the Paul Gillrie Institute, Inc., Paul Gillrie, and John Darmento v. Universal Computer Consulting, Ltd. and Dealer Computer Services, Inc.

Opinion issued December 8, 2005

In The

Court of Appeals

For The

First District of Texas

NO. 01-04-01213-CV

__________

THE PAUL GILLRIE INSTITUTE, INC., PAUL GILLRIE, AND JOHN

DARMENTO, Appellant s

V.

UNIVERSAL COMPUTER CONSULTING, LTD. AND DEALER

COMPUTER SERVICES, INC., Appellees

On Appeal from the 113th District Court

Harris County, Texas

Trial Court Cause No. 2004-50577

O P I N I O N

In this libel suit, appellants, the Paul Gillrie Institute, Inc. (“PGI”), Paul Gillrie,

and John Darmento bring this accelerated interlocutory appeal challenging the trial

court’s order denying their special appearance.

In their sole issue, appellants

contend that the trial court erred in determining that they were subject to the personal

jurisdiction of a Texas court. We affirm.

Factual and Procedural Background

Appellees, Universal Computer Consulting, Ltd. and Dealer Computer

Services, Inc. (collectively, “UCS”), are affiliated companies that provide computer

systems to automobile dealerships across the United States. PGI is described as

“North America’s leading consultant and advocate for automobile dealers in their

quest to reduce technology expense in their dealerships.” Gillrie is the founder of

PGI, and both Gillrie and Darmento are directors and employees of PGI. PGI serves

a “diverse client base of dealers, CPA firms and attorneys throughout the United

States and Canada,” and publishes a trade publication titled “the Journal of

Dealership Computing,” six times a year. In its June 2004 journal, which was edited

by Darmento, PGI published an article revealing the results of a survey comparing

vendors of car-dealership computer systems. The article stated that although “UCS

received the highest ratings as each one of their products was scored,” UCS received

the lowest scores when customers were asked “to rate the company as a whole.” The

article characterized the results of the survey to indicate that customers liked UCS’s

products but did not like the company. The journal also contained a headline that

stated, in bold, “Survey Shows UCS Clients Want to Leave.” Under this headline, the

article asserted that 71% of UCS’s customers, if they had the choice, would not sign

up with UCS again, and that, as a whole, more UCS customers were dissatisfied with

their computer vendor than customers of any other vendor. Finally, the journal

contained several graphs illustrating that UCS received the highest marks in

numerous categories, but received the lowest “overall rating” among the rated

computer vendors.

Robert Nalley, president of UCS, testified that, in the summer of 2004, he was

contacted by Dan Chernault, vice president and chief financial officer of Russell

Smith Ford (“Russell Smith”), a UCS customer located in Harris County, Texas.

Chernault notified him of the articles contained in PGI’s June 2004 journal. Nalley

reviewed the journal and concluded that the statements contained in the journal were

defamatory and damaging to UCS’s reputation. Nalley stated that he interpreted the

article to represent that it was based on a fair, impartial, and scientifically valid

survey.

UCS also presented the affidavit testimony of Chernault, who stated that he is

the vice president and chief financial officer of Russell Smith , located in Houston,

Texas, he received a copy of PGI’s June 2004 journal, he regarded the statements in

the journal to be damaging to UCS’s reputation and derogatory toward UCS, and the

article caused him concern about UCS’s services. Chernault also stated that he

interpreted the article to represent that it was based on a fair, impartial, and

scientifically valid survey.

In September 2004, UCS filed suit against appellants for libel, libel per se,

business disparagement, tortious interference with existing contracts, and tortious

interference with prospective contractual relationships. In its petition, UCS alleged

that the article contained in PGI’s June 2004 journal was a sham, as evidenced by

PGI’s refusal to reveal the data upon which the article was based. UCS further

alleged that the sham study was motivated by the fact that UCS had recently

discredited and embarrassed Gillrie when it pursued a Daubert

motion against him

in unrelated litigation. UCS brought suit against PGI, and against Gillrie and

Darmento individually, alleging that they drafted and edited the articles at issue.

Appellants filed a special appearance

and an answer, subject to their special

appearance, generally denying UCS’s allegations.

The relevant facts are largely undisputed. UCS maintains its corporate

headquarters and principal place of business in Harris County, Texas. PGI is a

Florida corporation; it does not maintain an office in Texas, does not have a

registered agent for service of process in Texas, does not have any employees or

operations located in Texas, and does not routinely send employees to Texas or

recruit employees from Texas. However, PGI employees occasionally make and

receive telephone calls from prospective clients in Texas. PGI’s journal is “written,

compiled, and published in Florida,” and is sent to Texas through the United States

mail. PGI has approximately eighteen active subscribers and thirty non-paying

subscribers who are located in Texas and who receive the journal.

At least two of

the Texas-based paid subscribers are current customers of UCS.

Darmento, the editor of the PGI journal at issue, testified that he is a resident

of Florida and that he has not been to Texas since 1990. Darmento also testified that

Gillrie is a resident of Florida, that Gillrie traveled to Galveston, Texas in June 2004

to speak at a seminar on behalf of PGI, and that Gillrie travels to Texas once a year

for similar seminars.

Standard of Review

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

a nonresident defendant within the provisions of the long-arm statute. BMC Software

Belgium, N.V. v. Marchand , 83 S.W.3d 789, 793 (Tex. 2002). The burden of proof

then shifts to the nonresident to negate all possible grounds for personal jurisdiction.

Kawasaki Steel Corp. v. Middleton , 699 S.W.2d 199, 203 (Tex. 1985). The existence

of personal jurisdiction is a question of law, which must sometimes be preceded by

the resolution of underlying factual disputes. Preussag Aktiengesellschaft v.

Coleman , 16 S.W.3d 110, 113 (Tex. App.—Houston [1st Dist.] 2000, pet. dism’d

w.o.j.) . When the underlying facts are undisputed or otherwise established, we

review a trial court’s denial of a special appearance de novo. Id . Where a trial court

does not issue findings of fact or conclusions of law with its special appearance

ruling, all fact findings necessary to support the judgment and supported by the

evidence are implied . BMC Software Belgium, N.V. , 83 S.W.3d at 79 .

Discussion

In their sole issue, appellants argue that the trial court erred in determining that

they are subject to the personal jurisdiction of a Texas court because (1) they have no

significant contacts with Texas; (2) they do not have continuous and systematic

contacts with Texas and cannot be subject to the general jurisdiction of a Texas court;

(3) the “fiduciary shield” doctrine protects Gillrie and Darmento from the general

jurisdiction of a Texas court; (4) they are not subject to the specific jurisdiction of a

Texas court; and (5) the exercise of jurisdiction over them would violate traditional

notions of fair play and substantial justice.

A court may assert personal jurisdiction over a nonresident defendant only if the

requirements of both the Fourteenth Amendment’s due process clause and the Texas

long-arm statute are satisfied. See U.S. Const . amend. XIV, § 1 ; Tex. Civ. Prac. &

Rem. Code Ann. § 17.042 ( Vernon 1997) ; CSR Ltd. v. Link , 925 S.W.2d 591, 594

(Tex. 1996) (orig. proceeding). The Texas long-arm statute allows a court to exercise

personal jurisdiction over a nonresident defendant who does business in Texas. Tex.

Civ. Prac. & Rem. Code Ann . § 17.042. A nonresident “does business” in Texas if

he, among other things, “commits a tort in whole or in part” in Texas. Id .

The Texas

Supreme Court has repeatedly interpreted this statutory language “to reach as far as

the federal constitutional requirements of due process will allow.” CSR Ltd. , 925

S.W.2d at 594 (citations omitted). Therefore, the requirements of the Texas long-arm

statute are satisfied if the exercise of personal jurisdiction comports with federal due

process limitations. Id .

The United States Constitution permits a state to assert personal jurisdiction

over a nonresident defendant only if the defendant has some minimum, purposeful

contacts with the state and if the exercise of jurisdiction will not offend traditional

notions of fair play and substantial justice. Dawson-Austin v. Austin , 968 S.W.2d 319,

326 (Tex. 1998). A nonresident who has purposefully availed himself of the

privileges and benefits of conducting business in the state has sufficient contacts with

the state to confer personal jurisdiction. CSR Ltd. , 925 S.W.2d at 594 .

The “purposeful availment” requirement has recently been characterized by the

Texas Supreme Court as the “touchstone of jurisdictional due process.” Michiana

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

the Texas Supreme Court articulated three important aspects of the purposeful

availment inquiry. Id . at 785. First, only the defendant’s contacts with the forum

count. Id . This ensures that a defendant is not haled into a jurisdiction solely by the

unilateral activities of a third party. Id . (citing Burger King Corp. v. Rudzewicz , 471

U.S. 462, 475 , 105 S. Ct. 2174, 2183 (1985)). Second, the acts relied on must be

purposeful; a defendant may not be haled into a jurisdiction solely based on contacts

that are “random, isolated, or fortuitous.” Id . ( citing Keeton v. Hustler Magazine, Inc. ,

465 U.S. 770, 774 , 104 S. Ct. 1473, 1478 (1984)). Third, a defendant “must seek

some benefit, advantage, or profit by ‘availing’ itself of the jurisdiction ” because

“[j]urisdiction is premised on notions of implied consent—that by invoking the

be nefits and protections of a forum’s laws, a nonresident consents to suit there .” Id.

( citing World-Wide Volkswagen Corp. v. Woodson , 444 U.S. 286, 297 , 100 S. Ct. 559,

567 (1980)).

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

jurisdiction. Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C. ,

815 S.W.2d 223, 227 (Tex. 1991). UCS concedes that this case is one of specific

jurisdiction.

Specific jurisdiction is established if a defendant’s alleged liability arises

from or is related to an activity conducted within the forum. Id . When specific

jurisdiction is asserted, the minimum contacts analysis focuses on the relationship

between the defendant, the forum, and the litigation. Id. at 228 . The exercise of

personal jurisdiction is proper when the contacts proximately result from actions of

the nonresident defendant that create a substantial connection with the forum state.

Id . at 226. The substantial connection between the nonresident defendant and the

forum state necessary for a finding of minimum contacts must come about by action

or by conduct of the nonresident defendant purposefully directed toward the forum

state. Id .

Although it is not determinative, foreseeability is an important consideration in

deciding whether the nonresident has purposefully established minimum contacts with

the forum state. Id . at 227. The concept of foreseeability is implicit in the requirement

that there be a substantial connection between the nonresident defendant and Texas

arising from actions or conduct of the nonresident defendant purposefully directed

toward Texas. Id .

Minimum Contacts

In the instant case, PGI published an article that allegedly defamed UCS, a

corporation with its headquarters and principal place of business in Harris County,

Texas; PGI mailed this journal to subscribers across the country, including

approximately fifty subscribers located in Texas. Eighteen of the Texas subscribers

were paid subscribers, while the other thirty Texas subscribers were non-paid. At least

two of the Texas-based paid subscribers are customers of UCS, and at least one of

UCS’s current and long-time customers, located in Houston, contacted UCS after

receiving the article and expressed concern about UCS’s services . Furthermore, the

article was contained in a trade journal targeted at those involved in or related to the

automobile industry, and all of the subscribers, including those located both inside and

outside of Texas, could have been considered as potential customers or industry

contacts.

We find the facts in this case to be comparable to those in Calder v. Jones , 465

U.S. 783 , 104 S. Ct. 1482 (1984), and Keeton , 465 U.S. 770 , 104 S. Ct. 1473 . In

Calder , an entertainer residing in California brought suit in California against a

nationally distributed magazine with a “large circulation,” as well as the author and

editor of an allegedly defamatory article published in that magazine. Id ., 465 U.S. at

785–86, 104 S. Ct. at 1484–85. The author and editor, both residents of Florida,

objected to the jurisdiction of the California court. Id . The record established that

approximately 600,000 copies of the magazine were circulated in California, out of a

total circulation of 5 million. Id ., 465 U.S. at 785, 104 S. Ct. at 1484. Finding that

“the allegedly libelous story concerned the California activities of a California

resident” and that California was “the focal point both of the story and the harm

suffered,” the Supreme Court held that jurisdiction over the editor and author in

California was proper “based on the effects of their Florida conduct in California.”

Id ., 465 U.S. at 788–89, 104 S. Ct. at 1486–87. In support of its holding, the Supreme

Court noted that the defendants wrote and edited an article that they knew would have

a potentially devastating impact upon the entertainer in California, and that the

defendants should “reasonably anticipate” being haled into court in California. Id .,

465 U.S. at 789–90, 104 S. Ct. at 1487. Similarly, in Keeton , a resident of New York

brought suit for libel in New Hampshire against a magazine with its principal place

of business in California for publishing allegedly defamatory statements. Id. , 465 U.S.

at 772, 104 S. Ct. at 1477. Noting that the regular monthly sales of thousands of

magazines in New Hampshire could not be characterized as “random, isolated, or

fortuitous,” the Supreme Court held that such circulation in the forum state was

sufficient to support an assertion of jurisdiction in a libel action based on the contents

of the magazine. Id. , 465 U.S. at 773–74, 104 S. Ct. at 1478.

Appellants argue that Calder is inapplicable because the alleged defamation

“has absolutely no connection to the State of Texas,” the journal does not specifically

mention the State of Texas, there was no evidence to show that UCS’s operations were

centered in Texas, and there was no evidence that the journal was aimed at Texas or

widely circulated in Texas. Here, however, PGI’s allegedly defamatory statements

were contained in its trade journal that it sent to approximately fifty customers located

in Texas. Moreover, the allegedly defamatory statements concerned UCS, a

corporation with its headquarters and principal place of business in Texas.

In regard to appellants’ attempts to distinguish Keeton , we recongize that the

circulation of the magazine in Keeton was much more substantial than the circulation

of the PGI journal. More importantly, however, the PGI journal is a trade publication

with a limited audience targeted to a specific industry, and it is neither surprising nor

determinative that the PGI journal has a more limited circulation than that of a

nationwide magazine marketed to the general populace.

We also note that the record

is void of any evidence related to the number of subscribers to the PGI journal, the

location of these subscribers, the percentage of subscribers who reside in Texas versus

those who reside in other states, the location of the subscribers who responded to the

survey and provided the underlying data for the survey, and the exact number of

copies sent to the Texas subscribers . To the extent appellants are attempting to bolster

their jurisdictional challenge with these facts, they have failed to provide any

evidentiary support.

Appellants cite to several cases for the proposition that merely mailing

documents into a state is insufficient to become subject to the jurisdiction of that

state’s courts. These cases are easily distinguishable. For example, appellants cite the

Texas Supreme Court’s statement in National Industrial Sand Ass’n v. Gibson , 897

S.W.2d 769, 774 (Tex. 1995) , that “[a]n organization that mails national newsletters

and notices of acceptance of dues to a member company in Texas has not purposefully

established minimum contacts such that it could reasonably foresee being sued in the

courts of this State.” However, this statement was made in the context of a general

jurisdiction analysis, and has no application to the facts supporting the exercise of

specific jurisdiction in this case. Another case cited by appellants, U-Anchor

Advertising, Inc. v. Burt , 553 S.W.2d 760, 763 (Tex. 1977) , involved a contract

dispute over a contract that was “solicited, negotiated, and consummated” in

Oklahoma. In determining that the nonresident in that case had not purposefully

conducted activities within Texas, the supreme court noted that the nonresident was

merely “a passive customer of a Texas corporation who neither sought, initiated, nor

profited from his single and fortuitous contact with Texas.” Id . The holding in U-Anchor does not support appellants’ challenge to the jurisdiction of a Texas court to

hear UCS’s libel claims.

Appellants also cite Revell v. Lidov , 317 F.3d 467 (5th Cir. 2002), to support

their argument that there is no jurisdiction because the publication was not “directed

specifically at Texas.” Like the other cases cited by appellants, Revell is

distinguishable. In Revell , the Fifth Circuit held that an article posted on a website

bulletin board was “presumably directed at the entire world, or perhaps just concerned

U.S. citizens,” but “certainly was not directed specifically at Texas.” Id . at 475. Here,

appellants directed copies of their journal, which allegedly contained an article

defaming a corporation with its headquarters and principal place of business in Texas ,

to fifty subscribers located in Texas, as well as to an unknown number of subscribers

across the country.

In support of their special appearance, appellants also refer to Michiana , 168

S.W.3d 777 . In Michiana , a Texas resident bought a recreational vehicle from a

nonresident seller, and brought suit against the seller for an alleged misrepresentation

made during a phone call initiated by the buyer. Id . at 781, 784. The seller, a separate

legal entity from the manufacturer, was located in Indiana, did not have employees or

property in Texas, was not authorized to do business in Texas, did not advertise in

Texas or on the Internet, and did not solicit business from the purchaser or from

anyone else in Texas. Id . at 784. The supreme court addressed the question of

whether suit could be brought in Texas against the seller based on its alleged

misrepresentation in this single, unsolicited telephone call. Id . The supreme court

held that “because [the seller’s] only contact with Texas was [the buyer’s] decision to

place his order from [Texas],” the seller was not subject to the jurisdiction of a Texas

court. Id . at 794. Here, unlike in Michiana , the exercise of jurisdiction over PGI, a

nonresident, is consistent with the touchstone of purposeful availment. PGI is subject

to the jurisdiction of Texas courts, not because of the unilateral activity of a third

party, but because of its purposeful contacts with Texas. Additionally, PGI’s mailing

of the journal to Texas subscribers is not “random, isolated, or fortuitous.” Finally,

by directing the trade journal to Texas subscribers, PGI was seeking a “benefit,

advantage, or profit,” and, thus, consented to being sued in Texas for allegedly

defamatory statements contained in the journal.

As to the special appearances filed on behalf of Darmento and Gillrie

individually, they contend that the trial court erred in denying their special

appearances because UCS’s cause of action did not arise out of or relate to their Texas

contacts. UCS asserts, with evidentiary support, that Gillrie and Darmento drafted and

edited the articles contained in PGI’s journal. In Calder , the Supreme Court stated

Petitioners are correct that their contacts with California are not

to be judged according to their employer’s activities there. On the other

hand, their status as employees does not somehow insulate them from

jurisdiction. Each defendant’s contacts with the forum State must be

assessed individually. In this case, petitioners are primary participants

in an alleged wrongdoing intentionally directed at a California resident,

and jurisdiction over them is proper on that basis.

Id. , 465 U.S. at 790, 104 S. Ct. at 1487 (citations omitted). Similarly, UCS is alleging

that Gillrie and Darmento are primary participants in tortious conduct directed at it,

and UCS is seeking to hold them individually liable for their role in publishing

allegedly defamatory statements in a trade article directed by PGI to at least fifty

subscribers located in Texas about UCS, a corporation with its headquarters and

principal place of business in Texas.

Here, there is a direct relationship between appellants, their purposeful contacts

with subscribers located in Texas, and UCS’s claims arising out of alleged defamatory

statements made in PGI’s journal. Accordingly, we hold that appellants have

established sufficient minimum contacts with Texas to subject them to personal

jurisdiction.

Traditional Notions of Fair Play and Substantial Justice

The exercise of personal jurisdiction over a nonresident defendant must also

comport with traditional notions of “fair play and substantial justice.” Guardian

Royal , 815 S.W.2d at 228 . The burden is on the defendant to present a compelling

case that the presence of some other considerations renders the exercise of jurisdiction

unreasonable. Id . at 231 (quoting Burger King , 471 U.S. at 477 , 105 S. Ct. at 2185 ).

In making a determination, a court generally must look to the following factors: (1)

the burden on the defendant; (2) the interests of the forum state in adjudicating the

dispute; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the

interstate judicial system’s interest in obtaining the most efficient resolution of

controversies; and (5) the shared interest of the several states in furthering substantive

social policies. Id. at 228, 231. Only in rare cases will the exercise of jurisdiction not

comport with fair play and substantial justice when a nonresident defendant has

purposefully established minimum contacts with the forum state. Id . at 231.

Furthermore, distance from the forum is generally not sufficient to defeat jurisdiction

because the availability of “modern transportation and communication have made it

less burdensome for a party sued to defend himself in a state where he engages in

economic activity.” McGee v. Int’l Life Ins. Co. , 355 U.S. 220, 223 , 78 S. Ct. 199, 201

(1957).

Here, appellants contend that “the difficulties attendant in calling [them] across

state borders to defend themselves in this lawsuit are onerous.” Appellants note that

none of the records, files, or witnesses necessary for trial are located in Texas.

Appellants also assert that Texas has no interest in adjudicating this case and that,

because UCS has the financial resources and ability to seek relief in Florida, it should

do so. However, the fact remains that UCS employees and customers, who would

likely be called as witnesses in this case, are located in Texas and that UCS

documents, which would likely be produced in discovery, may be located in Texas.

Furthermore, although it appears that defending this suit in Texas might necessitate

unwelcome travel and expense for appellants, these factors alone are not

determinative. See Guardian Royal , 815 S.W.2d at 231 . Certainly, prosecution of this

suit in Florida would involve similar inconveniences for UCS. However, “there is no

legal requirement that this hardship must be borne instead by the plaintiff whenever

the defendant is not found in the state of the plaintiff’s residence.” Wright v. Sage

Eng’g, Inc. , 137 S.W.3d 238 , 253–54 (Tex. App.—Houston [1st Dist.] 2004, pet.

denied) . Finally, contrary to appellants’ assertion, Texas does have an interest in

providing its citizens with a forum to adjudicate claims against citizens of other states

who committed tortious acts against its residents . See Guardian Royal , 815 S.W.2d

at 232 (recognizing that interests of forum state and plaintiff frequently will justify

severe burden placed upon nonresident defendant) . Thus, we hold that the exercise

of personal jurisdiction over appellants in this case comports with traditional notions

of fair play and substantial justice.

Accordingly, because the record indicates that appellants’ contacts with Texas

are sufficient to create specific jurisdiction over them and because the exercise of

personal jurisdiction over appellants comports with traditional notions of fair play and

substantial justice, we further hold that the trial court did not err in denying appellants’

special appearance.

We overrule appellants’ sole issue.

Conclusion

We affirm the order of the trial court.

Terry Jennings

Justice

Panel consists of Justices Nuchia, Jennings, and Higley.