Charles Trois v. Apple Tree Auction Center, Inc, e
Opinion
This appeal presents issues of personal jurisdiction and venue. A Texas citizen sued Ohio citizens in a Texas court based on two distinct claims: first, breach of a contract executed and performed in Ohio; and second, fraudulent misrepresentation made during a conference call from Ohio to Texas. The question thus before us is whether the Texas court may properly assert personal jurisdiction over the Ohio defendants in each or either claim, and if so, whether the Texas court is the proper venue. We hold that the breach-of-contract claim cannot be tried in the Texas courts, but the fraud claim, based on misrepresentations, finds a home in Texas.
I.
Charles Trois is the owner of a collection of guns, artwork, and other items. He is domiciled in Texas. Samuel Schnaidt is president of Apple Tree, an Ohio auction center, and is domiciled in Ohio.
In spring 2016, Michael Barrick, a Kentucky citizen, contacted Trois about selling some of his collectible items through an Apple Tree auction. Barrick explained that he received a fee for any of his solicitations that resulted in an auction commission for Apple Tree. In this first phone call, Trois *488 expressed interest in dealing with Apple Tree, so Barrick contacted Trois in Texas, by phone, at least twice more. In these calls, Schnaidt was on the line and, according to Trois, knew Trois lived in Texas. It was during these conversations that Schnaidt allegedly misrepresented Apple Tree's marketing tools and the auction arrangements to Trois. Based on these communications, the parties came to a preliminary agreement that Apple Tree would auction Trois's collectible items. Trois then traveled to Ohio, where he and Apple Tree resumed negotiations and entered into a contract for auctions of Trois's collectibles to be held in Ohio. The execution and result of the Apple Tree auctions fell far short of Trois's expectations. Trois sued Schnaidt and Apple Tree (collectively, "the defendants") in Texas state court. The defendants removed the case to Texas federal court. The question is whether the Ohio defendants may be sued in Texas and, if so, whether that court is the proper venue.
II.
Trois's complaint asserts two claims: first, breach of contract and, second, fraud based on misrepresentation. The defendants moved to dismiss the complaint for lack of personal jurisdiction and for improper venue. 1 Trois alleges that the defendants are subject to specific personal jurisdiction in Texas on the basis of sufficient minimum contacts with Texas and, further, because the claims arose from or related to those contacts. He also alleges that venue is proper in the Western District of Texas. The defendants, on the other hand, contend that there has not been sufficient contact with Texas and that this case belongs in Ohio.
Following briefing, the district court dismissed the breach-of-contract claim for lack of personal jurisdiction. As to the fraud claim, the court found personal jurisdiction but dismissed for improper venue. Trois timely appealed. We address personal jurisdiction with respect to the breach-of-contract claim and fraud claim, respectively. We then turn to venue.
III.
"This Court reviews de novo the district court's determination regarding personal jurisdiction."
Religious Tech. Ctr. v. Liebreich
,
In this diversity case, the exercise of personal jurisdiction over a nonresident defendant must comport with both federal due-process requirements and the long-arm statute of Texas.
Paz v. Brush Engineered Materials, Inc.
,
A.
We address first the breach-of-contract claim. "Specific jurisdiction may be found when a foreign defendant 'has "purposefully directed" his activities at residents of the forum ....' "
Religious Tech. Ctr.
,
The district court found no personal jurisdiction concerning the contract claim because the auction contract was executed and performed solely in Ohio. We agree. The only alleged Texas contacts related to contract formation or breach are Schnaidt's conference calls negotiating the agreement while Trois was in Texas. But, standing alone, that is insufficient purposeful availment to establish jurisdiction over this breach-of-contract claim.
See
McFadin
,
B.
Next we turn to whether the court erred in finding that it has personal jurisdiction over the defendants as to the fraud claim.
3
The defendants argue it did
*490
err because their contacts did not form the necessary connection with Texas. Importantly, the minimum-contacts test for personal jurisdiction in fraud differs from that in contract.
4
"A forum State's exercise of jurisdiction over an out-of-state intentional tortfeasor must be based on intentional conduct by the defendant that creates the necessary contacts with the forum."
Walden v. Fiore
, --- U.S. ----,
At the outset, we must determine whether Barrick's Texas contacts with Trois may be imputed to the defendants by virtue of an agency relationship between the defendants and Barrick. A defendant may be subject to personal jurisdiction because of the activities of its agent within the forum state,
McFadin
,
In
McFadin v. Gerber
, we held that there was no agency relationship sufficient to establish minimum contacts with Texas where a nonresident defendant had a revenue-sharing agreement with an independent sales representative selling goods in Texas.
Focusing then on the defendants' contacts, Trois contends the defendants created the necessary contacts with Texas when Schnaidt participated in a conference call to Trois (that Barrick initiated) and allegedly misrepresented certain things over
*491
the phone. As the district court correctly observed, there is no published specific authority on point.
6
We have permitted the exercise of specific personal jurisdiction over an intentional-tort claim where a nonresident defendant places a call to a forum and makes false statements over the phone to a forum resident.
See, e.g.,
Brown v. Flowers Indus., Inc.
,
This case falls within the fuzzy boundaries of the middle of the spectrum. Although Schnaidt did not initiate the conference call to Trois in Texas, Schnaidt was not a passive participant on the call. Instead, he was the key negotiating party who made representations regarding his business in a call to Texas. It is that intentional conduct on the part of Schnaidt that led to this litigation. So Schnaidt is not being haled into Texas court "based on [his] 'random, fortuitous, or attenuated' contacts."
Walden
,
Therefore, we hold that Schnaidt, a willing participant on a conference call who actively engaged in conversation regarding his business, is more akin to an initiator of a phone call as contrasted to the recipient of an uninitiated, unsolicited phone call. The defendants should have reasonably anticipated being haled into Texas court as a result of reaching out to Texas via phone in order to garner business and make specific representations. The defendants have requisite minimum contacts with Texas in regards to the fraud claim.
In an effort to persuade us otherwise, the defendants point to our unpublished opinion in
Renoir v. Hantman's Associates., Inc.
, in which we held that "focusing on where a defendant allegedly directed a tort incorrectly emphasizes the relationship among the
plaintiff
, the forum, and the litigation, rather than among the
defendant
, the forum, and the litigation."
Thus in considering the fraud claim, we conclude that the Texas district court properly asserted personal jurisdiction over the Ohio defendants. 9 As we have said, the considerations for personal jurisdiction over fraud claims are different from those we apply in a straight contract claim. But that does not end our analysis because, after properly concluding that it has personal jurisdiction over the fraud claim, the district court turned around and dismissed the fraud claim on the basis of improper venue.
IV.
So we proceed to address the district court's decision on the question of venue for the fraud claim. The Ohio defendants, unsurprisingly, contend that the proper venue for Trois's fraud claim lies in Ohio, not Texas. The district court agreed with the defendants and found that, notwithstanding personal jurisdiction over the fraud claim, Texas was the improper venue. We conclude that the district court erred.
"Venue issues are generally reviewed for abuse of discretion. We effectively review this judgment
de novo
, however, because a district court by definition abuses its discretion when it makes an error of law."
United States v. Clenney
,
The Supreme Court instructs us that, "[w]hen venue is challenged, the court must determine whether the case falls within one of the three categories set out in § 1391(b).
[
11
]
If it does, venue is proper; if it does not, venue is improper, and the case must be dismissed or transferred under § 1406(a)."
Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Tex.
, --- U.S. ----,
The district court concluded that, under this second category, a Texas venue was not a fit because, although the alleged misrepresentations occurred during conference calls placed to Texas, the contract execution and performance took place in Ohio. The court held, therefore, that a substantial part of the events did not take place in Texas. But that analysis does not recognize the distinction between the facts giving rise to the two separate claims pleaded, i.e. breach of contract and misrepresentation. With respect to the fraud claim, Trois alleges that Schnaidt "made numerous misrepresentations" and "intentionally concealed facts." Trois's affidavit explains that the majority of those alleged misrepresentations occurred during Schnaidt's calls to Texas. So although a substantial part of the events giving rise to the breach-of-contract claim-contract execution and the defendants' performance-took place in Ohio, a substantial part of the events giving rise to the fraud claim-the misrepresentations-took place in a business call to Texas. Because the district court looked outside the specific events giving rise to the fraud claim, it reached an erroneous conclusion of law.
The district court cited
Siragusa v. Arnold
, a case out of the Northern District of Texas, in support of its conclusion, reasoning that a Texas venue was proper in that case only because the "alleged misrepresentations
and
the negotiation of the alleged contract" occurred in Texas.
Trois v. Apple Tree Auction Ctr., Inc.
, No. 16-CV-746-XR,
[C]ommunications to [Texas] can constitute a substantial part of the events giving rise to a plaintiff's claims, if the claims derive directly from those communications. Moreover, where "false communications are the focus of Plaintiff['s] claims of fraudulent representations ... [t]he direction of fraudulent *494 misrepresentations to Dallas, Texas can establish that the events or omissions giving rise to the cause of action occurred in Dallas, Texas."
V.
In sum, the district court did not err in dismissing Trois's breach-of-contract claim. We also hold that the district court did not err in exercising personal jurisdiction over the defendants with respect to the fraud claim. Finally, we hold that the district court did err in dismissing the fraud claim for improper venue. Texas jurisdiction, and the Texas courtroom, survive for the fraud claim. The judgment of the district court is
AFFIRMED in part and REVERSED in part, and the case is REMANDED.
The defendants alternatively moved to transfer venue pursuant to
Any partial performance by Trois in Texas is insufficient to establish jurisdiction.
See
Nerium Int'l, LLC v. Kum Sun
, No. 05-13-00427-CV,
Because the district court dismissed the fraud claim for improper venue, Trois does not appeal the district court's holding that it has personal jurisdiction, but the defendants "may urge any ground available in support of a judgment."
Cooper Indus., Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh
,
See generally 4A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1069.1 (4th ed.) ("When suit is brought in a federal court on a contractual or other nontort claim, the propriety of the court asserting jurisdiction over a defendant will turn on a number of factors, including whether the contract or breach thereof occurred in the state, the number of contacts the defendant has had with the state, and a balancing of the convenience to the plaintiff of maintaining the suit in the state against the inconvenience to the defendant of defending the action there.").
We need not address whether Texas law does in fact apply because the key inquiry under Texas, Kentucky, and Ohio law is whether the principal exercises "control" over the purported agent.
See
In re Chinese-Manufactured Drywall Prod. Liab. Litig.
,
In
Lewis v. Fresne
, we permitted personal jurisdiction over a nonresident defendant who participated in a telephone conference call that was designed to convince the forum-resident plaintiff to make a loan.
Although not cited by the defendants, the Walden Court rejected the Ninth Circuit's jurisdictional approach, which focused on a defendant's mere "knowledge of [plaintiff's] strong forum connections." 134 S.Ct. at 1124 (internal quotation marks omitted). Basing personal jurisdiction solely on the defendant's knowledge that the effects of the tort would be felt in the forum was improper because the acts were not directed to the forum. Id. at 1125. But Walden is distinguishable because, unlike that defendant's mere knowledge of plaintiff's forum connections, the defendants here reached out to Texas and allegedly made false statements over the phone to a Texas citizen to induce him to conduct business with them. We focus on conduct, not mere knowledge.
The defendants do not address the second prong of the due-process analysis, "traditional notions of fair play and substantial justice," in their briefing.
Schnaidt's argument that the "fiduciary shield" doctrine bars the district court from exercising jurisdiction over him in his personal capacity, as the president of the defendant Apple Tree, is misplaced. The doctrine is inapplicable in the context of this appeal.
See
Gen. Retail Serv., Inc. v. Wireless Toyz Franchise, LLC
,
There is conflicting authority regarding the standard of review for dismissal based on venue in the Fifth Circuit.
Compare
Harvey v. Turnbo
, Nos. 94-10180, 94-10439,
Under
A civil action may be brought in-
(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located;
(2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or
(3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court's personal jurisdiction with respect to such action.
Reference
- Full Case Name
- Charles J. TROIS, Plaintiff-Appellant v. APPLE TREE AUCTION CENTER, INCORPORATED; Samuel Schnaidt, Defendants-Appellees
- Cited By
- 120 cases
- Status
- Published