with Capital Advisors to market and sell the wells, all of the communications by the WaterWorks entities to Capital Advisors about a possible sale to NGL Energy, all of the communications by Capital Advisors to NGL Energy about the possible sale, and the actual asset-purchase agreement selling the wells to NGL Energy as purposeful contacts the WaterWorks entities had with Texas "with full knowledge that injury will occur in the forum state," relying on Justice Medina's reasoning in his dissent to the majority opinion in Michiana. Michiana, 168 S.W.3d at 796 (Medina, J., dissenting).
Although AquaTech asserts that the claims all arise from the same contacts, we note that AquaTech's tort claims related to its relationship with the NGL Defendants could not arise from the letter of intent between it and the WaterWorks entities or from Capital Advisors' solicitation of other buyers in Texas. The existence of an agreement between AquaTech and the WaterWorks entities has no bearing on whether the WaterWorks entities tortiously interfered with AquaTech and the NGL Defendants. Likewise, Capital Advisors' solicitation of other buyers in Texas is unrelated to the WaterWorks entities' discussions with the NGL Defendants and sale of the wells to NGL Energy.
In Michiana, however, the Texas Supreme Court rejected the notion that jurisdiction should turn on where a nonresident defendant "directed a tort." Id. at 788-92. Instead, it reaffirmed that our focus in a minimum-contacts analysis should be on the "relationship among the defendant, the forum, and the litigation." Id. at 790 (quoting Helicopteros Nacionales, 466 U.S. at 414 (emphasis added in Michiana)). As discussed above, neither the WaterWorks entities' contract with Capital Advisors nor the communications among the WaterWorks entities, Capital Advisors, and NGL Energy constitute purposeful availment sufficient to confer jurisdiction over the WaterWorks entities. Furthermore, to the extent that AquaTech relies on a similar theory to support the trial court's jurisdiction over its conspiracy claim against the WaterWorks entities, the Texas Supreme Court "has expressly rejected jurisdiction 'based solely upon the effects or consequences of an alleged conspiracy' in the forum state." Id. at 789 (quoting National Indus. Sand Ass'n v. Gibson, 897 S.W.2d 769, 773 (Tex. 1995)). Accordingly, we conclude that the trial court lacked specific jurisdiction over AquaTech's tortious-interference and conspiracy claims.
II. General jurisdiction
In recent years, the Supreme Court has clarified that a court has general jurisdiction over a defendant only if its "affiliations with the State are so 'continuous and systematic' as to render it essentially at home in the forum State." Goodyear, 564 U.S. at 919 (emphasis added) (quoting International Shoe, 326 U.S. at 317); see also Daimler AG v. Bauman, 134 S. Ct. 746, 761 (2014) (rejecting argument that foreign corporation engaging in "substantial, continuous, and systematic course of business" in forum state was subject to general jurisdiction there). Applying this recent authority, the Texas Supreme Court has explained:
The general jurisdiction inquiry, as applied to a corporate defendant, is not limited to simply whether its principal place of business is the forum state, or whether the forum state is its state of incorporation. That is, continuous and systematic contacts, taken alone, are not enough to confer general jurisdiction over a defendant—such a formulation of the test is "unacceptably grasping."Searcy, 496 S.W.3d at 73 (quoting Daimler, 134 S. Ct. at 761). "Courts do not have general jurisdiction over corporate defendants that are neither incorporated in the forum state nor have their principal place of business there, absent some relatively substantial contacts with the forum state." Id. at 72. The level of continuous and systematic contacts required is "relatively high," and even a nonresident corporation's ownership of an in-state subsidiary will not necessarily suffice to confer general jurisdiction over the nonresident owner. Id.
WaterWorks and Saltwater submitted Reece's affidavit in support of their special appearance. Reece averred to the following jurisdictional facts, which AquaTech did not rebut:
• WaterWorks and Saltwater were each formed to develop, own, and operate a saltwater well, and both wells are located in North Dakota.
• All assets of WaterWorks and Saltwater were located in North Dakota, and all services provided in connection with the operation of the wells have been conducted in North Dakota.
• The sole exception to which Reece averred was with respect to the companies' books and records, some of which are maintained in North Dakota, but others of which are maintained in Florida and Ohio.AquaTech asserts in response that the WaterWorks entities' specific contacts related to their attempt to sell the wells to Texas residents AquaTech and Central Energy Partners and their specific contacts related to the marketing, negotiation, and sale of the wells to NGL Energy through Capital Advisors, a Texas resident, should be considered for the purpose of establishing general contacts with Texas. As we have already explained in the context of specific jurisdiction, these contacts do not constitute purposeful availment. Therefore, they do not support the exercise of general jurisdiction over WaterWorks and Saltwater.
• Neither WaterWorks nor Saltwater has ever been authorized to conduct business in Texas.
• Neither WaterWorks nor Saltwater has ever maintained a registered service agent in Texas.
• Neither WaterWorks nor Saltwater has ever had an office or held any interest in real property in Texas.
• None of the members of either entity are either residents of Texas or domiciled in Texas.
• Neither entity has maintained a telephone listing or mailing address.
• The WaterWorks entities have performed services wholly outside of Texas in the past for companies that are headquartered in or have offices in Texas, but their contact with Texas regarding the performance of such services has been limited to submitting invoices for services performed in North Dakota to Texas addresses.
• Neither WaterWorks nor Saltwater has ever held any bank accounts in Texas or paid taxes in Texas.
AquaTech further argues that a former 30% owner and member of Saltwater had its principal office in Flower Mound, Texas, until a few months before the beginning of the transaction between AquaTech and the WaterWorks entities and that this partial member's Texas corporate office should be considered a significant contact for Saltwater. Relying on federal cases holding that this partial ownership would render Saltwater a citizen of Texas for purposes of federal diversity jurisdiction, AquaTech asserts that we should consider all activities undertaken by Saltwater from its inception in November 2011 through January 2013 as being undertaken by a Texas citizen. For purposes of a general-jurisdiction analysis, however, the Texas Supreme Court rejected a similar argument in Searcy, holding that "a finding of general jurisdiction, which does not depend on the claims at hand, requires some deeper connection with the forum state than mere ownership by a local corporation." Id. at 78 (holding that trial court did not have general jurisdiction over Bermudian company whose operations were managed and controlled from Houston by two companies with operations in Houston).
We conclude that WaterWorks and Saltwater's contacts with Texas are not continuous and systematic and are not sufficient to deem them "essentially at home" in Texas; therefore, the trial court could not exercise general jurisdiction over them. See id. at 72-73. Having determined that the trial court lacked specific or general jurisdiction over WaterWorks and Saltwater, we need not reach the issue of whether exercising jurisdiction over them comports with traditional notions of fair play and substantial justice. See Tex. R. App. P. 47.1. We sustain the WaterWorks entities' sole issue.
CONCLUSION
Because we conclude that the trial court lacks specific or general jurisdiction over WaterWorks and Saltwater, we reverse the trial court's order and render judgment dismissing WaterWorks and Saltwater from the lawsuit.
/s/_________
Cindy Olson Bourland, Justice Before Chief Justice Rose, Justices Goodwin and Bourland Reversed and Rendered Filed: February 21, 2018