Opinion ID: 2834098
Heading Depth: 2
Heading Rank: 3

Heading: Constitutional Limitations on State Regulation of Extraterritorial Conduct

Text: The trial court must also determine whether the Texas statute meets constitutional requirements before it is applied to extraterritorial conduct. [9] Due process requires that the application of Texas law be neither arbitrary nor fundamentally unfair. See Shutts , 472 U.S. at 818-19, 822. Although the Constitution imposes “modest restrictions” on the application of a forum state’s substantive law to conduct that occurs, at least in part, outside of the state, to constitutionally select a forum state’s law to apply to a class action, the state must have “a significant contact or significant aggregation of contacts” to the claims asserted by each member of the plaintiff class. Allstate Ins. Co. v. Hague , 449 U.S. 302, 313 (1981); see also Travelers Health Ass’n v. Virginia , 339 U.S. 643, 649 (1950); Shutts , 472 U.S. at 818. These constitutional limitations apply to choice of law determinations in class suits. See Shutts , 472 U.S. at 821-22. Citizens contends that because the court of appeals chose to apply section 6(1) of the Restatement in lieu of the most significant relationship test, the court’s choice of law analysis did not satisfy the constitutional due process guarantee that the application of Texas law be neither arbitrary nor fundamentally unfair. Texas has an interest in transactions involving the purchase and sale of securities. The constitutional question in this case, then, is whether Texas has sufficient contacts with the class members’ transactions to satisfy constitutional due process. In his pleadings and summary judgment evidence presented to the trial court, Daccach alleges that all defendants are Texas residents, Citizens maintains its principal place of business in Texas, advertising and sales materials were created and sent from Texas, a significant portion of the activities related to the marketing and creation of the instruments happened in Texas, and Citizens devised, implemented, and administered the securities “scheme” in Texas. Although Daccach admits that none of the class members are from Texas, he maintains that all CICA policies were sold from Texas. Citizens does not contest that these activities occurred in Texas, but only argues that these activities do not constitute the “sale” of a “security” in Texas. Citizens’ argument relates to a contested fact issue set for trial and does not controvert the facts alleged. Because Texas has a significant aggregation of contacts to the business activities alleged to have occurred within the state, we conclude that the application of Section 12 to this lawsuit falls comfortably within the constitutional constraints on the extraterritorial application of Texas laws. Making this determination does not resolve whether Citizens actually “sold” a “security” from Texas within the meaning of the Texas Securities Act; that is a matter to be determined on the merits. To obtain class certification, we require an “extensive analysis” of choice of law. Compaq , 135 S.W.3d at 672. Here, Daccach alleges only that Citizens violated Article 581–33(A) by selling securities in or from Texas without registering as a dealer. No choice of law question is presented. The trial court was required to determine whether the application of the Texas statute at issue met constitutional requirements when applied to the allegations. The trial court did not abuse its discretion in determining that there was a significant aggregation of contacts with Texas to apply Article 581–33(A) constitutionally. Therefore, for different reasons, we affirm the court of appeals’ holding that the trial court properly determined that Texas law governs.