Kean Miller obtained the dismissal of a suit filed against its client, a foreign manufacturer of an industrial product who was sued by the Texas purchaser of the product, because the Texas court did not have personal jurisdiction over the manufacturer. A Texas court of appeals recently affirmed this dismissal.

After the foreign manufacturer filed its exception to the trial court’s jurisdiction, the parties conducted discovery regarding the manufacturer’s contacts with Texas, stipulated certain facts, and filed affidavit regarding these contacts. The trial court dismissed the case for lack of personal jurisdiction over the manufacturer. The plaintiff appealed.

In order for a Texas court to have jurisdiction over a party before it, the party must have had sufficient contacts that were purposefully directed at the state, seeking some benefit, advantage, or profit. A court’s analysis of personal jurisdiction is a multi-step process. In considering whether the Texas court had jurisdiction over the manufacturer, the appeals court focused on a number of facts.

  • Foreign location.   The manufacturer was a foreign company with its principal place of business in that country.
  • Title and risk of loss. Although the three contracts between manufacturer and the purchaser required the manufacturer to pay to insure and ship the product to the Port of Houston, the terms of the contracts (“CIF Houston Port, TX, USA”) provided that that title to the product and the risk of loss transferred to the purchaser when the product was loaded on the ship in the foreign country.
  • Foreign law and arbitration.   The contracts selected the law of the manufacturer’s country to govern their interpretation and application, and specified that disputes would be arbitrated in that country.
  • Minimal sales in Texas. The appeals court found that these contractual terms were not an effort to avoid Texas jurisdiction for two reasons: first, the manufacturer did not have a sales agent in Texas; second, while the manufacturer had executed 100 contracts with Texas residents for the sale of $51 million of product over a five–year period, these sales accounted for only 2.27% of its sales inthose years. The court observed that Texas courts have found there was no jurisdiction over a company with “many more goods flowing into and out of” the state than in this case.
  • No other purposeful activities. Nor was there any of the other “additional conduct” required to convert a manufacturer’s act of placing a product into the stream of commerce into an act that was purposefully directed at the state: the manufacturer had not designed the product specifically for marketing in Texas, did not advertise in Texas, and had not established channel to provide regular advice to customers in Texas.

The appellate court’s opinion demonstrates that Texas courts look critically at the facts of each case to determine whether a court has jurisdiction over a foreign company, and that significant discovery will probably be required before an exception to jurisdiction can be submitted to the trial court.