Ramirez v. Hariri

• Decision Date: 27 June 2005
• Docket Number: No. 05-04-00407-CV.,05-04-00407-CV.
• Parties: Jose RAMIREZ and Antonia Ramirez, Individually and as Next Friends of Maria de los Angeles Ramirez, A Minor Child, and Claudia Ramirez, Appellants, v. Morad HARIRI and Nadereh Hariri, Appellees.
• Court: Texas Supreme Court

165 S.W.3d 912

Jose RAMIREZ and Antonia Ramirez, Individually and as Next Friends of Maria de los Angeles Ramirez, A Minor Child, and Claudia Ramirez, Appellants, v. Morad HARIRI and Nadereh Hariri, Appellees.

No. 05-04-00407-CV.

Court of Appeals of Texas, Dallas.

June 27, 2005.

COPYRIGHT MATERIAL OMITTED

J. Scott McLain, Edinburg, Victor Manuel Carrera, McAllen, for Appellant.

Gregory R. Ave, Dawn Christine Woelfel Hansen, Touchstone, Bernays, Johnston, Beall & Smith, Dallas, for Appellee.

Before Justices MOSELEY, FRANCIS, and MAZZANT.

OPINION

Opinion By Justice MOSELEY.

In this appeal of an order sustaining a special appearance, we address whether the alleged undercapitalization of a corporation, by itself, is a sufficient basis for piercing the corporate veil and attributing the corporation's jurisdictional contacts to its shareholders, subjecting them to the jurisdiction of the Texas courts. We conclude it is not, and affirm the trial court's order.

BACKGROUND

Claudia Ramirez and Maria de los Angeles Ramirez, a minor child, were injured in a house fire allegedly caused by a defectively designed and/or manufactured portable radio, Cornet Model RC-1727. Cornet, a California corporation, manufactured the radio and placed it in the stream of commerce, where it was sold to the Ramirezes. Jose Ramirez and Antonia Ramirez, individually and as next friends of Maria, and Claudia sued Cornet in Texas. Cornet did not contest personal jurisdiction.

Subsequently the Ramirezes amended their petition to add as defendants Morad Hariri and Nadereh Hariri, who were Cornet's sole shareholders. The Ramirezes' amended petition asserts that Cornet was undercapitalized as the corporation is no longer in business and has no assets. The Hariris filed a special appearance to contest the assertion of personal jurisdiction. After a hearing, the trial court sustained the Hariris' special appearance. The trial court found Cornet had assets greater than $250,000 at the time the Ramirezes bought the radio, Cornet maintained liability insurance, and Cornet had positive net equity at the time the company's assets were sold.

The Ramirezes appeal, asserting four issues: (1) the evidence is legally and factually insufficient to support the trial court's findings regarding Cornet's assets, liability insurance, and net equity; (2) Cornet was undercapitalized as a matter of law; (3) the trial court findings are against the great weight and preponderance of the evidence; and (4) the trial court erred in granting the Hariris' special appearance.

STANDARD OF REVIEW

A Texas court may exercise jurisdiction over a non-resident defendant if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of jurisdiction is consistent with the due process clause of the United States Constitution. BMC Software Belgium N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex.2002). The broad language of the long-arm statute permits a Texas court to exercise jurisdiction as far as the federal constitution will permit. Id. Consequently, in determining whether jurisdiction exists, we need only determine whether the exercise of jurisdiction comports with the due process clause of the United States Constitution. See City of Riverview, Mich. v. Am. Factors, Inc., 77 S.W.3d 855, 857 (Tex.App.-Dallas 2002, no pet.). The due process clause permits a court to exercise jurisdiction over a non-resident defendant if (1) the defendant has purposefully established minimum contacts with the forum state, and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). The defendant's activities in the forum must justify a conclusion that the defendant could reasonably anticipate being haled into a Texas court. Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 806 (Tex.2002), cert. denied, 537 U.S. 1191, 123 S.Ct. 1271, 154 L.Ed.2d 1025 (2003).

The plaintiff bears the initial burden of pleading facts sufficient to bring a non-resident defendant within the provisions of the Texas long-arm statute. BMC Software, 83 S.W.3d at 793. A non-resident defendant challenging personal jurisdiction through a special appearance ordinarily carries the burden of negating all alleged bases of personal jurisdiction. Id. However, if the plaintiff seeks to assert jurisdiction over a non-resident defendant under a theory that the corporate fiction should be disregarded and the corporation's jurisdictional contacts should be imputed to its non-resident shareholders, the plaintiff must prove that theory. See BMC Software, 83 S.W.3d at 798; Le Meridien Hotels & Resorts v. LaSalle Hotel Operating P'ship, I, L.P., 141 S.W.3d 870, 878 (Tex.App.-Dallas 2004, no pet.).

The exercise of personal jurisdiction over a non-resident is ultimately a question of law that often requires the resolution of factual issues as well. Kytel Int'l Group, Inc. v. Rent-A-Ctr., Inc., 132 S.W.3d 717, 719 (Tex.App.-Dallas 2004, no pet.) (citing BMC Software, 83 S.W.3d at 794). We review the trial court's fact findings for legal and factual sufficiency, but conduct a de novo review of its legal conclusions. Id.

DISCUSSION

The trial court found that the Hariris: (1) are not, and have never been, residents of Texas; (2) are not required to maintain and do not maintain registered agents for service in Texas; (3) do not engage, and have not engaged in business in Texas; (4) have not committed any tort in Texas. These findings of fact are not in dispute. Because there is not an individual basis for personal jurisdiction in Texas over the Hariris, the only means of asserting personal jurisdiction is the imputation of Cornet's contacts onto these individual shareholders through the theory supporting the piercing of Cornet's corporate veil.

The Ramirezes assert that because Cornet was undercapitalized, its shareholders should be subject to personal jurisdiction. They point to evidence that the business was liquidated and closed subsequent to the filing of the lawsuit. Because Cornet cannot pay a judgment, the Ramirezes contend Cornet is undercapitalized. However, there is also evidence in the record that prior to this lawsuit, Cornet had assets greater than $250,000, yearly sales grossing more than $1 million, and liability insurance.

The parties dispute when capitalization of the corporation is to be measured. The Ramirezes argue capitalization is measured at the time of the lawsuit, while the Hariris contend it is at the time the product was delivered. The determination of when to measure capitalization would be critical to the issue of whether there was sufficient evidence to support the finding that Cornet was inadequately capitalized. However, we do not reach this issue.

The Ramirezes assert that undercapitalization, by itself and without reference to any other factors, is sufficient to justify piercing the corporate veil and attributing Cornet's jurisdictional contacts to the Hariris. We conclude that undercapitalization alone, even if established, is not a sufficient basis to disregard the corporation and assert personal jurisdiction over the shareholders.

Generally, jurisdiction over an individual cannot be predicated on jurisdiction over a corporation. Clark v. Noyes, 871 S.W.2d 508, 518 (Tex.App.-Dallas 1994, no writ.); Leon Ltd. v. Albuquerque Commons, 862 S.W.2d 693, 708 (Tex.App.-El Paso 1993, no writ.). However, if a basis exists for disregarding the corporate fiction, personal jurisdiction over a non-resident party may be established by imputing the jurisdictional contacts of the corporate entity to its shareholders. See BMC Software, 83 S.W.3d at 798 (alter ego theory).

In Castleberry v. Branscum, 721 S.W.2d 270 (Tex.1986), the Texas Supreme Court recognized several situations in which Texas courts will disregard the corporate fiction:

(1) when the fiction is used as a means of perpetrating fraud;

(2) where a corporation is organized and operated as a mere tool or business conduit of another corporation;

(3)...