Kelly v. General Interior Const., Inc.

• Decision Date: 15 January 2010
• Docket Number: No. 08-0669.,08-0669.
• Citation: 301 S.W.3d 653
• Parties: Dan KELLY and Laura Hofstatter, Petitioners, v. GENERAL INTERIOR CONSTRUCTION, INC., Respondent.
• Court: Texas Supreme Court

301 S.W.3d 653

Dan KELLY and Laura Hofstatter, Petitioners, v. GENERAL INTERIOR CONSTRUCTION, INC., Respondent.

No. 08-0669.

Supreme Court of Texas.

Argued November 18, 2009.

Delivered January 15, 2010.

David C. Holmes and Leymon L. Solomon, The Solomon Law Firm, Houston, TX, for Petitioners.

Ross A. Sears, II, Sears Crawford, L.L.P., Houston, TX, for Respondent.

Justice GUZMAN delivered the opinion of the Court.

To establish personal jurisdiction in Texas courts over nonresident defendants, plaintiffs must plead a connection between the defendants' alleged wrongdoing and the forum state. Asserting statutory and common law claims, General Interior Construction, Inc. (GIC), a Texas corporation, sued Daniel Kelly and Laura Hofstatter (collectively, the Officers), both Arizona residents. Absent from GIC's pleadings, however, is any allegation that Kelly and Hofstatter committed any acts giving rise to these claims in Texas. Because the Officers filed a special appearance proving that they do not live in Texas, they successfully negated all alleged bases for personal jurisdiction in Texas courts. We accordingly reverse in part the court of appeals and render judgment dismissing GIC's claims against the Officers for lack of personal jurisdiction.

I. Background

Kelly and Hofstatter are the sole shareholders and officers of Diva Consulting, Inc., an Arizona-based general contractor that Meristar Hospitality Corporation, a non-Texas entity, hired to renovate a Houston hotel. Diva then entered into subcontracting agreements with various companies, including Texas-based GIC, to perform the work. During construction Kelly made several trips to Houston to oversee the project. Diva also sent change orders and payments to and received invoices from these Texas companies, while receiving funds from Meristar to pay for the work.

Disputes arose between Diva and GIC, with the former claiming that GIC did substandard work requiring substantial expenditures to remedy, and the latter claiming that Diva did not pay the entire contract amount. Meristar ultimately filed a lawsuit against Diva and various subcontractors, including GIC. GIC filed cross-claims against Diva and third-party claims against the Officers, asserting claims for breach of contract, violations of Chapter 162 of the Texas Property Code (Texas Trust Fund Act),¹ and fraud.

Regarding the trust-fund claims, GIC alleged that the Officers "were the trustee[s] of all payments made to [Diva] by [Meristar]"; that GIC was "a beneficiary of the trust money paid to the trustees"; and that the Officers "provided affidavits to [Meristar] stating that all subcontractors (including [GIC]) were paid or would be paid" when in fact those statements were "untrue." In its fraud claim, GIC referred to its trust-fund allegations and alleged that "the material representations made by [Diva] were false and were made with the intention that GIC would rely thereon." The only mention of Texas in GIC's pleading is the incorporation by reference of Diva's contract with GIC, which identifies the Houston hotel as the job site. GIC did not allege that the Officers lived in Texas, that they conducted business in Texas, or that any of the operative facts of the trust-fund and fraud claims occurred in Texas.

The Officers filed a special appearance, stating they were residents of Arizona, did not own property in Texas, did not employ anyone in Texas, and did not conduct business in Texas in their personal capacities. The trial court denied the special appearance, and a divided court of appeals affirmed in part, reversing only as to the breach-of-contract claim.²

The majority reasoned that the Texas Trust Fund Act reaches past the corporation to hold its officers personally liable for violations of the Act: "[W]e must focus only on whether [GIC] has pleaded that the Officers, regardless on behalf of [Diva] or in their individual capacities, controlled and directed funds received for the [hotel] project." 262 S.W.3d 79, 86. Finding that GIC had so pleaded, the court upheld the trial court's order. The court used similar reasoning regarding the fraud claim, concluding that "[t]he Officers' alleged fraud sufficiently `relates to' conduct purposefully directed toward Texas." Id. at 86-87. In response to the dissent's claim that the Officers had no connection with Texas, the majority pointed to the following facts: "The record reveals that performance under the construction contract was to be performed exclusively in Texas. The Officers sent and directed payments to [GIC] in Texas. Kelly made site visits to the Texas work site. The Officers received numerous invoices from Texas regarding the [hotel] project." Id. at 86 n. 5.

The dissent found no connection between the Officers and Texas for either claim:

In its third-party petition, [GIC] alleges that the Officers acted with intent to defraud by providing false affidavits to Meristar and that the Officers violated section 162.005(1)(C) of the Texas Property Code. [GIC] also asserts that the Officers fraudulently represented that [GIC] would be paid in full under its contract with Diva. Notably, [GIC] does not allege that any of these acts occurred in Texas. Moreover, in its third-party petition, [GIC] does not allege that the Officers committed any act whatsoever in Texas or that they conducted any business whatsoever in Texas. Therefore, [GIC's] third-party petition lacks sufficient allegations to invoke the trial court's personal jurisdiction over the Officers, and the Officers, thus, could satisfy their burden of negating all bases of personal jurisdiction merely by presenting evidence that they are not residents of Texas.

Id. at 93 (Frost, J., dissenting). Because the Officers established that they do not live in Texas, the dissent would have reversed the trial court's denial of the Officers' special appearance.

The Officers petitioned this Court for review, which we granted. 52 Tex. Sup.Ct. J. 792 (June 5, 2009). We have jurisdiction because there is a dissent in the court of appeals. See TEX. GOV'T CODE § 22.225(c); BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 793 (Tex. 2002).

II. Standard of Review

Whether a court can exercise personal jurisdiction over nonresident defendants is a question of law, and thus we review de novo the trial court's determination of a special appearance. Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex.2007); BMC Software, 83 S.W.3d at 794. "When [as here] a trial court does not issue findings of fact and conclusions of law with its special appearance ruling, all facts necessary to support the judgment and supported by the evidence are implied." BMC Software, 83 S.W.3d at 795 (citing Worford v. Stamper, 801 S.W.2d 108, 109 (Tex.1990); Zac Smith & Co. v. Otis Elevator Co., 734 S.W.2d 662, 666 (Tex.1987); In re W.E.R., 669 S.W.2d 716, 717 (Tex.1984)).

III. Discussion

A. In Personam Jurisdiction

A nonresident defendant is subject to the personal jurisdiction of Texas courts if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of jurisdiction does not violate federal and state constitutional due process guarantees. Schlobohm v. Schapiro, 784 S.W.2d 355, 356 (Tex.1990). The broad "doing business" language in Texas's long-arm statute allows the trial court's jurisdiction to "reach as far as the federal constitutional requirements of due process will allow." Moki Mac, 221 S.W.3d at 575 (quoting Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991)). Personal jurisdiction is consistent with due process "when the nonresident defendant has established minimum contacts with the forum state, and the exercise of jurisdiction comports with traditional notions of fair play and substantial justice." Id. (internal quotation marks omitted) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). "A defendant establishes minimum contacts with a state when it purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws." Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338 (Tex.2009) (internal quotation marks omitted) (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)).

GIC argues that the trial court had only specific jurisdiction over its claims against the Officers. "Specific jurisdiction . . . arises when (1) the defendant purposefully avails itself of conducting activities in the forum state, and (2) the cause of action arises from or is related to those contacts or activities. In a specific jurisdiction analysis, we focus . . . on the relationship among the defendant, the forum[,] and the litigation." Id. (alteration in original) (citations and internal quotation marks omitted).

B. Special Appearance

Our special-appearance jurisprudence dictates that the plaintiff and the defendant bear shifting burdens of proof in a challenge to personal jurisdiction. We have consistently held that the plaintiff bears the initial burden to plead sufficient allegations to bring the nonresident defendant within the reach of Texas's long-arm statute. See id. at 337; Moki Mac, 221 S.W.3d at 574; Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 807 (Tex.2002); BMC Software, 83 S.W.3d at 793; McKanna v. Edgar, 388 S.W.2d 927, 930 (Tex.1965). Once the plaintiff has pleaded sufficient jurisdictional allegations, the defendant filing a special appearance bears the burden to negate all bases of personal jurisdiction alleged by the plaintiff. E.g., Retamco Operating, 278 S.W.3d at 337.³ Because the plaintiff defines the scope and nature of the lawsuit, the defendant's corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff's pleading.⁴

If the plaintiff fails to plead facts bringing the defendant within reach of...