Smith Barney, Inc., In re

• Decision Date: 15 October 1998
• Docket Number: No. 97-0423,97-0423
• Citation: 975 S.W.2d 593,1998 WL 352958
• Parties: 41 Tex. Sup. Ct. J. 1131 In re SMITH BARNEY, INC., Relator.
• Court: Texas Supreme Court

Page 593

975 S.W.2d 593

41 Tex. Sup. Ct. J. 1131

In re SMITH BARNEY, INC., Relator.

No. 97-0423.

Supreme Court of Texas.

Argued Nov. 4, 1997.

Decided July 3, 1998.

Rehearing Overruled Oct. 15, 1998.

Thomas D. Cordell, Jeffrey T. Nobles, Kent Rutter, Houston, William P. Frank, Lawrence D. McCabe, New York City, for relator.

Michael D. Ford, Tom Bayko, David M. Bays, Houston, Paul Share, New York City, Jack G. Carnegie, Houston, for respondent.

HECHT, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, GONZALEZ, OWEN and ABBOTT, Justices joined.

The issue in this mandamus proceeding is whether the district court abused its discretion by denying defendant's motion to dismiss the underlying litigation on the basis of forum non conveniens. We deny relief.

I

Relator Smith Barney, Inc., a Delaware corporation with its principal place of business in New York, has been sued by five plaintiffs: The Privatization Group, Inc., a Texas corporation doing business only in New York ("TPGI-TX"); George Borey, a citizen of Poland residing in New York City; Pawel Jagiello, a citizen and resident of Poland; Jagiello's consulting firm, Pro-Invest International, Ltd., an entity organized under the law of Poland and doing business in that country; and Gornoslaski Bank Gospodarczy, a bank organized under Polish law and doing business in that country. Plaintiffs allege that Borey and Smith Barney agreed to form a joint venture they called Eagle Management Company to bid for selection as manager of one of fifteen National Investment Funds created by the Republic of Poland as part of its Mass Privatization Programme to sell state-owned enterprises to private investors, and that Pro-Invest and Gornoslaski Bank also became partners in the Eagle Management venture. Borey and his wife assigned their interest in Eagle Management to a New York corporation, The Privatization Group, Inc. ("TPGI-NY"), which they formed for that purpose. TPGI-NY's only directors were the Boreys, and its sole shareholder was Mrs. Borey. Plaintiffs allege that Smith Barney wrongfully withdrew from the venture and that as a result, the venture's bid to become an investment fund manager ceased to be viable.

Consequently, Borey sought out an attorney to sue Smith Barney, and for reasons not entirely clear on this record, retained Texas counsel for that purpose. Borey then formed a Texas corporation, Borey International, merged TPGI-NY into it, and renamed it The Privatization Group, Inc. TPGI-TX has never had an office other than Borey's New York City apartment, and it has never done business in Texas. When asked in a deposition why he had formed TPGI-TX, Borey explained:

The principal reason was that the energy business is now becoming, along with telecommunications, one of the principal hot areas in The Privatization Group, Inc. privatization business in a merger market, which is the business I'm involved in. I felt that since Texas is the seed of the energy business in the United States, since we're a small company, being incorporated in the State of Texas would help us from a marketing standpoint when we're dealing with Texas corporations.

Borey conceded, however, that TPGI-TX had never attempted to deal with any Texas corporations or do business in Texas.

Smith Barney removed the suit to federal court, asserting jurisdiction based on diversity of citizenship. TPGI-TX challenged this assertion, claiming that its principal place of business was in New York, where Smith Barney's is, so that one plaintiff's citizenship is the same as that of the defendant, thereby precluding the exercise of diversity jurisdiction. ¹ Finding that TPGI-TX was "clearly a continuation of TPGI-NY", the federal court agreed with TPGI-TX and remanded the case to state court.

Smith Barney then moved to dismiss the case based on forum non conveniens grounds. Citing the factors set out in Gulf Oil Corp. v. Gilbert, ² Smith Barney argued that New York was a more appropriate forum for the action because plaintiffs' pleadings and the affidavits and deposition testimony submitted with the motion established that all of the events and alleged wrongdoing occurred in New York; all operations of the joint venture were conducted, and were to have been conducted, in New York and Poland; all witnesses resided in New York, Poland, or Great Britain, and none was amenable to compulsory process in Texas; all documents relevant to the case were in New York; and New York law would apply to plaintiffs' causes of action. The only connection between the parties and Texas was Borey's creation of TPGI-TX, into which TPGI-NY was merged. In response, plaintiffs argued that according to the rule of H. Rouw Co. v. Railway Express Agency, ³ an action by a corporation qualified to do business in Texas cannot be dismissed on the basis of forum non conveniens. Plaintiffs did not, in their response, identify any other connection between the case and Texas. After hearing argument on Smith Barney's motion, the district court observed that "[t]his case doesn't belong here", but concluded that it was constrained by Rouw to deny the motion.

Smith Barney unsuccessfully sought mandamus relief from the court of appeals and then moved for leave to file its petition for mandamus in this Court. We granted the motion, as well as Smith Barney's motion to stay proceedings in the district court, and set the case for oral argument. ⁴

II

Rouw involved an action for damages to seven railcars of strawberries shipped from Arkansas and Missouri to New York, Minnesota, and Pennsylvania. Plaintiff was an Arkansas corporation, which, after its claim arose, obtained a permit to do business in Texas. Defendant was a Delaware corporation also licensed to do business in Texas. Apart from the parties' authorization to do business in this State, the case had no connection with Texas. The district court dismissed the suit based on forum non conveniens. The court of civil appeals reversed, in its words, "[w]ith some reluctance". ⁵ The court relied primarily on two statutes generally applicable to corporations. One provided that a Texas corporation has the "power ... [t]o maintain and defend judicial proceedings." ⁶ The other provided that foreign corporations authorized to do business in Texas "shall have and enjoy all the rights and privileges conferred by the laws of this State on corporations organized under the laws of this State." ⁷ The court equated the power to maintain and defend judicial proceedings with the right to do so, reasoning that it would be "intolerable" to deny a domestic corporation the right to sue in its home state. ⁸ Having concluded that domestic corporations have an absolute right to sue in Texas, regardless of whether the action had any other connection with the State, the court held that foreign corporations authorized to do business in Texas were statutorily accorded the same right. By refusing the application for writ of error in Rouw, this Court adopted the court of civil appeals' opinion and judgment as its own. ⁹

Rouw 's essential logic is flawed. Corporations' power to sue and be sued says little about their right to do so, and absolutely nothing about the restrictions of the forum non conveniens doctrine. The United States Supreme Court reached a similar conclusion six years after Rouw was decided in Gulf Oil Corp. v. Gilbert. ¹⁰ There, a Virginia resident sued a Pennsylvania corporation in New York for negligently delivering gasoline, causing an explosion and fire that damaged the plaintiff's property in Virginia. The defendant was licensed to do business in Virginia and New York and had designated agents for service of process in both states, so that the United States District Court in New York had jurisdiction and venue of the action. The district court nevertheless dismissed the action on the basis of forum non conveniens, concluding that Virginia was a more appropriate forum. ¹¹ The court of appeals reversed, holding that because the district court had jurisdiction over the action and venue was proper, the court had no authority to dismiss based on forum non conveniens. ¹² The Supreme Court rejected the appellate court's view, explaining:

The principle of forum non conveniens is simply that a court may resist imposition upon its jurisdiction even when jurisdiction is authorized by the letter of a general venue statute. These statutes are drawn with a necessary generality and usually give a plaintiff a choice of courts, so that he may be quite sure of some place in which to pursue his remedy. But the open door may admit those who seek not simply justice but perhaps justice blended with some harassment. A plaintiff sometimes is under temptation to resort to a strategy of forcing the trial at a most inconvenient place for an adversary, even at some inconvenience to himself. ¹³

The doctrine of forum non conveniens applies even when a trial court's jurisdiction is clear. The Court explained:

[T]he defendant, by filing consent to be sued ... may be sued in the federal courts at the place where it has consented to be sued. But the general venue statute plus the [defendant's consent to be sued] do not add up to a declaration that the court must respect the choice of the plaintiff, no matter what the type of suit or issues involved. The two taken together mean only that ... it is proper for the federal court to take jurisdiction, not that the plaintiff's choice cannot be questioned. The defendant's consent to be sued extends only to give the court jurisdiction of the person; it assumes that the court, having the parties before it, will apply all the applicable law, including, in those cases where it is appropriate, its discretionary judgment as to whether the suit should be entertained. ¹⁴

The Court concluded that the district court did not abuse its discretion "in dismissing [Gilbert's] complaint and remitting him to the courts of his own community." ¹⁵

We embraced Gulf...