Stroman Realty, Inc. v. Wercinski

• Citation: 513 F.3d 476
• Decision Date: 11 January 2008
• Docket Number: No. 06-20095.,06-20095.
• Parties: STROMAN REALTY, INC., Plaintiff-Appellant, v. Sam WERCINSKI, Commissioner of the Department of Real Estate for the State of Arizona, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

513 F.3d 476

STROMAN REALTY, INC., Plaintiff-Appellant, v. Sam WERCINSKI, Commissioner of the Department of Real Estate for the State of Arizona, Defendant-Appellee.

No. 06-20095.

United States Court of Appeals, Fifth Circuit.

January 11, 2008.

Leslie Allison. Powell (argued), Diana Magazine Schobel, Law Offices of Leslie A. Powell, Frederick, MD, Gerald M. Birnberg, Williams, Birnberg & Andersen, Houston, TX, for Plaintiff-Appellant.

Kathleen Patricia Sweeney (argued), Ann Thompson Uglietta, Phoenix, AZ, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES, Chief Judge, and WIENER and BARKSDALE, Circuit Judges.

EDITH H. JONES, Chief Judge:

Stroman Realty, Inc. ("Stroman"), a Texas-based company, sought relief in a Texas federal court from attempts by the Commissioner of the Arizona Department of Real Estate to exercise regulatory authority over Stroman's timeshare sales business. The district court dismissed its action, which alleged violations of the Commerce Clause under 42 U.S.C. § 1983. Because the federal district court in Texas lacked personal jurisdiction over the defendant, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Stroman is one of the nation's largest advertisers and resale brokers of timeshare intervals in the secondary resale market. It advertises properties to individuals interested in either selling their timeshare interests or purchasing timeshares from a previous owner other than the vacation resorts or condominium developers. Stroman's sole place of business is located in Conroe, Texas. Its brokers are licensed by the Texas Real Estate Commission, and the advertising and marketing agreements they negotiate with Stroman's clients are governed by Texas law.

Because most timeshare buyers do not live in the state in which their desired property is located, Stroman advertises in national newspapers, trade magazines, through direct-mail publications, and over the Internet. Prospective purchasers can search Stroman's website for availabilities at condominiums, resorts, or spas, and read about the occupancy conditions of the various timeshare intervals being offered. Interested parties then submit bids through the website or call a Stroman broker. Stroman uses its computer database to match prospective buyers with such variables as location, price range, amenities, and use interval. Prospective sellers are required to pay a one-time $489.00 "advance advertising fee" to register their timeshares with Stroman's Internet database, and, upon sale, the seller pays Stroman an additional $750.00 or 10% of the total sale price—whichever is greater—as commission. Often, the seller, prospective buyer, and timeshare property involved in a single deal are all located in different states. It would thus not be unusual for Stroman to broker a transaction involving a Texas buyer and an Arizona seller of a two-week timeshare interval at a Hawaii resort.

In January 2000, Elaine Richardson, Commissioner of the Arizona Department of Real Estate ("Commissioner"),¹ sent Stroman by certified mail a Cease-and-Desist Order ("Order") stating that Stroman's agents were not licensed as real estate brokers or salespeople in Arizona. Under Arizona law, nonresident brokers and other real estate service providers who transact business involving either Arizona citizens or real property located in Arizona must be licensed by the Commissioner whether or not the timeshare property the Arizona citizen wishes to buy or sell is located in Arizona. See ARIZ.REV. STAT. §§ 32-2101(47)(b)-(j); 32-2125.02. Nonresident brokers like Stroman are subject to various administrative and recordkeeping requirements, such as maintaining in-state escrow accounts, hard copies of earnest-money receipts, closing statements, and other business records. See, e.g., id. § § 32-2125.02, 32-2151.01. Unlicensed brokering of transactions involving Arizona real property or timeshares is a "Class 6 felony," punishable by fine or up to two years' imprisonment. See id. § 32-2165(A).

The Commissioner's Order maintained that Stroman and its agents were engaging in unlicensed timeshare resale brokering and ordered Stroman to cease "all contact with Arizona resident and non-resident owners of real estate located in Arizona ... by mail, telephone, telefax, computer modem or any other means" until it complied with Arizona's licensing laws.² Additionally, Stroman was instructed to refund "all monies solicited from Arizona resident and non-resident owners of real estate" received in the course of Stroman's allegedly illicit brokerage transactions. The Order stated that Stroman had the right to invoke an administrative review procedure and that failure to file a notice of appeal within thirty days of service of process would constitute waiver of any future right to administrative or judicial appeal. See id. § 41-1092. Stroman did not respond. Pursuant to Arizona law, the Order thus became a final, nonappealable, administrative decision. See id. § 12-902(B).

For five years, the Commissioner took no action, and Stroman—undeterred by the Order—continued to broker transactions involving Arizona timeshares and residents. In March 2005, however, the Commissioner contacted Stroman by mail, ordering anew that it cease its Arizonarelated brokerage activities. This time around, the Commissioner added a charge that Arizona real-estate law forbade advertisement of Arizona properties on Stroman's Internet website. See id. § 32-2163(D). In response, on April 8, 2005, Stroman filed a complaint in the Southern District of Texas seeking declaratory and injunctive relief against the Commissioner under 42 U.S.C. § 1983, alleging that Arizona's attempted exercise of regulatory jurisdiction to license timeshare resales violated the Commerce Clause by discriminatorily and unduly burdening nonresident participation in the interstate secondary timeshare market.

The Commissioner, then moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b), arguing that: (1) the Arizona administrative proceeding rendered Stroman's § 1983 claim res judicata; (2) the district court lacked personal jurisdiction over her; and (3) venue was improper. The Commissioner also moved for summary judgment on the statute of limitations. The district court granted the Commissioner's motion to dismiss based on claim preclusion and—raising the issue sua sponte—abstention under Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). The district court did not address the other issues. Stroman has appealed.

DISCUSSION

Personal Jurisdiction

Why the district court failed to consider personal jurisdiction over the Commissioner in a Texas federal court is unclear. This court must do so.³ Because the district court dismissed without the benefit of an evidentiary hearing, Stroman need make only a prima facie showing that jurisdiction is proper. Adams v. Unione Mediterranea Di Sicurta, 364 F.3d 646, 650 (5th Cir.2004) (citation omitted). We accept as true Stroman's uncontroverted allegations and construe all record evidence in its favor. Id.

Because 42 U.S.C. § 1983 lacks a provision for service of process,⁴ federal courts adopt state jurisdictional statutes to reach out-of-state defendants. See FED. R.CIV.P. 4(e), (k); Point Landing, Inc. v. Omni Capital Int'l, Ltd., 795 F.2d 415, 419 (5th Cir.1986), aff'd sub nom. Omni Capital Int'l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 108 S.Ct. 404, 98 L.Ed.2d 415 (1987). The Texas long-arm statute is coextensive with the federal constitutional limits of due process and normally generates an inquiry limited to the scope of the Fourteenth Amendment's Due Process Clause. See Religious Tech. Ctr. v. Liebreich, 339 F.3d. 369, 373 (5th Cir.2003). But where, as here, the case involves a challenge to an out-of-state regulator's enforcement of her state's statute, rather than a conventional contract or tort claim, it is useful to consider first whether the Texas long-arm statute reaches the Commissioner.

A. Texas long-arm, statute

Pertinent here, the Texas long-arm statute states:

In addition to other acts that may constitute doing business, a nonresident does business in this state if the nonresident:

(1) contracts by mail or otherwise with a Texas resident and either party is to perform the contract in whole or in part in this state; [or]

(2) commits a tort in whole or in part in this state;....

TEX. CIV. PRAC. & REM.CODE ANN. § 17.042. "`[N]onresident' includes: (1) an individual who is not a resident of this state; and (2) a foreign corporation, joint-stock company, association, or partnership." TEX. CIV. PRAC. & REM.CODE ANN. § 17.041.

One question arising from this language is whether the Commissioner, sued under the fiction created by Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), is an "individual" defendant within the terms of the statute. Ex Parte Young subjects a state employee acting in her official capacity to suits for prospective relief that avoid the Eleventh Amendment bar, but the employee's conduct remains state action under the Fourteenth Amendment. 17A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4231 (3d ed.2004); see also Home Tel. & Tel. Co. v. Los Angeles, 227 U.S. 278, 287-88, 33 S.Ct. 312, 57 L.Ed. 510 (1913). Although the Commissioner is an "individual," she is acting in and was sued in her official capacity for enforcing Arizona statutes. Whatever may be the case for § 1983 suits against sister-state officials who are sued in their individual capacity, the Texas statute offers no obvious rationale for including nonresident individuals sued solely in their official capacity under Ex Parte Young. Moreover, the only other class of nonresident defined by the statute includes business entities but not fellow states. Whether the long-arm statute's definition of nonresidents ignores or subsumes the Ex...