Rosemont Enterprises, Inc. v. Lummis

• Decision Date: 13 February 1980
• Docket Number: No. A2244,A2244
• Citation: 596 S.W.2d 916
• Parties: ROSEMONT ENTERPRISES, INC., Appellant, v. William R. LUMMIS, Temporary & Co-Administrator, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 916

596 S.W.2d 916

ROSEMONT ENTERPRISES, INC., Appellant, v. William R. LUMMIS, Temporary & Co-Administrator, Appellee.

No. A2244.

Court of Civil Appeals of Texas, Houston (14th Dist.).

Feb. 13, 1980.

Rehearing Denied March 5, 1980.

Eliot Tucker, Mandell & Wright, John E. Bagalay, Jr., Houston, for appellant.

R. F. Wheless, Jr., Houston, for appellee.

Before BROWN, C. J., and MILLER and JUNELL, JJ.

MILLER, Justice.

The threshold questions in this action to enforce the terms of a promissory note are whether the probate court of Harris County had in personam jurisdiction of the debtor, a Nevada corporation with offices in New York and authority to do business in California as well, and if so, did it have subject matter jurisdiction? We hold that the court had both, that it decided other questions involved in the judgment correctly, and thus we affirm.

On July 2, 1965, Howard Hughes granted to Rosemont Enterprises, Inc. the exclusive right to publish his biography or otherwise to exploit his name or life-history. Rosemont was incorporated in Nevada for that purpose on September 16, 1965. Its original three shareholders were two executives of the Hughes Tool Company and Chester Davis, general counsel of that company. Under the contract, Rosemont agreed to pay Hughes 60% of the net proceeds, as defined, derived by Rosemont from the use of the rights granted it.

Aside from the issue of capital stock, Rosemont financed its operations from July 2, 1965, to September 9, 1974, by a series of loans from the Texas Commerce Bank, N. A., in Houston, Texas. These loans were guaranteed by the Hughes Tool Company, which later changed its name to Summa Corporation, and were arranged by a Hughes Tool Company executive, Raymond Holliday, who resided in Houston. By September 6, 1974, the appellant owed the bank $250,000.00 and had paid approximately $130,000.00 in interest. This interest was apparently financed by unsecured borrowings from an unrevealed source.

In order to reduce the interest charges and to lessen Summa Corporation's income tax exposure, on September 9, 1974, the decedent, Howard Hughes, transferred to appellant's account in the Texas Commerce Bank $500,000.00 in exchange for a note of like amount dated September 6, 1974, due on or before September 6, 1975. The note provided for interest at the prime rate charged by the Texas Commerce Bank, and was payable at that bank. $265,091.33 of the proceeds were used to pay principal and interest on the notes due the bank, and the balance remained on deposit at the bank. On September 12, 1975, Rosemont purchased a certificate of deposit for $225,000.00 from the Texas Commerce Bank, and left the certificate with the bank for safekeeping.

Hughes died on April 5, 1976, without having attempted to collect either principal or interest on the note. Appellee Lummis was appointed Temporary Co-Administrator in Texas of the Hughes estate by the probate court of Harris County. He filed suit in that court seeking recovery on the note, and also sought a temporary injunction against Texas Commerce Bank restraining the bank from releasing funds of Rosemont held by the bank. Appellee additionally requested a writ of garnishment of the approximately $245,000.00 held by the bank for Rosemont's account.

Service was had on the Secretary of State, who notified appellant by mail addressed to its New York office. The day before the hearing on the temporary restraining order, Chester Davis, secretary-treasurer of appellant, wired the court stating that he had just received copies of the petition, asking for a delay in the hearing. This was granted. Rosemont then filed a special appearance and motion to dismiss in which it contested the court's personal jurisdiction over it, the authority of Lummis to bring the suit, and the propriety of the issuance of an injunction. The court ruled in appellee's favor on Rosemont's motion, and later granted summary judgment on the $500,000.00 note and directed the issuance of a writ of garnishment.

I.

In its first point of error, appellant levels a three-pronged attack on the probate court's ruling that it had personal jurisdiction of appellant. It alleges service of process was inadequate; the Texas "long-arm" statute, Tex.Rev.Civ.Stat.Ann. art. 2031b (Vernon 1964), does not authorize the suit; and Rosemont had insufficient contacts with Texas to satisfy federal and state due process standards.

Appellee alleged in its original petition that "Defendant, Rosemont Enterprises, Inc., is a Nevada Corporation doing business in Texas and having assets located in the State of Texas and may be served by serving the Secretary of State of Texas, pursuant to article 2031b." Appellant correctly points out that such petition fails to allege that it does not maintain a place of regular business in Texas nor a designated agent for service. ¹ It urges that such failure is fatal to the process, and cites McKanna v. Edgar, 388 S.W.2d 927 (Tex.1965), which held that the record must reflect these conditions. As pointed out in Collins v. Mize, 447 S.W.2d 674, 675 (Tex.1969), however, "(t) his court's opinion in McKanna v. Edgar, 388 S.W.2d 927 (Tex.1965) is inapplicable, since the appeal there was on a writ of error following a default judgment. The particularity of pleading required to sustain a default judgment against a direct attack was a critical consideration in that case." (Emphasis added). Appellant here does not deny that it received actual notice, and it has vigorously defended the case.

Appellant's telegram to the court asserted that Rosemont had "no pertinent contact with Texas other than the deposit of funds with the Texas Commerce Bank and its only office is in New York." The missing allegations were thus supplied to the record. Further, appellee's amended complaint filed in the federal district court after removal of the case thereto was served on Rosemont by service upon the Secretary of State and notice to Rosemont as provided in article 2031b. In addition, after remand to the probate court, appellee filed its amended petition which was served upon appellant by service upon the Secretary of State and notice to Rosemont. Both of these petitions contained the missing allegations.

The Supreme Court of the United States has pointed out in Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313, 70 S.Ct. 652, 656, 94 L.Ed. 865, 873 "the . . . words of the Due Process Clause . . . at a minimum require that deprivation of life, liberty or property by adjudication be preceded by notice and opportunity for hearing appropriate to the nature of the case." These minimum constitutional standards have been adequately met in the case at hand. Rosemont's complaint of inadequacy of notice is ill-founded.

Appellant's next attack is on the statutory foundation of the court's in personam jurisdiction over the defendant. Article 2031b(4) provides as follows:

For the purpose of this Act, and without including other acts that may constitute doing business, any foreign corporation, joint stock company, association, partnership, or non-resident natural person shall be deemed doing business in this State by entering into contract by mail or otherwise with a resident of Texas to be performed in whole or in part by either party in this State, or the committing of any tort in whole or in part in this State.

Appellant singles out the phrase "with a resident of Texas" and argues that such phrase excludes transactions to be performed in the state where both parties are non-residents of the state.

Both parties contend that the decedent, Hughes, was not a resident of Texas. While we note parenthetically that on December 6, 1977, a jury, in a Texas case now on appeal, found Hughes was a Texas domiciliary, such determination is not necessary to finding in personam jurisdiction in this case.

Appellant cites Law, Snakard, Brown & Gambill v. Brunette, 509 S.W.2d 671 (Tex.Civ.App. Beaumont 1974, writ ref'd n. r. e.) as authority for the argument that no single contract entered into between non-residents may be the basis of a contested suit within the state. That case, however, in finding that the defendant was amenable to suit in Texas, pointed out that the burden is on the defendant to show that it is not amenable to the long arm process not that one of the parties must be a resident of Texas. Our supreme court has ruled 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, 762 (Tex.1977). The phrase, "and without including other acts that may constitute doing business" in 2031b(4) expands the scope of in personam jurisdiction to the limits of the federal constitution. See Thode, In Personam Jurisdiction; Article 2031b, the Texas "Long Arm" Jurisdiction Statute; and the Appearance to Challenge Jurisdiction in Texas and Elsewhere, 42 Tex.L.Rev. 279, 307-308 (1964). We hold that if the transaction at issue meets the constitutional requirement of due process a suit thereon is justiciable in Texas even though neither party is a resident of the state.

Appellant's third attack on the personal jurisdiction of the court below is that due process considerations preclude the exercise of jurisdiction in this case. Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977) makes it abundantly clear that the test of state court in personam jurisdiction is whether it is reasonable in the context of our federal system of government to require the defendant to defend a particular suit in the state where the suit is brought. The criterion of minimum contacts consistent with traditional notions of fair play and justice developed by International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), and its "progeny", McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), and Hanson v. Denckla, 357 U.S. 235, 78 S.Ct....