Gulf Coast Update: Personal Jurisdiction Trend Continues to Favor the Defense

Mainbrace | March 2017 (No. 2)

David G. Meyer

Under U.S. law, personal jurisdiction is one of the fundamental aspects of a court’s ability to adjudicate a particular dispute, and it often plays a role in maritime cases, given the far-flung nature of the industry. In recent years, the trend in U.S. courts has been generally favorable to personal jurisdiction challenges. This is highlighted by two separate cases, Gulf Coast Int’l, L.L.C. v. The Research Corp. of the Univ. of Hawaii, 490 S.W.3d 577 (Tex. App.—Houston [1st Dist.] 2016, pet. denied), and Mitsui Sumimoto Insurance Co., Ltd. v. M/V DEFIANT, et al., civil action H-16-55 (S.D.Tex. Aug. 23, 2016) (Miller, G.), recently handled by Blank Rome’s Houston office in which dismissals were obtained for the Firm’s clients on the basis that the court in which the plaintiff had filed suit did not have personal jurisdiction over the companies being sued.

On Personal Jurisdiction

By way of background, a personal jurisdiction challenge involves a defendant asserting that it has insufficient contacts with the forum state (i.e., the state in which it has been sued) to justify the court’s exercise of jurisdiction over the defendant or its property. In other words, the defendant is arguing that the court cannot adjudicate the merits of whatever claims are being asserted against it. The analysis is essentially the same regardless of whether the defendant is in state or federal
court, because personal jurisdiction concepts are rooted in the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution, which fundamentally protects an individual’s liberty interest in not being subject to the binding judgments of a forum with which he or she has established no meaningful contacts, ties, or relations.

Personal jurisdiction over a nonresident defendant is constitutional when two conditions are satisfied: (1) the defendant has established minimum contacts with the forum state; and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. 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. Importantly,
a defendant may purposefully avoid a
particular forum by structuring its transactions
in such a way as to neither profit from
the forum’s laws nor subject itself to jurisdiction
there.

The minimum contacts analysis is itself divided into two separate concepts: general jurisdiction and specific jurisdiction. For specific jurisdiction to be met, the cause of action being asserted against the defendant must arise out of or relate to the defendant’s contacts with the forum state. For example, a plaintiff suing a foreign defendant in Texas for an accident that happened in Texas would be alleging that the defendant’s alleged negligent conduct took place in Texas, thus satisfying specific jurisdiction. General jurisdiction is the opposite side of the coin in that jurisdictional contacts in the forum state do not relate to the cause of action being asserted. An example might include a plaintiff suing a Texas company in Texas over an accident that happened in another state or country. For general jurisdiction purposes, the plaintiff would be relying on the defendant’s business activities in Texas, even though such activities had nothing to do with the accident at issue in the lawsuit.

Relevant Cases and Court Decisions

In recent years, the U.S. Supreme Court has trended towards restricting the scope of general jurisdiction such that foreign defendants, as well as domestic defendants with multistate operations, often have the opportunity to defeat general jurisdiction relatively easily. The relevant decisions include Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (U.S. 2011) and Daimler AG v. Bauman, 134 S. Ct. 746 (2014). Daimler in particular set forth a very restrictive view of general jurisdiction, holding that “[a] court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.” This is a steep hurdle for establishing general jurisdiction over any company that is not headquartered, controlled, and operated out of the state in which the lawsuit is filed.

The second prong of the minimum contacts analysis, specific jurisdiction, was at the heart of the two cases referenced at the outset of this article. The first case concerned a lawsuit filed by Gulf Coast International (“GCI”) in which GCI alleged it was owed money for repairs and other services it performed on a University of Hawaii research vessel. The vessel was operated by the University of Hawaii out of its home port in Honolulu, Hawaii, and had worked throughout the Pacific Ocean for two decades. The repairs at issue were performed on the vessel at various docking sites in Hawaii, Costa Rica, Panama, and Oregon. The vessel had not been to a Texas port or entered Texas waters in at least 30 years.

Despite the foregoing, GCI filed its lawsuit in Texas state court against the University of Hawaii’s purchasing/contracting entity, RCUH, which was based in Hawaii and had no presence in Texas. GCI, a Louisiana company with operations in Louisiana, Texas, and Ohio, claimed that its Texasbased operations had been responsible for handling the repairs and services at issue. After being served with the lawsuit, RCUH sought dismissal of the case on the basis that the Texas court did not have personal jurisdiction over it.

GCI argued that specific jurisdiction was present because RCUH had solicited its business in Texas by sending its Houston office a request for a proposal that resulted in the repair contracts at issue, and also engaged in e-mail and telephone communications with GCI employees located in Texas; GCI personnel did work on the repair contracts out of its Houston office; and, title to certain equipment used in the repair process passed to RCUH in Texas, even though RCUH took actual possession of the equipment outside Texas. GCI also argued that specific jurisdiction was present because RCUH had been a longtime customer before the contracts at issue, and that for many years GCI’s Houston personnel had been responsible for servicing the vessel.

The trial court dismissed the case for lack of personal jurisdiction, and GCI appealed. The Texas First Court of Appeals confirmed the dismissal. The court rejected GCI’s “longtime customer” arguments, noting that only those RCUH contacts that had a substantial connection to the operative facts of the litigation were relevant. The Court of Appeals also held that merely interacting with a company representative who was in Texas does not subject a nonresident buyer such as RCUH to personal jurisdiction in Texas, nor did purchasing goods and services from a Texas company that were shipped and performed outside the state of Texas. The court also held that any work done by GCI in Texas was a “unilateral act” by GCI that did not establish jurisdiction over RCUH, because RCUH established that it had never requested or contemplated that any work be done in Texas. Finally, the fact that title to equipment may have passed in Texas did not matter, because the equipment at issue was indisputably delivered to RCUH outside of Texas.

The M/V DEFIANT case involved a shipper’s claim for damage to cargo that allegedly occurred sometime during a transit from China to Houston. The vessel’s owner sought dismissal of the case for lack of personal jurisdiction. The only issue before the Texas federal court was whether it had specific jurisdiction over the owner. The court held it did not. The vessel was under charter and the charterer had the authority to determine which ports the vessel called upon. While the charter expressly contemplated that the vessel might call at one or more U.S. ports, no specific ports were named. The court held that there was simply no evidence that the owner had specifically directed business activities to the state of Texas or that it should have anticipated being sued in Texas, and thus specific jurisdiction could not be established. As a result, the court dismissed the lawsuit.

Final Thoughts

It seems unlikely that the judicial trend favoring personal jurisdiction defenses is going to change course anytime in the near future, and it is an important consideration that should be assessed at the outset of any particular case no matter which side of the docket a company finds itself on. Outside the litigation context, it is an important consideration for companies whose business operations bring them into contact with the United States. If a party wishes to minimize the risk of being forced to litigate a dispute in the United States, particular care should be taken to “structure transactions in such a way as to neither profit from the forum’s laws nor subject themselves to jurisdiction there.” This might include inserting valid choice of law and forum selection clauses in contracts, bills of lading, terms and conditions, tariffs, and similar documents, limiting employees’ contact with a particular state to telephonic and electronic communications, maintaining strict corporate formalities with affiliated companies to ensure that U.S. contacts are not imputed abroad, and other similar measures.

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