In Int’l Energy Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 2015 U.S. App. LEXIS 14773 (5th Cir. Aug. 21, 2015), the Fifth Circuit held, inter alia, that an agreement to arbitrate in a forum does not constitute consent to personal jurisdiction to adjudicate other claims in that forum.
Plaintiff International Energy Ventures Management, L.L.C. (“IEVM”) filed an action against Defendants United Energy Group, Limited (“UEG”) and Sean Mueller (“Mueller”) in Texas state court, alleging causes of action for breach of contract, promissory estoppel, quantum meruit, and fraud. UEG removed the action to federal court in the Southern District of Texas. The district court dismissed the action entirely for, inter alia, failure to state a claim against Mueller and lack of personal jurisdiction over UEG. IEVM appealed the dismissal to the Fifth Circuit, which affirmed the district court’s dismissal of the action against Mueller but reversed the dismissal of UEG.
IEVM (a Texan company) and UEG (a Hong Kong oil and gas company) signed a compensation agreement with the assistance of Mueller (a Texas resident), which stated that IEVM would consult UEG for the acquisition of British Petroleum’s Pakistani subsidiaries that owned oil and gas fields in Pakistan (the “BP deal”). UEG subsequently agreed, not in writing and separate from the existing compensation agreement, to pay IEVM and Mueller for past consulting services (the “oral agreement”). UEG later signed an agreement titled “Indemnity and Release Agreement” (“IRA”), which acknowledged that UEG did not pay IEVM for past services and that IEVM was to be paid following closing of the BP deal. The IRA provided that it was a supplement to the oral agreement, that the IRA would be governed by Texas law, and that any controversies would be settled by arbitration in Houston, Texas. UEG paid IEVM for the subsequent work performed, but never paid the past due fees.
The district court had refused to remand the case to state court, despite the fact that both Plaintiff IEVM and Defendant Mueller were Texas citizens, because it found the joinder of Mueller to the lawsuit was improper and done solely for the purpose of defeating diversity jurisdiction. Applying the Texas fair notice pleading standards, the Fifth Circuit affirmed, holding that IEVM had failed to state any valid claim against Mueller, and thus the joinder was improper and remand to state court was not required.
The district court also concluded that it lacked personal jurisdiction over UEG, finding that the IRA was not a supplement to the original agreement so as to render the arbitration clause inapplicable to the original, unwritten agreement. IEVM, on appeal, asserted that (1) the IRA, as a supplemental agreement, extended to the original unwritten agreement, and therefore, its arbitration provision signifies implied consent to jurisdiction in Texas for any cause of action related to the original, unwritten agreement; and (2) UEG had sufficient contacts with the forum and that personal jurisdiction over UEG would comport with traditional notions of fair play and substantial justice.
The Fifth Circuit first considered whether the arbitration clause of the IRA applied to the parties’ original unwritten agreement and, if so, whether it conferred personal jurisdiction over UEG. The court held that, even assuming the plain language of the IRA indicates it is a supplement to the original, unwritten agreement, the arbitration provision does not demonstrate implied consent. When a party agrees to arbitrate in a particular state, via explicit or implicit consent, the district courts of the agreed upon state may exercise personal jurisdiction over the parties only for the limited purpose of compelling arbitration. Thus, UEG’s agreement to arbitrate in Texas did not constitute consent to the personal jurisdiction of Texas courts to adjudicate its claims in the first instance.
Nevertheless, the court agreed with IEVM’s second contention, that UEG had sufficient contacts with Texas and that personal jurisdiction over UEG would comport with traditional notions of fair play and substantial justice. Because the Texas long-arm statute extends as far as constitutional due process permits, the court next considered whether this suit in Texas is consistent with the Due Process Clause of the Fourteenth Amendment.
In the Fifth Circuit, specific jurisdiction requires Plaintiff to make a prima facie showing that: (1) there are sufficient (not random, fortuitous, or attenuated) pre-litigation connections between the non-resident defendant and the forum; (2) the connection has been purposefully established by the defendant; and (3) the plaintiff’s cause of action arises out of or is related to the defendant’s contacts. Once Plaintiff makes that showing, Defendant can then defeat the exercise of specific jurisdiction by showing (4) that it would fail the fairness test, i.e., that the balance of interest factors show that the exercise of jurisdiction would be unreasonable.
In its analysis, the court pointed to the following connections to Texas: UEG’s letter of interest, negotiation with, and bid sent to British Petroleum’s Houston office (the hub of the BP deal); UEG’s retention of Mueller, a Texas resident, as one of its two principal contacts on the BP deal; UEG’s contract with Texas-based IEVM and payment sent to Texas; UEG’s contracts with Houston consultants, attorneys, and accountants for the BP deal; and finally, UEG’s CFO signed the deal in Houston and attended a dinner celebration there. Based on these facts, the court admitted “the question of whether these contacts meet the plaintiff’s prima facie burden of showing specific personal jurisdiction is a close call.”
Ultimately, however, the record established that it was foreseeable by UEG that IEVM’s consulting work would be in Texas, given that Texas was the hub of the BP deal. Therefore, because the unifying theme for IEVM’s causes of action was the allegation that UEG never paid IEVM for its initial consultancy, the court held that IEVM met its prima facie burden of establishing that its causes of action relate to UEG’s contacts with Texas. Further, the court rejected UEG’s assertions that litigation in Texas would be unfair because UEG did not have a significant presence, an office, or employees in Texas, and that Hong Kong would be the more appropriate forum. The court recognized that many non-resident defendants would have no office in Texas, and would likely contend that the more convenient place for litigation would be outside of Texas. The court concluded that, without more, UEG’s contentions did not rebut IEVM’s showing.
Thus, the court reversed the dismissal of UEG because the district court possessed specific personal jurisdiction over UEG, and affirmed the dismissal of Mueller for failure to state a claim.
A version of this post originally appeared in the November 2015 edition of Baker & McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.
