Timothy J. Carpenter, Mervin G. Schaefer, James P. Maloney, Oldcosy Corporation, Henry Jackson, David Reindi, Henry C. Hess, David Falldorf, and Jane P. Koth v. Exelon Corporation and Exelon Enterprises Company, L.L.C

• Court: Court of Appeals of Texas
• Decided: October 23, 2007
• Docket: 14-07-00149-CV
• Status: Published

Opinion

Affirmed and Memorandum Opinion filed October 23, 2007

Affirmed and Memorandum Opinion filed October 23, 2007.

In The

Fourteenth Court of Appeals

_______________

NO. 14-07-00149-CV

TIMOTHY J. CARPENTER, MERVIN G. SCHAEFER,

JAMES P. MALONEY, OLDCOSY CORPORATION,

HENRY JACKSON, DAVID REINDI, HENRY C. HESS,

DAVID FALLDORF and JANE P. KOTH,

Appellants

V.

EXELON CORPORATION and

EXELON ENTERPRISES COMPANY, L.L.C., Appellees

On Appeal from the 133rd  District Court

Harris County, Texas

Trial Court Cause No. 2005-61496

M E M O R A N D U M   O P I N I O N

In this interlocutory appeal, Timothy J. Carpenter, Mervin G. Schaefer, James P. Maloney, Oldcosy Corporation, Henry Jackson, David Reindi, Henry C. Hess, David Falldorf and Jane P. Koth (Aappellants@) appeal an order granting the special appearances^[1] filed by Exelon Corporation (AExelon@) and Exelon Enterprises Company, L.L.C. (AEnterprises@) on the grounds that the trial court had general and specific jurisdiction over them.  We affirm.

                                                                   Background

Exelon Corporation is a utility holding company that owns Exelon Enterprises Company, L.L.C..  Enterprises, in turn, owned a 97% interest in InfraSource, Inc. (AInfraSource@), and appellants, along with others, owned the remaining 3%.  Enterprises sold InfraSource to GFI Energy Ventures (AGFI@).  As part of the merger agreement (the Aagreement@) for this transaction, Enterprises agreed to indemnify InfraSource for potential environmental remediation at a property located in Deer Park, Texas, and Exelon agreed to guarantee Enterprises=s indemnity obligation to InfraSource.

Appellants sued appellees and others in Harris County, Texas for breach of fiduciary duty, fraud, and negligence in connection with the sale of InfraSource to GFI.  Appellees filed special appearances, which the trial court granted, dismissing appellants= suit against appellees.

                                                            Standard of Review

A court=s exercise of personal jurisdiction over a nonresident defendant is an issue of law that is reviewed de novo.  Moki Mac River Expeditions v. Drugg, 221 S.W.3d. 569, 574 2007 (Tex. 2007).  Where, as here, a trial court does not issue findings of fact or conclusions of law, all facts necessary to support the trial court=s ruling and supported by the evidence are implied in favor of the trial court=s decision.  Id.

                                                          Personal Jurisdiction

The Texas long‑arm statute authorizes personal jurisdiction over a nonresident defendant who Adoes business@ in Texas.  See Tex. Civ. Prac. & Rem. Code ' 17.042(1) (Vernon 1997).  However, because the long-arm statute reaches only as far as federal due‑process requirements permit, personal jurisdiction can only be exercised over a defendant who has sufficient minimum contacts with the forum state, and only if the assertion of jurisdiction comports with Atraditional notions of fair play and substantial justice.@  IRA Res., Inc. v. Griego, 221 S.W.3d 592, 596 (Tex. 2007).  To meet the minimum contacts requirement, a defendant must act deliberately and Apurposefully avail@ itself of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of its laws.  Id.^[2]

A nonresident defendant's forum state contacts may give rise to two types of personal jurisdiction.  Moki, 221 S.W.3d at 575.  If the defendant has made continuous and systematic contacts with the forum state, general jurisdiction is established whether or not the defendant's alleged liability arises from those contracts.  Id.  Conversely, specific jurisdiction is established if, among other things, the defendant's alleged liability arises out of or is related to an activity conducted within the forum.  Id. at 575B576.

                                                            Specific Jurisdiction

Appellants= first issue challenges the granting of appellees= special appearance based on specific jurisdiction, which requires a substantial connection between the defendant=s in-state activities and the operative facts of the litigation.  Id. at 584B85.^[3] 

In this case, appellants contend that: (1) appellees purposefully availed themselves of the benefits of conducting business in Texas by agreeing to indemnify InfraSource for costs

incurred for remedial work in Deer Park, Texas; and (2) appellees= alleged liability in this case is substantially related to the environmental remediation indemnity provision that is applicable to the property located in Texas.  Although appellants concede that no Texas case has held that an indemnity provision is alone sufficient to support specific jurisdiction, they assert that the indemnity provision in this case is like a standard insurance policy that provides for coverage anywhere in the world that the policyholder does business and should therefore provide a basis for minimum contacts in Texas.^[4]  Appellants also contend that the appellees= contacts with Texas were purposeful and that appellees will benefit from Texas environmental laws, which will determine and limit the extent of their indemnification obligation.

However, appellants cite no authority, and we have found none, indicating that an  indemnity agreement is the equivalent of insurance policy for purposes of establishing minimum contacts; and at least three Texas cases^[5] have held that an indemnity obligation is not sufficient to establish specific jurisdiction where, as here, the claims asserted are not based on a breach of that obligation.^[6]  See Moki, 221 S.W.3d at 585.  Because the merger agreement was not executed in Texas, and appellants do not allege that appellees have committed any actionable conduct in this State, let alone any such conduct that relates to actual activities here, specific jurisdiction over the appellees has not been shown.  Accordingly, appellants= first issue is overruled.

                                                            General Jurisdiction

Appellants= second issue contends that the trial court had general jurisdiction over  appellees because: (1) appellees own and operate a website that is accessible from Texas; and (2) the website is highly-interactive in that it allows customers and vendors to conduct business through the website.

General jurisdiction allows the exercise of jurisdiction over a defendant if its contacts with the forum state are continuous and systematic, even if the cause of action did not arise from or relate to those contacts.  PHC-Minden  L. P. v. Kimberly-Clark Corp. No. 05B0823, 2007 WL 2457843, at *2B3, (Tex. Aug. 31, 2007).  Internet websites may support a finding of general jurisdiction, and most courts use a Asliding scale@ to determine whether Internet activity permits general jurisdiction.^[7]  At one end of the sliding scale, a website may support a finding of personal jurisdiction when a defendant clearly does business over the Internet by entering into contracts and repeatedly transmitting  computer files to and from the forum state.^[8]  At the other end, personal jurisdiction can not be exercised over a defendant who merely Apassively@ posts  information on the Internet.^[9]  Courts evaluate contacts in the middle of this sliding scale based on the level of interactivity and the commercial nature of the exchange of information. Experimental Aircraft, 76 S.W.3d at 507.

In this case, appellants contend that the website, www.exeloncorp.com, is owned and operated by Exelon because the website states it Ais owned and operated by Exelon Corporation and its affiliates@ and contains the phrase A8 2002 Exelon Corporation.@  However, Scott Peters, the Assistant Corporate Secretary for Exelon, testified that the website is operated by Exelon Business Services Company, a separate corporation from appellees.  Moreover, there is evidence that Exelon is a holding company with no employees or business operations of any type, and Peters testified, accordingly, that no Exelon employees operate the website.  Additionally, the website only Apassively@ provides information to users about Exelon (Enterprises is not mentioned in the website at all^[10]) and does not allow Exelon to interact with users or they with it.^[11]  Because the record thus reflects that neither appellee operates the website, and the website was not interactive with respect to either of them, it does not support a finding that either appellee had systematic contacts with Texas based on the website.  Accordingly, appellants= second issue is overruled, and the

judgment of the trial court is affirmed.

/s/        Richard H. Edelman

Senior Justice

Judgment rendered and Memorandum Opinion filed October 23, 2007.

Panel consists of Justices Frost, Seymore, and Edelman.^*

---

^[1]           See Tex. Civ. Prac. & Rem. Code Ann. ' 51.014(7) (Vernon Supp. 2006) (allowing appeal from an interlocutory order that Agrants or denies the special appearance of a defendant . . .@)

^[2]           In determining the purposeful availment requirement: (1) only the defendant's forum state contacts matter, not anyone else's; (2) the contacts must be purposeful, not merely random, isolated, or fortuitous; and (3) a nonresident defendant must seek some benefit, advantage, or profit by "availing" itself of the jurisdiction, thus impliedly consenting to suit in the forum.  See Michiana Easy Livin= County, Inc. v.Holten, 168 S.W.3d 777, 785 (Tex. 2005).

^[3]           See, e.g., Moki, 221 S.W.3d at 585, 587B88 (deciding that a nonresident=s in-state promotional activities were too attenuated to satisfy specific jurisdiction in Texas because the actual focus of the litigation at trial would be the alleged negligence of the defendant for failing to exercise reasonable care); BMC Software Belgium, N.V.  v. Marchand, 83 S.W.3d 789, 796B87 (Tex. 2002) (deciding that specific jurisdiction did not exist over a foreign subsidiary where the plaintiff=s causes of action could only arise from activities that occurred outside of Texas).

^[4]           Compare Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 232 (Tex. 1991) (holding that the liability insurer of a corporation and its 120 subsidiaries located in many countries, including the United States, could reasonably anticipate litigation in any state), with Malaysia British Assurance, SDN, BHD, v. El Paso Reyco, Inc., 830 S.W.2d 919, 921 (Tex. 1992) (holding that in personam jurisdiction could not be exercised by a Texas court over a foreign corporation that reinsured a policy of insurance issued by another foreign corporation to cover a Texas resident).

^[5]           See Exito Elecs., Co. v. Trejo, 166 S.W.3d 839, 857 (Tex. App.CCorpus Christi 2005, no pet.); Koll Real Estate Group, Inc. v. Howard, 130 S.W.3d 308, 316 (Tex. App.CHouston [14th  Dist.] 2004, no pet.); Koll Real Estate Group, Inc. v. Purseley, 127 S.W.3d 142, 147B48 (Tex. App.CHouston [1st Dist.] 2003, no pet.).

^[6]           In the merger, Enterprises received $25 million for undertaking various obligations, including the contingent liability for the indemnity obligation.  Appellants contend that appellees overstated the amounts of these contingent liabilities in order to receive a portion of the merger proceeds without paying appellants their pro rata share.  Appellants claim that, because appellees= promise to indemnify InfraSource for money it may spend on environmental remediation in Texas is one of the alleged overvalued contingent liabilities, there is a substantial connection between appellees= in-state activities and the operative facts of this lawsuit.

^[7]           See e.g., Experimental Aircraft Ass'n, Inc. v. Doctor, 76 S.W.3d 496, 506B07 (Tex. App.CHouston [14th Dist.] 2002, no pet.); but see Weldon-Francke v. Fisher, No. 14B06B00834BCV, 2007 WL 2592990, at * 8 & n.4 (applying Asliding scale@ and stating: AWe note that even if the website were on the opposite end of the sliding scale [allowing a defendant to do business over the Internet], research shows no Texas cases holding that general jurisdiction can be based on such a website alone...@). 

^[8]           Experimental Aircraft,76 S.W.3d at 506B07; Compuserve, Inc. v. Patterson, 89 F.3d 1257, 1264 (6th Cir, 1996).

^[9]           Experimental Aircraft, 76 S.W.3d at 506B07.

^[10]          There is no evidence that Enterprises has any connection to the website and appellants= brief does not argue that the website is a basis for general jurisdiction over Enterprises.

^[11]          See CSR Ltd. v. Link, 925 S.W.2d 591, 595 (Tex. 1996) (requiring that a defendant conduct substantial activities with the forum); Reiff v. Roy, 115 S.W.3d 700, 706 (Tex. App.BDallas 2003, pet. denied) (finding that a website providing maps and directions did not constitute systematic and continuous contact between the defendant and Texas). Appellants argue that Exelon=s subsidiaries= customers and suppliers are able to engage in online transactions through the website.  However, the use of the website by Exelon=s subsidiaries generally cannot be imputed to Exelon to establish personal jurisdiction over Exelon.  See, e.g., Commonwealth Gen. Corp. v. York, 177 S.W.3d 923, 925 (Tex. 2005) (stating, when analyzing personal jurisdiction, Aseparate corporations are presumed to be distinct entities@); Zamarron v. Shinko Wire Co., 125 S.W.3d 132, 142 (Tex. App.CHouston [14th Dist.] 2003, pet. denied) (stating A[a]s long as the parent and subsidiary maintain separate and distinct corporate entities, the presence of one in a forum state may not be attributed to the other.@).  In addition, appellants have asserted no claims to disregard the separate legal existence of these corporations.

^*           Senior Justice Richard H. Edelman sitting by assignment.