Opinion
No. 3:02-CV-0818-P
October 2, 2002
MEMORANDUM OPINION AND ORDER
Now before the Court for consideration is Defendant Howard Neckowitz's Motion to Dismiss for Lack of Personal Jurisdiction and for Insufficiency of Service of Process, filed May 10, 2002. After reviewing the pleadings and briefs in conjunction with the relevant law, the Court hereby DENIES Defendant's Motion.
Procedural History
Plaintiff Charles G. Taylor, Jr., instituted this action by filing a petition in the 44th Judicial District Court of Dallas County, Texas (Cause No. 02-02627-B), on March 20, 2002. Plaintiff served Defendants Alex. Brown Sons, Inc., BT Alex. Brown, Inc., DB Financial Markets Holding Corp. Deutsche Bank Securities, Inc., and David McInnis (collectively, "the Alex. Brown Defendants"), on March 21, 2002. Plaintiff served Defendant Howard Neckowitz by substitute process on the Secretary of State under the Texas long-arm statute on March 21, 2002. The Alex. Brown Defendants filed David McInnis' Special Appearance and Defendants' Original Answer Subject to Special Appearance in state court on April 15, 2002. This Answer asserted a general denial of Plaintiffs allegations, as is permitted under Texas law. Four days later, on April 19, 2002, the Alex. Brown Defendants removed this action to federal court on the basis of diversity.
On April 29, 2002, this Court granted Defendant Neckowitz's Unopposed Motion to Extend Time to File Responsive Pleadings, allowing him to file his answer or other responsive pleadings by May 10, 2002. Defendant Neckowitz filed on May 10, 2002, a motion contesting (i) this Court's right to assert jurisdiction over his person, and (ii) the sufficiency of Plaintiffs service of process. Plaintiff filed his Response to this motion on June 14, 2002, and Neckowitz filed his Reply on July 1, 2002.
Factual Background
The facts alleged by Plaintiff in his Original Petition are generally denied by the Alex. Brown Defendants. Defendant Neckowitz has filed no Answer but filed a signed Affidavit with his Motion to Dismiss. For the purposes of this Motion, the Court is required to resolve any discrepancies in favor of Plaintiff. See Wilson v. Belin, 20 F.3d 644, 648 (5th Cir. 1994).
Plaintiff, a resident of Dallas County, Texas, and (at the time) an employee of Pacific Gateway Exchange, Inc. ("PGEX"), purchased 50,760 shares of PGEX stock on December 31, 1995. Pl. Orig. Pet. ¶ 16. Plaintiff directed his broker, Defendant David McInnis, to sell 30,000 shares of PGEX stock on March 20, 2000. Id. ¶ 17. McInnis, who was in California at the time he received this sell order, contacted certain executives at PGEX, including the company's president, Defendant Howard Neckowitz, regarding the proposed sale. See id. Pl.'s Resp. at 2. Neckowitz, who was also in California, misrepresented to McInnis that sale of Plaintiffs stock was restricted. Id. At the time he made this statement, Neckowitz knew about PGEX's financial condition and specifically intended that McInnis rely on his misrepresentations and not execute Plaintiffs sell order. Pl. Orig. Pet. ¶¶ 22 28.
Relying on Neckowitz's misrepresentation, McInnis failed to execute Plaintiffs sell order. Id. at ¶ 22. By July 2, 2000, the value of PGEX stock had fallen from approximately $20 per share to about $3 per share. See id. Pl.'s Resp., at 2. In March 2002, Plaintiff filed a petition in Texas court asserting claims against Defendant Neckowitz and the Alex. Brown Defendants. In his Original Petition, Plaintiff alleged that Neckowitz violated Rule 10b-5 of the Securities Exchange Act of 1934, committed fraud and/or negligent misrepresentation under Texas law, and participated in a civil conspiracy with the Alex. Brown Defendants to prevent the proper sale of Plaintiffs stock. Pl. Orig. Pet. ¶¶ 22, 27, 41, 44.
The present Motion avers that (i) this Court cannot assert personal jurisdiction over Defendant Neckowitz and (ii) Plaintiffs substitute service of process on the Secretary of State was insufficient. In an affidavit, Neckowitz swears that he is a citizen of the State of California, has resided there continuously for about 20 years, and has never lived in Texas. Aff. of Howard Neckowitz ¶ 3. He denies having ever (i) owned, leased, or held a security interest in any real or personal property in Texas, (ii) opened or maintained a bank account in Texas, (iii) opened or maintained an office or other business premises of any kind in Texas, (iv) hired any employees or agents in Texas, (v) maintained telephone or other communications facilities of any kind in Texas, (vi) been required to maintain, or maintained, a registered agent for service of process in Texas, (vii) entered into or negotiated any contracts or agreements with a Texas resident in which either party was to perform in whole or in part in Texas, (viii) been a party to a lawsuit in Texas other than in connection with the present suit, or (ix) traveled to Texas since about May 1999. Id. ¶¶ 5 6. Neckowitz states that he never met with Plaintiff in Texas regarding Plaintiffs efforts to sell PGEX stock in March 2000, which is consistent with Plaintiffs allegations. Id. ¶ 7. Neckowitz does not to "recall any communications . . . with Plaintiff" on this matter, which is also consistent with Plaintiffs claim that Neckowitz made the alleged misrepresentations to McInnis. Id. ¶ 8. He avers that he never communicated with McInnis "while in Texas," but does not dispute in his affidavit that he spoke with McInnis in California. Id. ¶ 9; but see Def.'s Reply at 1-2. Neckowitz further denies having been served with process while in Texas, and claims not to have received a copy of process from Texas' Secretary of State. Id. ¶¶ 10 11.
Discussion
I. Service of Process
One basis asserted by Defendant Neckowitz in his Motion to Dismiss is insufficiency of process. His position is two-pronged: first, he argues that Plaintiffs service on the Secretary of State was ineffective; second, he argues that, even if service was effective, the Secretary of State did not deliver process to him, thus rendering service deficient. The Court rejects both arguments.
Neckowitz first claims that Plaintiffs service of process on the Secretary of State was ineffective. Def.'s Br. at 9. To demonstrate effective service of process under Texas law, a plaintiff seeking use a substitute form of process must (i) plead facts that, if true, would require the defendant to answer, and (ii) prove that the defendant was served in the required manner. Franecke v. Dolenz, 668 S.W.2d 481, 482 (Tex.App.-Austin 1984). A defendant would be required to answer if service on the Secretary of State is properly substituted for service on the defendant himself. Texas' long-arm statute permits substitute service to be accomplished by serving process on the Secretary of State under particular circumstances. Nonresidents who have engaged in business in Texas may be served in this manner so long as the lawsuit relates to such business. Tex. Civ. Prac. Rem. Code Ann. § 17.042 (West 1997). The statute further specifies that "a nonresident does business in this state if the nonresident . . . commits a tort" in Texas. Tex. Civ. Prac. Rem. Code Ann. § 17.042(2).
In attacking Plaintiffs service of process, Neckowitz maintains that he has not "engaged in any of the activities specifically described in the statutes as 'acts constituting business' in the state." Def.'s Br. at 9-10. In particular, he denies ever committing a tort in whole or in part in Texas. Id. at 10. Neckowitz's denials are of no import here; the issue is whether Plaintiff plead facts that would require Defendant to answer. In his pleadings, Plaintiff alleges that Neckowitz violated securities laws, and committed fraud by making misrepresentations to McInnis with the intent to prevent Plaintiffs sale of PGEX stock. Pl.'s Orig. Pet. ¶ 17. Neckowitz insists that the complained-of communication "occurred (if at all) in California and involves California residents [Neckowitz and McInnis]." Def's Reply at 5. However, for purposes of long-arm jurisdiction, a tort is committed where the resulting injury occurs. See Hupp v. Siroflex of America, Inc., 848 F. Supp. 744 (S.D. Tex. 1994). Accordingly, because Plaintiff alleged that Neckowitz committed torts causing injury in Texas, Plaintiff has alleged that Neckowitz "engaged in business" for purposes of the Texas long-arm statute. Plaintiffs pleadings support his resort to substitute service of process.
The question remains whether Plaintiffs service of process was effective. Process may be served "pursuant to the law of the state in which the district court is located." Fed.R.Civ.P. 4(e). If service of process was not executed in strict compliance with Texas state law, the court cannot acquire proper jurisdiction over a defendant. See Whitney v. LL Realty Corp., 500 S.W.2d 94, 96 (Tex. 1973). As stated above, a plaintiff may substitute service of process on the Secretary of State for service of process on a nonresident defendant who engages in business in Texas. See Tex. Civ. Rem. Prac. Code Ann. § 17.044(a)( 1) (West 1997). Once served, the Secretary of State must "require a statement of the name and address of the nonresident's home or home office and . . . immediately mail a copy of the process to the nonresident." Id. § 17.045(a). The record indicates that Plaintiff served Neckowitz by substitute service on the Secretary of State. See Notice of Removal, app. A-2. The Secretary of State immediately sent notice to Neckowitz by certified mail. See id. at 2. The Court is satisfied that Plaintiff complied with the requirements of the long-arm statute and that substitute service was properly effectuated.
Neckowitz next argues that the Secretary of State must "deliver a copy of the summons to the non-resident" in order to be effective. Def.'s Br. at 10. This assertion misstates the law. Section 17.045(a) requires only that the Secretary of State "mail a copy of process to the nonresident." The statute does not require actual receipt by the defendant for substitute service to be accomplished. Bludworth Bond Shipyard, Inc. v. M/V Caribbean Wind, 841 F.2d 646 (5th Cir. 1988), is consistent with this construction of the statute. In Bludworth, the court held that a plaintiff who provided a statement of the nonresident defendant's "last known address" did not provide the "address of the nonresident's home or home office," which the statute demands the Secretary to require of a plaintiff. Id. at 650. Neckowitz does not argue that the address provided to the Secretary of State was not his home or home office address. He merely claims that he had not "received a copy of process from the Secretary of State" as of May, 9, 2002. Aff. of Howard Neckowitz ¶ 11. It is clear, however, that he received actual notice of the action as early as April 24, 2002, when he hired counsel "to represent him in this lawsuit." See Def. Howard Neckowitz's Unopposed Mot. to Extend Time to File Responsive Pldgs. ¶ 2. Insofar as "Rule 4 is a flexible rule that should be liberally construed to uphold service so long as a party receives sufficient notice of the complaint," this Court declines to add to the Texas long-arm statute an actual-delivery requirement. Chan v. Society Expeditions, 39 F.3d 1398, 1404 (9th Cir. 1994).
III. Personal Jurisdiction
The second basis for Defendant Neckowitz's Motion to Dismiss is lack of personal jurisdiction.
A. Personal Jurisdiction Standard
Whether a federal court sitting in diversity may exercise personal jurisdiction over a nonresident defendant is determined by the applicable state long-arm statute (as interpreted by the state courts) and by due-process guarantees under the Fourteenth Amendment. See Allred v. Moore Peterson, 117 F.3d 278, 281 (5th Cir. 1997). The Texas long-arm statute, Tex. Civ. Prac. Rem. Code Ann. §§ 17.041-.045 (West 1997), is interpreted by Texas courts to reach "as far as the federal Constitutional requirements of due process will allow." Guardian Royal Exchange Assur., Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991). Thus, under Texas law, state and constitutional concerns effectively collapse into one, and a court may assert personal jurisdiction over a nonresident defendant so long as that assertion is within the limits of due process. Stuart v. Spademan, 772 F.2d 1185, 1189 (5th Cir. 1985).
When a nonresident defendant files a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing the court's personal jurisdiction over the defendant. Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir. 1999). If the district court rules on this motion without conducting an evidentiary hearing, the plaintiff need only make out a prima facie case for personal jurisdiction. Wilson v. Belin, 20 F.3d 644, 648 (5th Cir. 1994). The court is to accept the plaintiffs uncontested allegations as true and resolve conflicting facts in the plaintiffs favor. Id. at 648.
To establish the court's jurisdiction over a nonresident defendant's person, a plaintiff must show that (i) the nonresident had sufficient contacts with the forum state to satisfy due process and (ii) it would be fair and reasonable to expect him to defend a suit in that forum. Burger King v. Rudzewicz, 471 U.S. 462, 473-77 (1985). Plaintiff may satisfy the minimum-contacts standard by showing that the nonresident "purposefully availed himself of the privilege of conducting activities within the forum state," thereby invoking the benefits and protections of its laws. Hanson v. Denckla, 357 U.S. 235, 253 (1958).
Personal jurisdiction may take two forms: general in personam jurisdiction and specific in personam jurisdiction. General in personam jurisdiction lies where the defendant's in-state contacts were substantial and continuous. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 415 (1984). In other words, a defendant's contacts with the forum must be so substantial that he would expect to be sued in the state for any claim, including one not arising from his in-state activities. Shaffer v. Heitner, 433 U.S. 186, 216 (1977). Once a defendant's forum-related activities have been demonstrated to be substantial and continuous, the court must consider whether exercising general jurisdiction over the defendant comports with traditional notions of substantial justice and fair play.
Specific jurisdiction may lie where the cause of action relates to or arises out of the nonresident's contacts with the forum. Wilson, 20 F.3d at 647. In this context, deliberate actions taken by the nonresident and purposefully directed at the forum state will suffice. Stuart v. Spademan, 772 F.2d 1185, 1190 (5th Cir. 1985); Burger King, 471 U.S. at 472. To determine whether sufficient minimum contacts exist, the court considers the quality and nature of the defendant's contacts with the state and examines the relationship among the nonresident defendant, the forum, and the litigation. Int'l Shoe Co. v. Washington, 326 U.S.3 10, 318 (1945); Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1171 (5th Cir. 1985). "The appropriate inquiry is whether the defendant purposefully availed [himself] of the privilege of conducting activities in-state, thereby invoking the benefits and protections of the forum state's laws." Bullion v. Gillespie, 895 F.2d 213, 216 (5th Cir. 1990). "A single act can be enough to confer personal jurisdiction if that act gives rise to the claim being asserted." Lewis v. Fresne, 252 F.3d 352, 358-359 (5th Cir. 2001). "When the actual content of communications with a forum gives rise to intentional tort causes of action, this alone constitutes purposeful availment." Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 213 (5th Cir. 1999).
Even if "minimum contacts" are found, the court cannot exercise jurisdiction if considerations of substantial justice and fair play suggest that making a nonresident defend in the forum state is so unreasonable as to violate due process. Asahi Metal Indus. Co. v. Super. Ct., 480 U.S. 102, 105 (1987). In this analysis, the court considers the foreseeability of the nonresident defendant being haled into court in that state, the interests of the forum state in providing redress to its citizens, the plaintiffs convenience, and other states' interests in enforcing their substantive law. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980).
If minimum contacts exist but are less than substantial, fairness factors can "tip the scales" to establish jurisdiction. Conversely, even when there are compelling minimum contacts, the case may be dismissed if the fairness factors weigh against establishing personal jurisdiction. See Asahi, 480 U.S. at 102. However, fairness or convenience alone will not establish personal jurisdiction. A State "does not acquire . . . jurisdiction by being the 'center of gravity' of the controversy or the most convenient location for litigation, the issue is personal jurisdiction, not choice of law. It is resolved by considering the acts of the [defendant]." Hanson, 357 U.S. at 254.
B. Application
In his Response to Defendant Neckowitz's Motion to Dismiss, Plaintiff asserts a claim of specific jurisdiction: "Neckowitz engaged in conduct that was directed squarely at Plaintiff . . ." Pl.'s Resp. at 2. The facts alleged in Plaintiffs Petition are less than clear on this matter. Plaintiff alleges that he directed Defendant McInnis "to sell Plaintiffs 30,000 shares of PGEX stock." When McInnis check with executives at PGEX to determine whether sale of this stock was restricted, Neckowitz allegedly "misrepresented to [McInnis] that there were restrictions prohibiting the sale of Plaintiffs PGEX stock." This communication, Plaintiff alleges, is a tortious act directed at a Texas resident.
Plaintiffs petition essentially alleges that a California resident called another California resident to ask a question about sales restrictions on stock. Without a showing that Neckowitz directed his communication to Texas, or intended for its effects to be felt in Texas, there is no basis for asserting personal jurisdiction. Plaintiffs petition contains no allegation that Neckowitz knew that McInnis's question pertained to stock owned by a resident of Texas. At a hearing on this issue, Plaintiffs counsel maintained that the use of the words "Plaintiffs PGEX stock" was intended to convey the idea that Neckowitz knew that McInnis was talking about stock owned by Charles Taylor, Texas resident. The Court acknowledges that the phrase can be so read, but to do so one must assume Neckowitz's knowledge where it is not plainly alleged.
The case law supports this Court's view that a defendant must know that his tortious actions will affect a person in a particular forum before that forum can assert personal jurisdiction over that defendant. In Calder v. Jones, 465 U.S. 783 (1984), the Supreme Court found personal jurisdiction to lie where a Florida publisher, editor, and reporter published allegedly defamatory statements about California residents in a nationally distributed magazine. About 600,000 of the 5 million copies sold each week were sold in California. The defendants undoubtedly knew that the edition containing the defamatory material would be circulated in California. Jurisdiction in California was proper because the defendants' intentional conduct in Florida was "calculated to cause injury . . . in California." Id. at 791 (emphasis added).
Similarly, in Wein Air Alaska, Inc. v. Brandt, 195 F.3d 208, 212 (5th Cir. 1999), the defendant, a resident of Germany, allegedly made fraudulent misrepresentations and promises and failed to disclose material information in letters, faxes, and phone calls to Texas residents. Where the defendant calls someone in Texas or sends faxes or letters there, he no doubt knows that the effects of any tortious conduct would be felt in Texas.
In Lewis v. Fresne, 252 F.3d 352, 358 (5th Cir. 2001), the Court found personal jurisdiction to lie where a defendant, a Massachusetts resident, participated in a telephone conversation between a co-defendant and the plaintiff, a Texas resident. The fact that the defendant "failed to correct allegedly false statements made by [the co-defendant]" was sufficient to support jurisdiction where the plaintiff alleged that the call was designed to defraud the plaintiff. Significantly, the defendant also sent to the plaintiff in Texas loan documents and stock certificates containing allegedly fraudulent misrepresentations. Again, the defendant in this case plainly knew that his misrepresentations were going to Texas.
Plaintiff has not alleged that Neckowitz spoke directly with or sent letters or faxes to Plaintiff. Absent an allegation that Neckowitz knew that his statements to McInnis concerned stock owned by a Texas resident, the Court believes that jurisdiction will not lie. Counsel for Plaintiff informed the Court that he believes a good-faith allegation of knowledge on the part of Neckowitz can be pled. At the meeting held at this Court on September 25, 2002, the parties agreed that Plaintiff would be allowed to depose Defendant Neckowitz in California for the limited purpose of obtaining facts necessary to establish personal jurisdiction. In accordance with that agreement, Plaintiff will be allowed to file an amended complaint in this Court on or before October 25, 2002. Responsive pleadings or motions to dismiss shall be filed on or before November 14, 2002.
Conclusion
The Court finds that service of process was sufficient. The Motion to Dismiss based on insufficiency of process if DENIED. Based on the facts alleged, however, personal jurisdiction will not lie. Rather than dismiss the complaints against Defendant Neckowitz, however, the Court will allow Plaintiff to file an amended complaint on or before October 25, 2002. Responsive pleadings or motions to dismiss shall be filed on or before November 14, 2002.
It is so ordered.