Doing business and paying taxes in Texas does not create Texas jurisdiction over out-of-state companies, appeals court says

By: Karen Kidd

A non-Texas company may seek out and do business with Texas companies and pay Texas taxes but that isn’t enough for that company to fall under the jurisdiction of Texas courts, according to a recent opinion from a state appeals court.

Phone calls and emails between companies on opposite sides of the Texas state border is not enough to grant Texas court jurisdiction over the nonnative company, according to the 16-page opinion handed down Oct. 10 by Texas’ 1st District Court of Appeals.

“And, it is well-established that contracting with a Texas resident, without more, is insufficient to establish jurisdiction over a nonresident defendant, particularly, as here, where the alleged agreement at issue calls for performance outside of Texas,” the opinion said. “We conclude that OmniSource has negated all bases for an assertion of specific jurisdiction over it.”

The appeals court overruled the sole issue raised by plaintiff Omar Salgado, injured at a Louisiana worksite in 2014, and affirmed a lower court’s order that granted a special appearance to OmniSource Corp. and dismissed Salgado’s claims. In his appeal to the 1st District, Salgado claimed OmniSource had “negligently hired” another defendant, CS Metals, located in Houston, and that the 295th District Court of Harris County was wrong to grant special appearance to OmniSource.

OmniSource Corp. is a wholly owned subsidiary of Steel Dynamics founded in Fort Wayne, Indiana about 65 years ago, according to OmniSource’s website.

In his fourth amended petition in the case, Salgado claimed the serious injuries he suffered Nov. 6, 2014, when a large piece of metal struck him at a demolition site in Morgan City, Louisiana were the result of negligence of OmniSoure, among other defendants.

OmniSource, the only defendant in Saldago’s original case not headquartered in Texas, filed for a special appearance with the lower court, claiming that Texas does not have general or specific jurisdiction over it, according to the appeals court’s opinion. Exercising jurisdiction over OmniSource in Texas “would offend traditional notions of fair play and substantial justice,” the opinion said.

Salgado argued that OmniSource does fall under the jurisdiction of Texas courts because OmniSource seeks out and transacts business in Texas, has filed franchise tax reports in the state since 2006 and has been party to lawsuits in Texas, both as a plaintiff and as a defendant, according to the opinion. OmniSource’s counsel countered that doing business in the state, having Texas customers and paying taxes “is not sufficient to show continuous and systematic contacts that satisfy due process,” the opinion said.

A court may assert personal jurisdiction over a nonresident defendant once requirements of the due process clause of the U.S. Constitution’s 14th Amendment and the Texas long-arm statute are satisfied, according to the opinion.

“Saldago’s assertions about specific jurisdiction all concern an agreement between OmniSource and CS Metals that was to be performed in Louisiana,” the opinion said. “Salgado places much significance on his assertion that this agreement was negotiated, and CS Metals was hired, while it was located in Houston, Texas. He insists that his allegation that OmniSource negligently hired CS Metals is sufficient to defeat OmniSource’s special appearance.”

However, Salgado made no allegation and presented no evidence that OmniSource representatives traveled to Texas for contract negotiations with CS Metals “or performed any allegedly tortious acts in Texas as part of these negotiations,” the opinion said.

“Phone calls and emails with CS Metals, a Texas resident, as part of the negotiation process do not constitute sufficient proof of purposeful availment by OmniSource in this case,” the court stated.