Yong Zhang v. Med-Towel Enterprises, Ltd.

• Court: Court of Appeals of Texas
• Decided: April 8, 2010
• Docket: 03-09-00457-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-09-00457-CV

Yong Zhang, Appellant

v.

Med-Towel Enterprises, Ltd., Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT NO. D-1-GN-06-002110, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING

MEMORANDUM OPINION

Yong Zhang appeals the trial court’s order denying his special appearance. He

contends that the trial court failed to make a necessary finding that he purposefully availed himself

of the benefits and protections of Texas law, that the evidence does not support express or implied

findings that he availed himself of those benefits or that he had minimum contacts with Texas,

and that the trial court erred by concluding that it had personal jurisdiction over him. We affirm the

order denying Zhang’s special appearance.

Med-Towel, a Texas partnership, designed and attempted to sell and distribute x-ray

detectible surgical towels. Med-Towel sought to have the towels manufactured by Guangda

Textile Company, an Illinois corporation with operations in China. The initial overture regarding

this transaction was made by Garrett Bolks, an Oklahoma resident, on behalf of All-Med Industries,

L.P., a Texas limited partnership, who called Yong Zhang, an Illinois resident. Med-Towel alleged that it eventually had direct communications with Zhang. Med-Towel also alleged that Zhang made

representations on behalf of Guangda and U-Ten Corporation, another Illinois corporation.

Ultimately, Med-Towel ordered towels through Zhang and paid for them, although Zhang averred

that the transaction was between All-Med and Guangda. Some of the towels shipped were returned

as substandard and, according to Med-Towel, were not replaced by U-Ten or Guangda. Med-Towel

also alleged that U-Ten and Guangda tried to sell surgical towels directly to customers, thereby

competing with Med-Towel, while withholding the replacement towels so that Med-Towel had no

inventory to sell.

Med-Towel sued Zhang, U-Ten, Guangda, and others for various causes of action.

Med-Towel sued Zhang for fraud, contending that he made representations on behalf of Guangda

and U-Ten that they would manufacture and supply surgical towels to Med-Towel. Med-Towel

contends these representations were false and relied on by Med-Towel to its detriment. Med-Towel

also asserts that Zhang demanded prepayment for towels not supplied, failed to return the

prepayment, and restricted the supply of towels in order to gain a competitive advantage when selling

the towels directly to Med-Towel’s customers.

Zhang filed a special appearance, supported by an affidavit, asserting that he lacked

the necessary minimum contacts with Texas to be subject to personal jurisdiction and that Med-

Towel’s claims did not arise from his contacts with Texas. He averred that he had no contracts with

any parties in the case, had no interest in the transaction or the entities involved, and that he received

no compensation related to the transaction. Zhang stated that he was an employee of U-Ten, not an

owner, and was merely an information conduit between Guangda and All-Med—not appellee Med-

2 Towel. He asserted that he was not an owner, officer, or employee of Guangda, and that he merely

translated and transmitted communications between Guangda and All-Med. Zhang stated that he

never met in Texas with anyone regarding the towel transaction, and that he did not know initially

that the towels were to be delivered to Texas or that the other companies were Texas companies.

He admits being asked to transmit a message to Guangda that the destination of the towels was Texas

and that he helped arrange to return some towels from Texas to China. He asserted that his contacts

with Texas were over the telephone and by email to relay messages to China to facilitate the delivery

of towels to All-Med. He asserted that he did not conduct business or solicit customers in Texas.

At the hearing on the special appearance, the trial court admitted Zhang’s affidavit

and heard testimony from Med-Towel’s president, Mark Kyle. Although Kyle agreed that All-Med’s

Bolks initially contacted Guangda and Zhang, he denied that Zhang was merely a translator. Kyle

testified that Bolks reported that he met with Zhang at a conference in Texas where the two

discussed the products at issue, although Kyle could not remember the time of the conference or the

substance of the conversations. Kyle testified that he spoke on the telephone with Zhang many

times. He testified that Zhang gave him a business card stating that Zhang was a vice-president of

Guangda (the card was not offered or admitted). Kyle testified that he had met Zhang in person at

least twice concerning the issues in this suit, but never in Texas. Kyle testified that Zhang told him

that U-Ten was Guangda’s U.S. division and that Zhang had the authority to represent Guangda

when discussing the manufacture of the towels with Kyle on Med-Towel’s behalf. Kyle said he had

no contact with Zhang’s father, the owner of Guangda, before the lawsuit was filed. Kyle testified

that there was an oral agreement that Med-Towel would be the exclusive distributor of these x-ray

3 detectible towels and that Guangda would not sell the towels to Med-Towel’s customers. He

admitted, however, that Med-Towel’s written contract was with All-Med, not Zhang, U-Ten, or

Guangda. He also testified that All-Med had an exclusivity agreement with Guangda regarding these

towels. Kyle testified that Med-Towel wired about $200,000 to All-Med that then went to Guangda

for towels that eventually arrived with bad packaging and mildew. Kyle also testified that Zhang

assured him more towels were being shipped. No more towels were shipped to Med-Towel, but

towels with Med-Towel’s design began appearing at hospitals.

Kyle testified that Zhang assured him numerous times that Guangda was not selling to

Med-Towel’s customers, but he eventually learned that Zhang had added Med-Towel’s x-ray

detectible towels to the product mix he was selling to his own customers—some of whom were Med-

Towel’s existing or intended customers. Kyle testified that, when Zhang assured him on the

telephone that his family’s companies were not selling x-ray detectible towels, Kyle made

Zhang aware that Kyle was in Texas, Zhang made the representations to him while he was using a

512 area-code phone number, and Zhang had shipped the original product to Texas. Kyle testified

that he and Zhang had hundreds of telephone calls to his office and cell phones during the time that

Zhang was denying that his family’s companies were selling Med-Towel’s x-ray detectible towels

directly to Med-Towel’s customers, when they were, in fact, doing so. Kyle testified that Zhang also

sent hundreds of e-mails and many faxes to Kyle while Kyle was in Texas.

The trial court denied Zhang’s special appearance and made findings of fact and

conclusions of law in support of the denial, including the following findings:

4 4. Defendant negotiated the terms of the agreements between U-Ten/Guangda, on the one hand, and Plaintiff, on the other hand, with Plaintiff’s president, Mark Kyle (“Kyle”).

5. Defendant made hundreds of phone calls, faxes and emails to Kyle in furtherance of their negotiations and in furtherance of the fraud perpetrated on Plaintiff by U-Ten and Guangda.

....

9. Defendant traveled to Texas on at least one occasion with regard to the x-ray detectable towel business with Texas residents.

10. At the same time that U-Ten and Guangda were engaging in communications directly with Plaintiff’s customers, Defendant was making phone calls, faxes and emails to Plaintiff to assure Plaintiff that U-Ten and Guangda were not engaging in communications directly with Plaintiff’s customers. These representations were false and were made with the purpose of misleading Plaintiff.

Zhang complains that these findings and conclusions lack the necessary determination that

he purposefully availed himself of the privileges and benefits inherent in conducting business in

Texas. He contends that these findings, and any implied findings in favor of the court’s denial of

his special appearance, are not supported by legally sufficient evidence.

Zhang contends that the trial court erred by failing to make a necessary finding that

he purposefully availed himself of the benefits and protections of Texas law, that the record does

not support an implied finding of purposeful availment, that legally sufficient evidence does not

support the other jurisdictional fact findings, that he did not have minimum contacts with Texas

sufficient to satisfy due process, and that the trial court erred by concluding that it had personal

jurisdiction over him.

5 A nonresident defendant is subject to the personal jurisdiction of Texas courts

if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and (2) the exercise of

jurisdiction does not violate federal and state constitutional due process guarantees. Schlobohm

v. Schapiro, 784 S.W.2d 355, 356 (Tex. 1990). Texas’s long-arm statute extends the trial court’s

jurisdiction “as far as the federal constitutional requirements of due process will allow.” Moki Mac

River Expeditions v. Drugg, 221 S.W.3d 569, 575 (Tex. 2007). Personal jurisdiction is consistent

with due process “when the nonresident defendant has established minimum contacts with the

forum state, and the exercise of jurisdiction comports with ‘traditional notions of fair play and

substantial justice.’” Id. (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

A defendant establishes minimum contacts with a state when it purposefully avails itself of the

privilege of conducting activities within the forum state, thus invoking the benefits and protections

of its laws. Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333, 338 (Tex. 2009)

(quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)). To constitute purposeful availment, the

contacts must be (1) the action of the defendant, not a third party, (2) purposeful, rather than random,

fortuitous, or attenuated, and (3) must show the defendant seeking a benefit, advantage, or profit

from availing itself of the jurisdiction. Moki Mac, 221 S.W.3d at 575. The contact must be such that

the person making them would reasonably expect to be haled into Texas courts. See MedCost,

L.L.C. v. Loiseau, 166 S.W.3d 421, 429 n.9 (Tex. App.—Austin 2005, no pet.) (citing American

Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 807 (Tex. 2002)). Only in rare cases will

a Texas court’s exercise of personal jurisdiction not comport with fair play and substantial justice

6 if the nonresident defendant has purposefully established minimum contacts with Texas. Guardian

Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 231 (Tex. 1991).

Specific jurisdiction arises when (1) the defendant purposefully avails itself of

conducting activities in the forum state, and (2) the cause of action arises from or is related to

those contacts or activities. Retamco, 278 S.W.3d at 338. When reviewing specific jurisdiction, we

focus on the relationship among the defendant, the forum, and the litigation. Moki Mac, 221 S.W.2d

at 575-76.

The plaintiff bears the initial burden to plead sufficient allegations to bring the

nonresident defendant within the reach of Texas’s long-arm statute. Id. at 574. The defendant filing

a special appearance bears the burden to negate all bases of personal jurisdiction alleged by the

plaintiff. Id.

Whether a court can exercise personal jurisdiction over nonresident defendants is

a question of law, and thus we review de novo the trial court’s determination of a special appearance.

Id. In determining jurisdictional pleas asserted by a defendant, we construe the pleadings liberally

in the plaintiff’s favor. Texas Dep’t of Transp. v. Ramirez, 74 S.W.3d 864, 867 (Tex. 2002). In

making a jurisdictional determination, the trial court must frequently resolve underlying

factual disputes. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). The

trier of fact is the sole judge of the credibility of the witnesses and the weight to be given to

their testimony. Huynh v. Nguyen, 180 S.W.3d 608, 615 (Tex. App.—Houston [14th Dist.] 2005,

no pet.) (citing City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005)). We may not disturb

a trial court’s resolution of evidentiary conflicts that turn on credibility determinations or the

7 weight of the evidence. Ashdon, Inc. v. Gary Brown & Assocs., Inc., 260 S.W.3d 101, 116

(Tex. App.—Houston [1st Dist.] 2008, no pet.); Ennis v. Loiseau, 164 S.W.3d 698, 706

(Tex. App.—Austin 2005, no pet.). If the trial court issues findings of fact and conclusions of law,

we may review the fact findings for both legal and factual sufficiency. BMC, 83 S.W.3d at 794. A

legal sufficiency challenge to a finding of fact fails if there is more than a scintilla of evidence to

support the finding. Id. at 795. If one or more elements of a ground of recovery or defense are found

by the trial court, but others are omitted, the omitted findings will be supplied by presumption in

support of the judgment if they are supported by evidence. Tex. R. Civ. P. 299.

The failure of the trial court in this case to expressly find purposeful availment does

not render its order denying the special appearance erroneous. Purposeful availment is not a ground

of recovery or a defense, but is an element of the test for whether the exercise of personal jurisdiction

is proper. Cf. Retamco, 278 S.W.3d at 338-39. Accordingly, if jurisdiction is found and other

elements of the jurisdictional test are found, a finding of purposeful availment can be presumed. See

Tex. R. Civ. P. 299. The trial court determined that Zhang made hundreds of communications to

Med-Towel in furtherance of the negotiations to do business and the alleged fraud designed to take

business away from Med-Towel, and concluded that Med-Towel’s causes of action arose from

Zhang’s contacts with Texas, that the exercise of personal jurisdiction over Zhang would not offend

notions of fair play and substantial justice, and that the trial court has personal jurisdiction over

Zhang. The absence of an express purposeful availment finding does not render the order erroneous

so long as sufficient evidence supports a finding of purposeful availment.

8 Legally sufficient evidence supports a finding that Zhang purposefully availed himself

of the privileges and benefits inherent in conducting business in Texas. Although the first contact

with Zhang related to the underlying transaction was initiated by Oklahoma resident and All-Med

representative Bolks toward Zhang in Illinois, Med-Towel’s president Kyle testified that Zhang

purposefully initiated hundreds of telephone calls and other communications to him when Zhang

knew Kyle was in Texas.1 Kyle also testified that Bolks reported that he and Zhang discussed the

transaction in Dallas while at a conference. Based on Zhang’s representations, Med-Towel sent

money to All-Med, which sent money to Guangda, a company for which Zhang was allegedly an

officer. Kyle’s testimony provides evidence that Zhang intentionally initiated numerous contacts

with Med-Towel through Kyle in Texas, that the contacts were intended to induce certain actions

and inactions by Med-Towel, that Zhang arranged for delivery of towels to Texas and their

1 The fact that Kyle’s testimony on this subject was not supported by telephone records or other documentation does not render it inadmissible or weightless. Sworn testimony that, while in Texas, he received “hundreds” of telephone calls from Zhang (“numerous” times initiated by Zhang to a 512 office number and cell phone), “hundreds” of emails from Zhang, and “many” faxes from Zhang is some evidence that these communications occurred as described. The fact that this testimony was disputed or minimized by Zhang does not render the evidence weightless.

The advent of cell phones and call forwarding has diminished the weight that testimony regarding the area code of the recipient lends to a contention that a phone call was made to a particular site. See Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 791 (Tex. 2005) (“[C]hanges in technology have made reliance on phone calls obsolete as proof of purposeful availment.”). However, the evidence in this case was not limited to telephone calls. Kyle testified that he was located in Texas when Zhang made fraudulent representations to him on the phone, that he told Zhang he was in Texas, and that Zhang knew he was in Texas. Although specific jurisdiction is not necessarily established by allegations or evidence that a nonresident committed a tort in a telephone call from Texas, see id. at 791-92, we conclude that additional evidence regarding the initiator of the call, the location of the recipient, and the knowledge of the caller regarding the recipient’s location are relevant in establishing jurisdiction.

9 return from Texas to China, and that the communications were made to conduct business in

Texas for Zhang’s benefit. Although Zhang denies that he had any role in Guangda or received any

profit for his role in these transactions, the trial court could reasonably choose to credit Kyle’s

testimony that Zhang represented that he is a vice president of Guangda and an authorized

representative of U-Ten. This evidence, combined with the evidence of hundreds of communications

directed by Zhang to Kyle in Texas, constitutes more than a scintilla of evidence to support the

trial court’s presumed inference that Zhang sought a benefit or advantage by making the

representations to Kyle in Texas as alleged.

Kyle’s testimony provides more than the single, discrete contact initiated by

the plaintiff in Michiana. See Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777,

784 (Tex. 2005). In that case, the plaintiff/buyer initiated contact with a recreational vehicle

manufacturer that otherwise did not do business in Texas. Id. The single phone call in Michiana

resulted in a one-time sale to a single individual and did not constitute purposeful availment of

the benefits of Texas law by the manufacturer. Id. Here, by contrast, there is evidence of hundreds

of communications, many initiated by Zhang, concerning hundreds of towels in a transaction that

persisted longer than a single purchase. Kyle’s testimony provides more than a scintilla of evidence

to support the implied finding that Zhang purposefully availed himself of the benefits and protections

of Texas law while working for the interests of U-Ten and Guangda. The record contains legally

sufficient evidence to support a finding that Zhang established contacts with Texas that would cause

him to reasonably expect to be haled into Texas courts. The evidence is legally sufficient to support

10 findings that Zhang purposefully availed himself of the benefits of Texas and that he had the

necessary minimum contacts with Texas.

Kyle’s testimony also supports a finding that Med-Towel’s claim against Zhang arises

from his contacts with Texas. Although he did not testify regarding specific representations made

during specific communications, Kyle testified that his only contact with Zhang relating to the towel

transaction was by telephone, e-mail, or fax to Texas, that Zhang made misrepresentations during

these communications, and that Med-Towel relied on these communications and was damaged

thereby. The trial court’s conclusion that Med-Towel’s causes of action arise from and are related

to Zhang’s contacts with Texas is supported by legally sufficient evidence. Similarly, we conclude

that Zhang has not demonstrated error in the trial court’s conclusion that the exercise of personal

jurisdiction over Zhang will not offend notions of fair play and substantial justice.

We conclude that legally sufficient evidence supports a presumed finding that Zhang

purposefully availed himself of the benefits and protections of Texas law as well as all other findings

necessary (including the existence of minimum contacts) to support the conclusion that the trial court

can properly exercise personal jurisdiction over Zhang in this case.

We affirm the order denying Zhang’s special appearance.

G. Alan Waldrop, Justice

Before Chief Justice Jones, Justices Pemberton and Waldrop

Affirmed

Filed: April 8, 2010