Zac Smith & Co., Inc. v. Otis Elevator Co.

• Decision Date: 08 July 1987
• Docket Number: No. C-5875,C-5875
• Citation: 734 S.W.2d 662
• Parties: ZAC SMITH & COMPANY, INC., Petitioner, v. OTIS ELEVATOR COMPANY, Respondent.
• Court: Texas Supreme Court

Page 662

734 S.W.2d 662

ZAC SMITH & COMPANY, INC., Petitioner, v. OTIS ELEVATOR COMPANY, Respondent.

No. C-5875.

Supreme Court of Texas.

July 8, 1987.

Rehearing Denied Sept. 16, 1987.

Larry F. York and J. Scott Howard, Baker & Botts, Austin, for petitioner.

Tom Broussard and Lloyd Broussard, Broussard & Broussard, Austin, for respondent.

MAUZY, Justice.

Otis Elevator Company, a New Jersey corporation, filed suit in Texas against Advanced Concrete of Texas, a Texas corporation, and Zac Smith & Company, Inc. (Smith), of Florida, for breach of contract in the sale of four elevators to be installed in a hotel in Austin, Texas. Smith filed a special appearance pursuant to TEX.R.CIV.P. 120a (Vernon's Supp.1987) and asserted lack of in personam jurisdiction. The trial court sustained Smith's objection to jurisdiction and ordered Smith dismissed from the lawsuit. Otis Elevator appealed the dismissal of Smith from the lawsuit; the court of appeals reversed on the ground that Smith failed to meet its burden of negating all bases of personal jurisdiction. 715 S.W.2d 806. Smith asserts that it has consummated no transaction in Texas; thus, the assumption of jurisdiction in Texas offends "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). We affirm the court of appeals' judgment and hold Zac Smith & Company, Inc., has sufficient contacts with Texas to reasonably require this Florida corporation to be subject to our long-arm statute. TEX.CIV.PRAC.REM.CODE § 17.042 (Vernon's 1986).

As the court of appeals noted, the requirement that Smith have sufficient contacts with the forum such that the exercise of jurisdiction by Texas courts does not offend "traditional notions of fair play and substantial justice" invokes federal due process guarantees. International Shoe Co. v. Washington, 326 U.S. at 316, 66 S.Ct. at 158. The federal due process clause

protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful 'contacts, ties, or relations.'

Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 2181-2182, 85 L.Ed.2d 528 (1985). Thus, individuals must have "fair warning" that a "particular activity may subject [them] to the jurisdiction of a foreign sovereign." Burger King Corp., 105 S.Ct. at 2183; Shaffer v. Heitner, 433 U.S. 186, 218, 97 S.Ct. 2569, 2587, 53 L.Ed.2d 683 (1977) (Stevens, J., concurring in judgment). Continuing and systematic contacts may give rise to the exercise of jurisdiction in a suit not arising out of or related to the defendant's contacts with the forum. Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, n. 9, 104 S.Ct. 1868, 1872, n. 9, 80 L.Ed.2d 404 (1984); Burger King Corp., 105 S.Ct. at 2182. Where contacts with the foreign sovereign are not continuing and systematic, but rather specific jurisdiction is alleged, the "fair warning" requirement is two-fold. First, the defendant's activities must have been "purposefully directed" to the forum, and second, the litigation must result from alleged injuries that "arise out of or relate to those activities." Burger King Corp., 105 S.Ct. at 2182.

The Texas long-arm statute provides that a nonresident does business in this State and thereby is subject to this State's jurisdiction if the nonresident "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(1). Prior to the U.S. Supreme Court's decisions in Burger King and Helicopteros, this court enunciated a three-pronged test to be applied when determining the constitutional reach of this state's jurisdiction over persons with only a single or few contacts with Texas. U-Anchor Advertising, Inc. v. Burt, 553 S.W.2d 760 (Tex.1977), cert. denied, 434 U.S. 1063, 98 S.Ct. 1235, 55 L.Ed.2d 763 (1978); O'Brien v. Lanpar Co., 399 S.W.2d 340 (Tex.1966). In order to exercise jurisdiction, it must be found that:

(1) the nonresident defendant or foreign corporation must purposefully do some act or consummate some transaction in the forum state;

(2) the cause of action must arise from, or be connected with, such act or transaction; and

(3) the assumption of jurisdiction by the forum state must not offend traditional notions of fair play and substantial justice, consideration being given to the quality, nature, and extent of the activity in the forum state, the relative convenience of the parties, the benefits and protection of the laws of the forum state afforded the respective parties, and the basic equities of the situation.

O'Brien v. Lanpar Co., 399 S.W.2d at 342.

The first prong, when established, satisfies the "purposeful availment" test required by the Due Process Clause. If a foreign defendant purposefully does some act or consummates some transaction in Texas, then that defendant purposefully has availed itself of the benefits and protections of the laws of Texas. The second prong, when shown and when coupled with the first prong of the O'Brien test, meets the requirements for specific personal jurisdiction to attach under Burger King and Helicopteros; i.e., the defendant purposefully directed his activities at residents of the forum, and the litigation results from alleged injuries that "arise out of or relate to" those activities. Burger King Corp., 105 S.Ct. at 2182. Under the third prong of the O'Brien test, in evaluating the "quality, nature, and extent" of the contacts in instances wherein the defendant's activities with the forum are not continuing, it must be established that the defendant's contacts with the forum "proximately result from actions by the defendant himself that create a 'substantial connection' with the forum State." Burger King Corp., 105 S.Ct. at 2184 (emphasis original); McGee v. International Life Insurance Co., 355 U.S. 220 at 223, 78 S.Ct. 199 at 201, 2 L.Ed.2d 223 (1957). Thus, courts must find the activities of the defendant to be deliberate and significant. Burger King Corp., 105 S.Ct. at 2184. Once it is determined that the defendant purposefully availed itself of the benefits and protections of the laws of the forum, the burden is on the defendant to show "a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Burger King Corp., 105 S.Ct. at 2185. Thus, it is incumbent upon the nonresident defendant to negate all bases of personal jurisdiction. Siskind v. Villa Foundation for Education, Inc., 642 S.W.2d 434, 438 (Tex.1982). In that regard, Burger King instructs:

Most such considerations usually may be accommodated through means short of finding jurisdiction unconstitutional. For example, the potential clash of the forum's law with the "fundamental substantive social policies" of another State may be accommodated through application of the forum's choice-of-law rules. Similarly, a defendant claiming substantial inconvenience may seek a change of venue. Nevertheless, minimum requirements inherent in the concept of "fair play and substantial justice" may defeat the reasonableness of jurisdiction even if the defendant has purposefully engaged in forum activities. (Citations omitted). As we previously have noted, jurisdictional rules may not be employed in such a way as to make litigation "so gravely difficult and inconvenient" that a party unfairly is at a "severe disadvantage" in comparison to his opponent. (Citation omitted).

Burger King Corp., 105 S.Ct. at 2185.

In August 1983, Smith, a Florida bonding agent, and Advanced Concrete, a general contractor and manufacturer of prefabricated building materials, were joined as a joint venture for the sole purpose of constructing a hotel in the Panhandle of Florida. In mid-August of 1983, Smith and Advanced Concrete, as a joint venture, were notified by Waldorff Insurance & Bonding Company of Fort Walton Beach, Florida, of Lumberman's Mutual Casualty Company's intent to bond an 18-story hotel in Texas as long as certain conditions were met, including that the bond be issued to the joint venture. In September 1983, Double W Investors, the owner of a tract of land in Austin, entered into a contract with Advanced Concrete for construction of an 18-story Ramada Inn on its property. On October 25, 1983, Herbert Watkins, president of Advanced Concrete, executed a contract with Otis Elevator for the manufacture, sale, delivery and installation of four elevators for the Austin hotel. Six days later, Advanced Concrete and Smith executed a joint venture agreement for the purpose of constructing the Austin hotel. The agreement provided, among other matters, that both parties were responsible for the project's superintendent and control; that Smith was to provide an on-site manager with full authority to act on behalf of Smith; and that Smith would furnish the joint venture bond and the project's working capital.

In February 1984, Double W Investors executed a new contract for construction of the hotel on its property, this time with Advanced Concrete and Smith, a joint venture, and Austin Hotel Association, Ltd. On March 28, 1984, the City of Austin issued a building permit; however, the parties dispute to whom the permit was issued. The permit recites in typewritten form that it was issued to Austin Hotel Association, Ltd., and Advanced Concrete of Texas. Following "Advanced Concrete of Texas" is the handwritten notation "and Zac Smith Co., a Joint Venture." The director of the city's building inspection department certified that the permit was issued to "Advanced Concrete of Texas and Zac Smith, JTV." Lumberman's Mutual, as surety, issued a bonding and escrow agreement to the joint venture on April 12, 1984, in the amount of $9,856,000 for construction of the hotel; however, the performance bond was not executed. The construction of the hotel was never realized....