As we reported last August, the Dallas Court of Appeals’ ruling in Steward Health Care Sys. LLC v. Saidara, 633 S.W.3d 120 (Tex. App.—Dallas 2021, no pet.) uncovered serious divisions within the Dallas Court of Appeals over how the court handled the majority opinion. See “Dallas Court of Appeals Meltdown—Part 2,” pub. August 25, 2021 at tcjl.com. In that case Justice David Schenk issued a concurring opinion that, among other things, blistered Chief Justice Robert Burns and other members of the court for obstructing the issuance of a panel opinion authored by Justice Schenk so that the court could reconsider the opinion en banc—with a new justice who had defeated Justice Bill Whitehill, one of the panel members, in the intervening general election.
In the event, Justice Lana Myers authored the eventual en banc opinion, which held that a trial court may not consider “the text of a response to a special appearance (as opposed to evidentiary attachments to the response)” in determining the special appearance because such a response does not fall within the language of TRCP 120a(3). That rule limits the trial court’s determination to the pleadings (including amended pleadings), affidavits and attachments filed by the parties, the results of discovery processes, and oral testimony. The court of appeals further held that “the plaintiff must meet its initial burden on a special appearance by pleading, in its petition, sufficient allegations to invoke jurisdiction under the Texas long-arm statute.” The majority ended up affirming the trial court’s order granting the defendant’s special appearance and dismissing the claims against him. Justice Schenk agreed with the majority that “unsupported allegations within a response to a special appearance cannot support a finding of jurisdiction” but “would permit a trial court to consider any actual evidence attached to the response or that is otherwise actually presented by the plaintiff to the trial court subject to any objection of surprise and/or request for continuance.”
Earlier this week, the split revealed in Steward Health popped up again in yet another case involving a special appearance to contest the exercise of jurisdiction by a Texas court. Forever Living Products International, LLC, A Nevada Limited Liability Company, and Aloe Vera of America, Inc., a Texas Corporation v. AV Europe GmbH, a German Limited Liability Company (No. 05-20-0058 CV) arose from the alleged tortious interference of AV Europe, HW&B Enterprises LLC (a holding company for a competitor of the plaintiff, and Christopher Hardy, a former employee of the plaintiff who allegedly attempted to poach one of plaintiff’s distribution companies by disclosing plaintiff’s confidential information.
In a panel opinion handed down on July 30, 2021 (just a few weeks prior to the opinion in Steward Health), Justice Garcia, joined by Justices Partida-Kipness and Myers, reversed the trial court’s grant of AV Europe’s special appearance, thus subjecting AV Europe to general jurisdiction in Texas. The decision turned on the panel’s determination that AV Europe’s officers “directed, controlled, and coordinated the company’s activities” from Dallas County on the date the suit was filed. Applying the “nerve center” test used for federal diversity purposes to determine a defendant’s principal place of business, the panel concluded that Hardy, the managing director of AV Europe (who had sole control of AV Europe’s operations), ran the company from Dallas and that Dallas, therefore, was its principal place of business for jurisdictional purposes (even though AV Europe by that time had no ongoing operations and was, according to the defendant, “winding down”). The only evidence adduced by AV Europe to negate general jurisdiction consisted of Hardy’s declaration in an oral deposition that AV Europe never had any operations in Texas, which the panel held to be conclusory and legally insufficient to negate jurisdiction.
The case hung around on a motion for rehearing until the plaintiff moved for an en banc hearing on November 12. This week the court of appeals denied the motion, to which Justice Schenk dissented. His dissent disagrees with the panel’s application of the “nerve center” test because it is a statutory test enacted by Congress for federal diversity purposes, not a jurisdictional test under the pertinent authority of the U.S. Supreme Court and Texas courts. According to Justice Schenk, the panel thus improperly expanded Congress’s power beyond the limits permitted by the federal Constitution. He further contended that the court’s decision to deny the plaintiff’s motion for rehearing en banc contrary to the en banc court’s holding in Steward Health. Noting that nowhere in the petition does the plaintiff assert general jurisdiction or refer to “continuous and systematic contacts” with Texas, Justice Schenk argued that the panel decision holds the defendant seeking a special appearance to “disprove all potential bases (pleaded or not) for that exercise, rather than simply asking whether the appellant-defendant successfully negated or disproved the facts alleged in the petition.” Put another way, Justice Schenk said, a defendant is only obliged to negate jurisdictional claims made in the petition, as Steward Health required, not to anticipate “a basis for jurisdiction that is not alleged by introducing some evidence to negate at the peril of the court identifying others.”
It looks to us that Justice Schenk is right: the Fifth Court of Appeals district has handed down conflicting opinions on the same issue in the last few months. Whatever internal dissension that exists on the court, as evidenced by the shenanigans over Steward Health and other cases, has now produced a potentially serious legal issue for foreign parties that may be sued in Dallas and contest jurisdiction. The concern is clearly real because the Dallas court of appeals has waded into the issue not once but twice with a notable amount of controversy. Again, we ask: what is going on and why is it going on? We need to find out—in the interest of transparency, impartiality, and due process of law.