Opinion issued March 28, 2013
In The
Court of Appeals For The
First District of Texas ———————————— NO. 01-12-00911-CV ——————————— HEDAYA HOME FASHIONS, INC., Appellant V. GARDEN RIDGE, L.P., Appellee
On Appeal from the 215th Judicial District Court Harris County, Texas Trial Court Case No. 2011-32526
MEMORANDUM OPINION
Appellant Hedaya Home Fashions, Inc., appeals the trial court’s
interlocutory order denying Hedaya’s special appearance. See TEX. CIV. PRAC. &
REM. CODE ANN. § 51.014(a)(7) (West Supp. 2012). Hedaya argues that the trial court erred in determining that it had purposefully availed itself of the privilege of
conducting business in Texas, and thus is subject to jurisdiction here, based on the
evidence that Hedaya had sold thousands of quilts to Garden Ridge, L.P., a Texas
company. The test for purposeful availment focuses not merely on the volume of
goods shipped to Texas, but requires some “additional conduct” on the part of the
defendant beyond merely delivering the product to the market of the forum state.
See Spir Star AG v. Kimich, 310 S.W.3d 868, 873 (Tex. 2010). When title passes
outside the state for the goods ultimately sold in Texas, a large volume of Texas
sales is not itself sufficient to support a conclusion that Texas has jurisdiction over
a nonresident defendant. See Am. Type Culture Collection, Inc. v. Coleman, 83
S.W.3d 801, 808 (Tex. 2002).
Because the contract under which this suit arises was initiated by Garden
Ridge, and title to the goods in question passed outside of Texas, we reverse the
trial court’s denial of Hedaya’s special appearance and render judgment dismissing
the case against Hedaya for lack of personal jurisdiction.
Background
Hedaya Home Fashions is a New York corporation that sells quilts and
bedding materials. Garden Ridge is a Texas company that sells home and garden
goods to retail consumers. After Garden Ridge buyers visited Hedaya’s showroom
in New York, Hedaya agreed to become a vendor for Garden Ridge.
2 Hedaya signed a contract with Garden Ridge, agreeing to abide by all terms
and conditions specified by Garden Ridge for its purchase orders. Garden Ridge
sent purchase orders to Hedaya’s offices in New York and New Jersey, marked
with billing and shipping addresses in Texas. Garden Ridge reserved the right to
designate and approve any freight carriers for its shipments.
Between December 2008 and May 2010, Garden Ridge submitted six
purchase orders to Hedaya for approximately 19,000 quilts at a price of around
$270,000. The bills of lading prepared by Hedaya for five of the quilt shipments
showed that the goods were shipped free on board (“FOB”) at Hedaya’s warehouse
in New Jersey, meaning that ownership of the goods transferred in New Jersey.
See Am. Type Culture, 83 S.W.3d at 807 (free on board means that title transfers at
the FOB point). The bills of lading had three address boxes: one labeled “Ship
From,” indicating Hedaya’s warehouse address in New Jersey; one labeled “Ship
To,” indicating the address of Garden Ridge’s Dallas distribution center; and one
labeled “Bill To,” indicating Garden Ridge’s Houston office address. Inside the
“Ship From” box, a smaller FOB box was checked, indicating that the goods were
shipped FOB in New Jersey. A small FOB box inside the “Ship To” box was left
unmarked. In accordance with Garden Ridge’s shipping guidelines, a third-party
carrier transported the shipments from New Jersey to Garden Ridge in Dallas.
Hedaya filled five of the purchase orders and shipped approximately 16,000 quilts,
3 for which Garden Ridge paid almost $220,000. But Hedaya did not fulfill the sixth
purchase order for 3,500 quilts.
Garden Ridge withheld the $50,000 purchase price of the 3,500 quilts, and it
brought this breach of contract suit against Hedaya, seeking to recover $100,000 in
lost profits. Hedaya filed a special appearance, claiming that Texas courts lacked
jurisdiction over it. In connection with the special appearance, the parties
submitted affidavits and the transcript of the deposition of Nathan Hedaya, the
company’s president and sole owner. See TEX. R. CIV. P. 120a.
To meet its burden of alleging sufficient jurisdictional facts to bring Hedaya
within reach of the Texas long-arm statute, Garden Ridge initially alleged that
Hedaya had purposefully availed itself of the privileges and benefits of Texas law
by engaging in business in Texas. According to Garden Ridge’s allegations,
Hedaya contracted in Texas with Garden Ridge and the contract was to be partially
performed in Texas. To negate these allegations, Hedaya presented evidence
showing that its interactions with Garden Ridge took place outside of Texas. In his
affidavit, Nathan Hedaya stated that his company did not conduct business in
Texas, did not advertise in Texas, had no employees in Texas, and signed all
agreements with Garden Ridge outside of Texas. No one in his company had
traveled to Texas in at least ten years.
4 In response to the special appearance, Garden Ridge presented its purchase
orders that listed shipping and billing addresses in Texas and showed that Hedaya
had sold close to 16,000 quilts to Garden Ridge over the course of a year and a
half. In an affidavit, Garden Ridge’s chief executive officer stated that Hedaya had
delivered these goods to Garden Ridge in Texas, and all of them were sold to
customers in Texas. Garden Ridge’s vendor agreement required that it be signed
by the vendor and returned to Garden Ridge in Texas. To support specific
jurisdiction with respect to the alleged breach of contract, Garden Ridge noted that
the remaining 3,500 quilts in the purchase order giving rise to the claim were to be
delivered and sold in Texas. Garden Ridge attached its vendor contract, domestic
shipping and packing manual, and copies of the six purchase orders it sent to
Hedaya.
Finally, in reply, Hedaya introduced the transcript of Nathan Hedaya’s
deposition, in which he denied any contacts with Texas. In attached affidavits,
buyers for Garden Ridge stated that Garden Ridge initially contacted Hedaya in its
New York showroom. Hedaya also presented its bills of lading for the five
fulfilled Garden Ridge purchase orders, which showed that the shipments were
marked free on board in New Jersey and that a third-party carrier transported the
goods to Texas.
5 After a hearing, the trial court denied the special appearance, finding that it
had personal jurisdiction over Hedaya. Hedaya then brought this interlocutory
appeal. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(7).
Analysis
Texas courts may assert personal jurisdiction over a nonresident defendant if
the Texas long-arm statute authorizes it and the exercise is consistent with federal
and state constitutional due process guarantees. Moki Mac River Expeditions v.
Drugg, 221 S.W.3d 569, 574 (Tex. 2007). The long-arm statute authorizes
jurisdiction over a nonresident company that does business in this state, including
activities such as “contract[ing] by mail or otherwise with a Texas resident” when
“either party is to perform the contract in whole or in part in this state.” TEX. CIV.
PRAC. & REM. CODE ANN. § 17.042 (West 2008). Because the long-arm statute’s
broad doing-business language allows the statute to reach as far as federal
constitutional requirements of due process will allow, the requirements of the long-
arm statute are satisfied if an assertion of jurisdiction comports with federal due
process guarantees. Moki Mac, 221 S.W.3d at 575. Personal jurisdiction is
constitutional when two conditions are met: (1) the defendant has established
minimum contacts with the state, and (2) the exercise of jurisdiction comports with
traditional notions of fair play and substantial justice. BMC Software Belg., N.V. v.
6 Marchand, 83 S.W.3d 789, 795 (Tex. 2002) (citing Int’l Shoe Co. v. Washington,
326 U.S. 310, 316, 66 S. Ct. 154 (1945)).
The touchstone of jurisdictional due process is purposeful availment. Spir
Star, 310 S.W.3d at 873. “[I]t is essential in each case that there be some act by
which the defendant purposefully avails itself of the privilege of conducting
activities within the forum State, thus invoking the benefits and protections of its
laws.” Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 1240 (1958). There
are three aspects to purposeful availment. First, it is only the defendant’s contacts
with the forum that count, rather than the unilateral activity of another party or a
third person. Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 785
(Tex. 2005) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.
Ct. 2174, 2183 (1985)). Second, the contacts must have been purposeful rather
than random, fortuitous, or attenuated. Id. (citing Burger King, 471 U.S. at 475,
105 S. Ct. at 2183, and Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774, 104
S. Ct. 1473, 1478 (1984)). Third, the nonresident defendant must have sought
some benefit, advantage, or profit by “availing” itself of the jurisdiction, because
personal jurisdiction is premised on notions of implied consent. Id. When a
nonresident defendant structures its transactions to avoid the benefits and
protections of a forum’s laws, such as by ensuring that title passes outside the
7 forum, this legal fiction of consent no longer applies. Am. Type Culture, 83
S.W.3d at 808.
Minimum contacts analysis is further divided into specific jurisdiction and
general jurisdiction. See, e.g., CSR Ltd. v. Link, 925 S.W.2d 591, 595 (Tex. 1996).
In either case, the defendant’s contacts must be such that it should “reasonably
anticipate” being haled into a court of the forum state. World-Wide Volkswagen
Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 567 (1980).
Whether a trial court has jurisdiction over a nonresident defendant is a
mixed question of fact and law. See BMC Software, 83 S.W.3d at 794; Glattly v.
CMS Viron Corp., 177 S.W.3d 438, 445 (Tex. App.—Houston [1st Dist.] 2005, no
pet.). The trial court’s factual findings concerning the existence of personal
jurisdiction may be reviewed for legal and factual sufficiency, while the legal
conclusions based on those findings constitute a question of law subject to de novo
review. See BMC Software, 83 S.W.3d at 794; Glattly, 177 S.W.3d at 445. When,
as in this case, the trial court does not make findings of fact and conclusions of law
to support its special appearance determination, “all facts necessary to support the
judgment and supported by the evidence are implied.” BMC Software, 83 S.W.3d
at 795.
In a special appearance, “the plaintiff bears the initial burden to plead
sufficient allegations to bring the nonresident defendant within reach of Texas’s
8 long-arm statute.” See Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 658
(Tex. 2010). Then the defendant bears the burden to negate all bases of personal
jurisdiction alleged by the plaintiff. Id. The defendant can negate jurisdiction on a
factual basis by presenting evidence that it has no contacts with Texas. Id. at 659.
The defendant can also negate jurisdiction on a legal basis by showing that even if
the plaintiff’s alleged facts are true, (1) the evidence is legally insufficient to
establish jurisdiction, (2) the defendant’s contacts with Texas fall short of
purposeful availment, (3) the claims do not arise from the contacts supporting
specific jurisdiction, or (4) traditional notions of fair play and substantial justice
are offended by the exercise of jurisdiction. Id.
I. General jurisdiction
For general in personam jurisdiction to apply, a defendant must have
“continuous and systematic” contacts with the state, which is a more demanding
level of contact than what is required for specific jurisdiction. Am. Type Culture,
83 S.W.3d at 806. To support general jurisdiction, the defendant’s forum activities
must have been “substantial.” CSR, 925 S.W.2d at 595; Preussag
Aktiengesellschaft v. Coleman, 16 S.W.3d 110, 114 (Tex. App.—Houston [1st
Dist.] 2000, pet. dism’d w.o.j.). “Usually, ‘the defendant must be engaged in
longstanding business in the forum state, such as marketing or shipping products,
or performing services or maintaining one or more offices there; activities that are
9 less extensive than that will not qualify for general in personam jurisdiction.’”
PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 168 (Tex. 2007)
(quoting 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE &
PROCEDURE § 1067.5 (2007)).
Hedaya lacks the substantial contacts with Texas that would support general
jurisdiction. The company is incorporated under New York law, and its principal
office and place of business are in New York and New Jersey. Hedaya does not
have officers, distributors, employees, real property, or advertising contacts in
Texas. No one from Hedaya has traveled to Texas for business in the past ten
years. The affidavits of Garden Ridge buyers show that Garden Ridge contacted
Hedaya in New York and sought out its products, rather than Hedaya initiating
contact with Garden Ridge in Texas or otherwise soliciting business in Texas.
The primary evidence Garden Ridge presented to justify establishing general
jurisdiction over Hedaya was the volume of goods that Hedaya shipped to Texas—
approximately 16,000 quilts, for which Garden Ridge paid around $220,000. In
response, Hedaya introduced copies of the bills of lading for those shipments,
showing that the orders were marked free on board at Hedaya’s New Jersey
warehouse. The bills of lading also identified third-party carriers which
transported the goods to Garden Ridge in Texas, in accord with Garden Ridge’s
shipment guidelines.
10 Unless it is unambiguous that the parties came to another agreement, the
seller presumptively completes performance of a shipping contract by delivering
the goods to a common carrier. See TEX. BUS. & COM. CODE ANN. § 2.504 (when
a contract does not require delivery “at a particular destination,” the seller’s
obligation is to put the goods in the possession of a carrier). Requiring “shipment
to” a named destination, as Garden Ridge did in its purchase orders, does not
demonstrate that the parties came to another agreement. See generally TEX. BUS.
& COM. CODE ANN. § 2.503 cmt. 5 (West 2009) (“The seller is not obligated to
deliver at a named destination and bear the concurrent risk of loss until arrival,
unless he has specifically agreed so to deliver or the commercial understanding of
the terms used by the parties contemplates such delivery.”); RICHARD A. LORD,
WILLISTON ON CONTRACTS § 52:10 (4th ed. 2007) (noting that requiring “shipment
to” a destination does not change the presumption that a seller’s responsibility ends
with delivery to the carrier, while requiring delivery “at” a destination specified by
the buyer may have that effect).
The undisputed evidence is that for each of Hedaya’s five completed quilt
shipments to Garden Ridge, Hedaya delivered the quilts by placing them with a
third-party carrier FOB New Jersey, and Garden Ridge has presented no evidence
to suggest this was inconsistent with the parties’ agreement. Unless “otherwise
expressly agreed,” the seller’s performance was complete and title to the goods
11 passed to the buyer when the goods were placed in the possession of the common
carrier at the FOB point. See TEX. BUS. & COM. CODE ANN. § 2.319(a)(1) (seller
bears the expense and risk of putting goods into possession of the carrier under an
FOB shipment term); id. § 2.401(b) (title passes “at the time and place of
shipment” under contracts that do not require delivery “at destination”); Polythane
Sys., Inc. v. Marina Ventures Intern., Ltd., 993 F.2d 1201, 1205 n.6 (5th Cir. 1993)
(applying Texas law). Thus, title to the goods passed to Garden Ridge in New
Jersey, not in Texas where the goods ultimately arrived. Because it completed the
purchase order contracts and title transferred outside of Texas, Hedaya never
purposefully availed itself of Texas law during the course of its completed
transactions with Garden Ridge.
In American Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801 (Tex.
2002), the Supreme Court of Texas determined that more substantial contacts than
shown in this case failed to support general jurisdiction over a nonresident
defendant. A biological research materials company, incorporated in the District
of Columbia with its principal place of business in Maryland, shipped all of its
sales free on board in Maryland. Am. Type Culture, 83 S.W.3d at 807. Like
Hedaya, the company was not authorized to do business in Texas and did not have
offices, distributors, employees, real property, or a registered agent in Texas. Id.
The company did make sales in Texas that annually generated approximately
12 $350,000 in revenue. It also stored patent material from Texas residents
amounting to almost three percent of its total repository, purchased almost
$378,000 worth of supplies from Texas vendors over a five-year period, and had its
representatives attend five scientific conferences in Texas over a seven-year
period. Id. at 807–08. The Court concluded these contacts were not continuous
and systematic, and therefore they were insufficient to support general jurisdiction
in Texas. Id. at 810.
The American Type Culture Court found dispositive the facts that the
company did not advertise in Texas, had no physical presence in Texas, performed
all its business services outside Texas, and constructed its contracts to ensure it did
not benefit from Texas laws by shipping its sales free on board and entering into its
contracts in Maryland. See id. at 810 (citing CSR, 925 S.W.2d at 595). Hedaya
also does not advertise in Texas, has no physical presence here, enters into its
contracts outside Texas, and sent its goods free on board such that title passed
outside of Texas. Thus, like the business in American Type Culture, Hedaya’s
contacts with Texas are not continuous and systematic, and Hedaya is not subject
to general jurisdiction in Texas.
The fact that Hedaya filled several purchase orders, rather than just one,
does not change our conclusion that Hedaya is not subject to general jurisdiction in
Texas. See id. at 806 (“It is the quality and nature of the defendant’s contacts,
13 rather than their number, that is important to the minimum-contacts analysis.”).
“[E]ven occasional acts are not sufficient to support jurisdiction if, as here, their
nature and quality and the circumstances of their commission create only an
attenuated affiliation with the forum.” CMMC v. Salinas, 929 S.W.2d 435, 439
(Tex. 1996) (internal quotation marks omitted, citing Burger King, 471 U.S. at 475
n.18, 105 S. Ct. at 2184 n.18, and Int’l Shoe, 326 U.S. at 318, 66 S. Ct. at 159); see
also Michiana, 168 S.W.3d at 786 (“[S]tream-of-commerce jurisdiction requires a
stream, not a dribble.”).
Garden Ridge also relies on a provision of its undated standard terms and
conditions, incorporated by reference into its agreement with Hedaya, which
specifies that the parties’ agreement will be governed by Texas law. These terms
and conditions were appended to Garden Ridge’s appellate brief though the
document was not authenticated, offered into evidence in the trial court, or
otherwise properly incorporated in the appellate record. See generally TEX. R.
EVID. 901; TEX. R. APP. P. 34.5(c). The applicability of these terms was not
conceded. When the document was presented to him at his deposition, Hedaya
testified that he had never seen it. We thus cannot presume this document
accurately reflects Garden Ridge’s applicable terms and conditions at the time of
the purchase order at issue, and the argument has not been appropriately preserved
in the trial court or presented on appeal.
14 II. Specific jurisdiction
For a court to exercise specific jurisdiction over a nonresident defendant, the
defendant must have purposefully directed its activities toward the forum state or
purposely availed itself of the privileges and benefits of the forum’s laws, and the
cause of action must arise from or relate to those contacts. Touradji v. Beach
Capital P’ship, L.P., 316 S.W.3d 15, 24 (Tex. App.—Houston [1st Dist.] 2010, no
pet.) (citing Freudensprung v. Offshore Tech. Servs., Inc., 379 F.3d 327, 343 (5th
Cir. 2004)); see also Am. Type Culture, 83 S.W.3d at 806. To establish that a
defendant purposefully availed itself of the forum’s jurisdiction, it is not enough
that a seller be aware that the stream of commerce will sweep the product into the
forum state. Spir Star, 310 S.W.3d at 873. Instead, some “additional conduct” on
the part of the seller must indicate “an intent or purpose to serve the market in the
forum State.” Id. (quoting Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal.,
480 U.S. 102, 112, 107 S. Ct. 1026, 1032 (1987)). Examples of the kinds of
additional conduct that are contemplated by this standard include: (1) designing the
product for the market in the forum state, (2) advertising there, (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. Id.; see also Moki Mac, 221 S.W.3d at 579.
15 Because its cause of action arises from a dispute over the specific purchase
orders that gave rise to Hedaya’s contacts with Texas, Garden Ridge argues that
Hedaya is subject to specific jurisdiction in Texas for this suit. Garden Ridge
presented the purchase orders as evidence that Hedaya knew it was purposefully
availing itself of the Texas market because all of the purchase orders had shipping
and billing addresses in Texas. In an affidavit, Garden Ridge’s chief executive
officer stated that all of the goods identified by the purchase order in question were
“to be delivered by Hedaya to Garden Ridge in Texas.” Furthermore, Hedaya had
signed a vendor agreement and contract accepting Garden Ridge’s terms and
conditions, and Hedaya transmitted this contract to Texas. Finally, Hedaya
shipped around 16,000 quilts to Texas for sale in the Texas market. Garden Ridge
argues that these shipments represent Hedaya’s purposeful availment of the Texas
market, not random or fortuitous contact.
None of these allegations, even taken as true, establish that Hedaya
purposefully availed itself of the Texas market or the protections of its laws in
regard to the unfulfilled purchase order. Instead, it was Garden Ridge that initiated
contacts between itself and Hedaya, rather than any activity on the part of Hedaya
purposefully directed towards the Texas forum. Garden Ridge reached out to
Hedaya in New York and New Jersey, as shown by the affidavits of the Garden
Ridge buyers. Garden Ridge sent buyers to Hedaya’s New York showroom.
16 Garden Ridge sent its vendor agreement to Hedaya in New York. The document
was executed on behalf of Hedaya and returned to Garden Ridge. Garden Ridge
sent all of its purchase orders to Hedaya in New York and New Jersey. Garden
Ridge’s unfulfilled purchase order required that the quilts be shipped and billed to
Texas, but those facts are not enough to establish specific jurisdiction in Texas. As
the bills of lading for the other shipments show, Hedaya could still complete
performance of that order without purposefully availing itself of Texas law by
delivering the shipment FOB New Jersey.
As the Supreme Court of Texas has explained, “[s]ellers who reach out
beyond one state and create continuing relationships and obligations with citizens
of another state are subject to the jurisdiction of the latter in suits based on their
activities.” Michiana, 168 S.W.3d at 785 (quoting Burger King, 471 U.S. at 473,
105 S. Ct. at 2182) (internal quotation marks omitted). But a defendant will not be
haled into a jurisdiction solely based on the isolated or attenuated sales contacts
initiated by the Texas resident. Compare id. at 787 (unilateral activity on part of
Texas resident who made single purchase cannot satisfy the requirement of contact
with the forum state), with Moki Mak, 221 S.W.3d at 577–78 (nonresident
defendant regularly advertised and solicited business in Texas through mass and
targeted e-mail marketing). “[I]t is well-settled . . . that there can be no purposeful
availment in cases involving isolated sales solicited by consumers who proposed to
17 use the product in a state where the defendant does not conduct business.” Smart
Call, L.L.C. v. Genio Mobile, 349 S.W.3d 755, 761–62 (Tex. App.—Houston [14th
Dist.] 2011, no pet.); see also C-Loc, 993 S.W.2d at 479 (non-resident defendant
entering into a sales agreement with Texas buyer does not establish purposeful
availment in itself). Isolated contacts or single contracts may meet the purposeful-
availment standard, but not when the relevant contacts take place outside of the
forum state. See Michiana, 168 S.W.3d at 787.
The fact that the purchase orders informed Hedaya that its products would
end up in Texas does not establish that Hedaya purposefully availed itself of
Texas’s jurisdiction. See Spir Star, 310 S.W.3d at 873. A nonresident defendant’s
mere knowledge that its sales will be delivered in Texas and be sold in the Texas
market is insufficient to subject a defendant to the jurisdiction of Texas courts.
CMMC, 929 S.W.2d at 439. “Merely contracting with a Texas resident does not
satisfy the minimum contacts requirement.” Blair Communications, Inc. v. SES
Survey Equip. Servs., Inc., 80 S.W.3d 723, 729 (Tex. App.—Houston [1st Dist.]
2002, no pet.) (citing Am. Type Culture, 26 S.W.3d at 43–44). Likewise, “the
single fact that a contract is payable in Texas” does not justify the finding of
jurisdiction. Id. (citing J.D. Fields & Co. v. W.H. Streit, Inc., 21 S.W.3d 599, 604
(Tex. App.—Houston [1st Dist.] 2000, no pet.)).
18 Accordingly, we conclude that Hedaya is not subject to specific jurisdiction
in Texas.
Conclusion
We reverse the trial court’s denial of Hedaya’s special appearance and we
render judgment dismissing the claims against Hedaya for want of jurisdiction.
Michael Massengale Justice
Panel consists of Justices Jennings, Bland, and Massengale.