Opinion
CIVIL ACTION NO. 7:01-CV-196-R
February 6, 2003
MEMORANDUM OPINION AND ORDER
Now before the Court is Defendant Jancor Companies, Inc.'s Motion to Dismiss for Lack of Personal Jurisdiction (filed July 17, 2002; supplemental briefs filed November 15, 2002)("Defendant's Motion"). For the reasons discussed below, Defendant's Motion is DENIED.
After preliminary review of Defendant's Motion, this Court ordered the parties to submit supplemental briefs. See Order (entered September 27, 2002).
I. BACKGROUND
Plaintiff brings suit against Defendant for the state law claims of rescission, negligent misrepresentation, intentional misrepresentation and fraud. These claims arise out of the termination of the business relationship between Plaintiff and MasterShield Building Products, Co., L.P. ("MasterShield"), a manufacturer of vinyl siding products. Plaintiff had been doing business with MasterShield, as a distributor of its products, since 1989. In 1999, MasterShield was purchased by Defendant. Subsequent to the purchase by Defendant, the MasterShield factory in Weatherford, Texas was closed and production was moved to Bardstown, Kentucky. In August 2000, the Kentucky factory was closed and production of MasterShield products ended. Plaintiff alleges that, after it became concerned about the financial viability of MasterShield, it was induced to continue making purchases of MasterShield products by false representations made to it by Defendant and its agents. Had it not been for these misrepresentations and inducements, Plaintiff would have discontinued making purchases from MasterShield. Such purchases become nearly worthless when MasterShield went out of business.Defendant's Motion argues that this Court lacks jurisdiction over it because it is a holding company which has neither contacts with nor conducts business in Texas. Specifically, Defendant states that it has never conducted any business with Plaintiff. According to Defendant, any business dealings at issue were between Plaintiff and MasterShield, and Plaintiff "has intentionally sued the wrong company in Texas, its home forum, both because MasterShield is out of business and for its own convenience."
Defendant's Brief in Support of 12(b)(2), Motion at 2.
In response to Defendant's Motion, Plaintiff makes two arguments in support of a finding of specific jurisdiction over Defendant: first, that MasterShield acted as an agent for Defendant and thus that MasterShield's actions are attributable to Defendant; and second, that Defendant purposefully availed itself of the protection of Texas courts when it took action to recover debt allegedly owed to it by Plaintiff The two arguments are separately considered below.
II. ANALYSIS
A. PERSONAL JURISDICTION STANDARD
A federal court may exercise personal jurisdiction over nonresident defendants in a diversity action to the extent permitted by applicable state law. Fed.R.Civ.P. 4(e)(1). The Texas long-arm statute provides for jurisdiction to the fullest extent permitted by the U.S. Constitution. See Tex . Civ. Prac. Rem. Code. Ann. § 17.042 (West 1997); Panda Brandywine Corp. v. Potomac Electric Power Co., 253 F.3d 865, 867 (5th Cir. 2001) (citing Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990)). Under the Due Process Clause of the Fourteenth Amendment, jurisdiction over a nonresident defendant comports with due process if: "(1) that defendant has purposefully availed himself of the benefits and protections of the forum state by establishing minimum contacts with the forum state, and (2) the exercise of jurisdiction over that defendant does not offend traditional notions of fair play and substantial justice." Panda Brandywine, 253 F.3d at 868 (quoting Alpine View Co. Ltd. v. Atlas Copco AB, 205 F.3d 208, 215 (5th Cir. 2000) (citations and internal quotation marks omitted)). Minimum contacts can be established through contacts which are sufficient for either specific or general jurisdiction. Specific jurisdiction over a nonresident corporation is proper, "when that corporation has purposefully directed its activities at the forum state and the litigation arises from alleged injuries that arise out of or relate to those activities." Alpine View, 205 F.3d at 215 (quoting Burger King v. Rudzewicz, 471 U.S. 462, 472 (1985) (internal quotation marks omitted)). General jurisdiction arises "when the nonresident defendant's contacts with the forum state, although not related to the plaintiffs cause of action are continuous and systematic." Id. (citing Helicopteros Nacionales de Colombia, SA. v. Hall, 466 U.S. 408, 415-16 (1984)).
Plaintiff has not asserted a claim of general jurisdiction, and thus general jurisdiction will not be further addressed in this Opinion.
This Court is considering Defendant's motion to dismiss without conducting an evidentiary hearing. Thus, to survive Defendant's Motion, Plaintiff has the burden of "produc[ing] sufficient facts as to make out only a prima facie case supporting jurisdiction." Id. In determining whether or not Plaintiff has made a prima facie case, this Court "must accept as true [Plaintiffs] uncontroverted allegations, and resolve in its favor all conflicts between the facts contained in the parties' affidavits and other documentation." Id. Although this is a significantly lower standard than that needed to prevail on the merits at trial, it is not an entirely toothless standard of review. As the Fifth Circuit noted in Panda Brandywine, the lower burden of proof:
does not automatically mean that a prima facie case for specific jurisdiction has been presented. Establishing a prima facie case still requires the plaintiff to show the nonresident defendant's purposeful availment of the benefits and protections of and minimum contacts with the forum state.Panda Brandywine, 253 F.3d at 868 (citing Burger King, 471 U.S. at 474). Mere "conclusory allegations" without any suggestion of supporting facts are insufficient. Id. at 869.
B. SPECIFIC JURISDICTION ARISING FROM THE ALLEGED AGENCY RELATIONSHIP
As a general proposition, "a foreign parent corporation is not subject to jurisdiction of a forum state merely because its subsidiary is present or doing business there; the mere presence of a parent-subsidiary relationship is not sufficient to warrant the assertion of jurisdiction over the foreign parent." Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159 (5th Cir. 1983) (en banc) (citing 2 J. Moore J. Lucas, Moore's Federal Practice ¶ 4.25[6], at 4-272 (2d ed. 1982)). However, courts have recognized that contacts with a forum state made by a subsidiary, which is acting as an agent of the parent corporation, can be attributed to that parent, thus allowing the exercise of jurisdiction over that parent. Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 492 (5th Cir. 1974); Kim v. Frank Mohn A/S, 925 F. Supp. 491, 494 (S.D.Tx 1996); Nolan v. Boeing Co., 736 F. Supp. 120, 125 (E.D. La. 1990); Donatelli v. National Hockey League, 893 F.2d 459, 465-66 (1st. Cir. 1990); C.R. Bard Inc. v. Guidant Corp. and Advanced Cardiovascular Systems, Inc., 997 F. Supp. 556, 559-60 (D.Del. 1998) (applying Delaware law).
Contacts of a subsidiary may also be imputed to the parent corporation in cases where the subsidiary is the alter-ego of the parent. See, e.g., Conner, 944 S.W.2d at 418-19; Kim, 925 F. Supp. at 494; Bard, 997 F. Supp. at 559. Plaintiff has not made an alter-ego claim in this case.
An agency relationship is not presumed, rather it must be affirmatively proved to exist. Disney Enterprises, Inc., v. Esprit Finance, Inc., 981 S.W.2d 25, 30 (Tex.App.-San Antonio, 1998); Coffey v. Fort Wayne Pools, Inc., 24 F. Supp.2d 671, 677 (N.D.Tex. 1998) (citing Karl Rove Co. v. Thornburgh, 39 F.3d 1273, 1296 (5th Cir. 1994)). In the absence of an explicit agency agreement between Defendant and MasterShield, Plaintiff must establish that MasterShield acted under the apparent authority of Defendant. Under Texas law, in order to establish apparent authority:
one must show that a principal either knowingly permitted an agent to hold itself out as having authority or showed such lack of ordinary care as to clothe the agent with indicia of authority.Nationsbank, NA., v. Dilling, 922 S.W.2d 950, 952 (Tex. 1996). "[O]nly the conduct of the principal," may be examined in order to determine whether an agent has apparent authority. Id. (citations omitted). See also Southwest Title Ins. Co., v. Nordthland Building Corp., et al., 552 S.W.2d 425, 428 (Tex. 1977). "Without acts of the purported principal," according to recent Texas appellate decision, "acts of a purported agent which may mislead persons into false inferences of authority, however reasonable, will not serve as a predicate for apparent authority." Disney Enterprises, 981 S.W.2d, at 30.
Although Plaintiff's pleadings are replete with evidence and allegations regarding the purported agent (MasterShield), they make almost no mention of any actions of the purported principal (Defendant). Rather, it appears that Plaintiff has presumed the agency relationship which it needs to prove. In his affidavit and deposition, Rick Belz ("Belz"), the President of Plaintiff, describes several instances in which he alleges he was misled by employees of MasterShield. However, Belz does not discuss any actions of Defendant which would tend to directly or indirectly lead a reasonable person to conclude that an agency relationship existed. It appears that the only interaction which occurred directly between Plaintiff and an employee of Defendant was a brief conversation between Belz and Norm Johnson ("Johnson"), which Belz recounts in his deposition:
See, eg, Joint Appendix ("Appendix") at 4 (discussing representations made by Bo Boreland and Glenn Rynel-both employees of MasterShield); Id. at 48, 54.
Q. . . . No one from Jancor told you that they were going to provide money to MasterShield, did they?
A. No, no one told me from Jancor. The only person i'd ever met with [sic] Jancor was Norm Johnson.
Q. Did anyone from Jancor make any representations to you?
A. He was the only one I've met with Jancor.
Q. Did Mr. Johnson make any representations to you?
A. No, we had an introduction and that was it, He thanked me for our business.
Q. No one from Builders Wholesale ever had any communications with anyone else from Jancor, other than that introduction you just discussed?
A. He was the only one that I've met that had — that was from Jancor, correct.
Q. Did anyone else from Builders Wholesale ever meet with anyone from Jancor?
A. No.
Q . . . Other than your meeting with Mr. Johnson at MasterShield, isn't it fair to say that no one from Builders Wholesale ever had any other contact with Jancor?
A. As an employee of Jancor, no.
Aff of Rick L Bel:, Appendix at 53. See also Appendix at 43-44 (Belz describes the meeting with Johnson as "just a small introduction. And it was short").
By itself, the statement that Johnson "thanked me for our business," is inadequate to "lead a reasonably prudent person to conclude that [Defendant] had authorized [MasterShield] to make representations." Nationsbank, 922 S.W.2d, at 953. In his affidavit, Belz also states that "MasterShield or Jancor" paid for a trip he took to the factory in Kentucky. However, in his deposition, he stated that he didn't know who paid for the tickets. Even if Jancor had paid for this trip, it would be insufficient to establish the apparent authority for MasterShield to make the alleged representations.
Appendix at 5.
Appendix at 56 ("I just know that we weren't paying for [the trip].")
Plaintiff could easily have picked up the telephone to call Defendant in order to inquire whether the representations which were allegedly being made regarding Defendant's commitment to the financial viability of MasterShield were true. A reasonable business person would have done so, particularly a distributor which is concerned with the financial viability of its supplier. Plaintiff did not, and this Court will not now allow Plaintiff to assume the existence of an agency relationship where there is no evidence that one exists. This Court finds that Plaintiff has failed to establish a prima facie case for the exercise of specific jurisdiction over Defendant on an agency theory.
C. SPECIFIC JURISDICTION ARISING FROM EFFORTS TO COLLECT DISPUTED DEBTS.
Plaintiff's second argument for specific jurisdiction over Defendant relates to efforts made by Defendant (or its subsidiaries — MasterShield and Bird Vinyl Products Limited ("Bird Vinyl")) to collect money Plaintiff allegedly owed after the closure of MasterShield in August 2000. Specifically, the claims relate to goods sold to Plaintiff by MasterShield during the months immediately preceding August 2000. Plaintiff asserts that Defendant, in attempting, through its agents, to collect this debt, has purposefully availed itself of the laws of Texas. Defendant argues that the efforts to collect the money are not an appropriate basis for jurisdiction because they were made by MasterShield and Bird Vinyl rather than by Defendant, and arose several months after the alleged misrepresentation and breach of contract upon which Plaintiff is suing. The factual record regarding the efforts made by Defendant and/or its subsidiaries to collect moneys allegedly owed to it by Plaintiff is not yet well developed. Nevertheless, viewing the documentary evidence before the Court in the light most favorable to Plaintiff, the Court finds that jurisdiction is appropriate based on the efforts made by Defendant to collect the debts owed by Plaintiff.
See, e.g., Plaintiff's Response to Jancor Co., Inc.'s 12(b)(2) Motion to Dismiss at 9-10.
See, e.g, Defendant's Brief in Reply to Plaintiff's Response to Defendant's Motion to Dismiss for Lack of Personal Jurisdiction at 7-8 ("the collection letters are irrelevant because Builders Wholesale's causes of action do not arise out of those collection efforts").
The record before the Court relating to the collection efforts consists of correspondence between Plaintiff and Defendant (or its subsidiaries) which is contained in the appendices to Belz's Affidavit. The Court has scrutinized the letters from Defendant (or its subsidiaries) in order to determine which Jancor corporate entity the letters are from (or on behalf of), and by what authority they were sent. The key documents, listed chronologically, are:
See Appendix at 7-33.
1. Letter dated September 15, 2000. The letter announces that Bird Vinyl and MasterShield have hired Atwell, Curtis Brooks, Ltd. ("Atwell"), a collection agency located in New York, "to collect and resolve their accounts receivable." Although the letter is on Defendant's letterhead, it is signed on behalf of MasterShield and Bird Vinyl by Branch J. Springer, Vice-President — CFO. Branch Springer is also the Chief Financial Officer of Defendant and, in that capacity, has submitted an affidavit in support of Defendant's Motion.
2. Letter dated September 18, 2000. This letter from Atwell seeks payment of $46,390.01 for money owed by Plaintiff to MasterShield. The collection agency lists the client as "Bird Vinyl Products do Jancor Companies, Inc." The letter itself does not mention MasterShield. However, attached to the letter is an account statement from MasterShield listing the invoices which remained unpaid. The account statement is on MasterShield letterhead, is dated September 11, 2000, and makes no mention of either Bird Vinyl or Defendant.
3. Second letter dated September 18, 2000. This letter is identical to the other letter of September 18, 2000, except that it seeks payment of an additional $120,087.99, and attaches a different account statement from MasterShield.
4. Letter of January 2, 2001. This letter is from Barras Bunkley, L.L.P. ("Barras"), a law firm located in Amarillo, Texas, and states that "[t]his law firm has been retained to collect the captioned debt that you owe our client, Bird Vinyl Products." The amount sought is $160,478.00 (the sum of the two MasterShield account statements). The letter threatens litigation, stating that if the debt is not paid within 15 days, "we will recommend to our client that suit be filed against you." The letter makes mention of MasterShield.
Appendix at 19.
Affidavit of Branch Springer, Appendix at 1-2.
Appendix at 28.
Id.
In response to these letters, Plaintiff's counsel sent letters denying the claims. Plaintiff also sent a letter, on September 15, 200, stating that, pursuant to the provisions of the Uniform Commercial Code, it was rejecting the recent shipments of goods it had received because it had been fraudulently induced to purchase them.
Appendix at 14-15.
As an initial matter, it is clear that Plaintiff and Defendant (and its subsidiaries) are disputing claims relating to the same set of transactions. This Court rejects Defendant's assertion that the subsequent collection correspondence is irrelevant because it occurred several months after the alleged fraud upon which Plaintiff is suing. Specific jurisdiction can arise "when the nonresident's contacts with the forum state arise from or are directly related to the cause of action." Marathon Oil Co., v. A.G. Ruhrgas, 182 F.3d 291 (5th Cir. 1999) (citing Helicopteros, 466 U.S. 408 (1984)). In Helicopteros, the Supreme Court held that jurisdiction over a nonresident defendant who had made purchases in the Plaintiff's state did not arise for "a cause of action not related to those purchase transactions." Helicopteros, 466 U.S. at 418. In this case, Defendant (as the Court concludes infra) appears to have attempted to collect money due on precisely the same contracts which Plaintiff claims it was fraudulently induced into entering. The subsequent collection efforts are related to the contracts underlying Plaintiff's cause of action.
While the demand letters seek payment from Plaintiff for the goods sold by MasterShield, the letters are less than transparent as to which entity would receive the funds if they were paid. Although the letter of September 15, 2000 states that the collection agency was hired by MasterShield and Bird Vinyl, there is no mention of MasterShield in the subsequent letters (other than its account statements listing the outstanding invoices). The letter of January 2, 2001 from Barras states that the client is Bird Vinyl, however, there is evidence in the record that Bird Vinyl, like MasterShield, is also defunct. Taking the facts in the light most favorable to Plaintiff, it appears that, as MasterShield and Bird Vinyl no longer exist, Defendant has assumed the contracts in dispute in this action. It therefore appears that Defendant was the real party in interest attempting to collect the sums due on the MasterShield invoices. Defendant is standing in the shoes of MasterShield in order to collect on its contract claims by sending demand letters to Plaintiff, both from out of state and from counsel it has hired within Texas. In so doing, Defendant has reached out to Texas, establishing through its letters and hiring of counsel sufficient minimum contacts, and has purposefully availed itself of the protections of Texas law. By attempting to collect on contracts for the sale of goods which were delivered to Texas, Defendant should have reasonably foreseen the possibility of being haled into court in Texas for claims such as those of Plaintiff's relating to those sales. Moreover, the exercise of jurisdiction in this case does not offend traditional notions of fair play and substantial justice. See Ruston Gas Turbines, Inc., v. Donaldson Co., Inc., 9. F.3d 415, 418 (5th Cir. 1993). Jurisdiction over Defendant is appropriate and does not offend the factors listed in Ruston. Therefore, this Court will maintain jurisdiction over this matter.
See Appendix at 10-11 (press releases dated August 7, 2000 announcing the closure of MasterShield and Bird Vinyl).
II. CONCLUSION
For the reasons discussed above, Defendant's Motion to Dismiss is hereby DENIED. An Amended Scheduling Order will be issued by this Court.