3-D Elec. Co., Inc. v. Barnett Const. Co.

• Decision Date: 30 January 1986
• Docket Number: No. 05-84-01107-CV,05-84-01107-CV
• Citation: 706 S.W.2d 135
• Parties: 3-D ELECTRIC COMPANY, INC., Appellant, v. BARNETT CONSTRUCTION COMPANY and Barnett Construction Company d/b/a Metropolitan Contractors, Inc., Appellees.
• Court: Texas Court of Appeals

Page 135

706 S.W.2d 135

3-D ELECTRIC COMPANY, INC., Appellant, v. BARNETT CONSTRUCTION COMPANY and Barnett Construction Company d/b/a Metropolitan Contractors, Inc., Appellees.

No. 05-84-01107-CV.

Court of Appeals of Texas,

Dallas.

Jan. 30, 1986.

Rehearing Denied Feb. 26, 1986.

William L. Kirkman, Fort Worth, for appellant.

Harold B. Gold, Dallas, for appellees.

Before CARVER, ¹ VANCE and MALONEY, JJ.

MALONEY, Justice.

3-D Electric Company, Inc. ("3-D") appeals the trial court's order which sustained Barnett Construction Company's special appearance and dismissed the suit. 3-D contends that the trial court erred in granting the motion challenging jurisdiction, in failing to file findings of fact and conclusions of law, and in applying new law retrospectively. For the following reasons, we affirm the judgment of the trial court.

In 1979, J.C. Harville, the president of Metropolitan Contractors, Inc. ("Metropolitan"), a Tennessee corporation engaged in business as a general contractor, telephoned Richard Kinney, the president of 3-D, a Texas corporation engaged in the electrical contracting business, regarding electrical work to be performed on a Holiday Inn Motel to be built in Trinidad, Colorado (the "Trinidad project"). Barnett Construction Company ("Barnett"), a Tennessee corporation engaged in business as a general contractor, acted as the general contractor on the Trinidad project. Barnett sent the initial plans to 3-D in Duncanville, Texas. In the summer of 1979, Kinney went to Trinidad and met with T.C. ("Cooper") Barnett (the president of Barnett), Dave Fisher (the owner of the Trinidad project), T.O. ("Tom") Barnett (the chief executive officer and sole shareholder of Barnett), and Harville. At this meeting, the arrangements were discussed concerning the construction of the motel. The actual construction began shortly thereafter. The parties agree that Barnett and 3-D entered into an oral contract. The motel was completed, and 3-D billed Barnett for the electrical work performed. Barnett did not pay the full amount of the bills, and 3-D sued Barnett in Texas for breach of contract.

Barnett specially appeared, claiming that the trial court did not have personal jurisdiction. The trial court disagreed and proceeded with a jury trial on the merits. The court granted an instructed verdict in favor of Barnett. Subsequently, the court granted 3-D's motion for new trial, a second jury trial was held, and a verdict was returned in 3-D's favor. However, on Barnett's motion, the trial court reconsidered its ruling on personal jurisdiction in light of the intervening decision in Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984), and concluded that it had no personal jurisdiction over Barnett and Barnett d/b/a Metropolitan.

In its first point of error, 3-D contends that the trial court erred in granting the motion challenging the personal jurisdiction over Barnett and Barnett d/b/a Metropolitan. Our disposition of this contention requires a two-fold inquiry: first, whether Barnett and Metropolitan are related corporate concerns, and thus Metropolitan's many contacts with Texas should be used to establish jurisdiction over Barnett; second, if we conclude that we are foreclosed from an examination of Metropolitan's contacts with Texas, we must then decide whether Barnett's own contacts with Texas are sufficient for a Texas court to assert jurisdiction over it.

Corporate Identities of Barnett and Metropolitan

For purposes of this discussion, we shall assume, without deciding, that Metropolitan's contacts with Texas are sufficient for a Texas court to assert jurisdiction over it. 3-D recites the following facts which it claims establish that Barnett and Metropolitan act as one:

(1) Tom Barnett has always been the chief executive officer and sole shareholder of Barnett, and was the sole shareholder of Metropolitan;

(2) Tom Barnett's daughter-in-law purchased Tom Barnett's stock in Barnett with a note to him in 1981, and had only paid the interest on the note at the time of trial;

(3) Cooper Barnett is Tom Barnett's son, and was the president of Barnett at the time the contract was performed and was the president of Metropolitan at the time of trial;

(4) Tom Barnett was the president of Barnett at the time of trial (5) Harville was the president of Metropolitan and initially contacted 3-D regarding the Trinidad project and supervised the Trinidad project before Cooper Barnett took over the control of the project;

(6) Barnett and Metropolitan were located in the same building;

(7) At the same time as the Trinidad project, Barnett was also acting as contractor on a project in Riverton, Wyoming, with 3-D as electrical contractor (the "Riverton project"), and Metropolitan was acting as contractor on a project in Richardson, Texas with 3-D as electrical contractor (the "Richardson project");

(8) Tom Barnett told Richard Kinney at the Richardson project not to worry about getting paid for the electrical work at the Trinidad project;

(9) Harville was authorized to sign the contract between Barnett and 3-D on the Riverton project, and also signed for Metropolitan on the contract between Metropolitan and 3-D on the Richardson project; and,

(10) According to Richard Kinney, his impression was that Tom Barnett was the "last say" on both the Trinidad project and the Riverton project, Barnett and Metropolitan were not separate corporations, Harville identified himself with Barnett, and Metropolitan was only incorporated to employ non-union labor that Barnett could not employ.

Although 3-D did not allege that Barnett and Metropolitan had a parent-subsidiary corporate relationship, ² we will look to the principles applicable to that relationship for guidance in the instant case. Cf. Mortgage and Trust, Inc., v. Bonner & Co., Inc., 572 S.W.2d 344, 348-51 (Tex.Civ.App.--Corpus Christi 1978, writ ref'd n.r.e.) (referring to cases involving parent and subsidiary corporations in the course of analyzing whether the corporations alleged to be "alter egos" of one another did in fact have an "alter ego" relationship, even though the particular corporations were not parent and subsidiary).

Courts will not disregard the separate legal entities of corporations merely because one owns stock in the other or because of interlocking directorships "unless such relationship is being used to defeat public convenience, justify wrongs, such as violation of the anti-trust laws, protect fraud, or defend crime." Bell Oil & Gas Co. v. Allied Chemical Corp., 431 S.W.2d 336, 339 (Tex.1968) (citations omitted) (quoting State v. Swift & Co., 187 S.W.2d 127, 131-32 (Tex.Civ.App.--Austin 1945, writ ref'd)). In Bell the Texas Supreme Court reiterated the principle set out in Pace Corporation v. Jackson, 155 Tex. 179, 284 S.W.2d 340, 351 (1955), and reaffirmed in Drye v. Eagle Rock Ranch, Inc., 364 S.W.2d 196, 202 (Tex.1962):

Courts will not disregard the corporation fiction and hold individual officers, directors or stockholders liable on the obligations of a corporation except where it appears that the individuals are using the corporate entity as a sham to perpetrate a fraud, to avoid personal liability, avoid the effect of a statute, or in a few other exceptional situations.

Absent a showing of fraud or injustice, the supreme court would not allow the plaintiff to look to the defendant for payment of debts incurred by the defendant's affiliate and subsidiary. See Bell Oil & Gas Co., 431 S.W.2d at 339-41; cf. Edwards Co. v. Monogram Industries, Inc., 730 F.2d 977, 983-84 (5th Cir.1984), and Gentry v. Credit Plan Corporation of Houston, 528 S.W.2d 571, 573 (Tex.1975), with Hanson Southwest Corp. v. Dal-Mac Construction Co., 554 S.W.2d 712, 717-18 (Tex.Civ.App.--Dallas 1977, writ ref'd n.r.e.). ³

To determine whether the subsidiary is a mere adjunct of the parent we look to the following factors: whether the two file consolidated income tax returns, whether operating capital is financed by the parent, the extent to which separate books and accounts are kept, whether they have common departments or businesses, whether they have separate meetings of shareholders and directors, whether an officer or director of one corporation is permitted to determine policies of the other, and whether there are any other facts which also indicate that the subsidiary is a mere conduit. Moffett v. Goodyear Tire & Rubber Co., 652 S.W.2d 609, 613 (Tex.App.--Austin 1983, writ ref'd n.r.e.); see also Gentry, 528 S.W.2d at 573-75.

Generally, a foreign parent corporation is not subject to the jurisdiction of the forum state merely because its subsidiary conducts business in that forum. The presence of one in a forum may not be attributed to the other. Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159-60 (5th Cir.1983). However, in some circumstances, a close relationship between parent and subsidiary may justify a finding that the parent "engages in business" in the jurisdiction through the local activities of its subsidiary. Hargrave, 710 F.2d at 1159; Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 492 (5th Cir.1974). The ownership of 100 percent of the stock and the commonality of officers and directors are not alone sufficient to establish an "alter ego" relationship between two corporations. To acquire jurisdiction over the parent, the parent must exercise a greater degree of control over the subsidiary's internal business operations and affairs than is normally associated with common ownership and directorship. Hargrave, 710 F.2d at 1160; Walker v. Newgent, 583 F.2d 163, 167 (5th Cir.1978), cert. denied, 441 U.S. 906, 99 S.Ct. 1994, 60 L.Ed.2d 374 (1979); see also Turner v. Jack Tar Grand Bahama, Ltd., 353 F.2d 954, 956 (5th Cir.1965) (although not directly indicating whether the case involved parent and subsidiary corporations, stating the same rule).

The record in the instant case reflects...