Texas Commerce Bank Nat. Ass'n v. Interpol '80 Ltd. Partnership

• Decision Date: 12 December 1985
• Docket Number: No. 13-85-142-CV,13-85-142-CV
• Citation: 703 S.W.2d 765
• Parties: TEXAS COMMERCE BANK NATIONAL ASSOCIATION, Appellant, v. INTERPOL '80 LIMITED PARTNERSHIP, Appellee.
• Court: Texas Court of Appeals

Page 765

703 S.W.2d 765

TEXAS COMMERCE BANK NATIONAL ASSOCIATION, Appellant, v. INTERPOL '80 LIMITED PARTNERSHIP, Appellee.

No. 13-85-142-CV.

Court of Appeals of Texas Corpus Christi.

Dec. 12, 1985.

Kem Thompson, Liddell, Sapp, Zivley, Brown & LaBoon, Houston, for appellant.

James R. Harris, Harris, Cook, Browning, Jordan & Hyden, Corpus Christi, for appellee.

Before NYE, C.J., UTTER and BENAVIDES, JJ.

OPINION

NYE, Chief Justice.

This is an appeal from an order granting Appellee's special appearance motion. Appellant, Texas Commerce Bank National Association (Texas Commerce), filed suit against Appellee, Interpol '80 Limited Partnership (Interpol), a foreign limited partnership, to collect $63,076.77 allegedly due pursuant to a contract. The trial court ruled that Interpol had not engaged in business in Texas, and therefore was not subject to the jurisdiction of the Court under the Texas long arm statute, TEX.REV.CIV.STAT.ANN., art. 2031b (Vernon Supp.1985). The trial court held further that to subject Interpol to the jurisdiction of this state would violate the due process requirements of the United States Constitution. We disagree and reverse.

On appeal, appellant challenges the trial court's findings and conclusions that it lacked long arm jurisdiction over appellee and that an exercise of jurisdiction over appellee would violate due process. Appellant asserts there is no evidence, or, alternatively, insufficient evidence to support findings made by the trial court.

Determining whether a nonresident defendant may be subjected to the jurisdiction of a foreign state requires two inquiries. The threshold inquiry is whether the law of the forum state provides for the exercise of jurisdiction under the circumstances of the particular case. If state law provides jurisdiction, the next question is whether an exercise of jurisdiction under the state's law would comport with the due process requirements of the fourteenth amendment to the United States Constitution. Atwood Hatcheries v. Heisdorf & Nelson Farms, 357 F.2d 847, 852 (5th Cir.1966).

The special appearance motion was tried to the court in an evidentiary hearing which produced evidence requiring the reversal. On December 30, 1980, Interpol entered into a letter agreement with Lewis Energy Corporation (Lewis) whereby Interpol was to purchase an undivided twelve and one-half percent (12 1/2%) working interest in certain oil and gas leases and options located in Live Oak and Karnes Counties, Texas. The consideration to be paid by Interpol for the assignment of the leases was: (1) $11,000 as a management fee; (2) $50.00 per net acre plus a brokerage fee and (3) $107,122 by December 31, 1980, to ensure rig availability. Interpol was to pay its 12 1/2% interest of the cost of drilling the initial test well. Thereafter, Interpol's share of the costs of drilling was to be paid from its share of production. The parties expressly agreed to enter into an operating agreement.

Pursuant to this primary contract Interpol and Lewis executed an operating agreement whereby Interpol agreed to participate in the drilling of an oil well and Lewis was designated as the operator of the well. Interpol argues that it was to receive ownership of its percentage interest in the leases and options after the well was drilled to a certain depth ("casing point"). Although drilling operations began and Interpol paid its share of the drilling costs up to a certain point, the well was never drilled to "casing point." Disagreements arose between Interpol and Lewis over the operation of the well. Lewis subsequently filed Chapter 11 bankruptcy proceedings from which Texas Commerce claims it received an assignment of Lewis' accounts receivable.

Texas Commerce brought suit against Interpol to recover drilling costs allegedly owed by Interpol under the operating agreement. However, the operating agreement does not appear of record; only the primary contract was introduced at the evidentiary hearing. Interpol does not dispute that an operating agreement was executed; only that it was never consummated. Interpol claims that, because the well never reached "casing point," the operating agreement never covered Interpol's participation in the venture. According to Interpol, it was to receive record title to its interest in the leases only after the well was drilled to the objective depth. Interpol argued, and the trial court seemed to agree, that since it did not hold record title to any interest in the leases it owned no real property interest in Texas land; and, thus, there was no basis for jurisdiction. ¹ This argument misses the point. The point of inquiry is not whether the purchase of the oil and gas interests was completed, but whether the act of entering into, and partially performing, a contract to purchase oil and gas leases in Texas constitutes "doing business" in Texas and whether an exercise of jurisdiction by a Texas court based upon these acts would violate due process.

The following are the jurisdictional facts relevant to this appeal. Interpol is a Colorado limited partnership which is not registered to do business in Texas. Lewis was a Colorado corporation. Both the primary contract and the operating agreement were negotiated and executed in Colorado. Interpol had no knowledge of any assignment by Lewis to Texas Commerce until after Lewis went into bankruptcy. Aside from the leases involved in the present suit, Interpol never had any interest in nor operated any property in Texas. The record establishes that most of Interpol's contacts with Texas center around its contract with Lewis.

In response to appellant's request for admissions, Interpol admitted the following contacts with Texas: (1) it entered into an agreement with Lewis for the sale of an undivided twelve and one-half percent (12 1/2%) working interest in and to certain leases and options to acquire leases in Live Oak and Karnes Counties, Texas; (2) it agreed to the drilling of one or more wells in Texas; (3) it has purchased goods or services to be delivered or rendered in Texas; (4) it agreed in the joint operating agreement that the law of the state of Texas, where the contract area is located, governed all matters and disputes pertaining to the contract; (5) that some performance of the contract between Interpol and Lewis occurred or was to occur in Texas; (6) that at least four of its limited partners are residents of Texas. The contract expressly provided that Interpol had access to and the right to maintain representatives at the well site, though there is undisputed evidence that Interpol never exercised these rights. Additionally, appellee admitted at the hearing that it entered into the contract with Lewis with the intention of profiting from the purchase of the leases. The contract further provided that the parties would enter into a tax partnership covering certain of the option leases at a later date.

Initially, our determination of the jurisdictional issues in this case is soley based on the relationship between Interpol and Lewis with no consideration given to Texas Commerce's interest in this suit. Any interest Texas Commerce may have resulted from an assignment transaction between Lewis and Texas Commerce and not from any affirmative act on the part of Interpol. The fact that a Texas resident may now be the obligor under this contract is merely fortuitous, and, therefore, may not be considered as a factor upon which jurisdiction may be founded. See Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283, (1958).

Since Interpol is not a resident of Texas and is not registered to do business in Texas, the only statutory provision upon which jurisdiction may be based is TEX.REV.CIV.STAT.ANN. art. 2031b(3) (Vernon 1964). This long-arm statute provides that if such a nonresident engages in business in Texas, it is deemed to have appointed the Secretary of State of Texas as agent upon whom service may be had in any action arising out of its activities in this State, wherein the nonresident is a party or is to be made a party. "Doing business" in Texas is defined in Section 4 as:

[f]or the purpose of this Act, and without including other acts that may constitute doing business, any foreign corporation, joint stock company, association, partnership, or nonresident 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 party in this State. The act of recruiting Texas residents, directly or through an intermediary located in Texas, for employment inside or outside of Texas shall be deemed doing business in this State. [emphasis added].

TEX.REV.CIV.STAT.ANN. art. 2031b(4) (Vernon Supp.1985).

Appellee strongly asserts that appellant failed to plead the necessary jurisdictional facts in order to extend long-arm jurisdiction. In its petition appellant alleged that appellee had done business in Texas by entering into an agreement with Lewis to explore and develop oil and gas leases in Texas. Appellee argues that, because this is a suit upon a contract, appellant invoked only the "contractual act" portion of Article 2031b(4). Since Interpol contracted with a Colorado resident and not a Texas resident, it is not subject to the literal reach of the "contractual act" provision, thus long-arm jurisdiction cannot be extended. Appellee's argument is without merit.

A nonresident defendant has the burden of proof at a Rule 120a special appearance hearing to negate all bases of personal jurisdiction. Siskind v. Villa Foundation for Education, Inc., 642 S.W.2d 434, 438 (Tex.1982). Regardless of whether appellant's jurisdictional allegations were actually defective, it was held recently that such issues must be challenged by a motion to quash and not by special appearance. Kawasaki Steel Corp. v. John...