Benxi Northern Steel Pipe Co., Ltd. v. Atlas Tubular, L.P.

NUMBER 13-13-00102-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

BENXI NORTHERN STEEL
PIPE CO., LTD. Appellant,

v.

ATLAS TUBULAR, L.P., ET AL., Appellees.

On appeal from the 214th District Court
of Nueces County, Texas

MEMORANDUM OPINION
Before Justices Rodriguez, Benavides, and Wittig1
Memorandum Opinion by Justice Wittig
Appellant, Benxi Northern Steel Pipe Co., Ltd. (Benxi), brings this accelerated,

1
Retired Fourteenth Court of Appeals Justice Don Wittig assigned to this Court by the Chief
Justice of the Supreme Court of Texas pursuant to the government code. See TEX. GOV'T CODE ANN. §
74.003 (West 2005.)
interlocutory appeal of the trial court's order denying its special appearance. See TEX.

CIV. PRAC. & REM. CODE ANN. § 51.014(a)(7) (West Supp. 2011). The original plaintiff,

Royal Productions Co., Inc. (Royal), appellee, sued Benxi. Royal also joined Atlas

Tubular, L.P., (Atlas), Vass Pipe & Steel Co., Inc., (Vass), Commercial Metals Company

d/b/a Commercial Metals of Corpus Christi, (CMC), Shanghai MinMetals Materials &

Products Corps, (Shanghai), and Womble Company, Inc. (Womble), appellees.

Several of the appellees have cross-claims against Benxi for contribution or indemnity.

By four issues, appellant contends that: (1) the trial court erred as a matter of law in

overruling its special appearance; (2) erred as a matter of law in finding it engaged in

minimum contacts with Texas sufficient to subject it to specific jurisdiction; (3) erred as a

matter of law in finding that it purposefully sought to establish contacts with Texas; and

(4) the trial court’s exercise of jurisdiction offends the traditional notions of fair play and

substantial justice. We affirm.

I. BACKGROUND

Royal is a Texas corporation engaged in the oil and gas industry. It had a

master service agreement to purchase pipe from Atlas. Royal purchased 40,068 feet of

6-5/8” new Benxi pipe from Atlas. Contrary to Benxi’s mill certification that the pipe had

been hydrostatically tested, it was not. Two sections of pipe manufactured by Benxi

suffered a through-wall mill defect, which would have been discovered had the pipe been

tested, or even re-tested as Benxi represented. Evidence suggests no testing was

done by Benxi. According to Benxi, the supply chain originated with Benxi, then

Shanghai, CMC Dallas, Vass, and Atlas, then Royal. Womble applied a pipe coating

before the Vass transfer. While the pipe was purportedly sold to Shanghai FAS (free
2
along side) in Xingang, China (near Benxi’s manufacturing facility) in December 2006,

this was a purely paper transaction. Shanghai never took possession and the pipe was

shipped from China directly to the Port of Houston where CMC took delivery and in turn,

sold the Benxi pipe to Vass, then Atlas, in July 2007. Royal received the pipe in about

August 2007.

Dallas based CMC, a Texas corporation, had several personal contacts with

Benxi at its China plant, and received a Benxi catalog which showed Dallas, Texas as

the sole point of international sales to the United States. The Shanghai corporate

representative testified that Benxi sought additional sales to CMC Dallas. The

purchase orders from Shanghai to Benxi were for CMC Dallas Trading in Irving, Texas,

with delivery called for at the Port of Houston (the arrival port). Benxi did not

manufacture the pipe until it had the CMC order. After the Houston delivery and Royal’s

receipt, the pipe was installed in the Gulf of Mexico off the shore of Alabama. The mill

test certificate, which acts as a “birth certificate” for the pipe, specifically showed CMC as

the consumer and customer and the pipe’s destination as “Houston.”

II. APPLICABLE LAW

To render a binding judgment, a court must have both subject matter jurisdiction

over the controversy and personal jurisdiction over the parties. CSR Ltd. v. Link, 925

S.W.2d 591, 594 (Tex. 1996). Whether a court has personal jurisdiction over a

defendant is determined as a matter of law, which appellate courts review de novo.

BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). When, as

here, a trial court does not issue findings of fact or conclusions of law to support its

special-appearance determination, we presume that all factual disputes were resolved in
3
favor of the trial court's ruling. Id.

Texas courts have personal jurisdiction over a nonresident defendant when: (1)

the Texas long-arm statute provides for it; and (2) the exercise of jurisdiction is

consistent with federal and state due process guarantees. Am. Type Culture

Collection, Inc. v. Coleman, 83 S.W.3d 801, 806 (Tex. 2002). Our long-arm statute

reaches “’as far as the federal constitutional requirements for due process will allow.’”

Id. (quoting Guardian Royal Exch. Assur., Ltd. v. English China Clays, P.L.C., 815

S.W.2d 223, 226 (Tex.1991)). Consequently, the statute's requirements are satisfied if

exercising jurisdiction comports with federal due process limitations. Id.

If a defendant has never invoked the protections that a forum offers its residents,

or has no purposeful contact with it, the forum court's jurisdiction is confined. Spir Star

AG v. Kimich, 310 S.W.3d 868, 872 (Tex. 2010). Personal jurisdiction over nonresident

defendants is constitutional only when: (1) the defendant has established minimum

contacts with the forum state; and (2) the exercise of jurisdiction comports with traditional

notions of fair play and substantial justice. Id. (citing Int'l Shoe Co. v. Washington, 326

U.S. 310, 316 (1945); PHC–Minden, L.P. v. Kimberly–Clark Corp., 235 S.W.3d 163, 167

(Tex. 2007)).

Although the “fair play” and “substantial justice” test is imprecise, its import is

given light when viewed in the context of the “minimum contacts” a defendant has with

the forum. Id. (citing Int'l Shoe, 326 U.S. at 316). Significant contacts suggest that the

defendant has taken advantage of forum-related benefits, while minor ones imply that

the forum itself was beside the point. Id. When a nonresident defendant has

purposefully availed itself of the privilege of conducting business in a foreign jurisdiction,
4
it is both fair and just to subject that defendant to the authority of that forum's courts.

Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1984).

A defendant's contacts with a forum can give rise to either specific or general

jurisdiction. CSR, 925 S.W.2d at 595. General jurisdiction exists when a defendant's

contacts are continuous and systematic, even if the cause of action did not arise from

activities performed in the forum state. Id.

A court has specific jurisdiction over a defendant if its alleged liability arises from

or is related to an activity conducted within the forum. Id. Unlike general jurisdiction,

which requires a “more demanding minimum contacts analysis,” id. at 595, specific

jurisdiction “may be asserted when the defendant's forum contacts are isolated or

sporadic, but the plaintiff's cause of action arises out of those contacts with the state.”

Spir Spar, 310 S.W.3d at 873 (citing Charles Alan Wright & Arthur R. Miller, FEDERAL

PRACTICE & PROCEDURE § 1067.5 (3d ed. 2002). In such cases, “we focus on the

‘relationship among the defendant, the forum[,] and the litigation.’” Moki Mac River

Expeditions v. Drugg, 221 S.W.3d 569, 575–76 (Tex. 2007) (quoting Guardian Royal,

815 S.W.2d at 228). Specific jurisdiction is appropriate when: (1) the defendant's

contacts with the forum state are purposeful, and (2) the cause of action arises from or

relates to the defendant's contacts. See Retamco Operating, Inc. v. Republic Drilling

Co., 278 S.W.3d 333, 338 (Tex. 2009).

The “touchstone of jurisdictional due process [is] ‘purposeful availment.’”

Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 784 (Tex. 2005).

Purposeful availment requires a defendant to seek some “benefit, advantage, or profit by

‘availing’ itself of the jurisdiction.” Id. at 785. Thus, sellers who reach beyond one
5
state and create continuing relationships with residents of another state are subject to

the specific jurisdiction of the latter in suits arising from those activities. Moki Mac, 221

S.W.3d at 575.

Notably, a seller's awareness “‘that the stream of commerce may or will sweep

the product into the forum State does not convert the mere act of placing the product into

the stream into an act purposefully directed toward the forum State.’” CSR, 925 S.W.2d

at 595 (quoting Asahi Metal Indus. Co., Ltd. v. Superior Ct. of Cal., 480 U.S. 102, 107

112 (1987) (plurality op.)). Precedent requires some “additional conduct”—beyond

merely placing the product in the stream of commerce—that indicates “an intent or

purpose to serve the market in the forum State.” Asahi, 480 U.S. at 112; see Moki Mac,

221 S.W.3d at 577; Michiana, 168 S.W.3d at 786.

As the United States Supreme Court stated in World–Wide Volkswagen Corp. v.

Woodson, purposeful availment of local markets may be either direct (through one's own

offices and employees) or indirect (through affiliates or independent distributors):

[I]f the sale of a product of a manufacturer . . . is not simply an isolated
occurrence, but arises from the efforts of the manufacturer . . . to serve
directly or indirectly, the market for its product in other States, it is not
unreasonable to subject it to suit in one of those States if its allegedly
defective merchandise has there been the source of injury to its owner or to
others.

444 U.S. 286, 297 (1980).

There are limitations inherent in this rule. First, it is limited to the specific

jurisdiction context, because stream-of-commerce analysis “is relevant only to the

exercise of specific jurisdiction; it provides no basis for exercising general jurisdiction

over a nonresident defendant.” Purdue Research Found. v. Sanofi–Synthelabo, S.A.,

6
338 F.3d 773, 788 (7th Cir. 2003); accord D'Jamoos ex rel. Estate of Weingeroff v.

Pilatus Aircraft Ltd., 566 F.3d 94, 106 (3rd Cir. 2009); Nuovo Pignone, SpA v.

STORMAN ASIA M/V, 310 F.3d 374, 380 (5th Cir. 2002) (citations omitted).

Second, specific jurisdiction is limited to claims that “arise out of or relate to” a

nonresident's forum contacts. Burger King, 471 U.S. at 472; Retamco, 278 S.W.3d at

338. In such cases, there must be a “substantial connection” between the defendant's

contacts and the operative facts of the litigation. See Moki Mac, 221 S.W.3d at 585.

So when a nonresident's only contacts with Texas involve indirect sales through a

distributor or subsidiary, specific jurisdiction is limited to claims arising out of those sales.

Spir Spar, 310 S.W.3d at 874–75.

Many transactions can be structured to avoid any benefit from or availment of

Texas law—but not all. Spir Spar, 310 S.W.3d at 875. A nonresident manufacturer

does not avoid Texas law merely by forming a Texas affiliate or utilizing a Texas

distributor to sell its products in Texas markets. Id. Just as manufacturers cannot

escape liability for defective products by selling them through a subsidiary or distributor,

neither can they avoid jurisdiction related to such claims by the same means. Id. The

question therefore is whether Benxi has purposefully directed acts towards Texas or

purposefully availed itself of the benefits and protections of Texas law. We conclude

that it has.

When an out-of-state manufacturer like Benxi specifically targets Texas as a

market for its products, that manufacturer may be subject to a product liability suit in

Texas based on a product sold here, even if the sales are conducted through a Texas

7
distributor or other channel.2 See Asahi, 480 U.S. at 112. In such cases, it is not the

actions of the Texas intermediary that count, but the actions of the foreign manufacturer

who markets and distributes the product to profit from the Texas economy. Spir Spar,

310 S.W.3d at 874.

We are mindful that it is the quality and nature of the contacts, rather than their

number (or the number of individual products ultimately shipped to the forum state), that

must be the focus of this analysis. Coleman, 83 S.W.3d at 806; Guardian Royal, 815

S.W.2d at 230 n 11. The record evidence conflicts as to the degree that Benxi

deliberately structured some of its business so that title to its goods transferred at foreign

or other state ports. Nevertheless, it demonstrably knew that the ultimate destination of

its pipes were largely in Texas. Benxi made numerous direct shipments to Texas as

discussed below. The defective pipes in question were specifically destined for a Texas

customer and delivered at the Port of Houston. In order for specific jurisdiction to

attach, there must be a substantial connection between Benxi and Texas resulting from

the action or conduct of the nonresident defendant purposefully directed toward the

forum state. Guardian Royal, 815 S.W.2d at 226.

Benxi’s contacts clearly exceeded the ephemeral contacts resulting from periodic

mailings based solely upon affiliation or membership, which were deemed insufficient in

National Industrial Sand Ass'n v. Gibson, 897 S.W.2d 769, 774 (Tex. 1995). Similarly,

these contacts are more than the single conversation and the purchase of products from

a Texas company found to be insufficient in BMC, 83 S.W.3d at 796. While there is

2
Royal’s claims are not limited to product liability. It also made claims for negligence, deceptive
trade practices, implied warranties, fraud, and fraudulent misrepresentations.
8
evidence that Benxi sometimes sought to structure its transactions to avoid the benefits

and protections of Texas laws, on many other notable occasions it did not, and therefore

we are not precluded from applying the legal fiction of consent. See Coleman, 83

S.W.3d at 808. Further, Benxi’s multiple admissions of direct and systematic contract

with its Texas and US customers stand in direct opposition to its position taken with both

the trial court and on appeal.

III. SPECIFIC JURISDICTION

Benxi and its opposite parties paint two very different pictures regarding specific

jurisdiction. According to Benxi, it dealt only with Shanghai, another Chinese company.

Benxi also claims CMC allegedly dealt only with Shanghai through two sales contracts

dated May 22, 2006 and May 27, 2006, which provided all disputes would be settled by

Chinese law and that the pipe was delivered to a dock in Tianjin, China. CMC’s

purchase orders to Shanghai included delivery terms of FAS in Xingang, China. CMC

hired and paid for the ships that carried the pipe from China to Houston. Further, Benxi

is not a Texas resident, it is organized and registered under Chinese law with its principal

office in China, and it does not maintain a registered agent for service in Texas.

According to Benxi, it has never maintained an office, plant, or warehouse in Texas, has

never owned or leased property in Texas, has never designed or manufactured products

in Texas, has not traveled to Texas, has no mailing address, phone listing or other

property in Texas, and in short, has no nexus to Texas. Benxi does admit “limited sales

of pipe to Texas based companies or foreign based companies” where product was

shipped to Texas between 2006 and 2008, the relevant time period. It admits twelve

sales of pipe to Texas-based companies or foreign-based companies with the product
9
shipped to Texas. Products were not shipped to Texas after 2008 because of

anti-dumping sanctions imposed by the United States Department of Commerce. The

original lawsuit was filed in 2008.

In the anti-dumping case, Benxi submitted information to the United States

International Trade Administration that was quite contrary to its position in this case.

There, it took the following inconsistent positions: (1) The first sale to the United States

was recorded on Benxi’s “accounts received ledger”; (2) Benxi Pipes directly exported all

merchandise sold to the United States during the period in question; (3) Benxi directly

exported all subject merchandise sold to the United States and there were no

intermediate parties involved in its United States sales; (4) Only Benxi was involved in

the production and sale of the merchandise; no subsidiaries or other affiliates were

involved in its sales; (5) All merchandise exported to the United States was produced by

Benxi; (6) The mill test certificate for the first sale was provided; (7) Exhibit 8 provided a

signed purchase order/contract between Benxi and its United States customer; it

illustrates there were no third parties involved in this transaction; and (8) In describing

how Benxi independently set prices, it stated it received inquiries for quotations and it

replied to such inquiries with quoted prices. (Emphasis added). If the price was

acceptable, the two parties completed the transaction and signed the contract. Benxi

provided email documentation to show independent price negotiations. These

admissions by Benxi were later confirmed and sworn to by the Chairman of the Board of

Benxi in his deposition in this case.

U.S. Customs’ documents showed some 140 shipments from Benxi into Texas

during the two years preceding the lawsuit. Benxi admitted in discovery that over
10
twenty-six million pounds of pipe were sold and shipped to Texas. In one year, the

Texas sales comprised about 5.4% of Benxi’s worldwide production. Other discovery

showed twelve purchase orders for more than 15.4 million pounds of pipe to be delivered

directly from Benxi to Sunbelt Group into the Port of Houston. Benxi sold pipe directly

to M.G. Mahar at the Port of Houston. Other documented direct sales from Benxi into

Texas included purchases from QT Trading, Insight Trading, Pipe & Tube Supplies, and

Arcelor. Texas-based CMC alone received some ninety-six shipments of Benxi pipe,

including the two specific orders which contained the defective untested pipe discussed

above.

At the relevant time, Benxi also maintained an interactive English website

available and accessible in Texas.3

The defective pipe in question was ordered through Shanghai specifically to fulfill

the order of CMC Dallas. Benxi sent the pipe to a Chinese port near its manufacturing

facilities in approximately December 2006. CMC loaded the pipe onto a cargo vessel

hired by CMC. The intermediary Shanghai never took possession of the pipe;

Shanghai’s role was purely paper work. The pipe then shipped directly to the Port of

Houston pursuant to CMC’s direction, where Vass in turn took delivery. Vass sold to

Atlas who in turn sold the pipe to Royal about August 2007.

Before Texas-based CMC decided to purchase Benxi pipe, it visited the Benxi

facilities in China on several occasions. Benxi provided a sales catalog to CMC

personnel. Benxi knew CMC was a customer of Shanghai, and hoped CMC would

3
The degree of interactivity, if any, is disputed.

11
purchase more Benxi products.4 Only after its direct contact with Benxi and inspection

of its facilities did CMC order pipe from Benxi. Purchase orders 59159 and 59178 to

Shanghai identify “CMC Dallas Trading” as the customer and listed the billing address in

Irving, Texas. “Houston, Texas, USA” was specifically designated as the discharge

port. The orders required both the Certificates of Origin and Mill Test Certificates,

prepared by Benxi, to state “Commercial Metals Company–CMC Dallas Trading” as the

customer. The contract clearly stated in English (and Mandarin) “CMC Dallas” and

made numerous references to “Houston” as the arrival port. The Benxi corporate

representative, general manager Wang, said Benxi did not care who Shanghai sold to

“unless it is specified in the contract with us.” CMC Dallas was specified in the contract.

In addition to the contract reference to CMC Dallas and delivery to Houston, the

mill certificates issued by Benxi showed the consumer and customer to be Commercial

Metals Company, Dallas Trading Division, and showed Houston as the destination for

the pipe.

CMC revisited Benxi three additional times in the relevant time period and

engaged in direct talks with Benxi about its Texas-bound products.

The mill certificates specifically represented that the pipes in question were

hydrostatically tested and met standards, which representations proved to be false.

Benxi also referred to the certificates as “Quality Assurance Certificates.” After some

earlier failures to properly test and certify its pipe, Benxi represented that the defective

pipe had been re-tested and passed. Before Royal received the defective pipe, CMC

4
The testimony was from the Shanghai corporate representative.

12
suspended its pipe orders with Benxi and resumed purchases only when Benxi assured

CMC that the pipe was re-tested. Expert testimony indicated that the pipe could not

have survived the testing and therefore the purported testing had not taken place. The

defect was a “through-wall mill defect.”

The trial court must often resolve questions of fact before deciding the

jurisdictional question. BMC Software, 83 S.W.3d at 794. In considering the denial of

a motion to dismiss for want of jurisdiction asserted during a special appearance, the

court determines only the issue of jurisdiction, not liability. Kelly v. Gen. Interior Const.,

Inc., 262 S.W.3d 79, 83 (Tex. App.—Houston [14th Dist.] 2008), rev'd in part, 301

S.W.3d 653 (Tex. 2010). Because the trial court did not issue findings of fact or

conclusions of law to support its denial of the special appearance, we presume that all

factual disputes were resolved in favor of the trial court’s ruling. BMC Software, 83

S.W.3d at 794.

The plaintiff bears the initial burden of pleading sufficient allegations to invoke the

jurisdiction of the Texas long-arm statute. Am. Type Culture, 83 S.W.3d at 807. The

nonresident defendant then has the burden of negating all bases of jurisdiction asserted

in the plaintiff's allegations. BMC Software, 83 S.W.3d at 793. The Texas long-arm

statute provides in pertinent part that a non-resident does business in Texas if it

“commits a tort in whole or in part in this state.” TEX. CIV. PRAC. & REM. CODE ANN. §

17.042(2). Royal’s pleadings contain sufficient allegations to invoke Texas jurisdiction.5

In Royal’s active pleading, its Eighth Amended Petition, it asserts Benxi negligently failed

5
Cross-claims against Benxi also invoke Texas jurisdiction.

13
to properly inspect, test, or provide non-defective materials, resulting in significant

damages to Royal. Under the DTPA, it pled defendants misrepresented the

characteristics, uses and benefits of the pipe sold to Royal, breached express and

implied warranties, and its conduct was a producing cause of property damage to Royal.

Royal similarly pled breach of contract, violation of implied warranties of merchantability

and fitness, and product liability by providing defectively manufactured or designed steel

pipe, which was not properly hydrostatically tested, or tested at all, which caused

damages to Royal.

A nonresident establishes minimum contacts with Texas by purposefully availing

itself of the privileges and benefits inherent in conducting business in the state. Moki

Mac, 221 S.W.3d at 575; Control Solutions, Inc. v. Gharda Chem. Ltd., 245 S.W.3d 550,

557 (Tex.App.─Houston [1st Dist.] 2007, no pet.). Benxi’s minimum contacts include

over one hundred sales to Texas customers, and tens of thousands of tons of product

sales including up to nearly 6% of its world-wide production during at least one year of

the relevant period.

Sellers who create “continuing relationships and obligations with citizens of

another state” are subject to jurisdiction based on their activities in the forum state.

Michiana, 168 S.W.3d at 785. Benxi exhibited such relationships with Texas-based

CMC with over ninety sales. Benxi personally met with CMC multiple times at its plant

in China to discuss purchases, sales, quality, testing, and the suspension of CMC

purchases due to lack of testing. Benxi assured CMC and Shanghai that questionable

pipe would be re-tested and quality assured. Benxi conducted ongoing business with

multiple other Texas entities.
14
 Benxi’s contacts included furnishing mill certificates to the specifications of CMC

and following the explicit instructions of purchase orders numbers 59159 and 59178,

naming CMC Dallas as the customer for Benxi’s pipe, and specifying the Port of Houston

as the delivery site. These orders included the actual pipe delivered in Texas to Royal.

In Moki Mac, the supreme court set out three issues in determining whether a defendant

purposefully availed itself of the privilege of conducting activities in Texas:

First, only the defendant's contacts with the forum are relevant, not the
unilateral activity of another party or a third person. Second, the contacts
relied upon must be purposeful rather than random, fortuitous, or
attenuated. Thus, sellers who reach out beyond one state and create
continuing relationships and obligations with citizens of another state are
subject to the jurisdiction of the latter in suits based on their activities.
Finally, the defendant must seek some benefit, advantage or profit by
availing itself of the jurisdiction.

221 S.W.3d at 575 (internal citations and quotations omitted).

While Benxi’s contacts also included some unilateral activity, both its statements

to the United States Department of Commerce and its enumerated activities with CMC

and multiple other Texas-based entities illustrate deliberate and systematic first-party

involvement on its part. Contacts were purposeful and not random, fortuitous, or

attenuated acts, or the unilateral acts of third parties. See Michiana, 168 S.W.3d at

785. A nonresident manufacturer of products need not have offices or employees in the

forum state to meet the purposeful availment test. Id. Benxi fostered its relationship

with CMC Dallas, including multiple in-country personal meetings and over 100

shipments to in state customers. According to the testimony, Benxi specifically sought

increased sales in Texas, promised better quality control, and even assured that it would

be responsible for legal damages for any failed pipe.

15
 Benxi argues that the trial court erred in applying the stream of commerce

doctrine, again citing World-Wide Volkswagen. This is because Benxi contends the

allegedly defective merchandise failed to meet the test that it “has there been the source

of injury to its owner or to others.” See World Wide Volkswagen 444 U.S. at 297. In

other words, Benxi argues the stream of commerce doctrine applies only when the harm

occurs in the forum state. We disagree. First, the trial court need not have applied the

stream of commerce doctrine in order to reach its conclusion that jurisdiction had been

obtained. Second, Benxi caused damages in Texas. And third, unlike the situation in

Moki Mac, 221 S.W.3d at 577, this was not a mere sale of a product to a Texas resident.

Due process requires that a nonresident defendant take action that is purposefully

directed toward the forum state. Id. Benxi did not sell its product in one state and then

end up being sued in a downstream state. Benxi knowingly, intentionally, and actively

marketed its products in Texas. The actual claimed defective and misrepresented pipe

was delivered to Texas customer CMC in Houston. Benxi engaged in multiple other

significant and purposeful availment as already discussed.

Benxi cites a memorandum opinion, Steron v. Yuma Exploration & Production

Co., No. 01-06-00414-CV, 2006 WL 2864478 (Tex. App.—Houston [1st Dist.] Oct. 5,

2006, no pet.) (mem. op.), in support of its position. In this case, Steron was a foreign

manufacturer that sold and shipped a batch of gate valves to a Louisiana company who

resold the valves to another Louisiana company, who in turn shipped one single valve to

a Texas customer. Id. at *1. The valve was later used for a project back in Louisiana

where it caused damage to a customer’s oil well. Id. Suit was filed in Texas. The

Houston court held the stream of commerce doctrine would be relevant to Louisiana
16
process, but not Texas. Id. The only forum alleged to be a source of injury was

Louisiana, and no allegations were made that the valve caused an injury in Texas. Id.

Here, Benxi marketed its products directly to a Texas resident, listed the Texas resident

as the customer, and shipped the products to Houston. Furthermore, in its pleadings,

Royal did not specify Alabama either as the source or sole source of injury. 6 Appellees

Atlas, Vass, CMC, Shanghai, and Womble all allegedly suffered injury from Benxi, and

have potential liability in Texas to Royal. They also correspondingly have

indemnification claims against Benxi in this forum. Damages occurred to Royal in both

jurisdictions.

Royal’s claims of deceptive trade practices, negligence, implied warranties, fraud,

fraudulent misrepresentation, and product liability all occurred in whole or in part in

Texas. Where an individual commits a tort in whole or in part in Texas, he satisfies the

jurisdictional requirements of the Texas long-arm statute. TEX. CIV. PRAC. & REM. CODE

ANN. § 17.042; Ring Power Sys. v. Int'l de Comercio y Consultoria, S.A., 39 S.W.3d 350,

353 (Tex. App.—Houston [14th Dist.] 2001, no pet.). For example, without Benxi’s false

representations of hydrostatic testing found in its Houston delivered mill certificates, the

defective pipes never would have left Texas and the later, extenuated damages to the

offshore pipeline in Alabama would have been averted. The elements of negligence,

deceptive trade practices, implied warranties, and products liability claims were complete

when Royal took delivery of the defective pipe in Texas.

This court has adopted the “substantial connection” standard and has held that

6
Royal suffered injury in Texas, although the more serious later damages to Royal occurred in the
Gulf of Mexico off the shore of Alabama. Royal’s initial claims matured upon receipt of the defective pipe.
The pipe was untested, not as represented, and contained a through-wall mill defect.
17
even a single Texas contact may support the exercise of specific jurisdiction if the suit

arises out of that contact; under this test, a substantial connection must exist between

the contact and the cause of action in the forum state. EMI Music Mexico, S.A. de C.V.

v. Rodriguez, 97 S.W.3d 847, 859 (Tex. App.—Corpus Christi 2003, no pet.). A

“substantial connection” between the nonresident defendant and Texas arises from the

action or conduct of the nonresident defendant purposefully directed toward Texas. Id.

(citations omitted); see also J & J Marine, Inc. v. Le, 982 S.W.2d 918, 923 (Tex.

App.—Corpus Christi 1998, no pet.). This is consistent with the supreme court holding

in Spir Spar, 310 S.W.3d at 874–75 (concluding that there must be a substantial

connection between the defendant’s contract and the operative facts and that similar

products sold would not create a substantial connection). Indeed, Benxi itself also

asserts the substantial connection principle in its argument.

Next, Benxi argues that even if the stream of commerce doctrine applies, Royal’s

claims are not substantially connected to Benxi’s Texas contacts. Benxi claims lack of

substantial connection because Shanghai was an intermediary, even though Benxi knew

Shanghai would sell and ship the pipe to CMC in Texas. It cites CMMC v. Salinas, 929

S.W.2d 435, 439 (Tex. 1996) in support of this argument. Unlike Benxi’s systematic

and significant involvement with Texas, CMMC's wine-producing equipment did not

regularly find its way to Texas. Id. No effort was made to market CMMC's equipment

in Texas, other than by advertisements in magazines with national circulation. Id. The

purchase was an isolated event. Id. “CMMC's mere knowledge that its winepress was

to be sold and used in Texas and its wiring the machine for use in the United States were

not sufficient to subject CMMC to the jurisdiction of Texas courts.” Id. The evidence
18
simply did not show “that CMMC designed products for use in Texas, or that it made any

effort to market them here, or that it took any other action to purposely avail itself of this

market.” Id. “There is no flow of products from CMMC to Texas; there is scarcely a

dribble.” Id. The case at bar is inapposite.

Benxi next cites Exito Electronics., Co., Ltd. v. Trejo, 166 S.W.3d 839, 855 (Tex.

App.—Corpus Christi 2005, no pet.), to support its position. There, we held that there

was “no direct evidence here that Exito–Taiwan's product would be delivered to Texas

retail stores or that it knew Texas consumers would purchase the cords. There is

further no evidence in this case to track the number of Exito–Taiwan's products sold in

Texas or that sales were regularly made by GE Lighting to retailers or consumers in

Texas.” Id. However, we also held that the trial court had general jurisdiction because

the company purposefully availed itself of the privilege of conducting activities in Texas

and could reasonably have anticipated being hailed into a Texas court. Id. (citing

Burger King, 471 U.S. at 475; World-Wide Volkswagen, 444 U.S. at 297).

Here, there is direct evidence that Benxi pipe was delivered to a specific Texas

customer at the Port of Houston. The number of sales was tracked, and sales were

regularly made, including the pipe in question. Benxi certified the pipe for the Texas

customer, specifically named the customer, a Texas port, and made quality assurances

to its Texas customer. Further, as Royal argues, Spir Spar holds that a manufacturer is

subject to specific personal jurisdiction in Texas when it intentionally targets Texas as

the market place for its products and the use of a distributor intermediary provides “no

haven from the jurisdiction of a Texas court.” Spir Spar, 310 S. W. 3d at 871.

Benxi next argues from Moore v. Pulmosan Safety Equip. Corp., 278 S.W.3d 27,
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38 (Tex. App.—Houston [1st Dist.] 2008, pet. denied) (stating that no substantial

connection existed between nonresident defendant’s contacts with Texas and operative

facts for injury caused in Louisiana by product made in New York). The lack of

substantial connection was remarkably demonstrated by the fact that Pulmosan had not

done business in Texas, or elsewhere, since its dissolution in 1986. Id. at 32. The fact

that the product passed through Texas was not an operative fact, and under Moki Mac,

there was no substantial connection. Id. at 38 (citing Moki Mac, 221 S.W.3d at 588

(holding that the relationship between death on hiking trail in Arizona and defendant's

Texas promotional activities was too attenuated to satisfy specific jurisdiction's due

process concerns)).

In Moore, the appellate court was provided with the trial court’s findings of fact

and conclusions of law specifically finding no substantial connection. Id. The trial

court found that although there was purposeful availment, no substantial connection

existed because the plaintiff worked in and used Pulmosan's product in Louisiana. Id.

at 38. All the operative facts occurred in New York or Louisiana. Not so for Benxi.

The operative facts will first center on Benxi’s specific quality assurances made from

China to Texas that the pipe was hydrostatically tested, met specifications, and was for

purchase and use in a Texas-centered oil field application. Benxi specifically

manufactured the pipe for CMC Dallas. The mill test certificates were created by Benxi

and specifically named the Texas customer to be served through the Port of Houston.

Benxi personally met with employees and officers of CMC, Texas residents, Benxi

specifically represented to Shanghai, and by direct statement or inference to CMC,

Royal, and other customers, that the prior testing failures would be corrected.
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 An email dated November 9, 2006 from Shanghai to Benxi, prior to the shipments

in question, noted the quality problems and that “we/Benxi Northern Steel Pipes Co., Ltd.

will assume full responsibility” for the current losses and bear corresponding losses as

well. The email made numerous references to Texas-based CMC and noted CMC

employees’ prior and forthcoming visits to Benxi. Notably, the email states CMC will

inform all clients to retest the “problematic steel pipes.” A partial compensation

payment of $200,000 to CMC was stated to be “the first installment of compensation for

the losses.” Benxi’s claimed improvements were communicated to CMC. Benxi was

told CMC was postponing payment for the 2,500 tons of goods shipped earlier.

Benxi responded by letter dated November 13, 2006. It claimed to have

performed a second pressure test and no quality problems were found. Benxi stated:

“We will be responsible for any quality problems of our products and bear the economic

losses resulting from such quality problems accordingly.” The letter closes: “For your

company and CMC, please do not worry about it!”

Unlike Moore, the elements of Royal’s claims were met when the quality-certified

defective pipe reached Texas and Royal.

Significantly closer in point is the Dallas case of Flanagan v. Royal Body Care,

Inc., 232 S.W.3d 369, 377 (Tex. App.—Dallas 2007, pet. denied). The evidence

showed that RBC's claim for contribution derived from a products-liability case in which

the Wards alleged that Microhydrin, containing Flanagan Microclusters and Crystal

Energy, were inadequately labeled and negligently marketed. Id. The evidence also

showed that Flanagan had to approve all labels and marketing of RBC's products

containing the inventions Flanagan Microclusters and Crystal Energy. Id. It further
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showed that Flanagan purposefully marketed its ingredients in Texas. Id. And a few

months after a business dispute ended the relationship between Flanagan Technologies

and RBC, Flanagan personally met with RBC in Texas to seek its business once again.

Id. The Dallas court concluded the evidence to be legally and factually sufficient to

show that Flanagan's potential liability arose from or related to its contacts with Texas.

Id.

Here, Royal’s claims are also attended by multiple cross-claims for contribution or

indemnity against Benxi. Although it is true that a greater part of Royal’s damages

occurred in the Gulf of Mexico, Benxi's claimed liability directly arose from or relates to its

minimum contacts with the forum state. Moki Mac, 221 S.W.3d at 576.

Finally, Benxi cites Michiana, 168 S.W.3d at 784, where, in a single transaction,

an RV was constructed and equipped outside Texas, was paid for outside Texas, and

was shipped to Texas at the plaintiff’s request and entirely at his expense. The solitary

purchase from the out-of-state dealer was initiated by the plaintiff to get a cheaper price.

Id. at 784. The supreme court held that “[b]ecause Michiana's only contact with Texas

was Holten's decision to place his order from there,” Texas lacked jurisdiction. Id. at

794. The gist of the opinion addresses the lack of purposeful availment. Id. at 786.

The case is not in point because Benxi’s contacts were purposeful and substantial in that

its activity “was aimed at getting extensive business in or from the forum state.” Id. at

789–90.

We conclude that the business interactions between Benxi and appellees were

not random, fortuitous, or attenuated contacts. See Coleman, 83 S.W.3d at 806;

Guardian Royal, 815 S.W.2d at 226. Rather, they were purposeful, substantial,
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systematic, and continuous, such that Benxi “purposefully availed” itself of the privilege

of conducting activities in Texas and could reasonably have anticipated being called into

a Texas court. See Burger King, 471 U.S. at 475; World–Wide Volkswagen, 444 U.S.

at 297. Benxi's claimed liability directly arose from or relates to its minimum contacts

with the forum state. See Moki Mac, 221 S.W.3d at 576. The trial court has specific

jurisdiction over Benxi because its alleged liability arises from or is related to an activity

conducted within the forum. CSR, 925 S.W.2d at 595.

IV. FAIR PLAY AND SUBSTANTIAL JUSTICE

In addition to minimum contacts, due process requires the exercise of personal

jurisdiction to comply with traditional notions of fair play and substantial justice.

Retamco, 278 S.W.3d at 338. If a nonresident has minimum contacts with the forum,

rarely will the exercise of jurisdiction over the nonresident not comport with traditional

notions of fair play and substantial justice. Id. at 341. We undertake this evaluation in

light of the following factors, when appropriate: (1) the burden on the defendant; (2) the

interests of the forum in adjudicating the dispute; (3) the plaintiff's interest in obtaining

convenient and effective relief; (4) the international judicial system's interest in obtaining

the most efficient resolution of controversies; and (5) the shared interest of the several

nations in furthering fundamental substantive social policies. Spir Spar, 310 S.W.3d at

878; Asahi, 480 U.S. at 113.

Benxi asserts it would be unduly burdened if it were required to litigate here. It

contends that it is a completely domestic Chinese company without employees or other

representatives or offices here. Texas and its laws are manifestly unfamiliar to Benxi.

Texas has minimal interest in the dispute where the pipe failed off the Alabama Gulf
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Coast. Royal’s interest will not be prejudiced because other defendants are present

and have not challenged jurisdiction. Benxi’s employees live in China and speak only

Chinese, thus requiring interpreters. Benxi largely structured its business to avoid

liability for sales by consummating most sales in China. And when it did contract with

Texas customers, it often specified that Texas law would not govern. In sum, Benxi

asserts it will be subject to unique burdens.

On balance, asserting personal jurisdiction over Benxi as to the product liability,

misrepresentations, fraud, negligence, and implied warranties claims, and notably

appellees’ cross-claims for contribution or indemnity, would not offend traditional notions

of fair play and substantial justice. See Spir Spar, 310 S.W.3d at 879. Subjecting

Benxi to suit in Texas certainly imposes a burden on it, but the same can be said of all

nonresidents. Distance alone cannot ordinarily defeat jurisdiction. Id. (stating that

distance alone ordinarily is not sufficient to defeat jurisdiction because modern

transportation and communication have made it significantly less burdensome for a party

to defend itself in a State where it engages in economic activity). Particularly given that

Benxi stated in correspondence it would “bear the economic losses” of the pipe defects,

the burden of litigating in Texas is not so severe as to defeat jurisdiction. The burden is

also mitigated by the convenience to the other parties of litigating in the forum where the

alleged misrepresentations and other related conduct were directed. The allegations

that the Benxi committed a tort in Texas against a resident implicates a serious state

interest in adjudicating the dispute. Keeton v. Hustler Magazine, Inc., 465 U.S. 770,

776, (1984) (state has an especial interest in exercising judicial jurisdiction over those

who commit torts within its territory).
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 Texas maintains a world leadership role in the oil and gas industry and has a

heightened interest in the safety and efficacy of oil and gas extraction and delivery. It is

noteworthy that the Chinese company Shanghai did not raise Benxi’s myriad objections

and presumably would be disadvantaged to be subjected to yet another jurisdiction to

finally resolve the claims between itself and Benxi and the Texas pipe purchasers.

Benxi would have one half of the Chinese defendants litigate here and the other half in

China. Thus, the international system would be better served to resolve the claims by

and against Shanghai and against Benxi in the present forum. Not only would Royal

face an undue burden were it forced to litigate its claims against Benxi in China, but

because the claims against the other appellees will be heard in Texas, it would be more

efficient to adjudicate the entire case in the same place. See Retamco, 278 S.W.3d at

341 (“[The plaintiff] has an interest in resolving this controversy in Texas because that is

where the litigation began.”) Benxi’s letter of November 13, 2006 facially appears to

be an agreement to indemnify both Shanghai and CMC. Finally, because these claims

will be litigated with CMC, Atlas, Shanghai, Vass, and Womble in a Texas court, judicial

economy is promoted. Spir Star, 310 S.W.3d at 879). The assertion of jurisdiction

comports with both the interstate and international judicial system's interest in obtaining

the most effective resolution of the controversy and the other nations shared interest in

furthering fundamental substantive social policies.

We conclude that the burden on Benxi of litigating in a foreign jurisdiction is

minimal and outweighed by Texas' interests as well as international interests in

adjudicating the dispute in this single forum. Id. at 879–80.

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 V. CONCLUSION

We overrule Benxi’s issues concerning specific jurisdiction. We need not

address the general jurisdiction issue. See TEX. R. APP. P. 47.1. We affirm the order

of the trial court denying Benxi’s special appearance.

DON WITTIG,
Justice

Delivered and filed the
12th day of December, 2013.

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