Opinion ID: 895205
Heading Depth: 1
Heading Rank: 3

Heading: AG satisfies the additional conduct standard required for specific jurisdiction.

Text: A court has specific jurisdiction over a defendant if its alleged liability arises from or is related to an activity conducted within the forum. CSR, 925 S.W.2d at 595. Unlike general jurisdiction, which requires a more demanding minimum contacts analysis, id. at 595, 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. 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5 (3d ed. 2002). In such cases, we focus on the `relationship among the defendant, the forum[,] and the litigation.' Moki Mac, 221 S.W.3d at 575-76 (quoting Guardian Royal, 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. See Retamco, 278 S.W.3d at 338. The touchstone of jurisdictional due process [is] `purposeful availment.' Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 784 (Tex. 2005). Purposeful availment requires a defendant to seek some benefit, advantage, or profit by `availing' itself of the jurisdiction. Id. at 785. Thus, sellers who reach beyond one state and create continuing relationships with residents of another state are subject to the specific jurisdiction of the latter in suits arising from those activities. Moki Mac, 221 S.W.3d at 575. Notably, however, 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.' CSR, 925 S.W.2d at 595 (quoting Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal., 480 U.S. 102, 112, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987) (plurality opinion)). Instead, our precedent generally follows Justice O'Connor's plurality opinion in Asahi, which requires 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. Asahi, 480 U.S. at 112, 107 S.Ct. 1026; Moki Mac, 221 S.W.3d at 577; Michiana, 168 S.W.3d at 786. Examples of this additional conduct include: (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. Asahi, 480 U.S. at 112, 107 S.Ct. 1026; see also Moki Mac, 221 S.W.3d at 577; Michiana, 168 S.W.3d at 786; Kawasaki Steel Corp. v. Middleton, 699 S.W.2d 199, 201 (Tex.1985). In this case, Kimich argues that AG's substantial sales plus utilization of Limited as its distributor meets this standard. AG relies on a different line of cases that reject jurisdiction [w]hen a nonresident defendant purposefully structures transactions to avoid the benefits and protections of a forum's laws. Am. Type Culture, 83 S.W.3d at 808. Twice recently we have rejected attempts to sue foreign subsidiaries in Texas based on a parent corporation's contacts, holding that jurisdiction over one does not automatically establish jurisdiction over the other. PHC-Minden, 235 S.W.3d at 172; see also BMC Software, 83 S.W.3d at 800. Instead, to fuse two corporations for jurisdictional purposes, a parent must control[] the internal business operations and affairs of the subsidiary to an extent beyond its role as an investor. PHC-Minden, 235 S.W.3d at 175. AG argues the same principles apply here, even though this case involves a foreign corporation's use of a Texas distributorship rather than a parent/subsidiary relationship. The issue is not, however, whether Limited's actions in Texas can be imputed to AG. Rather, our concern is with AG's own conduct directed toward marketing its products in Texas. When an out-of-state manufacturer like AG specifically targets Texas as a market for its products, 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. See Asahi, 480 U.S. at 112, 107 S.Ct. 1026 (Additional conduct of the defendant may indicate an intent or purpose to serve the market in the forum State, for example, . . . marketing the product through a distributor who has agreed to serve as the sales agent in the forum State.). 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. As the United States Supreme Court stated in World-Wide Volkswagen Corp. v. Woodson , purposeful availment of local markets may be either direct (through one's own offices and employees) or indirect (through affiliates or independent distributors): [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. World-Wide Volkswagen v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980) (emphasis added). There are several limitations inherent in this rule. First, it is limited to the specific jurisdiction context, because stream-of-commerce analysis is relevant only to the exercise of specific jurisdiction; it provides no basis for exercising general jurisdiction over a nonresident defendant. Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 788 (7th Cir. 2003); accord D'Jamoos ex rel. Estate of Weingeroff v. Pilatus Aircraft Ltd., 566 F.3d 94, 106 (3rd Cir.2009); Nuovo Pignone, SpA v. STORMAN ASIA M/V, 310 F.3d 374, 380 (5th Cir.2002); Barone v. Rich Bros. Interstate Display Fireworks Co., 25 F.3d 610, 612 (8th Cir.1994); Moki Mac, 221 S.W.3d at 579; Joseph S. Pevsner and Gregory W. Curry, Down the Block But Outside Jurisdiction: Personal Jurisdiction in a Modern World, 29 TEX. TECH L.REV. 977, 991 (1998). If sales alone created general jurisdiction, a foreign manufacturer like AG could be sued in Texas for labor practices occurring in Germany even though they had nothing to do with Texas. Second, specific jurisdiction is limited to claims that arise out of or relate to a nonresident's forum contacts. Burger King, 471 U.S. at 472, 105 S.Ct. 2174; Retamco, 278 S.W.3d at 338. In such cases, there must be a substantial connection between the defendant's contacts and the operative facts of the litigation. See 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. See, e.g., Alpine View Co. Ltd. v. Atlas Copco AB, 205 F.3d 208, 216 (5th Cir.2000) (Appellants are correct in noting that we have not, in our decisions dealing with the stream-of-commerce theory, entirely foreclosed its application to cases not involving product liability claims. We need not decide here whether the theory is, or is not applicable to a broader range of cases.). Third, not every product claim against a foreign manufacturer is included; there must be a substantial connection. That similar products were sold in Texas would not create a substantial connection as to products that were not. Similarly, a nonresident that buys a Texas distributor might have no substantial connection with sales that occurred before that purchase. See Commonwealth Gen. Corp. v. York, 177 S.W.3d 923, 924 (Tex.2005). Finally, the manufacturer must have intended to serve the Texas market. CSR, 925 S.W.2d at 596. While use of a Texas distributor may satisfy this requirement, there may be situations in which it does not. A Texas distributorship may increase the manufacturer's bottom line because it is more efficient or has greater access to economies of scale, and not because it is intended to serve Texas consumers. Cf. Asahi, 480 U.S. at 112, 107 S.Ct. 1026 (Additional conduct may include marketing the product through a distributor who has agreed to serve as the sales agent in the forum State.  (emphasis added)). Many transactions can be structured to avoid any benefit from or availment of Texas lawbut not all. A nonresident manufacturer does not avoid Texas law merely by forming a Texas affiliate or utilizing a Texas distributor to sell its products in Texas markets. 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. The question is whether AG has purposefully directed acts towards Texas or purposefully availed itself of the benefits and protections of Texas law. We conclude that it has.
AG argues that its individual owners rather than AG itselfestablished Limited. Even if that were true, by marketing [its] product through a distributor who has agreed to serve as the sales agent in the forum state, AG has met Asahi 's additional conduct standard. Asahi, 480 U.S. at 112, 107 S.Ct. 1026. AG also contends that, because it receives none of Limited's profits and relinquishes title to the hoses before they reach Texas, AG does not benefit from Limited's Texas connections. But AG reaps substantial economic gain through its sales to Limited, its largest distributor by far, responsible for over one-third of AG's annual sales. See Moki Mac, 221 S.W.3d at 578 (finding purposeful availment because of foreign corporation's additional conduct through which it aimed to get extensive business in or from this state). Indeed, specific jurisdiction over foreign manufacturers is often premised on sales by independent distributors. See, e.g., Bridgeport Music, Inc. v. Still N The Water Publ'g, 327 F.3d 472, 483-84 (6th Cir.2003) (finding specific jurisdiction under additional conduct standard based in part on nationwide distribution agreement with independent distributor); Kuenzle v. HTM Sport-Und Freizeitgeräte AG, 102 F.3d 453, 458 (10th Cir.1996) (noting that [t]he actions of an independent distributor may not insulate a foreign company from specific jurisdiction); Tobin v. Astra Pharm. Prods., Inc., 993 F.2d 528, 533-34 (6th Cir.1993) (holding that foreign drug manufacturer who marketed its product in Kentucky through independent distributor was nonetheless subject to personal jurisdiction in forum under Asahi 's additional conduct standard); see also Pennzoil Prods. Co. v. Colelli & Assocs., 149 F.3d 197, 206-07 (3d Cir.1998) (applying additional conduct standard and finding specific jurisdiction in Pennsylvania over Ohio chemical producer who sold products to independent Ohio oil well producers that then sold oil to Pennsylvania refineries). Thus, it is not persuasive that title to the hoses passed in Europe, rather than in Texas. See 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); 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); Charles W. Rocky Rhodes, The Predictability Principle in Personal Jurisdiction Doctrine: A Case Study on the Effects of a Generally Too Broad, but Specifically Too Narrow Approach to Minimum Contacts, 57 BAYLOR L.REV. 135, 213 (2005).
Not only did AG market its products through a distributor in the forum state, AG directly targeted the Texas market. In CSR, we held that there was no specific jurisdiction over CSR, a foreign asbestos supplier whose product wound up in Texas: CSR's knowledge that its buyer, a pipe manufacturer, had a plant in Texas was not determinative because that manufacturer also had plants in at least four other states, and CSR's awareness that the stream of commerce may sweep the product into Texas `[did] not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.' CSR, 925 S.W.2d at 595 (quoting Asahi, 480 U.S. at 112, 107 S.Ct. 1026). Instead, we held that there must be some indication that CSR intended to serve the Texas market. Id. at 595. This is consistent with federal authority holding that no specific jurisdiction exists over a manufacturer whose product just happens to end up in the forum state. For example, the Seventh Circuit Court of Appeals recently held that a Danish jack manufacturer was not subject to specific jurisdiction in Indiana, because there was no evidence that the manufacturer had an awareness or expectation that some of its products would be purchased in Indiana: In World-Wide Volkswagen, the Supreme Court held that personal jurisdiction was lacking because, in part, there was no evidence in the record that any products that the defendants distributed (in that case, automobiles) were ever sold to retail customers in the forum state. Similarly in this case, Jennings produced no evidence that any of AC Hydraulic's products (including the jack at issue in this suit) were ever sold in Indiana. Jennings claims that an Indiana company purchased the jack, but even if we were to accept this unsubstantiated allegation as evidence, Jennings does not tell us in what state or from whom this company purchased the jack. Additionally, Jennings established that AC Hydraulic sells some of its products to two distributors in Florida, but she did not present any volume information for these sales or provide us with information about where the distributors resell the products, so the scope of any alleged distribution in the rest of the United States, and whether any AC Hydraulic products have been distributed in Indiana, cannot be determined. The bottom line is that, relying on the sparse evidence that Jennings presented, we do not know how the jack in question got to Indiana, or if any other AC Hydraulic products have ever been sold there. It is possible that the unilateral activity of a third party, rather than the defendant's distribution scheme, landed the jack in Indiana, which is the very scenario that doomed the plaintiffs' case in World-Wide Volkswagen. Jennings v. AC Hydraulic A/S, 383 F.3d 546, 550-51 (7th Cir.2004) (internal citations omitted)(emphasis added); [2] see also Boit v. Gar-Tec Prods., Inc., 967 F.2d 671, 683 (1st Cir.1992) (finding no specific jurisdiction over foreign corporation because there was no evidence that [corporation] intended to serve the market in Maine). Contrast those cases with the situation here. AG's board of directors created Limited because AG wanted to take advantage of the biggest economy in the world. Strobach testified that the whole board . . . decided that [Houston would be the best place for a distributor] because we knew thatwe thought that would be the greatest need, because of the immediate vicinity of all the refineries. Strobach traveled to Houston because we wanted to establish an office in Houston. The Board's selection of a Houston office preceded by a few days the arrival of Walter De Graaf, president of both AG and Limited and an employee of each, who signed the documents that created Limited. De Graaf spends half the year working in Houston and is paid by both AG and Limited while there; his contract with AG authorizes him to act on its behalf no matter where he is. After deciding to establish Limited, AG authorized Limited to use the Spir Star name, and Limited became AG's exclusive distributor in Texas and throughout North America. According to one of AG's directors, Limited has been very successful indeed, and it is AG's largest customer by far. AG has sold millions of dollars worth of hoses to Limited; each month, AG sells Limited a maritime container full of reels of hose, which are shipped to the port of Houston. AG supplies Limited with crimping and assembly tools and written assembly standards, and AG personnel train Limited's employees in hose assembly. AG's website, authored by one of its employees, states that: In order to cover the world-wide market and provide quick service to our customers, office [sic] were opened in the following countries: SPIR STAR France, S.A.R.L. 1991 in Haguenau/France, SPIR STAR Inc. [Limited] 1995 in Housten [sic]/Texas (U.S.A.) and SPIR STAR Asia Pty. Ltd. 1999 in Singapore. Limited's website, which is written from AG's perspective, states that the decision was made that the company should expand its activities outside of Europe and that we ventured across the Atlantic and founded SPIR STAR, Ltd. in Houston, Texas. The same website touts Limited as the main link for our growing market share in North and South America. Under the heading Spir Star Companies, four entities are listed: AG, Limited, Spir Star France, and Spir Star Asia, PTE Ltd. De Graaf, AG's president, testified that he reviewed the content of both websites prior to their publication. The trial court could have believed, as Kimich argues, that AG, acting through its directors and officers, created Limited or that the website statements were admissions by AG. Or the trial court simply could have determined that AG marketed [its] product through a distributor who has agreed to serve as the sales agent in the forum State. Asahi, 480 U.S. at 112, 107 S.Ct. 1026. If the foregoing evidence does not indicate an intent or purpose to serve the market in [Texas], it is difficult to imagine what would. Cf. id. (finding no specific jurisdiction in California because respondents have not demonstrated any action by Asahi to purposefully avail itself of the California market). Finally, Kimich's claim arose from AG's Texas contacts. See World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. 559 ([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.); Bearry v. Beech Aircraft Corp., 818 F.2d 370, 374 (5th Cir.1987) (When the contact stems from a product, sold or manufactured by the foreign defendant, which has caused harm in the forum state, the court has [specific] jurisdiction provided defendant purposefully availed itself of the privilege of conducting activities within the forum); cf. Hicks v. Kawasaki Heavy Indus., 452 F.Supp. 130, 134 (M.D.Pa.1978)(noting that there exists a direct relationship between the cause of action and [Kawasaki's] contacts with the state, as motorcycle sold by foreign manufacturer to distributor is alleged to have caused injury in the state to a resident of the state), cited in Asahi, 480 U.S. at 112-13, 107 S.Ct. 1026.