Kawasaki Steel Corp. v. Middleton

• Decision Date: 18 September 1985
• Docket Number: No. C-3945,C-3945
• Citation: 699 S.W.2d 199
• Parties: KAWASAKI STEEL CORPORATION, Petitioner, v. John G. MIDDLETON, d/b/a Middleton Oil Company, Respondent.
• Court: Texas Supreme Court

Page 199

699 S.W.2d 199

KAWASAKI STEEL CORPORATION, Petitioner, v. John G. MIDDLETON, d/b/a Middleton Oil Company, Respondent.

No. C-3945.

Supreme Court of Texas.

Sept. 18, 1985.

Rehearing Denied Nov. 13, 1985.

Miller, Keeton, Bristow and Brown, Orran Lee Brown and W. Robert Brown, Houston, for petitioner.

Pannill and Reynolda, Linda L.S. Moroney, Houston, for respondent.

PER CURIAM.

Oilworld Supply Company sued John Middleton for payment for oil well casing Middleton purchased from Oilworld. Middleton filed a counterclaim against Oilworld and third-party claims against Kawasaki Steel Corporation of Japan and Japan Cotton Company for defective casing. Kawasaki allegedly manufactured the casing, and Japan Cotton Company is the trading company that filled Oilworld's order for the casing. Kawasaki filed a special appearance under Tex.R.Civ.P. 120a contending: (1) that Kawasaki lacks minimum contacts with Texas so that the exercise of jurisdiction over its person by a Texas court would violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution; (2) that Middleton has not alleged the facts required for service of process under the "Texas Long Arm Statute," Tex.Rev.Civ.Stat.Ann. art. 2031b (Vernon 1964); and (3) that Middleton did not properly effect service of process.

The trial court held that Kawasaki lacked minimum contacts with Texas and dismissed the cause against Kawasaki. The court of appeals reversed the judgment of the trial court and remanded the cause for trial. 687 S.W.2d 42. That court held Kawasaki did have minimum contacts with Texas and that a non-resident defendant may not contest defects in service of process in a special appearance. We refuse petitioner's application for writ of error with the notation "writ refused, no reversible error."

The facts are well stated in the opinion by the court of appeals and need not be repeated here. Personal jurisdiction is composed of two elements: (1) the defendant must be amenable to the jurisdiction of the court; and (2) if the defendant is amenable to the jurisdiction of the court, the plaintiff must validly invoke that jurisdiction by valid service of process on the defendant. Thode, IN PERSONAM JURISDICTION: Article 2031(b), The Texas Longarm Statute; and the Appearance to Challenge Jurisdiction in Texas and Elsewhere, 42 Tex.L.Rev. 279, 312-13 (1964).

The first issue is whether Kawasaki is amenable to the jurisdiction of Texas courts. We have held that article 2031b "reaches as far as the federal constitutional requirements of due process will permit." U-Anchor Advertising, Inc. v. Burt, 553 S.W.2d 760 (Tex.1977). Thus, the issue is whether subjecting Kawasaki to the jurisdiction of Texas courts would violate the federal Due Process Clause.

In World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), the United States Supreme Court stated:

When a corporation "purposefully avails itself of the privilege of conducting activities within the forum State," Hanson v. Denckla, 357 U.S. at 254, 78 S.Ct. [1228] at 1240 [2 L.Ed.2d 1283 (1958) ], it has clear notice that it is subject to suit there, and can act to alleviate the risk of burdensome litigation by procuring insurance, passing the expected costs on to customers, or, if the risks are too great, severing its connection with the State. Hence if the sale of a product of a manufacturer or distributor such as Audi or Volkswagen is not simply an isolated occurrence, but arises from the efforts of the manufacturer or distributor to serve directly or indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in one of those States if its allegedly defective merchandise has there been the source of injury to its owner or to others. The forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivered its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.

444 U.S. at 297-98, 100 S.Ct. at 567.

The federal circuit courts have followed this dicta in World-Wide Volkswagen to develop the "stream of commerce doctrine." See e.g., DeJames v. Magnificence Carriers, Inc., 654 F.2d 280 (3rd Cir.), cert. denied, 454 U.S. 1085, 102 S.Ct. 642, 70 L.Ed.2d 620 (1981); Oswalt v. Scripto, Inc., 616 F.2d 191 (5th Cir.1980); Coulter v. Sears, Roebuck & Co., 426 F.2d 1315 (5th Cir.1970). Under the stream of commerce doctrine, a defendant has "purposefully availed itself of the privilege of conducting activities" in the forum state if the non-resident defendant sells its product to an independent distributor and "there is a reasonable expectation that the product will enter the forum state." Oswalt, 616 F.2d at 201.

Kawasaki annually sells between 40 and 48 million dollars worth of steel that reaches Texas consumers and routinely confirms the content and destination of each order with the trading company that transports the steel to the Port of Houston. The inspection certificates for the Kawasaki casing sold to Middleton were prepared by Kawasaki and shown a Texas buyer. Moreover, at the time the cause of action arose, Kawasaki maintained an office in Houston that provided sales promotion, marketing research, and after-sales service to Kawasaki's customers in North America and Mexico.

Kawasaki argues there is some evidence that it did not "reasonably expect" its products to be sold in Texas because it did not retain the power to direct trading companies to sell or not sell its steel in Texas. "Reasonable expectation," not "right of control" is the controlling issue under the stream of commerce doctrine; therefore, Kawasaki is amenable to the jurisdiction of Texas courts.

The second issue is whether a non-resident defendant may challenge the plaintiff's failure to allege the facts required for service of process under article 2031b, defective service of process, or failure to properly effect service of process in a special appearance.

Before this court promulgated Rule 120a, any appearance by a non-resident defendant was a general appearance which subjected the defendant to the jurisdiction of the court. York v. State, 73 Tex. 651, 11 S.W. 869 (1889), aff'd York v. Texas, 137 U.S. 15, 11 S.Ct. 9, 34 L.Ed. 604 (1890). Thus, a non-resident defendant had only two options: he could either appear and consent to jurisdiction or allow a default judgment to be taken against him and attack the Texas judgment as being void if the plaintiff brought suit in the defendant's state to enforce the judgment.

Rule 120a altered the York rule by allowing a non-resident defendant to make a special appearance "for the purpose of objecting to the jurisdiction of the court over the person or property of the defendant, on the ground that such party or property is not amenable to process issued by the courts of this state." Tex.R.Civ.P. 120a. However, in all other respects the York rule is unchanged.

The key word is "amenable." Professor Thode, in a well-received article on Rule 120a, interprets this word in its context as follows:

The words "not amenable to process issued by the courts of this state" can only be interpreted to mean that the special appearance is available solely to establish that the Texas court cannot, under the federal and state constitutions and the appropriate state statutes, validly obtain jurisdiction over the person or the property of the defendant with regard to the cause of action pled. Defective service or defective process, or even an attempt to bring the defendant before the court under the wrong statute does not authorize the use of the special appearance. If the defendant attempts to make a special appearance to raise any of these contentions, then his appearance is a general one and the rule of York v. State applies to him with full force.

Thode, supra at 312-13. Thode argues that the correct procedure to challenge a defect in the manner of obtaining jurisdiction (service or process) is by a Rule 122 motion to quash citation. Id. at 313. Rule 122 provides:

If the citation or service thereof is quashed on motion of the defendant, such defendant shall be deemed to have entered his appearance at ten o'clock a.m. on the Monday next after the expiration of twenty (20) days after the day on which the citation or service is quashed, and such defendant shall be deemed to have been duly served so as to require him to appear and answer at that time, and if he fails to...