Southern Bleacher Company, Inc.v.Husco, Inc.

United States District Court, N.D. TexasMay 4, 2001
7:01-CV-009-R (N.D. Tex. May. 4, 2001)

7:01-CV-009-R

May 4, 2001


MEMORANDUM OPINION AND ORDER


JERRY BUCHMEYER, District Judge

Plaintiff, Southern Bleacher Company, Inc., filed suit in the District Court of Young County, Texas against Defendants Husco, Inc., Deborah Huselton, and David Huselton, for breach of contract and fraud. On January 12, 2001, Defendants removed the case to this Court. Now before this Court is Defendants' Motion to Dismiss for lack of personal jurisdiction, filed on April 9, 2001. For the reasons stated below, this Motion is GRANTED in part and DENIED in part. Additionally, all claims against David and Deborah Huselton are hereby DISMISSED WITHOUT PREJUDICE.

Background

Plaintiff, Southern Bleacher Company, Inc. (Southern Bleacher), is a Texas corporation with its principal place of business in Young County, Texas. Southern Bleacher is in the business of manufacturing and installing stadium-type seating. Defendant Husco, Inc. (Husco) is a Pennsylvania corporation with its principal place of business in Butler, Pennsylvania. Husco is in the business of erecting stadium seating. Defendants Deborah and David Huselton are officers and shareholders of Husco. Beginning in 1998, Southern Bleacher and Husco entered into approximately forty contracts in which Husco was to be the installation subcontractor for contracts that Southern Bleacher had previously entered with third parties. This lawsuit arises out of eleven of these contracts.

Each contract at issue was formed either in writing or through telephone conferences between a Southern Bleacher representative in Texas and a Husco representative outside of Texas. The contract negotiations were conducted by telephone between a Southern Bleacher representative in Texas and a Husco representative outside of Texas; post-formation discussions were conducted in the same manner. Southern Bleacher administered the contracts from Texas, ordered and processed materials pursuant to the contracts in Texas, engineered and designed plans related to the contracts in Texas, and assembled a portion of the materials for the contracts in Texas.

Husco's performance — installation of the stadium seating — took place outside of Texas. Six of the contracts were for stadiums in Ohio, two in Pennsylvania, one in Michigan, one in Minnesota, and one in West Virginia. On no occasion did a Husco representative go to Texas to negotiate, form, or discuss any of the contracts. Husco did, however, open and maintain a bank account at the First National Bank of Graham, Texas, so that Southern Bleacher could deposit payments, pursuant to the contracts. Southern Bleacher subsequently deposited payments for the contested contracts into this bank account.

All of the disputed contracts involve claims that Husco failed to complete an installation in the time required by the given contract In addition, Southern Bleacher alleges that material misrepresentations were made by Husco's representatives regarding the expected completion dates. Southern Bleacher claims that Defendant David Huselton made one such material misrepresentation to a Southern Bleacher representative while this representative was in Texas. Southern Bleacher relied on this representation by depositing money into the Husco bank account located in Graham, Texas. Southern Bleacher incurred monetary damages in the state of Texas as a result of the alleged misrepresentations when it was forced to hire completion subcontractors.

Discussion

I. Standard for Exercising Personal Jurisdiction

Federal district courts sitting in diversity may exercise personal jurisdiction only to the extent permitted a state court under applicable state law. See Allred v. Moore Peterson, 117 F.3d 278, 281 (5th Cir. 1997) (citations omitted). The federal court sitting in diversity may exercise personal jurisdiction if (1) it is permitted by the state long-arm statute as interpreted by the state courts and (2) exercising jurisdiction does not violate due process guaranteed by the Fourteenth Amendment See id. The plaintiff has the burden of establishing the court's power to exercise personal jurisdiction over a defendant See Bullion v. Gillespie, 895 F.2d 213, 216-17 (5th Cir. 1990). "[W]here the district court rules on a motion to dismiss for lack of jurisdiction without conducting an evidentiary hearing, the plaintiff may bear his burden by presenting a prima facie case of jurisdiction." Felch v. Transportes Lar-Mex SA DE CV, 92 F.3d 320, 326 (5th Cir. 1996).

Under the Texas long-arm statute, Tex. Civ. Prac. Rem. Code Ann. §§ 17.041-.045, a nonresident may be subject to Texas long-arm jurisdiction if the nonresident commits "acts constituting doing business" in Texas. Id. at § 17.042. "The Texas Supreme Court has interpreted the `doing business' requirement broadly, allowing the long-arm statute to reach as far as the federal Constitution permits." Gundle Lining Const. v. Adams County Asphalt, 85 F.3d 201, 204 (5th Cir. 1994) (citing, Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990)). Thus, this Court is only required to consider whether an exercise of jurisdiction over the Defendants satisfies the constitutional due process requirements. See Stuart v. Spademan, 772 F.2d 1185, 1189 (5th Cir. 1985): CD Solutions. Inc. v. Tooker, 965 F. Supp. 17, 19 (N.D. Tex. 1997).

Exercising personal jurisdiction over a nonresident defendant will not violate due process if two conditions are met. See, Gundle, 85 F.3d at 204. First, the defendant must have purposefully availed himself of the benefits and protections of the forum state by establishing minimum contacts with the forum state. See International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). The minimum contacts with the forum state must be significant enough so that the nonresident defendant should reasonably anticipate being haled into court in the forum state. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 296 (1980). Second, exercising jurisdiction over the nonresident defendant must not offend traditional notions of fair play and substantial justice. See Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113 (1987).

In addition, the minimum contacts analysis can be further subdivided into contacts that give rise to specific personal jurisdiction and contacts that give rise to general personal jurisdiction. See Gundle, 85 F.3d at 205. Specific jurisdiction, which is the alleged basis for jurisdiction in this case, permits the exercise of personal jurisdiction over a nonresident defendant only when the nonresident defendant's contacts with the forum state arise from, or are directly related to, the cause of action. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 8 (1984). To determine whether or not specific jurisdiction may be exercised, "the court must examine the relationship among the defendant, the forum, and the litigation to determine whether maintaining the suit offends traditional notions of fair play and substantial justice." Gundle, 85 F.3d at 205 (citing, Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). The unilateral activity of those who claim some relationship with a nonresident defendant, however, cannot satisfy the requirement of contact with the forum state. See Helicopteros Nacionales, 466 U.S. at 417 (citing, Kulko v. California Superior Court, 436 U.S. 84, 93 (1978); Hanson v. Denckla, 357 U.S. 235, 253 (1958); Lilly, Jurisdiction Over Domestic and Alien Defendants, 69 Va.L.Rev. 85, 99 (1983)).

II. Personal Jurisdiction Over Husco, Inc.

A. Minimum Contacts

Southern Bleacher argues that the following facts support this Court's exercise of specific jurisdiction over Husco, Inc.: 1) Husco entered into forty contracts with Southern Bleacher, a Texas resident, over an approximately two year period; eleven of these contracts are the subject of this lawsuit; 2) pre-contract negotiations and post-contract discussions were conducted via telephone calls between Husco and Southern Bleacher while the Southern Bleacher representative was in Texas; 3) the contracts were ultimately formed either orally, via telephone conversations, or in writing, via the mail, between Husco and Southern Bleacher while the Southern Bleacher representative was in Texas; 4) Husco opened a bank account in Texas for the express purpose of facilitating payment under the contracts with Southern Bleacher; 5) Southern Bleacher performed substantial portions of its contractual obligations, including making payments pursuant to the contract, in Texas; 6) Southern Bleacher suffered injuries due to alleged breach of contract and fraud in Texas; and 7) Husco's allegedly fraudulent misrepresentations were made by a Husco representative to a Southern Bleacher representative while the Southern Bleacher representative was in Texas.

These contacts are sufficient to satisfy the minimum contacts required by the due process clause of the United States Constitution. The Fifth Circuit has consistently followed the United States Supreme Court's holding that "merely contracting with a resident of the forum state is insufficient to subject the nonresident to the forum's jurisdiction."Holt Oil Gas Corp. v. Harvey, 801 F.2d 773, 777 (citing, Colwell Realty Investments v. Triple T Inns, 785 F.2d 1330, 1334 (5th Cir. 1986); Stuart, 772 F.2d at 1192-93; Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)). However, this Circuit has also followed the Supreme Court's admonishment against the application of "mechanical tests or conceptualistic theories of the place of contract or of performance" in determining whether entering into a contract with a forum resident can give rise to personal jurisdiction. Stuart, 772 F.2d at 1192.

In Stuart v. Spade, the Fifth Circuit quoted the Supreme Court's language in Burger King Corp. v. Rudzewicz, setting forth the proper framework for minimum contacts analysis in cases such as ours:

If the question is whether an individual's contract with an out-of-state party alone can automatically establish sufficient minimum contacts in the other party's home forum, we believe the answer clearly is that it cannot . . . Instead, we have emphasized the need for a "highly realistic" approach that recognizes that a "contract" is "ordinarily but an intermediate step serving to tie up prior business negotiations with future consequences which themselves are the real object of the business transaction." . . . It is these factors-prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing — that must be evaluated in determining whether the defendant purposefully established minimum contacts within the forum.
Stuart, 772 F.2d at 1193 (quoting, Burger King, 471 U.S. at 478-79). Here, the eleven contracts at issue were the manifestation of an ongoing business relationship between Husco and Southern Bleacher. The two parties conducted regular communications in order to form each contract and in order to manage each contract's execution. Moreover, the fact that Husco opened a bank account in Texas evidences its intent to participate in an ongoing relationship with a Texas resident.

It is true that the relationship between Husco and Southern Bleacher is not as involved as the relationship described in Burger King v. Rudzewicz: "a carefully structured 20-year relationship that envisioned continuing and wide-reaching contacts with Burger King in Florida."Burger King, 471 U.S. at 480. However, the relationship is distinguishable from those involving only a single contract accompanied by communications to the forum state; relationships which courts have held do not give rise to personal jurisdiction. See Holt, 801 F.2d at 778 (communications with the forum state rested on nothing but "the mere fortuity that [Holt] happens to be a resident of the forum.") (quoting,Patterson v. Dietze, Inc., 764 F.2d 1145, 1147 (5th Cir. 1985); see also § SMK Painting Co. Inc. v. Flournoy Construction Co., LLC, 1999 WL 1017779, 4-5 (N.D. Tex. 1999) (entering into one contract for work on an out-of-state project, accompanied by telephone and fax communications to the forum state was legally insufficient to allow for the exercise of specific personal jurisdiction because any contacts with the forum state were "purely fortuitous.").

If this suit resulted from the formation of a single contract to install bleachers outside of Texas, then Husco's contacts with Texas might have been "purely fortuitous." However, the facts reveal that Husco knowingly maintained an ongoing business relationship with Southern Bleacher, out of which eleven contested and twenty-nine uncontested contracts were formed. This was not a "one-shot affair," but a relationship that Husco should have anticipated would have consequences in Texas. Peyman v. The Johns Hopkins University, 2000 WL 973665, 3 (E.D. La, 2000). Therefore, Husco has established the minimum contacts required by due process.

B. Traditional Notions of Fair Play and Substantial Justice

In addition to establishing the requisite minimum contacts, a plaintiff must demonstrate that exercising jurisdiction over a nonresident defendant does not offend "traditional notions of fair play and substantial justice." See International Shoe, 326 U.S. at 316 (quoting,Milliken v. Meyer, 311 U.S. 457, 463 (1940)). This court must therefore determine whether its exercise of jurisdiction over Husco is reasonable, after considering several factors. "A court must consider the burden on the defendant, the interests of the forum State, and the plaintiffs interest in obtaining relief. It must also weigh in its determination `the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and the shared interest of the several States in furthering fundamental substantive social policies.'"Asahi Metal Indus. Co., 480 U.S. at 113 (quoting, World-Wide Volkswagen, 444 U.S., at 292, (citations omitted)).

A consideration of the relevant factors leads this Court to conclude that its exercise of jurisdiction would be reasonable. Husco has not demonstrated that it would be unduly burdensome to defend this case in the state of Texas. In fact, Husco's Motion states that "the relative conveniences and inconveniences to the parties, is presumably equal." (Motion to Dismiss, p. 6). Second, both the Plaintiff and the state of Texas have a significant interest in this litigation. Husco established and maintained an ongoing business relationship with Southern Bleacher, a Texas resident, involving eleven separate contracts. Texas therefore has an interest in remedying any alleged harms that resulted from this relationship. Southern Bleacher performed many of its duties under the contracts in the state of Texas and its alleged injuries were sustained in the state of Texas. Thus, Southern Bleacher has a strong interest in obtaining relief in this forum. Lastly, because Husco's performance of the contested contracts took place in so many different states, it serves the interests of judicial economy and substantive social policy to allow the state with an interest in all of the contracts, Texas, to retain jurisdiction over this controversy,

"[W]here a defendant who purposefully has directed his activities at forum residents seeks to defeat jurisdiction, he must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Burger Ring. 471 U.S. at 477. Husco has failed to present any considerations that would render mis Court's exercise of jurisdiction unreasonable. Therefore, the Defendants' Motion to Dismiss is hereby DENIED as to Husco.

III. Personal Jurisdiction Over David Huselton

Aside from Southern Bleacher's attempt to pierce the corporate veil, which will be discussed below, the only ground asserted for personal jurisdiction over David Huselton is Southern Bleacher's claim that Huselton committed a tort within the state of Texas. Specifically, Southern Bleacher alleges that Huselton made material misrepresentations of fact regarding when Husco would complete its performance under one of the contested contracts. These alleged misrepresentations were made by Huselton, over the telephone, to a Southern Bleacher representative in Texas and Southern Bleacher's detrimental reliance on the representations occurred in Texas.

A plaintiff's "mere assertion" of a claim against a Defendant will not support the exercise of jurisdiction absent minimum contacts. Id. (citing, Star Technology, Inc. v. Tultex Corp., 844 F. Supp. 295, 299 (N.D. Tex. 1993). Southern Bleacher has provided no evidence in support of these allegations of fraud. Instead, Southern Bleacher makes only "bald assertions" that Huselton's representations were fraudulent. Lee Lee International. Inc. v. MA, 2000 WL 1772665, 4 (N.D. Tex. 2000). Moreover, "even assuming that [Southern Bleacher] were able to establish liability for fraud based on [Huselton's] representations, jurisdiction is improper because [Huselton] does not have sufficient contacts with Texas to demonstrate purposeful availment of the benefits and protections of Texas law." Graham v. Focus Gulf Systems, Inc., 1997 WL 148042, 7 (N.D. Tex. 1997) (citing, Southmark Corporation v. Life Investors. Inc., 851 F.2d 763, 772-73 (5th Cir. 1998). Huselton's only alleged contact as an individual was the making of the alleged misrepresentation and therefore, this Court cannot assert personal jurisdiction over him.

IV. Personal Jurisdiction Over David and Deborah Huselton

Southern Bleacher argues that David and Deborah Huselton used the corporate form of Husco, Inc. to perpetrate a fraud on Southern Bleacher and thus both Defendants should be amenable to personal jurisdiction as the alter egos of Husco, Inc. The fiduciary-shield doctrine, which Southern Bleacher attempts to circumvent, holds that a corporate officer's contacts with the forum state do not give rise to personal jurisdiction over that individual, even though the state may have jurisdiction over the corporation. See Stuart, 772 F.2d at 1197 (citing,Lehigh Valley Indus., Inc. v. Birenbaum, 389 F. Supp. 798, 803-04 (S.D.N.Y.), aff'd ("jurisdiction over an individual cannot be predicated upon jurisdiction over a corporation").

However, courts have recognized an exception to this rule when the corporation is the alter ego of the individual. See Stuart, 772 F.2d at 1197. Courts will apply the exception if: "(1) the corporation is undercapitalized, 2) without separate books, 3) its finances are not kept separate from individual finances, individual obligations are paid by the corporation, 4) the corporation is used to promote fraud or illegality, 5) corporate formalities are not followed or 6) the corporation is merely a sham." Id. (quoting, Lakota Girl Scout Council. Inc. v. Havey Fund-Raising Management Inc., 519 F.2d 634, 638 (8th Cir. 1975).

Once again, Southern Bleacher is attempting to establish personal jurisdiction via bald assertions and conclusory allegations. No evidence whatsoever has been proffered to demonstrate how any of the above-listed factors might be met in this case. Although Southern Bleacher need only prove jurisdiction by presenting a. prima facie case, some evidence is necessary to make this showing. Felch, 92 F.3d at 326. Because Southern Bleacher has not made a prima facie demonstration that Husco, Inc. is the alter ego for David and Deborah Huselton, this Court cannot exercise jurisdiction over them. Consequently, the Defendants' Motion to Dismiss is GRANTED as to both David and Deborah Huselton.

Conclusion

For the foregoing reasons, Defendants' Motion to Dismiss for Lack of Personal Jurisdiction is GRANTED as to David and Deborah Huselton and DENIED as to Husco, Inc. All claims against David and Deborah Huselton are hereby DISMISSED WITHOUT PREJUDICE.