WNS, Inc. v. Farrow

Citation884 F.2d 200
Decision Date22 September 1989
Docket NumberNo. 88-6065,88-6065
PartiesWNS, INC., Plaintiff-Appellant, v. James Larry FARROW and Mary Dee Farrow, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Lee L. Kaplan, David Hricik, Baker & Botts, Houston, Tex., for plaintiff-appellant.

Daniel J. Kasprazak, Glenda Hobbs Kirsch, John T. Johnston, Calvin, Dylewski, Gibbs, Maddox, Russell & Verner, Houston, Tex., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before CLARK, Chief Judge, JOHNSON and SMITH, Circuit Judges.

JOHNSON, Circuit Judge:

Plaintiff WNS, Inc. (WNS) appeals an order of the district court dismissing its lawsuit against defendants James Larry Farrow and Mary Dee Farrow for lack of personal jurisdiction. Persuaded that sufficient contacts exist between the Farrows and Texas to support the exercise of personal jurisdiction over the Farrows in federal district court in Texas, we reverse and remand.

I. FACTS AND PROCEDURAL HISTORY

The jurisdictional issue presented by the instant appeal evolves out of the attempt by plaintiff WNS to bring suit against the defendant Farrows in federal district court in Texas. WNS filed its action against the Farrows on December 18, 1987, asserting both tort and contract claims arising from transactions and negotiations occurring in Texas and Georgia between WNS and the Farrows regarding the purchase and operation of a "Deck the Walls" franchise. The following is a brief summary of the facts relevant to the instant appeal.

WNS is a Texas corporation located in Houston, Texas, which licenses the Deck the Walls trade name, and franchises a comprehensive system for opening and operating a Deck the Walls store. In maintaining this system, WNS provides franchisees desiring to operate a Deck the Walls store with a complete program for operating such a business. In the instant appeal, the Farrows, who are residents of Georgia, contacted WNS at its Houston office in March 1986 for the purpose of one or both of them applying to become Deck the Walls store franchisees. As part of the process of becoming a Deck the Walls franchisee, an individual applicant is required by WNS to travel to Houston for an extensive formal interview. Accordingly, on or about March 7, 1986, the Farrows travelled to Houston for the purpose of meeting with WNS employees for the above formal interview and allegedly to negotiate and structure a franchise agreement.

At this point, it should be noted that the Farrows dispute the above proposition that they travelled to Houston for the purpose of becoming Deck the Walls franchisees; instead, the Farrows maintain that they travelled to Houston merely for a "social visit" to learn more about the virtues of the company from the WNS staff. WNS asserts, however, that in addition to negotiating and structuring a franchise agreement with WNS during the Houston visit, the Farrows also completed an application for a Georgia franchise of Deck the Walls which both Mr. and Mrs. Farrow signed. Moreover, WNS maintains that, during the Houston visit, the parties negotiated specific terms for the following three contracts: (1) a franchise agreement to buy a franchise for $171,857 to operate a Deck the Walls store in Georgia, (2) a loan/lease agreement to enable the Farrows to operate the Deck the Walls store in Georgia before permanent financing was in place, and (3) a sublease agreement for a space in a shopping center in Georgia for the Deck the Walls store.

Thereafter, the Farrows returned to Georgia and subsequently mailed a cashier's check to WNS in partial payment of their financial obligations under the franchise agreement. On the same day that the Farrows mailed the above cashier's check, WNS transmitted to the Farrows a copy of the franchise agreement for their signatures. In April 1986, the Farrows sent to WNS in Houston a second cashier's check. Mrs. Farrow subsequently attended a one-week training course in Houston to learn the mechanics of operating a Deck the Walls store. Apparently, both Mr. and Mrs. Farrow originally signed up for the training course, but only Mrs. Farrow attended.

Following the one-week training session in Houston, Mrs. Farrow returned to Georgia and, on May 13, 1986, signed an authorization to occupy certain leased premises for the Deck the Walls franchise in Georgia which designated both the Farrows as franchisees. Mrs. Farrow also signed the franchise agreement. Mr. Farrow, however, did not sign the above two documents. Upon receipt of the franchise agreement in Houston with only the signature of Mrs. Farrow, WNS, through its attorney, informed the Farrows that it had understood both Farrows were applying to be franchisees. Thereafter, Mrs. Farrow operated a Deck the Walls franchise in Georgia until April 1987, at which time WNS took possession of the Georgia store and terminated the sublease. It was at this time that WNS discovered that Mr. Farrow had been operating a competing framing store in Georgia in purported violation of the franchise agreement.

Ultimately, WNS filed suit against the Farrows in state district court in Texas alleging fraud and breach of contract on the part of the Farrows in misrepresenting their intentions to apply for and operate a Deck the Walls franchise. After the Farrows removed the instant case to federal district court in Texas, the Farrows filed a motion to dismiss the suit for lack of personal jurisdiction on the basis that they were not residents of Texas, and had not engaged in business in Texas. The federal district court subsequently granted the motion to dismiss of the Farrows. WNS now appeals.

II. DISCUSSION

"A federal court sitting in diversity may exercise jurisdiction over a nonresident defendant, provided state law confers such jurisdiction and its exercise comports with due process under the Constitution." Interfirst Bank Clifton v. Fernandez, 844 F.2d 279, 282 (5th Cir.1988), opinion withdrawn in part on other grounds, 853 F.2d 292 (1988). In Texas, since the Texas Long-Arm Statute has been interpreted to extend as far as is permitted by due process, the sole inquiry for this Court becomes whether the exercise of personal jurisdiction over a nonresident defendant comports with federal constitutional requirements. Id. See Hall v. Helicopteros Nacionales de Columbia, S.A., 638 S.W.2d 870 (Tex.1982), rev'd on other grounds, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984).

Due process requires that a district court seeking to exercise personal jurisdiction over a nonresident defendant must first conclude that the nonresident defendant has purposefully established "minimum contacts" with the forum state "such that the maintenance of the suit does not offend '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) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342-43, 85 L.Ed. 278 (1940)). In this regard, the minimum contacts of a nonresident defendant with the forum state may support either "specific" or "general" jurisdiction. Interfirst Bank Clifton, 844 F.2d at 283. We are concerned only with specific jurisdiction in the instant appeal as the claim asserted by WNS against the Farrows arises out of or is related to the alleged contacts by the Farrows with Texas. 1

Once a motion to dismiss for lack of personal jurisdiction has been presented to a district court by a nonresident defendant, the party who seeks to invoke the jurisdiction of the district court bears...

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