Atom Nanoelectronics. Inc. and Kris Smolinski v. Applied Nanofluorescence, LLC

Opinion issued June 9, 2016

In The

Court of Appeals
For The

First District of Texas
————————————
NO. 01-15-00952-CV
———————————
ATOM NANOELECTRONICS, INC. AND KRIS SMOLINSKI, Appellants
V.
APPLIED NANOFLUORESCENCE, LLC, Appellee

On Appeal from County Civil Court at Law No. 2
Harris County, Texas
Trial Court Case No. 1059909

MEMORANDUM OPINION

Applied NanoFluorescence, LLC, filed suit against Atom Nanoelectronics,

Inc. and Kris Smolinski in Harris County, Texas, asserting claims of breach of

contract, unjust enrichment, and fraud in the inducement. Atom and Smolinski filed

special appearances, arguing the court lacked personal jurisdiction over them. The
trial court denied both special appearances, and Atom and Smolinski appealed. In

one issue, they argue the trial court erred by denying their special appearances.

We affirm.

Background

Applied Nano is a company located in Houston, Texas. It was founded by its

president, R. Bruce Weisman. Atom is a company located in California. Smolinski,

Atom’s CEO, also resides in California.

Applied Nano manufactures an instrument known as the “NS3

NanoSpectralyzer system.” In December 2013, Atom contacted Applied Nano,

expressing an interest in the instrument. Atom sent two samples to Applied Nano to

analyze with the instrument. Applied Nano analyzed and returned the samples to

Atom along with the test results.

After receiving the test results, Atom again contacted Applied Nano,

requesting a quote for purchase of the instrument. Applied Nano sent a quote that

offered a discounted price on the instrument, required payment to a Texas bank, and

provided that the instrument would be shipped “FOB Houston.” In response, Atom

contacted Applied Nano to negotiate an even lower price on the instrument. Applied

Nano did not agree.

Smolinski then contacted Applied Nano. Over a series of communications by

telephone and email, Smolinski continued to negotiate the price of the instrument.

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Eventually, the parties reached an agreement on the price. Applied Nano sent a

quote that required an initial payment to be sent to a Texas bank, payment in full

after shipping but before installation, and shipping “FOB Houston.”

Atom then sent a purchase order for the instrument. The purchase order varied

from Applied Nano’s terms, according to an affidavit by Weisman, by making final

payment due “30 days after the system [was] installed and ha[d] been ‘fully

examined.’” Applied Nano rejected this proposed change to the terms of the contract

“because Atom was a new corporation without any established credit history.”

Smolinski sent an email in response to Applied Nano’s rejection. Weisman

averred in his affidavit, “Smolinski responded to my email . . . by email

represent[ing] . . . that despite being a new business, Atom was creditworthy, that it

had already acquired a substantial amount of assets on credit, and that it intended to

pay Applied Nano immediately after the installation of the Instrument.” Smolinski

attached to the email a revised purchase order setting final payment to be due after

the instrument was fully installed and operating. Based on Smolinski’s arguments

and representations, Applied Nano agreed to Smolinski’s revised term for final

payment.

About four months after negotiations began, Atom sent the initial payment to

the Texas bank, and Applied Nano began to manufacture the instrument. While

Applied Nano manufactured the instrument, Atom sent six more samples to Applied

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Nano for testing. Applied Nano analyzed the samples and sent the results to Atom.

Once it was completed, Applied Nano shipped the instrument to Atom. Weisman

flew to California to install the instrument, train the staff, and ensure the instrument

was fully operational. Applied Nano then invoiced Atom for the remaining purchase

price.

Shortly after installation, Atom experienced occasional error messages.

Applied Nano determined that the error was likely caused by electrical interference

from other instruments in the vicinity. To resolve this issue, Applied Nano

ultimately designed and manufactured “an additional custom module for the

Instrument.” Applied Nano sent this module to Atom, and the error were resolved.

Atom did not send the final payment to Applied Nano. Smolinski provided

explanations to Applied Nano for why Atom would not honor his promise that final

payment would be made upon the instrument’s installation and operation. Smolinski

raised a number of objections, including the prices charged on components. Applied

Nano responded to the objections, but Atom and Smolinski still refused to pay.

Applied Nano brought suit against Atom and Smolinski in Houston, Texas.

Applied Nano asserted breach of contract and unjust enrichment claims against

Atom. It asserted a fraud-in-the-inducement claim against both Atom and

Smolinski.

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 Atom and Smolinski filed special appearances, asserting the trial court lacked

personal jurisdiction over them. They attached a verified special appearance to their

special appearances. Smolinski signed the verification, representing that three

paragraphs of the special appearance were true and correct. Those three paragraphs

provide,

2. Atom Nanoelectronics purchased equipment from Applied
Nanofluorescence in April 2014. The negotiations for the purchase
occurred by telephone and electronic mail. The parties have a dispute
as to the suitability of the equipment, which was delivered to Atom
Nanoelectronics in California.

3. Defendant Atom Nanoelectronics is not a resident of the State of
Texas and has no purposeful contacts with this state. Atom
Nanoelectronics is a Delaware corporation with its principal place of
business in Inglewood, California. Atom Nanoelectronics does not do
business in Texas. All business activity between the two companies
occurred by telephone or electronic mail.

4. Defendant Kris Smolinski is not a resident of Texas and has no
purposeful contacts with this state. He is an individual who does not
do business in Texas and has no personal contacts with Applied
Nanofluorescence. He resides in California.

Atom and Smolinski also attached an invoice from Applied Nano to their

special appearance. The invoice does not apply sales tax. Instead, it provides, “Out-

of-state sale, exempt from sales tax.”

The trial court denied both special appearances. Atom and Smolinski initiated

this appeal.

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 Standard of Review

“Whether a court can exercise personal jurisdiction over nonresident

defendants is a question of law, and thus we review de novo the trial court’s

determination of a special appearance.” Kelly v. Gen. Interior Constr., Inc., 301

S.W.3d 653, 657 (Tex. 2010). When a trial court does not issue findings of fact or

conclusions of law, “we presume that all factual disputes were resolved in favor of

the trial court’s ruling.” Aduli v. Aduli, 368 S.W.3d 805, 813 (Tex. App.—Houston

[14th Dist.] 2012, no pet.). “When the appellate record includes the reporter’s and

clerk’s records, these implied findings are not conclusive and may be challenged for

legal and factual sufficiency in the appropriate appellate court.” BMC Software

Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002).

Applicable Law

“A nonresident defendant is subject to the personal jurisdiction of Texas

courts if (1) the Texas long-arm statute authorizes the exercise of jurisdiction, and

(2) the exercise of jurisdiction does not violate federal and state constitutional due

process guarantees.” Kelly, 301 S.W.3d at 657. Texas’s long-arm statute extends a

trial court’s jurisdiction to the scope permitted by the federal constitution’s due

process requirements. Id. Under federal due process, a state can assert personal

jurisdiction over nonresident defendants if they have “established minimum contacts

with the forum state, and the exercise of jurisdiction comports with ‘traditional

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notions of fair play and substantial justice.’” Moki Mac River Expeditions v. Drugg,

221 S.W.3d 569, 575 (Tex. 2007) (quoting Int’l Shoe Co. v. Washington, 326 U.S.

310, 316, 66 S. Ct. 154, 158 (1945)).

A party establishes minimum contacts with the forum state if it purposefully

avails itself of the privileges and benefits of conducting business in a state. Touradji

v. Beach Capital P’ship, L.P., 316 S.W.3d 15, 24 (Tex. App.—Houston [1st Dist.]

2010, no pet.). The scope of the nonresident’s actions that can constitute purposeful

availment varies depending on the type of jurisdiction alleged: general jurisdiction

and specific jurisdiction. See id. at 24–25. Here, only specific jurisdiction is at issue.

Accordingly, we only consider the law as it applies to specific jurisdiction.

A court has specific personal jurisdiction over a nonresident defendant if (1)

the nonresident purposefully directed its activities toward the forum state or

purposefully availed itself of the privileges of conducting activities there and (2) the

controversy arises out of or is related to the non-resident’s contacts with the forum

state. Id. at 24. Such a determination ultimately concerns the relationship among

the nonresident, the forum, and the litigation. Kelly, 301 S.W.3d at 658. Certain

considerations are relevant in this determination. First, only the nonresident’s

actions are relevant to the determination of purposeful availment; unilateral actions

of the plaintiff or of a third party are not relevant. Touradji, 316 S.W.3d at 24. Also,

the actions of the nonresident must be purposeful; random, isolated, or fortuitous

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actions are insufficient. Id. Likewise, the nonresident’s actions must seek some

benefit, advantage, or profit through the purposeful availment so that the nonresident

can be deemed to consent to suit there. Id.

We exclude from our consideration whether the nonresident did, in fact,

commit a tort in Texas. Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d

777, 791 (Tex. 2005). Otherwise, our jurisdictional rule would be “guilty

nonresidents can be sued here, innocent ones cannot.” Id. Instead, it is the alleged

actions (as it pertains to the allegations in the pleadings) and the proven actions (as

it pertains to the evidence presented) of the nonresident that matter, regardless of

whether those actions are tortious. See id.

Analysis

Whether personal jurisdiction exists is determined by the nonresident’s

relationship to the litigation. Kelly, 301 S.W.3d at 658. As a result, personal

jurisdiction is claim specific, meaning the trial court could have personal jurisdiction

over a party for some claims but not for others. See id. at 660; Touradji, 316 S.W.3d

at 25–26. If separate claims are based on the same forum contacts, however, we can

review the claims together. Touradji, 316 S.W.3d at 26.

A. Breach of Contract & Unjust Enrichment

Applied Nano’s breach-of-contract claim and unjust-enrichment claim

invlove the same jurisdictional facts. Applied Nano asserted both claims against

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Atom. In its response to the special appearance, Applied Nano included the affidavit

of Weisman, Applied Nano’s founder and president. In the affidavit, Weisman

averred that Atom initiated contact with Applied Nano about the purchase of the

NS3. Atom sent Applied Nano two samples for testing. Applied Nano conducted

the tests and returned the samples.

Atom contacted Applied Nano again, seeking a quote to purchase the

instrument. Applied Nano sent a quote that offered a discounted price on the

instrument, required payment to a Texas bank, and provided that the instrument

would be shipped “FOB Houston.” Atom then contacted Applied Nano to negotiate

an even lower price on the instrument. Applied Nano did not agree.

Later, Smolinski, Atom’s CEO, called Applied Nano to further negotiate the

price. The parties negotiated over a series of telephone calls and emails and

eventually reached an agreement on the price. Applied Nano sent a quote that

required an initial payment to be sent to a Texas bank, payment in full after shipping

but before installation, and shipping “FOB Houston.”

According to Weisman’s affidavit, Atom responded by sending a “purchase

order that varied the terms of Applied Nano’s quote by stating that the balance would

be paid net 30 days after the system [was] installed and ha[d] been ‘fully examined.’”

Applied Nano rejected this modification “because Atom was a new corporation

without any established credit history.” Weisman averred in his affidavit,

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 Smolinski responded to my email . . . by email represent[ing] . . . that
despite being a new business, Atom was creditworthy, that it had
already acquired a substantial amount of assets on credit, and that it
intended to pay Applied Nano immediately after the installation of the
Instrument. Smolinski attached a revised purchase order to his email
which provided that payment would be made immediately after the
Instrument was fully installed and operating.

Based on these representations, Applied Nano accepted the purchase order.

About four months after negotiations began, Atom sent the initial payment to

the Texas bank, and Applied Nano began to manufacture the instrument. While

Applied Nano manufactured the instrument, Atom sent six more samples to Applied

Nano for testing. Applied Nano performed the analysis on the samples and sent the

results to Atom. Once it was completed, Applied Nano shipped the instrument to

Atom. Weisman flew to California to install the instrument, train the staff, and

ensure the instrument was fully operational. Applied Nano then invoiced Atom for

the remaining portion of the purchase price.

Shortly after installation, Atom experienced occasional error messages.

Applied Nano determined that the error was likely caused by electrical interference

from other instruments in the vicinity. Applied Nano ultimately designed and

manufactured “an additional custom module for the Instrument” to resolve this

problem. Applied Nano sent this module to Atom and the errors were resolved.

The Supreme Court of Texas has held that, while a single contract can satisfy

the purposeful availment standard, it cannot be one that is based on a single contact.

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Michiana, 168 S.W.3d 787. Here, we have repeated communications from Atom to

Applied Nano negotiating the terms of the contract over a four-month period. In

most of the circumstances, Atom initiated the contact, and Atom sought to persuade

Applied Nano to accept changes to its normal pricing and contract terms. See Holk

v. USA Managed Care Org., Inc., 149 S.W.3d 769, 776 (Tex. App.—Austin 2004,

no pet.) (considering repeated contacts from out-of-state defendant to in-state

plaintiff seeking renewal of business as factor in establishing personal jurisdiction).

Atom also shipped multiple samples to Texas for testing at least twice during the

course of the transaction. See Walden v. Fiore, --- U.S. ---, ---, 134 S. Ct. 1115, 1122

(2014) (holding physical presence in state is not prerequisite to personal jurisdiction,

but physical entry into the state by “goods, mail, or some other means” is relevant).

The instrument Atom acquired was shipped from Texas to California, “FOB

Houston.” This indicates that title transferred to Atom in Texas. See Am. Type

Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 807 (Tex. 2002) (holding

FOB—free on board—means title passes at designated FOB point); Command-Aire

Corp. v. Ont. Mech. Sales & Serv. Inc., 963 F.2d 90, 94 (5th Cir. 1992) (considering

state where title transferred as personal jurisdiction factor). The production of the

instrument—the subject of the alleged contract—occurred in Texas. See id.

(considering place where contract is to be performed as personal-jurisdiction factor,

though noting that defendant’s lack of control of location diminishes weight of

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evidence). Atom sent its initial payment to a Texas bank, and the remaining payment

was required to be sent to Texas. See J.D. Fields & Co. v. W.H. Streit, Inc., 21

S.W.3d 599, 605 (Tex. App.—Houston [1st Dist.] 2000, no pet.) (considering

payments to Texas bank as personal jurisdiction factor, though noting that payment

to Texas alone was insufficient).

In Fields, the Texas plaintiff contacted the New Jersey defendants (via the

plaintiff’s Pennsylvania office) by fax with a price list. Id. at 601. The defendant

sent a purchase order to Pennsylvania. Id. The plaintiff declined to extend credit to

the defendant based on a credit check. Id. The guarantor called the plaintiff in Texas

and offered to personally guarantee the debt. Id. We held that “the most critical fact

in this case . . . is that defendant guarantor telephoned plaintiff’s Houston office with

an offer to personally guarantee the defendant company’s indebtedness in order to

induce plaintiff to contract with defendant company.” Id. at 604.

Here, Smolinski did not personally guarantee the debt. He did, however,

contact Applied Nano and make representations assuring payment in order to induce

Applied Nano to contract with Atom. We conclude this is significant. See id.

In contrast to this evidence, Smolinski filed a verification of his and Atom’s

special appearance, specifying that the facts asserted in three paragraphs of the

document were true and correct. Sworn pleadings do not count as evidence,

however. See Laidlaw Waste Sys. (Dall.), Inc. v. City of Wilmer, 904 S.W.2d 656,

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660 (Tex. 1995) (“Generally, pleadings are not competent evidence, even if sworn

or verified.”); CMC Steel Fabricators, Inc. v. Red Bay Constructors, Inc., No. 14-

13-00084-CV, 2014 WL 953351, at *8 (Tex. App.—Houston [14th Dist.] Mar. 11,

2014, no pet.) (mem. op.) (applying Laidlaw and rejecting consideration of sworn

special appearance as evidence). Moreover, the paragraphs Smolenski verified as

true contained only conclusory allegations that neither he nor Atom do business in

Texas or have any “purposeful contacts with this state.” See Burke v. Satterfield,

525 S.W.2d 950, 955 (Tex. 1975) (“[A]n affidavit is insufficient unless the

allegations therein are direct and unequivocal and perjury can be assigned upon it.”);

Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984) (holding affidavit must set

forth facts that would be admissible in evidence, not simply assert legal conclusions).

Atom also attached an invoice from Applied Nano to its special appearance.

Atom points out that the invoice stated, “Out-of-state sale, exempt from sales tax.”

Atom argues, “This provision is an admission that the sale was not consummated at

a location in Texas.” For authority, Atom relies on a provision of title 34 of the

Texas Administrative Code concerning how to apply local sales taxes to in-state

sales. See TEX. ADMIN. CODE § 3.334(g)(1), (h). The rule provides that a seller “is

required to collect and remit local use taxes due, if any, on orders of taxable items

shipped or delivered at the direction of the purchaser into a local taxing jurisdiction

in this state.” Id. § 33.334(g)(2) (emphasis added). Because the instrument was

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delivered out of state—a fact not in dispute here—the provision upon which Atom

relies does not apply.1

Applied Nano presented detailed evidence of Atom’s connections to Texas.

Atom presented no evidence to refute Applied Nano’s evidence. We hold there is

sufficient evidence to support the trial court’s implied jurisdictional findings for

Applied Nano’s breach of contract and unjust enrichment actions.

B. Fraud in the Inducement

Applied Nano asserted its fraud in the inducement claim against Atom and

Smolinski. In its petition, Applied Nano asserted that Atom and Smolinski made

material misrepresentations to induce Applied Nano into entering into a contract for

production of the instrument. Specifically, Applied Nano asserted that Atom and

Smolinski’s “representations that Atom intended to perform its agreement to pay the

balance of the purchase price for the Instrument after installation of the Instrument”

was material and false.

Most of the jurisdictional facts we have relied on for Applied Nano’s breach

of contract action took place during the formation of the alleged contract.

Accordingly, these facts are also relevant to Applied Nano’s fraud in the inducement

claims against Atom. See Touradji, 316 S.W.3d at 26 (holding separate

1
Accordingly, we do not need to reach what impact, if any, Texas tax law has on
personal jurisdiction determinations.

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jurisdictional analysis is not required for separate claims based on same forum

contacts).

For Smolinski, Weisman averred in his affidavit that Smolinski contacted

Applied Nano each time Applied Nano rejected a requested modification to the

proposed contract. First, when Applied Nano rejected Atom’s request for further

reductions on the price of the instrument, Smolinksi made repeated contacts with

Applied Nano to negotiate the price terms. Eventually, Applied Nano acceded to

Smolinski’s arguments.

Second, when Applied Nano rejected Atom’s request to make the final

payment after installation and inspection,

Smolinski responded to [Weisman’s] email and Applied Nano’s
rejection of the purchase order in which he represented to Applied Nano
that[,] despite being a new business, Atom was creditworthy, that it had
already acquired a substantial amount of assets on credit, and that it
intended to pay Applied Nano immediately after the installation of the
Instrument. Smolinski attached a revised purchase order to his email
which provided that payment would be made immediately after the
Instrument was fully installed and operating.

Relying on Smolinki’s representations, Applied Nano agreed to proceed with

production of the instrument.

Weisman further averred that Smolinski provided explanations to Applied

Nano for why Atom would not honor his promise that final payment would be made

upon the instrument’s installation and operation. Smolinski raised a number of

15
objections, including the prices charged on components. Weisman alleged that he

rebutted each of the allegations, but Atom and Smolinski still refused to pay.

Each time negotiations between Atom and Applied Nano stalled, Smolinski

contacted Applied Nano to further negotiate for Atom. See Holk, 149 S.W.3d at 776

(considering repeated contacts from out-of-state defendant to in-state plaintiff

seeking renewal of business as factor in determining personal jurisdiction).

Smolinski promised that Atom would pay upon installation and operation of the

instrument and sent the revised purchase order to reflect this being part of the terms

of the contract. See Fields, 21 S.W.3d at 604 (considering making personal

representations to induce other party to agree to contract as factor in determining

personal jurisdiction). Smolinski’s representations and arguments sought to induce

a contract that would largely be performed in Texas. See Command-Aire, 963 F.2d

at 94 (considering place where contract is to be performed as personal-jurisdiction

factor, though noting that defendant’s lack of control of location diminishes weight

of evidence).

Atom and Smolinski did not present any evidence to rebut or diminish Applied

Nano’s jurisdictional evidence. We hold there is sufficient evidence to support the

trial court’s implied jurisdictional findings for Applied Nano’s fraud in the

inducement claims against Atom and Smolinski. We overrule Atom and Smolinski’s

sole issue.

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 Conclusion

We affirm the trial court’s order denying Atom’s and Smolinski’s special

appearances.

Laura Carter Higley
Justice

Panel consists of Justices Higley, Bland, and Massengale.

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