Lynn, Pinker, Hurst & Schwegmann on What Constitutes Personal Jurisdiction in Texas Law and How It Can Impact Your Business

By Staff Reporter Sep 23, 2022 02:01 PM EDT

We've all heard the saying, "What happens in Vegas stays in Vegas." It's not a legal precedent, of course. However, on the flip side of the coin: "What doesn't happen in Vegas doesn't stay in Vegas" (or any other locale where the U.S. Constitution applies) is the core precept on which personal jurisdiction rests. As outlined in an August 1, 2022 article from the "Dallas Bar Association Headnotes" by attorneys David Coale and Kyle Gardner of the Dallas-based legal firm Lynn, Pinker, Hurst & Schwegmann, the extent to which the activities related to a disputed business transaction can be reasonably proven to have either taken place in Texas -- or that had a direct, quantifiable impact on Texas residents -- are the key factors that determine whether or not a Texas court can try legal action.

What is Personal Jurisdiction in Texas?

Per Cornell Law School's Legal Information Institute: "Personal jurisdiction refers to the power... a court has to decide for the party being sued in a case. Before a court can exercise power over a party, the U.S. Constitution requires that the party has certain minimum contact with the forum in which the court sits...

"Typically, for a court to have personal jurisdiction over a defendant, the plaintiff needs to serve the defendant in the state in which the court sits, and the defendant needs to voluntarily appear in court."

Should a plaintiff bring legal action against a defendant in Texas, a Texas court has no standing to try the case if the defendant's attorney can prove a lack of personal jurisdiction. Per the legal team at Lynn, Pinker, Hurst & Schwegmann, in such instances, the underlying facts of the case that either go to prove or disprove liability are moot. The issue at hand is simply whether enough of the relevant facts can be shown to have transpired in Texas jurisdiction to merit litigation in a Texas court.

The Takeaway from Two Recent Texas Personal Jurisdiction Verdicts

The Texas-based law firm Danziger & De Llano LLP recently lost its bid to convince the Texas Fifth Circuit Court to take on their case for fraud and breach of contract against the Ohio-based lawyers of Morgan Verkamp LLC, with whom they'd entered into a fee-sharing agreement. The court found the facts of the plaintiff's suit failed to show a measurable connection that established Texas personal jurisdiction.

Danziger & De Llano LLP claimed that according to the agreement, they were owed $2.1 million in fees as their share of $5 million Morgan Verkamp collected as a result of the referred case. However, since all relevant contracts pertaining to the agreement were generated in Ohio, Danziger & De Llano were unable to prove the defendants conducted any meaningful related activities in Texas, and the suit was dismissed.

As reported by Bloomberg News, Judge Stephen A. Higginson wrote in his opinion, "Because none of Morgan Verkamp's allegedly tortious conduct either occurred in Texas or was otherwise meaningfully connected to the state, the district court correctly dismissed Danziger's intentional tort claims for lack of personal jurisdiction."

According to the team at Lynn, Pinker, Hurst & Schwegmann, even though there was communication back and forth between the Ohio and Texas attorneys regarding the fee agreement and case referrals, that alone does not constitute personal jurisdiction in Texas.

"Morgan Verkamp did not perform in Texas and was not required to perform in Texas," Higginson wrote. "Moreover, this alleged contract to split the fees arising from a non-Texas law firm's legal representation of a non-Texas client in a non-Texas case was centered outside of Texas."

Meanwhile, in another Texas decision, the e-commerce suit ShopStyle, Inc. (ShopStyle) and PopSugar, Inc. (PopSugar) v. rewardStyle, Inc. (rewardStyle) - which alleged the defendant had willfully engaged in misappropriation of content, infringement of property rights, and violation of the user agreement among other accusations - an earlier ruling granting Texas personal jurisdiction was subsequently reversed by the Dallas Court of Appeals on several grounds.

Per Lynn, Pinker, Hurst & Schwegmann's Coale and Gardner, the court based its reversal on three main factors:

1. The continuing viability of Zippo Manufacturing Co. v. Zippo Dot Com Inc, on which the original opinion was based, was brought into question.

2. The relevance of the claimed jurisdictional contacts to the substantive claims.

3. The proper weight of business activities conducted by third parties.

With regard to Zippo, the court concluded, "...there needs to be more than the existence of a website (whether interactive or not) to support an inference that the website owner targeted the forum." In addition, the contacts submitted by the plaintiff were found to be "insufficiently related to the operative facts of the case." Finally, the actions of third-party actors, in this case via hyperlinked content, were not relevant to the jurisdiction of the case. The court further concluded, "...only the defendant's contacts with the forum are relevant, not the unilateral activity of another party or third persons."

"These two cases confirm that personal jurisdiction must be based on the acts of the defendant itself, and not merely on those of unrelated parties who have business dealings with the defendant," wrote Coale and Gardner.

How Will Texas Personal Jurisdiction Impact Your Commercial Case?

Whether you've been the victim of fraud, breach of contract, or other legal malfeasance perpetrated by an out-of-state party and are seeking a remedy via the Texas court system, or conversely, should you find yourself having to mount a defense against such an action, having a legal team with extensive expertise in commercial litigation like Lynn, Pinker, Hurst & Schwegmann on your side of the table will ensure the best possible outcome.

It doesn't matter whether you and your brick-and-mortar company conduct business across state lines or if your primary business entity delivers goods and services from a cloud-based site on the world wide web, being prepared to prove or disprove the applicable personal jurisdiction for your commercial claim is part of a winning strategy every client and their counsel should have fully prepared prior to appearing before any judge in the state of Texas.

Just remember: Even when the facts of a case are not in question, but the jurisdiction is, you can still come out as a winner.

About Lynn, Pinker, Hurst & Schwegmann

The motto of Dallas, Texas-based legal firm Lynn, Pinker, Hurst & Schwegmann is: "We are relentless always." Their promise: "We bring focus, experience, and an unrivaled standard of excellence to complex commercial litigation."

Every Lynn, Pinker, Hurst & Schwegmann team member is armed with trial-tested expertise and experience, making their attorneys "among the most effective, efficient, trusted and respected advocates."

The award-winning firm has taken top Dallas-Fort Worth honors in the Chambers and Partners (a recognized leading provider of legal research and analysis) rankings for six years running. The "Best Lawyers in America" tapped 16 Lynn, Pinker, Hurst & Schwegmann attorneys, culled from nine distinct areas of legal practice, for inclusion in the 2023 edition of their publication.

If you have a case involving complex commercial litigation - from antitrust, appellate, or arbitration to bankruptcy, class action, commercial, commercial real estate/construction, cyber security/data privacy, employment, energy, insurance coverage, noncompete, patent, professional liability/ethics, securities, trade secret, trademark, or trusts/estate - contact the attorneys at Lynn, Pinker, Hurst & Schwegmann and find out what their dedicated team can do for you.

Lynn, Pinker, Hurst & Schwegmann

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Dallas, Texas 75201

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