Can the underlying assets of a foreign joint venture suffice to create specific jurisdiction in Texas?

According to the Fourth District Court of Appeals, the answer is yes.  In Rattner v. Contos and The Contos Family Trust, the court held that Texas real estate assets were sufficient to create specific jurisdiction over two California residents who had entered into a business relationship in California.

Rattner claimed that he and Contos entered into an oral agreement to acquire and sell real estate principally in Texas with Rattner finding the properties and Contos providing the financing.  Rattner and Contos were both California residents and the alleged joint venture was formed in California.  After at least 3 properties were acquired, Rattner became concerned about the relationship and sued for an accounting, dissolution, and distribution of assets in a Texas court.  Contos filed a special appearance disputing personal jurisdiction.

The Court began by noting that in order to meet constitutional due process requirements in exercising jurisdiction, a court must find that “the nonresident defendant has purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws,” and “the court’s assertion of jurisdiction meets ‘traditional notions of fair play and substantial justice.'”

The Court then noted there was no argument for general jurisdiction and focused its discussion on whether or not specific jurisdiction existed.  Specific jurisdiction arises when “(1) the defendant purposefully avails itself of conducting activities in the forum state, and (2) the cause of action arises from or is related to those contacts or activities.”

To find that a nonresident defendant purposefully availed itself of the forum state, only the defendant’s contacts with the forum are relevant, the contacts must be purposeful rather than random, fortuitous, or attenuated, and the defendant must seek some benefit, advantage or profit by availing itself of the jurisdiction.  The Court found that Contos and the Contos Family Trust met the purposeful-availment standard.  Contos willingly traveled in and out of Texas over nine months, property was purchased in three Texas counties.  By owning real property, The Contos Family Trust has created a continuing relationship with Texas that allowed them benefits and protections under Texas law.

The Court then turned to the second element of specific jurisdiction to determine whether “the defendant’s liability arises from or is related to the forum contacts.”  Contos made a strong argument that the litigation did not involve the actual real property in Texas regarding its ownership or title but was simply a suit for money damages between two California residents over a claimed business relationship formed in California.  Put another way, Contos agreed jurisdiction was appropriate if the suit disputed ownership to any of the properties but argued that the dispute was over the nature and status of the business relationship which was alleged formed in California, between two Californians.

The Court disagreed and first noted that the purpose of the business relationship was to purchase and sell Texas real estate, then held that, “Contos’ alleged liability, if any, stems from or is substantially connected to his purchase of the property and how that property has been held, managed, developed, and/or sold since its purchase.  Accordingly, the property is not only a claimed asset, but is also the very subject matter of the claimed business relationship.”

David B. Willis

David B. Willis

Bryan Willis is a Tyler lawyer providing legal services across Texas in the areas of business law, litigation, probate, and estate planning.
David B. Willis

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