Opinion
No. 06-20-00045-CV
03-18-2021
CHONGQING HUANSONG INDUSTRIES GROUP IMP. & EXP. TRADE CO., LTD. AND CHONGQING HUANSONG INDUSTRIES (GROUP) CO., LTD., Appellants v. DESIREE SWANSON, Appellees
On Appeal from the 71st District Court Harrison County, Texas
Trial Court No. 19-0153 Before Morriss, C.J., Burgess and Stevens, JJ.
MEMORANDUM OPINION
Finding that it had personal jurisdiction over Chinese foreign corporations Chongqing Huansong Industries Group Imp. & Exp. Trade Co., Ltd. (CH Trade), and Chongqing Huansong Industries (Group) Co., Ltd. (CH Group), the 71st Judicial District Court of Harrison County, Texas, denied their special appearances. On appeal from that denial, CH Trade and CH Group (collectively referred to as the Industries), argue that the trial court's finding of personal jurisdiction is unsupported by legally or by factually sufficient evidence. The Industries also question whether they waived their special appearance and whether a Texas-based subsidiary was shown to be an alter ego of the Industries, even though the trial court did not issue express findings on these matters.
The Industries have also filed a separate appeal in companion cause number 06-20-00065-CV raising similar issues. In this main opinion, we will present facts, arguments, and rulings pertinent to both appeals.
Because legally and factually sufficient evidence supported the trial court's finding that it had personal jurisdiction over the Industries and because our ruling on that issue is dispositive of the remaining issues on appeal, we affirm the trial court's denial of the special appearances.
(1) Factual and Procedural Background
Desiree Swanson was riding as a passenger in a 2014 Bighorn 700X Crew Utility Terrain Vehicle (UTV) when a can of insect repellant located in the storage compartment under the passenger seat exploded, causing a flash fire that severely burned Swanson's lower extremities. The UTV had recently been purchased by Randy Seth Dodson and Elizabeth Garza Dodson from Fun Motors of Longview, Inc. (Fun Motors). Fun Motors had purchased the UTV through a Texas dealership that purchased from Bennche, LLC (Bennche), which had acquired it from the Industries. Seeking compensation for her injuries, Swanson sued the Industries; CH Group's wholly owned Texas subsidiary, Hisun Motors Corp., U.S.A. (Hisun); Bennche; and Fun Motors.
Swanson asserted strict liability product defect and various negligence claims against the Industries, Bennche, and Hisun that complained of the placement of the storage compartment underneath the passenger seat, among other things. Against Fun Motors, Swanson asserted a claim for negligent misrepresentation. On the issue of jurisdiction, Swanson alleged that the Industries were both Chinese companies that conducted business in Texas because they "designed, researched, developed, constructed, manufactured . . . , assembled, inspected, tested, marketed, and/or sold" UTVs intended for sale in Texas and that Swanson's causes of actions arose from and were connected to that Texas business. She served the Industries through the Texas Secretary of State since they had no designated agent for service of process in Texas.
Swanson's causes of actions against Industries, Bennche, and Hisun complained of:
a. failing to manufacture the subject UTV in accordance with the product's planned specifications or failing to use adequate and appropriate specifications in the manufacture of the subject UTV;
b. failing to design the UTV so as to prevent the incident in question;
c. failing to adequately design the UTV so that it would be reasonably safe during ordinary and foreseeable use;
d. failing to use safer, alternative designs that were economically and technologically feasible at the time the UTV left the control of Bennche, Hisun, Chongqing Group and Chongqing Trade;
e. failing to design the UTV with adequate fail-safe protection to prevent incidents such as the one in question;
f. failing to implement an adequate quality-control system that would have led to the discovery of defects in the UTV prior to placing it into the stream of commerce;
g. failing to repair, recall or retrofit the UTV after Bennche, Hisun, Chongqing Group and Chongqing Trade knew or should have known of the defects;
h. failing to properly and adequately test the UTV and its components prior to placing it into the stream of commerce;
i. marketing the UTV in such a way as to mislead consumers and users as to the safety of the UTV;
j. misrepresenting to and misleading consumers and users that the UTV was safe, when it was not;
k. placing an unreasonably dangerous product into the stream of commerce;
l. failing to notify consumers and users of a defect; and
m. failing to use component parts that would adequately protect against incidents such as the one in question.
Swanson alleged that Fun Motors was negligent in that:
a. [it made] express factual representations about aspects of the UTV, including but not limited to - safety, reliability and the fact that the compartment located under the passenger seat was intended to be used for storage;
b. the representation was incorrect - the UTV was not safe or reliable and that the compartment located under the passenger seat should not be used for storage;
c. these representations were relied upon when purchasing and using the UTV; and
d. if the aspects of the UTV had been as represented, Ms. Swanson would not have been harmed by the UTV or would not have suffered the same degree of harm.
Swanson also alleged that "Bennche, Hisun, Chongqing Group and/or Chongqing Trade [had] designated Fun Motors as an Authorized Dealer and Authorized Service Center for Bennche UTVs in the United States, including Texas."
In response to Swanson's petition, Bennche filed a third-party petition against the Industries, alleging that they would be responsible for Swanson's claims of design defect and negligence since the Industries had designed, marketed, distributed, and sold the UTV. Bennche's petition also included a cross-action for indemnity and contribution. See TEX. CIV. PRAC. & REM. CODE ANN. § 82.002. In support of jurisdiction, Bennche argued that the Industries both contracted by mail with Bennche, a Texas resident, to perform a contract and recruited Texas residents for employment in Texas though CH Group's wholly owned Texas subsidiary, Hisun. See TEX. CIV. PRAC. & REM. CODE ANN. § 17.042. Bennche's petition explained that it was CH Group's Texas distributor and that CH Trade sold the UTV to Bennche so that Bennche would market it to Texas consumers. Because CH Group's UTV was sold to Bennche through CH Trade, Bennche argued that the Industries purposefully availed themselves of doing business in Texas by placing their products in the stream of commerce. According to Bennche, CH Group manufactured the UTV, CH Trade shipped it to Hisun, and "Hisun arranged pick up for Bennche to receive the UTV in Texas, after Bennche was to pay Hisun a 'duty' or 'customs' fee." After obtaining leave of court, Fun Motors also designated the Industries as responsible third parties and filed a cross-action for indemnity and contribution.
The Industries filed special appearances admitting that the UTV was manufactured in China by CH Group, purchased by Bennche, and shipped by Bennche to Texas after it paid Hisun the duty or customs fee. Even so, the Industries argued that they were foreign corporations located in Changshou, China, and that they did not maintain a regular place of business in Texas, a registered agent for service of process in Texas, or a bank account in the United States. As for Swanson's UTV, the Industries asserted that CH Trade only shipped it to the port of Chongqing, China, that Bennche hired a third-party, Yang Ming, to ship the UTV to Los Angeles, and that the "Free on Board [FOB] Shipping Point" term established that the transfer of ownership took place in China. On these facts, the Industries argued that they did not purposefully avail themselves of doing business in Texas.
After the special appearances were filed, the parties engaged in jurisdictional discovery. Qing Dai, the vice general manager of each of CH Group, CH Trade, and Hisun, was deposed. He filed an affidavit stating that he had been in his position with all three companies since 2012. Dai explained that CH Group designed, but only partially assembled, UTVs in China. Once the frame, motor, and engine were assembled in China, the remaining assembly occurred in the United States. If Hisun's name appeared on the product, it was finally assembled in Hisun's 300,000-square-foot headquarters in McKinney, Texas, or in Hisun's now-closed facility in California. Dai estimated that 2,000 UTVs from CH Group were finally assembled at Hisun's Texas facility in 2019 and were sold by Hisun to distributors who sold to individual customers. With respect to the UTV involved in the accident, Dai admitted that Bennche was a distributor and that final assembly would have occurred at Bennche's facility. Dai testified that CH Group prepared the owner's manual in English and that Bennche would "either decide to increase something, to add something to it, or take off something" before printing the owner's manual.
Dai said that, before 2012, he was employed by CH Group and came to the United States eight or nine times on their behalf. Dai testified that he lived in Plano, Texas, and officed in Hisun's Texas headquarters. Dai's role was to facilitate communications between CH Group and its distributors in the United States. In that capacity, he coordinated orders from Hisun to CH Group and was also "in charge of the exports." Dai clarified that it was CH Trade's responsibility to "execute the delivery of the goods being delineated by the client . . . according to their delivery term[s]," but stated that CH Trade delivered only to the port of Chongqing and had no control over where the goods went after they left China. From there, Dai testified that the UTVs were delivered to the importers "depending on what the customer requested." Dai notably added, "I do not distinguish my jobs because it's all for the same direction, so I don't really make a difference of what position I am when I'm performing my work."
In their responses to requests for admissions, CH Group admitted that it designed and manufactured the UTV involved in the accident, and CH Trade also admitted that it designed the UTV. Each CH entity admitted that it intended for the UTV to be sold in the U.S., but not specifically in Texas. Even so, the jurisdictional discovery revealed a 2014 invoice from CH Trade to Bennche's corporate office, located at "455 Airline Dr[.], Coppell, TX 75019," for several UTVs and parts. The invoice was accompanied by a packing list that, when compared with the vehicle identification number (VIN) on the Dodsons's purchase information from Fun Motors, showed that the UTV involved with Swanson's accident was included on the packing list. Susan Zhao, an employee of both CH Group and CH Trade, communicated via email with Johnny Tai, a Bennche representative, using a "hsunmotor.com" email account about the sale of the UTV, including shipment of parts and payment. The original bill of lading, which was on Yang Ming letterhead, listed CH Trade as the shipper, Bennche as consignee, and Hisun as a "Notify Party." Bennche's Texas address and Hisun's Texas address were both listed. While the bill of lading said that the UTV was "[p]recarried" by Yang Ming, that the place of receipt was in China, and that the port of discharge was Los Angeles, the "Place of Delivery" was listed as "CARROLLTON, TX." Also, Christina He, an employee of CH Group and the general manager of CH Trade, showed that the Industries knew that the product would be shipped to Texas by writing, "Really sorry for the trouble. We have addressed this again to our shipping department. This fault will not happen again. We double checked the destination port is to Carrollton, Texas[,] for the below shipping group which are on water now. What we can [sic] do to change the destination?" Indeed, a spreadsheet from the Industries showed that the packed container with the UTV at issue was to be shipped to Dallas, not Los Angeles.
When the UTV arrived in Los Angeles, Amanda Wang, a Hisun employee, emailed Bennche about collecting the customs and duty fees for the UTV.
As for other contacts with Texas, Dai testified that he used his cell phone in the United States to conduct business and could enter into some contracts on behalf of CH Group. He added that CH Group employed two technicians in Texas, who also officed at the Hisun facility, but were not employed by Hisun. Hisun's President, Hui Li, was the son of Xong Li, the president of CH Group, which owned one hundred percent of Hisun. Even though Hisun was a Texas corporation that oversaw sales of CH Group's UTVs in the United States, Dai testified that it was an independent corporation. He also said that Hui Li, who was also CH Group's head of manufacturing, management, and operations, lived in China with his father, but came to McKinney every six months. The evidence also showed that Dai's boss at Hisun filed a report with the Colorado Secretary of State in 2013 listing an address in Carrollton as CH Group's principal office mailing address. In 2016, Hisun employee Cynthia Lei listed an address in McKinney as CH Group's office mailing address to the Colorado Secretary of State.
Documents described by Dai as "export record[s] of [CH Group] toward Bennche, LLC" show shipments of thousands of UTVs and parts to Bennche from 2014 to 2017, with Dallas identified as the port of destination, demonstrating a substantial amount of business conducted with Bennche, a Texas company. CH Group's "record of the exported goods for the customer Hisun" include pricing that shows millions of dollars of business with Hisun and "Hisun Dallas." Dai testified that Hisun paid CH Group for the units.
Hisun's website, hisunmotors.com, included a link to CH Group's website, hisunmotor.com.cn, which stated, "HISUN Motors Corp, USA is a wholly-owned subsidiary of HISUN Motors (Chongqing Huansong Industrial (Group) Co. Ltd.) which manufactures all HISUN product . . . ." The CH Group website contains a video of Ryan Daugherty, Hisun's vice president of sales and marketing, stating, "We manufacture more than 16,000 utility vehicles every year that are sold in the United States and manufactured for some of the largest names in the utility vehicle business." The video also shows the Hisun facility in McKinney.
Yet, Dai's affidavit stated that the Industries did not choose importers or the ports of destination and that there was no corporate relationship between the Industries and Bennche or Yang Ming. Dai said that the Industries did not contract, either directly or through agents controlled by the Industries, with Texas companies and did not perform contracts in Texas or recruit Texas residents for employment. Dai said that the Industries did not market or manufacture products specifically for Texas or with the expectation that the products be sold in Texas. As a result, Dai swore that the Industries did not directly profit from sales to consumers.
Swanson filed a response to the special appearances arguing that the trial court had specific jurisdiction over the Industries because they directly sold the UTV involved in the accident to a Texas company, Bennche, and the incident occurred in Texas. Swanson also argued that general jurisdiction existed because the Industries' agents lived and worked in Texas, they contracted with Texas business entities, and they purposefully availed themselves of doing business in Texas, including with Hisun, which Swanson alleged was an alter ego of CH Group. Swanson also alleged that the special appearances were waived because the Industries failed to secure a timely hearing, but Swanson set the special appearance for a hearing. Fun Motors and Bennche also filed responses to the special appearances.
After a hearing, the trial court denied the Industries' special appearances and found that it had personal jurisdiction over them. No findings of fact were issued. In both this case and in case number 06-20-00065-CV, the Industries appeal the trial court's finding of personal jurisdiction.
(2) Law Applicable to the Trial Court's Finding of Personal Jurisdiction
"Texas courts may assert in personam jurisdiction over a nonresident if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of jurisdiction is consistent with federal and state constitutional due-process guarantees." Schexnider v. E-Cig Cent., LLC, No. 06-20-00003-CV, 2020 WL 6929872, at *4 (Tex. App.—Texarkana Nov. 25, 2020, no pet.) (mem. op.) (quoiting Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007) (citing Schlobohm v. Schapiro, 784 S.W.2d 355, 356 (Tex. 1990))). The Texas long-arm statute reads,
In addition to other acts that may constitute doing business, a nonresident does business in this state if the nonresident:
TEX. CIV. PRAC. & REM. CODE ANN. § 17.042. "[T]he long-arm statute's broad doing-business language allows the statute to 'reach as far as the federal constitutional requirements of due process will allow.'" Schexnider, 2020 WL 6929872, at *4 (alteration in original) (quoting Moki Mac, 221 S.W.3d at 575 (quoting Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991))).(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 . . . .
"Federal due-process requirements limit a state's power to assert personal jurisdiction over a nonresident defendant." Id. (quoting Moki Mac, 221 S.W.3d at 575 (citing Guardian Royal Exch. Assurance, Ltd., 815 S.W.2d at 226)). "Personal jurisdiction is proper when the nonresident defendant has established minimum contacts with the forum state, and the exercise of jurisdiction comports with 'traditional notions of fair play and substantial justice.'" Id. (quoting Moki Mac, 221 S.W.3d at 575 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)))). "The purpose of the minimum contacts analysis is to prevent a foreign corporation from being haled into Texas courts when its relationship to Texas is so remote that it could not reasonably anticipate having to defend itself in a Texas court." Hitachi Shin Din Cable, Ltd. v. Cain, 106 S.W.3d 776, 782 (Tex. App.—Texarkana 2003, no pet.) (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, (1980)). "Minimum contacts are sufficient for personal jurisdiction when the nonresident defendant 'purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'" Schexnider, 2020 WL 6929872, at *4 (quoting Moki Mac, 221 S.W.3d at 575 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958) (quoting Int'l Shoe Co., 326 U.S. at 319))).
"A nonresident defendant's forum-state contacts may give rise to two types of personal jurisdiction." Id. (quoting Moki Mac, 221 S.W.3d at 575 (citing BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795-96 (Tex. 2002))). "A court has general jurisdiction over a nonresident defendant whose 'affiliations with the State are so "continuous and systematic" as to render [it] essentially at home in the forum State.'" Id. (alteration in original) (quoting TV Azteca v. Ruiz, 490 S.W.3d 29, 37 (Tex. 2016) (quoting Daimler AG v. Bauman, 571 U.S. 117, 127 (2014) (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)))). "When a court has general jurisdiction over a nonresident, it may exercise jurisdiction 'even if the cause of action did not arise from activities performed in the forum state.'" Id. (quoting TV Azteca, 490 S.W.3d at 37 (quoting Spir Star AG v. Kimich, 310 S.W.3d 868, 872 (Tex. 2010) (citing CSR Ltd. v. Link, 925 S.W.2d 591, 595 (Tex. 1996)))).
"In contrast, 'specific jurisdiction "may be asserted when the defendant's forum contacts are isolated or sporadic, but the plaintiff's cause of action arises out of those contacts with the state."'" Id. (quoting Spir Star, 310 S.W.3d at 873 (quoting 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5 (3d ed. 2002))). "In specific jurisdiction cases, the analysis focuses on the 'relationship among the defendant, the forum[,] and the litigation.'" Id. (quoting Spir Star, 310 S.W.3d at 873 (quoting Moki Mac, 221 S.W.3d at 575-76 (quoting English China Clays, P.L.C., 815 S.W.2d at 228))). "Specific jurisdiction is appropriate when (1) the defendant's contacts with the forum state are purposeful, and (2) the cause of action arises from or relates to the defendant's contacts." Id. (quoting Spir Star, 310 S.W.3d at 873 (citing Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 337 (Tex. 2009))).
"The purposeful-availment requirement has three components." Id. at *6 (citing Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 785 (Tex. 2005)). "First, only the defendant's contacts with the forum are relevant, not the unilateral activity of another party or a third person." Id. (quoting Moki Mac, 221 S.W.3d at 575 (citing Michiana, 168 S.W.3d at 785)). "Second, the contacts relied on must be purposeful rather than random, fortuitous, or attenuated." Id. (quoting Moki Mac, 221 S.W.3d at 575 (citing Michiana, 168 S.W.3d at 785)). "Thus, '[s]ellers who "reach out . . . and create continuing relationships and obligations with citizens of another state" are subject to the jurisdiction of the latter in suits based on their activities.'" Id. (quoting Moki Mac, 221 S.W.3d at 575 (finding that Utah-based company's sales of rafting trips to Texas residents and marketing efforts to Texas satisfied purposeful-availment requirement) (quoting Michiana, 168 S.W.3d at 785 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 (1985)))). "Finally, the 'defendant must seek some benefit, advantage or profit by "availing" itself of the jurisdiction.'" Id. (quoting Moki Mac, 221 S.W.3d at 575 (quoting Michiana, 168 S.W.3d at 785)).
"The second requirement of specific jurisdiction, that the cause of action arises from or relates to the defendant's forum contacts, 'lies at the heart of specific jurisdiction by defining the required nexus between the nonresident defendant, the litigation, and the forum.'" Id. at *9 (quoting Moki Mac, 221 S.W.3d at 579). "In Texas, to satisfy this requirement 'there must be a "substantial connection" between the defendant's contacts and the operative facts of the litigation.'" Id. (quoting Spir Star, 310 S.W.3d at 874 (citing Moki Mac, 221 S.W.3d at 585)). "So when a nonresident's only contacts with Texas involve indirect sales through a distributor or subsidiary, specific jurisdiction is limited to claims arising out of those sales." Id. (quoting Spir Star, 310 S.W.3d at 874 (citing Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 216 (5th Cir. 2000))).
(3) Standard of Review
"On appeal, we review de novo the trial court's determination to grant or deny a special appearance." Hitachi Shin Din Cable, Ltd. v. Cain, 106 S.W.3d 776, 781 (Tex. App.— Texarkana 2003, no pet.). Likewise, "[w]hether a trial court has personal jurisdiction over a nonresident defendant is a question of law that we review de novo." Schexnider, 2020 WL 6929872, at *3 (quoting Wilco Farmers v. Carter, 558 S.W.3d 197, 201 (Tex. App.—Texarkana 2018, no pet.) (quoting Old Republic Nat'l Title Ins. Co. v. Bell, 549 S.W.3d 550, 558 (Tex. 2018)) (citing Moncrief Oil Int'l Inc. v. OAO Gazprom, 414 S.W.3d 142, 150 (Tex. 2013))). "When no findings of fact and conclusions of law are made by the trial court, 'we infer "all facts necessary to support the judgment and supported by the evidence."'" Id. (quoting Wilco Farmers, 558 S.W.3d at 201 (quoting Moki Mac, 221 S.W.3d at 574 (quoting BMC Software Belgium, N.V., 83 S.W.3d at 795))). "However, '[w]hen the appellate record includes the reporter's and clerk's records, these implied findings are not conclusive and may be challenged for legal and factual sufficiency in the appropriate appellate court.'" Id. (alteration in original) (quoting BMC Software Belgium, N.V., 83 S.W.3d at 795 (citing Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989) (per curiam); Zac Smith & Co. v. Otis Elevator Co., 734 S.W.2d 662, 666 (Tex. 1987))). "In considering whether the evidence supports the trial court's ruling, '[w]e consider all of the jurisdictional evidence before the trial court.'" Id. (alteration in original) (quoting Cagle v. Clark, 401 S.W.3d 379, 387 (Tex. App.—Texarkana 2013, no pet.) (citing Townsend v. Univ. Hosp.-Univ. of Colo., 83 S.W.3d 913, 919 (Tex. App.—Texarkana 2002, pet. denied))).
When personal jurisdiction is challenged, "the plaintiff and the defendant have shifting burdens of proof." Id. (citing Wilco Farmers, 558 S.W.3d at 202 (citing Kelly v. Gen. Interior Const., Inc., 301 S.W.3d 653, 658 (Tex. 2010))). First, "[i]t is the plaintiff's initial burden to plead sufficient allegations to invoke jurisdiction under the Texas long-arm statute." Id. (quoting Wilco Farmers, 558 S.W.3d at 202 (citing Moki Mac, 221 S.W.3d at 574)). "The nonresident defendant must then negate all bases of jurisdiction in the plaintiff's allegations." Id. (quoting Wilco Farmers, 558 S.W.3d at 202). "Jurisdiction can be negated on either a factual or legal basis." Id. (quoting Wilco Farmers, 558 S.W.3d at 202 (citing Kelly, 301 S.W.3d at 659)). "The defendant can factually negate the plaintiff's allegations by presenting evidence that it has no contacts with Texas." Id. (quoting Wilco Farmers, 558 S.W.3d at 202). "The plaintiff must then respond with evidence affirming its jurisdictional allegations, or risk dismissal of its lawsuit by failing to do so." Id. (quoting Wilco Farmers, 558 S.W.3d at 202). To negate the plaintiff's allegations, the defense must show
that even if the allegations are true, either (1) the evidence is legally insufficient to establish jurisdiction; (2) the defendant's contacts with Texas do not amount to purposeful availment; (3) for specific jurisdiction, that the plaintiff's claims do not arise from the defendant's contacts; or (4) that the exercise of jurisdiction would offend the traditional notions of fair play and substantial justice.Id. (quoting Wilco Farmers, 558 S.W.3d at 202).
(4) Factually Sufficient Evidence Supported the Trial Court's Finding of Specific Jurisdiction
As Dai testified, Bennche was a Texas company that served as a distributor for the Industries. Dai's role was to facilitate communications between CH Group and its distributors in the United States, and Hisun oversaw sales of CH Group's UTVs in the United States. The evidence showed that, when Bennche contracted to purchase the UTVs from the Industries, Susan Zhao, an employee of both CH Group and CH Trade, communicated with Bennche using a "hsunmotor.com" email account about payment and shipment. CH Trade, which "sells the products [CH Group] produces," sent an invoice to Bennche's corporate office in Carrollton for $483,420.33 for a shipment of UTVs that included the one involved in the incident that triggered this action. At that point, CH Trade was responsible for "execut[ing] the delivery of the goods being delineated" by Bennche according to Bennche's delivery terms.
The original bill of lading showed that Bennche's headquarters in Carrollton was the place of delivery for the UTVs, supporting a finding that the Industries knew that the ultimate destination of the UTV at issue here was in Texas. See Benxi N. Steel Pipe Co. v. Atlas Tubular, L.P., No. 13-13-00102-CV, 2013 WL 6573782, at *4 (Tex. App.—Corpus Christi Dec. 12, 2013, no pet.) (mem. op.). The Industries' spreadsheets showed that the UTV here was supposed to be shipped to Dallas. Christina He, an employee of both CH Group and CH Trade, wrote to Bennche apologizing that Los Angeles, instead of Carrollton, was mistakenly listed as the destination port on the original bill of lading. Nevertheless, Hisun was to be notified when the UTVs arrived in the United States so that Bennche could pay Hisun the agreed-upon customs and duty fees before collection. Thus, the trial court could find that delivery to Texas and the payment of fees to a Texas company were requirements of the contract between Bennche and the Industries that was to be performed in Texas. See McClary v. Harvest Fuels, LLC, No. 01-19-00980-CV, 2021 WL 126114, at *12 (Tex. App.—Houston [1st Dist.] Jan. 14, 2021, no pet. h.) (mem. op.) (finding that payment to Texas bank account supported trial court's finding that part of contract was to be performed in Texas); see also U-Anchor Advert., Inc. v. Burt, 553 S.W.2d 760, 762 (Tex. 1977) (payment required to be remitted to Texas office constituted "doing business" in Texas within meaning of broad language of Texas long-arm statute).
On these facts, we find that factually sufficient evidence supported the trial court's implied finding that the Industries were doing business in Texas under the broad language of the Texas long-arm statute. See TEX. CIV. PRAC. & REM. CODE ANN. § 17.042. Next, we determine that federal constitutional requirements of due process allow for the Industries to be hauled into a Texas court.
We examine whether the Industries' contacts with Texas were purposeful. Bennche's petition alleged that the Industries sold the UTV "to Bennche, its Texas distributor, for the sole purpose that the UTV be marketed by Bennche to Texas consumers." CH Group admitted that it designed and manufactured the UTV involved in the accident, and CH Trade also admitted that it had designed the UTV. The Industries admitted that several of their UTVs were sold to Texas consumers and admitted that they intended for the UTV to be sold in the U.S., but not specifically in Texas. Even so, when a foreign manufacturer sells its products in Texas through a Texas distributor, use of that distributorship does not insulate "the manufacturer from the reach of a Texas court when one of the products injures a Texas citizen." Spir Star AG v. Kimich, 310 S.W.3d 868, 871 (Tex. 2010). Thus, "a defendant who 'intentionally targets Texas as the marketplace for its products' is subject to specific jurisdiction, and 'using a distributor-intermediary for that purpose provides no haven from the jurisdiction of a Texas court.'" TV Azteca v. Ruiz, 490 S.W.3d 29, 51 (Tex. 2016) (quoting Spir Star, 310 S.W.3d at 871). As a result, "that manufacturer is subject to a product liability suit in Texas based on a product sold here, even if the sales are conducted through a Texas distributor or affiliate." Spir Star, 310 S.W.3d at 874 (citing Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102, 112 (1987)). "In such cases, it is not the actions of the Texas intermediary that count, but the actions of the foreign manufacturer who markets and distributes the product to profit from the Texas economy." Id.
Even so, the Industries argue that they did not intentionally target Texas as the marketplace for their products, although they admitted to targeting the United States in general, and that they did not directly profit from sales to Texas consumers, though their brief admits that Bennche had dealers in Texas, as well as other states. "[P]urposeful availment of local markets may be either direct (through one's own offices and employees) or indirect (through affiliates or independent distributors)." Id. As the United States Supreme Court stated in World-Wide Volkswagen Corp. v. Woodson:
[I]f the sale of a product of a manufacturer . . . is not simply an isolated occurrence, but arises from the efforts of the manufacturer . . . to serve directly or indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in one of those States if its allegedly defective merchandise has there been the source of injury to its owner or to others.Id. (quoting World-Wide Volkswagen v. Woodson, 444 U.S. 286, 297 (1980) (emphasis added)). "In determining whether the defendant purposefully directed action toward Texas, we may look to conduct beyond the particular business transaction at issue: '[a]dditional conduct of the defendant may indicate an intent or purpose to serve the market in the forum State.'" Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 577 (Tex. 2007) (quoting Asahi, 480 U.S. at 112).
Here, factually sufficient evidence supports the trial court's finding that the Industries' contacts with Texas were not isolated or fortuitous. CH Group listed a Texas office as its mailing address with the Colorado Secretary of State. In answers to interrogatories, CH Group listed Qing Dai as a person with authority to manage or transact business for CH Group in Texas and stated that he facilitated "communications between [CH Group's] factory in Chongqing, China[,] and its distributors in the United States." Dai also said that he oversaw exports and that CH Group employed technicians who officed in Texas. The Industries also required Bennche to coordinate with Hisun for payment of customs duties and fees.
Importantly, the Industries did not sell their product through Hisun; they sold directly to Bennche, a Texas consumer of its UTV. "[E]xport record[s] of [CH Group] toward Bennche, LLC," revealed shipments of thousands of UTVs and parts to Bennche from 2014 to 2017, with Dallas identified as the port of destination, showing that it conducted a substantial, multi-million-dollar business in Texas with Bennche with the knowledge that Bennche had dealerships in Texas.
The fact that the Industries do not receive any of Bennche's profits and relinquish title before the UTVs reach Texas does not mean that they do not reap substantial economic gain through their distribution business with Bennche. See Spir Star, 310 S.W.3d at 875-76 (Tex. 2010) (because "specific jurisdiction over foreign manufacturers is often premised on sales by independent distributors. . . . it is not persuasive that title to the hoses passed in Europe, rather than in Texas") (citing Renner v. Lanard Toys Ltd., 33 F.3d 277, 282 (3d Cir. 1994) ("noting that 'a foreign manufacturer or seller [which] rids itself of title by a sale F.O.B. a foreign port [does not] insulate [itself] from jurisdiction if there is the other type of activity' indicating purposeful availment" (alterations in original)); see also Luv N' Care, Ltd. v. Insta-Mix, Inc., 438 F.3d 465, 471-72 (5th Cir. 2006) ("[A] F.O.B. term does not prevent a court from exercising personal jurisdiction over a non-resident defendant where other factors, such as the quantity and regularity of shipments, suggest that jurisdiction is proper."); Gulf Consol. Servs., Inc. v. Corinth Pipeworks, S.A., 898 F.2d 1071, 1073 (5th Cir. 1990) ("observing that 'the simple fact that a sales transaction is consummated outside that jurisdiction does not prevent the sale from forming the basis of jurisdiction'"); Benitez-Allende v. Alcan Aluminio Do Brasil, S.A., 857 F.2d 26, 30 (1st Cir. 1988) ("holding that title passing in Brazil 'is beside the point' in a specific jurisdiction analysis")). "Indeed, specific jurisdiction over foreign manufacturers is often premised on sales by independent distributors." Spir Star, 310 S.W.3d. at 875.
In LeBlanc v. Kyle, we found that similar evidence met the requirements for showing purposeful availment. There, a Texas consumer was injured by a water heater purchased by Cooper Butane, a Texas company that purchased the water heater from Controlled Energy, a Vermont distributor that received it from LeBlanc, a French manufacturer. LeBlanc v. Kyle, 28 S.W.3d 99, 100 (Tex. App.—Texarkana 2000, pet. denied). In LeBlanc, we held that LeBlanc had contracted with Controlled Energy to serve "the fifty states" and that such an agreement to distribute LeBlanc's products "demonstrate[d] a purposeful effort to serve the United States market, which include[d] Texas." Id. at 104. Similarly, Bennche was a distributor for the Industries, which both admitted that they intended for the UTVs to be sold in the United States. In LeBlanc, we found "[t]he shipment of 452 LeBlanc water heaters into Texas through Controlled Energy [was] also indicative of LeBlanc's effort to serve the Texas market." Id. Likewise, the Industries' shipments of thousands of its products and parts to Bennche over several years, with the knowledge that Bennche was a Texas company with dealerships in Texas, supported the trial court's implied finding that the Industries made substantial and successful efforts to distribute their UTVs in Texas, not just that they contracted with other companies that happened to have contacts with Texas. See id.; Spir Star, 310 S.W.3d at 871; Benxi, 2013 WL 6573782, at *7-8; see also Oswalt v. Scripto, Inc., 616 F.2d 191, 199-200 (5th Cir. 1980) ("There is nothing in this record to indicate that [a Japanese manufacturer] attempted in any way to limit the states in which [its products] could be sold. To the contrary, the record shows that [the manufacturer] had every reason to believe its product would be sold to a nation-wide market, that is, in any or all states. . . . [The Manufacturer]'s distribution system was not structured to gain some 'minimum assurance' that the [products] would not be sold in Texas.") (quoting World-Wide Volkswagen, 444 U.S. at 297).
From the evidence recited above, we cannot say that the trial court's finding that the Industries purposefully availed themselves of the privilege of conducting business in Texas was so against the great weight and preponderance of the evidence as to be clearly wrong and unjust.
Even so, the Industries argue that the stream of commerce theory shows that personal jurisdiction is not proper. "Flow of a manufacturer's products into the forum . . . may bolster an affiliation germane to specific jurisdiction." Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 927 (2011). "The stream-of-commerce metaphor has been invoked frequently in . . . decisions permitting 'jurisdiction in products liability cases in which the product has traveled through an extensive chain of distribution before reaching the ultimate consumer.'" Id. at 926 (quoting 18 W. FLETCHER, CYCLOPEDIA OF THE LAW OF CORPORATIONS § 8640.40, p. 133 (rev. ed. 2007)). "Typically, in such cases, a nonresident defendant, acting outside the forum, places in the stream of commerce a product that ultimately causes harm inside the forum." Id. Yet, as explained above, it was the actions of the Industries inside the forum through direct sales to Bennche that allegedly caused the harm to Swanson within the forum and gave rise to Bennche's indemnity and contribution claims. See TV Azteca, 490 S.W.3d at 51 (explaining that "courts may lack specific jurisdiction over a nonresident defendant who made no independent efforts to purposefully avail itself of Texas and merely contracted with a third party who did" while "a defendant who 'intentionally targets Texas as the marketplace for its products' is subject to specific jurisdiction, and 'using a distributor-intermediary for that purpose provides no haven from the jurisdiction of a Texas court'"); see also Zinc Nacional, S.A. v. Bouche Trucking, Inc., 308 S.W.3d 395, 397-98 (Tex. 2010) (per curiam) (distinguishing cases where merchant actually directs sales to forum state, in which case exercise of jurisdiction is appropriate, with cases in which merchant only directs sales through the forum, in which case exercise of jurisdiction is inappropriate). In short, the stream-of-commerce theory "does not amend the general rule of personal jurisdiction. It merely observes that a defendant may in an appropriate case be subject to jurisdiction without entering the forum—itself an unexceptional proposition—as where manufacturers or distributors 'seek to serve' a given State's market." J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 882 (2011) (quoting World-Wide Volkswagen Corp., 444 U.S. at 295). Here, the evidence shows that Chongqing entered the forum through its direct sales with Bennche.
Assuming that the stream of commerce theory was required to be applied by the trial court, the Industries point to the rule that "a seller's awareness 'that the stream of commerce may or will sweep the product into the forum State does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.'" Spir Star, 310 S.W.3d at 873 (quoting CSR, 925 S.W.2d at 595 (quoting Asahi, 480 U.S. at 112)). Instead, there must be "some 'additional conduct'—beyond merely placing the product in the stream of commerce—that indicates 'an intent or purpose to serve the market in the forum State.'" Id. (quoting Asahi, 480 U.S. at 112). Examples include:
See Benxi, 2013 WL 6573782, at *8 (finding that the trial court was not required to apply the stream of commerce theory when there was other evidence of purposeful availment based on a Chinese company's contacts with Texas).
(1) "designing the product for the market in the forum State," (2) "advertising in the forum State," (3) "establishing channels for providing regular advice to customers in the forum State," and (4) "marketing the product through a distributor who has agreed to serve as the sales agent in the forum State."Id. (quoiting Asahi, 480 U.S. at 112). These four examples are not "exclusive of the kind of factors that guide this question," because personal jurisdiction does not rest on the outcome of "mechanical" tests. Semperit Technische Produkte Gesellschaft M.B.H. v. Hennessy, 508 S.W.3d 569, 579 (Tex. App.—El Paso 2016, no pet.) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 319 (1945)). Another example includes the "'regular . . . flow . . . [and] regular course' of sales in the forum state." Boat Serv. of Galveston, Inc. v. NRE Power Sys., Inc., 429 F. Supp. 3d 261, 269 (E.D. La. 2019) (alteration in original) (quoting Hebert v. Wing Sale, Inc., 337 F. Supp. 3d 714, 720 (E.D. La. 2018) (citing Nicastro, 564 U.S. at 889); see Commonwealth Sci. & Indus. Research Org. v. Mediatek, Inc., 6:12-CV-578, 2013 WL 12152471, at *2 (E.D. Tex. Sept. 12, 2013) (order) (citing Bluestone Innovations Tex., LLC v. Formosa Epitaxy Inc., 822 F. Supp. 2d 657, 665 (E.D. Tex. 2011)).
In Semperit, the "plus" factor was a distribution network that in fact resulted in an Austrian company selling millions of dollars of goods to Texas customers though a wholly owned subsidiary in New Jersey who sold to a non-affiliated Oklahoma company that was a sub-tier distributor, which the New Jersey company knew resold the product into Texas through its several locations here. Semperit, 508 S.W.3d at 759. As a result, the "volume of sales elevate[d] th[e] case beyond the 'random,' 'fortuitous' or 'attenuated' contacts alluded to [in] Burger King Corp. v. Rudzewicz." Id. at 579-80 (quoting Burger King, 471 U.S. at 475-76); see Boat Serv. of Galveston, 429 F. Supp. 3d at 271 (citing Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 420 (5th Cir. 1993) ("[Defendant] intentionally placed its products into the stream of commerce by delivering them to a shipper destined for delivery in Texas. At the time the goods left [Defendant]'s plant in Minnesota, [Defendant] not only could have foreseen that the products might end up in Texas, it knew as a fact that the products were going to be delivered to a specific user in Houston, Texas." (second and third alterations in original))); S.P.A. Giacomini v. Lamping, 42 S.W.3d 265, 273 (Tex. App.—Corpus Christi 2001, no pet.) (Finding that there was specific jurisdiction where foreign manufacturer "ship[ped] mass quantities of its products to a distributor in Texas, fully aware that the distributor [would] be marketing significant quantities to customers in Texas" and that those "contacts with Texas amount[ed] to a regular and anticipated flow of products from manufacturer to distribution to retail sale."). Here, in addition to the sheer volume of the Industries' business with a Texas company with dealerships in Texas, there was evidence to support the trial court's finding that the Industries established channels for providing regular advice to customers in Texas. In answers to interrogatories, Dai described part of his duties with CH Group by stating, "[T]he job that we do in the U.S. to also to do the technical support." CH Group translated the owner's manual into English for distributors to use, and the translated manuals were then provided to consumers.
Dai did not restrict his answer by stating that only he provides technical support to Hisun. Instead, he clarified that two other technicians were employed by CH Group, not Hisun, and that their job in the United States was to provide technical support.
In any event, "[a] nonresident manufacturer does not avoid Texas law merely by forming a Texas affiliate or using a Texas distributor to sell its products in Texas markets." Spir Star, 310 S.W.3d at 875. "Just as manufacturers cannot escape liability for defective products by selling them through a subsidiary or distributor, neither can they avoid jurisdiction related to such claims by the same means." Id.
We conclude that the evidence was sufficient to support the trial court's finding that the Industries created "continuing relationships and obligations with citizens of another state" such that their contacts with Texas were purposeful and not random, fortuitous, attenuated, or unilateral acts of third parties. Pulmosan Safety Equip. Corp. v. Lamb, 273 S.W.3d 829, 839 (Tex. App.—Houston [14th Dist.] 2008, pet. denied) (citing Michiana, 168 S.W.3d at 785); see Benxi, 2013 WL 6573782, at *8 (finding that a Chinese company's contacts "included some unilateral activity" and that its "activities with . . . Texas-based entities illustrate[d] deliberate and systematic first-party involvement on its part").
Next, we must decide whether the cause of action arises from or relates to the Industries' contacts with Texas. "For specific-jurisdiction purposes, purposeful availment has no jurisdictional relevance unless the defendant's liability arises from or relates to the forum contacts." TV Azteca, 490 S.W.3d at 52 (quoting Moki Mac, 221 S.W.3d at 579). "A claim arises from or relates to a defendant's forum contacts if there is a 'substantial connection between those contacts and the operative facts of the litigation.'" Id. (quoting Moki Mac, 221 S.W.3d at 585). "This 'substantial connection' standard does not require proof that the plaintiff would have no claim 'but for' the contacts, or that the contacts were a 'proximate cause' of the liability." Id. at 52-53 (quoting Moki Mac, 221 S.W.3d at 584). "[W]hen a nonresident's only contacts with Texas involve indirect sales through a distributor or subsidiary, specific jurisdiction is limited to claims arising out of those sales." Schexnider, 2020 WL 6929872, at *9 (quoting Spir Star, 310 S.W.3d at 874).
Swanson sued the Industries for product defects and negligent design, among other things. Bennche and Fun Motors asserted contribution and indemnity claims under Section 82.002 of the Texas Civil Practice and Remedies Code, which provides, "A manufacturer shall indemnify and hold harmless a seller against loss arising out of a products liability action, except for any loss caused by the seller's negligence, intentional misconduct, or other act or omission, such as negligently modifying or altering the product, for which the seller is independently liable." TEX. CIV. PRAC. & REM. CODE ANN. § 82.002(a). While CH Group admitted that it manufactured the UTV, both CH Trade and CH Group filed responses to requests for admissions admitting that they both designed the product.
Swanson, Bennche, and Fun Motors all filed claims related to the Industries' sales of UTVs in Texas. Because the claims against the Industries arose from a specific sale that resulted in Swanson's injuries, their Texas contacts were substantially connected to the operative facts of the case. See Semperit, 508 S.W.3d at 583-84. As a result, sufficient evidence supported the trial court's decision that the second factor required to assert specific jurisdiction was met.
Last, we must determine whether the exercise of "jurisdiction is consistent with traditional notions of fair play and substantial justice." Spir Star, 310 S.W.3d at 878. "Only in rare cases, however, will the exercise of jurisdiction not comport with fair play and substantial justice when the nonresident defendant has purposefully established minimum contacts with the forum state." Id. (quoting Guardian Royal, 815 S.W.2d at 231); see Galaxy Powersports, LLC v. Benzou Vehicle Indus., Grp. Co., No. 3:10-CV-0360-P, 2011 WL 13232161, at *3 (N.D. Tex. Mar. 28, 2011) (order) ("If a defendant benefits from the availability of a particular state's market for its products, it is only fitting that the defendant be amenable to suit in that state."). "To defeat jurisdiction, [the defendant] must present 'a compelling case that the presence of some consideration would render jurisdiction unreasonable'—something [the defendant] has not done." Spir Star, 310 S.W.3d at 878-79 (quoting Guardian Royal, 815 S.W.2d at 231 (quoting Burger King, 471 U.S. at 477)).
In determining whether assumption of jurisdiction over a nonresident defendant will offend traditional notions of fair play and substantial justice,
due consideration should be given to (1) the burden on the defendant, (2) the interests of the forum state in adjudicating the dispute, (3) the plaintiff's interest in obtaining convenient and effective relief, (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states in furthering fundamental substantive social policies.LeBlanc, 28 S.W.3d at 102-03 (citing World-Wide Volkswagen, 444 U.S. at 292). "When an 'international dispute' is involved, courts should also consider: (6) the unique burdens placed on a defendant who must defend itself in a foreign legal system, and (7) the procedural and substantive policies of other nations whose interests are affected, as well as the federal government's interest in its foreign relations policies." Id. at 103 (citing Asahi, 480 U.S. at 114-15).
The fact that the Industries are not headquartered in Texas "cannot, by itself, defeat jurisdiction." See Spir Star, 310 S.W.3d at 879 (citing Guardian Royal, 815 S.W.2d at 231) ("Nor is distance alone ordinarily sufficient to defeat jurisdiction: 'modern transportation and communication have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity.'") (quoting McGee v. Int'l Life Ins. Co., 355 U.S. 220, 223, (1957)). The Industries have not argued that litigating in Texas would burden them. Given that (1) they have a general vice manager and other employees in Texas, (2) Dai testified that Hui Li often visits Texas, (3) and CH's wholly owned subsidiary is in Texas, the trial court could find that requiring the Industries to defend claims in Texas would not pose an undue burden for them. See id. "Moreover, Texas has a significant interest in exercising jurisdiction over controversies arising from injuries a Texas resident sustains from products that are purposefully brought into the state and purchased by Texas companies." Id.; see LeBlanc, 28 S.W.3d at 106 (Just because this is an "international dispute" does not mean that maintaining jurisdiction in Texas is unfair. Texas has an interest in litigation between one of its citizens and a manufacturer and supplier of products to its market.). Also, the trial court could find that Swanson would face an undue burden if forced to litigate her claims in China, especially because the claims against Bennche and Fun Motors would be heard in Texas. Spir Star, 310 S.W.3d at 879. As for remaining considerations, "it would be more efficient to adjudicate the entire case in the same place." Id. Here, asserting personal jurisdiction over the Industries comports with traditional notions of fair play and substantial justice.
"When a nonresident defendant has purposefully availed itself of the privilege of conducting business in a foreign jurisdiction, it is both fair and just to subject that defendant to the authority of that forum's courts." Id. at 872 (quoting Burger King, 471 U.S. at 475). We find that sufficient evidence supported the trial court's finding of personal jurisdiction over the Industries. Because this ruling is dispositive of the remaining issues on appeal, we affirm the trial court's denial of the Industries' special appearances.
Josh R. Morriss, III
Chief Justice Date Submitted: February 24, 2021
Date Decided: March 18, 2021