Affirmed and Memorandum Opinion filed October 31, 2006.

 

 

 

 

 

In The

 

Fourteenth Court of Appeals

_______________

 

NO. 14-06-00074-CV

_______________

 

KENNETH D. LATHROP, Appellant

 

V.

 

PERSONALYSIS CORP., Appellee

                                                                                                                                               

On Appeal from the 215th District Court

Harris County, Texas

Trial Court Cause No. 04-31493

                                                                                                                                                

 

M E M O R A N D U M  O P I N I O N

In this accelerated appeal, appellant Kenneth D. Lathrop appeals the denial of his special appearance, arguing that the trial court=s implied findings of fact are contradicted by the record, and its implied conclusions of law overlook the due process requirement of purposeful availment as set forth in Michiana Easy Livin= Country, Inc. v. Holten, 168 S.W.3d 777 (Tex. 2005).  We affirm.

I.  Factual and Procedural History

In 1996, Lathrop was hired by Manatech Washington, Inc. (AManatech@), a Washington corporation with its principal place of business in Spokane County, Washington.  As a licensee of appellee Personalysis Corp., a Texas corporation, Manatech was an authorized distributor of the Personalysis personality test and related consulting services.  Lathrop provided consulting services to Manatech based on his clients= purchase of Personalysis tests and reports.  Personalysis sent client questionnaires to Manatech, and Manatech gave the questionnaires to Lathrop or to a Manatech employee to deliver to Lathrop=s clients.  After completing the questionnaire, the client returned the form to Lathrop or directly to Manatech.  Manatech then forwarded the questionnaire results to Personalysis in Texas.  Personalysis scored the questionnaires and emailed the results to Manatech or directly to Lathrop.  Lathrop received such emails from Personalysis twice daily.  Lathrop then uploaded the emailed results into a software program called Personalysis for Windows (APFW@).  The software allowed Lathrop to prepare detailed reports for his clients on the personality traits revealed by the Personalysis test.  Manatech retained a PFW software disk in the safe of its president, Pat Powers, and Powers loaded the software onto the computers of consultants such as Lathrop.  Lathrop did not have his own copy of the software disk.  In Lathrop=s consulting work and in his workshops with clients, Lathrop also used a slide presentation prepared by Personalysis in Houston.  Occasionally, Lathrop would receive a new slide to incorporate into the Personalysis slide presentation.

 

On April 18, 1997, and July 7, 1999, Lathrop signed non-compete and non-disclosure agreements with Manatech.  In each of these agreements, Lathrop agreed he would not disclose or use Atrade secrets, customer lists, marketing plans or strategies and other confidential information and knowledge concerning [Manatech=s] business and activities@ to Manatech=s detriment.  Lathrop further agreed he would not Autilize[,] deliver[,] or convey any of the technologies or products which are utilized, delivered[,] or conveyed by [Manatech], generally including but not limited to the copyrighted technologies of James R. Noland and/or [Personalysis].@^[1]  Under the terms of both agreements, Manatech and Lathrop agreed that any dispute arising from the agreements would be litigated in Spokane County, Washington, and that the agreements would be governed by laws of the State of Washington.

During the time Lathrop worked directly for Manatech, he attended Personalysis training in Houston on two or three occasions.  On three occasions, Lathrop telephoned the Houston office of Personalysis.

In 2001, Lathrop=s employment status with Manatech changed, and he became an independent contractor rather than an employee.  On August 16, 2001, Lathrop signed an agreement in which Personalysis granted both Lathrop and Powers a license to use Personalysis=s software.  Lathrop and Powers agreed they would not Amodify, translate, reverse engineer, decompile, disassemble, create derivative works based on, or copy@ the Personalysis software or its documentation.  The license agreement contains no forum or venue selection clause, and by its express terms, is governed by Texas law.

On September 7, 2001, Lathrop entered into a Sales Representative Agreement with Manatech.  The language of this agreement differed somewhat from the prior agreements:

[Lathrop] covenants and agrees that neither [he] nor his/her marketing agents or administrate [sic] employees shall develop[] for sale or distribution any materials, such as videotapes, training materials, and the like, directly related to the use or understanding of Personalysis and Manatech copyrighted materials . . . This agreement supercedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the working arrangement between [Manatech] and [Lathrop], and contains all of the covenants and agreements between the parties with respect to such contract arrangements in any manner whatsoever.  This agreement shall be governed by and construed in accordance with the laws of the State of Washington.@ 

 

Although the September 7, 2001 Sales Representative Agreement is governed by Washington law, it contains no forum or venue selection clauses.  On the same date, however, Lathrop and Manatech executed a third non-disclosure and non-compete agreement governed by the laws of the State of Washington, and requiring the parties to litigate any dispute arising from that agreement in Spokane County, Washington. 

Lathrop subsequently developed and marketed a personality test he called AHardwired.@  Personalysis sued Lathrop in Texas, alleging that Lathrop used completed Personalysis questionnaires, corresponding test scores, and information learned during his training sessions in Texas to reverse engineer the scoring methodology of the Personalysis test.  Lathrop filed a special appearance denying he had sufficient contacts with Texas to justify the trial court=s assumption of personal jurisdiction over him.  The parties conducted discovery concerning the jurisdictional issues, and after two hearings, the trial court denied Lathrop=s special appearance.  This accelerated appeal ensued.

II.  Issues Presented

Lathrop presents three issues for our review.  First, he contends the trial court=s assertion of specific jurisdiction over him violates his due process rights because the trial court did not follow Athe purposeful availment mandates of Michiana Easy Livin= Country, Inc. v. Holten, 168 S.W.3d 777 (Tex. 2005).@  In his second issue, Lathrop argues that Personalysis=s specific jurisdiction claims fail because there is no evidence that trade secrets or confidential information were disclosed to him in Texas, and thus, nothing in Texas gives rise to Personalysis=s claims.  Finally, Lathrop seeks attorneys= fees and costs for defending jurisdictional allegations Athat were based on false and falsely verified jurisdiction affidavits,@ and contends that Personalysis failed to properly investigate before filing this suit and failed to dismiss when no evidence existed to support its allegations.

III.  Standard of Review

Whether a trial court has personal jurisdiction over a defendant is a question of law.  Schott Glas v. Adame, 178 S.W.3d 307, 312 (Tex. App.CHouston [14th Dist.] 2005, pet. denied).  When the relevant jurisdictional facts are undisputed, we review the trial court=s determination de novo.  Id.  However, when the relevant facts are disputed, a party may challenge the trial court=s underlying factual conclusions for legal and factual sufficiency before determining whether the trial court erred in granting or denying a special appearance.  Id.  If the trial court does not issue findings of fact, we presume the trial court resolved all factual disputes in favor of its judgment.  Id.  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.  BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). 

The plaintiff has the initial burden of pleading sufficient allegations to bring the nonresident defendant within the provisions of the Texas long-arm statute.  Schott Glas, 178 S.W.3d at 313.  A defendant=s contacts with the forum can give rise to either specific or general jurisdiction.  Id. at 312B13.  Specific jurisdiction is based on purposeful contacts that give rise to the cause of action.  Id. at 313.  General jurisdiction allows personal jurisdiction based on contacts unrelated to the litigation as long as those contacts are Acontinuous and systematic.@  Id.  Upon the filing of a special appearance, the burden shifts to the defendant to negate all bases of personal jurisdiction alleged by the plaintiff.  Id.  AThis standard does not mean that the nonresident defendant must negate every possible ground in the universe, but rather the acts in Texas alleged by the appellant to support personal jurisdiction.@  Walker Ins. Servs. v. Bottle Rock Power Corp., 108 S.W.3d 538, 548 (Tex. App.CHouston [14th Dist.] 2003, no pet.).

 

Personal jurisdiction is proper if the defendant has established Aminimum contacts@ with Texas and the exercise of jurisdiction comports with Atraditional notions of fair play and substantial justice.@  Am. Type Culture Collection, Inc. v. Coleman, 83 S.W.3d 801, 806 (Tex. 2002) (citing Int=l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)).  AThe purpose of the minimum-contacts analysis is to protect the defendant from being haled into court when its relationship with Texas is too attenuated to support jurisdiction.@  Id.  Instead, a defendant must Apurposefully avail@ itself of the privilege of conducting activities in Texas and of the benefits and protections of Texas law such that the defendant could reasonably anticipate being called into a Texas court.  Schott Glas, 178 S.W.3d at 312. 

A defendant is subject to personal jurisdiction based on its own purposeful activity and not the unilateral acts of a third party.  Michiana, 168 S.W.3d at 785.  Consequently, Ait is only the defendant=s contacts with the forum that count@ when determining whether he has purposefully availed himself of the privilege of conducting business in Texas.  See id.  Finally, it is the quality and nature of the defendant=s contacts, rather than the quantity, that is important to the minimum-contacts analysis.  Schott Glas, 178 S.W.3d at 312.  Random, fortuitous, or attenuated contacts with the forum state are insufficient to confer personal jurisdiction.  Michiana, 168 S.W.3d at 785. 

IV.  Analysis

 

In its original petition, Personalysis alleged that the trial court had personal jurisdiction over Lathrop Abecause Lathrop=s actions in the State of Texas give rise to the causes of action in this case, and Lathrop is the alter ego of Hardwired and Lathrop & Associates.@^[2]  Personalysis sued for (a) breach of the software license agreement of August 13, 2001; (b) breach of Lathrop=s September 7, 2001 sales representative agreement with Manatech; (c) breach of Lathrop=s non-disclosure and non-compete agreements with Manatech dated April 18, 1997 and September 7, 2001; (d) misappropriation of trade secrets; (e) unfair competition, (f) statutory theft; and (g) conspiracy.  In addition, after conducting discovery related to jurisdiction, Personalysis filed a supplemental response to Lathrop=s special appearance, alleging additional bases of jurisdiction.  Specifically, Personalysis alleged that the software license agreement required partial performance in Texas, and therefore, the trial court could properly exercise jurisdiction over Lathrop as a party to the contract.  See Tex. Civ. Prac. & Rem. Code Ann. ' 17.042(1) (Vernon 1997) (providing that a nonresident does business in this state if the nonresident contracts with a Texas resident and either party is to perform the contract in whole or in part in this state).  Lathrop did not object to this asserted basis for personal jurisdiction.  Personalysis also added assertions of general jurisdiction, alleging that ALathrop personally availed himself to Texas [sic] by establishing a consulting practice that relied exclusively on products and services from Personalysis@ in Texas.^[3]

 

Lathrop argues that because he objected to Personalysis=s assertions of general jurisdiction, the trial court did not consider whether general jurisdiction exists.  In support of this argument, Lathrop relies on Zimmerman v. Glacier Guides, Inc., 151 S.W.3d 700, 704 (Tex. App.CWaco 2004, no pet.) (stating that Aa nonresident defendant bears the burden of negating all bases of personal jurisdiction alleged in the plaintiff=s pleadings or raised without objection by the evidence.@) (emphasis added)  However, in its order denying Lathrop=s special appearance, the trial court states it considered all supplemental briefing and exhibits and granted leave for the filing of such exhibits and briefing.  Thus, the trial court impliedly overruled Lathrop=s objection to consideration of the issue of general jurisdiction.              On appeal, Lathrop does not challenge the trial court=s ruling on the grounds that there is no general jurisdiction, nor does he contend the trial court erred in overruling his objection to Personalysis=s claims of general jurisdiction; to the contrary, Lathrop insists that the trial court denied his special appearance based on specific jurisdiction and did not consider the issue of general jurisdiction.  This argument ignores the trial court=s implied ruling on Lathrop=s objection to Personalysis=s supplemental response. 

Generally speaking, an appellant must attack all independent bases or grounds that support a complained-of ruling or judgment.  Britton v. Tex. Dept. of Criminal Justice, 95 S.W.3d 676, 681 (Tex. App.CHouston [1st Dist.] 2002, no pet.).  If the appellant fails to do so, then we must affirm the ruling or judgment if supported by the record.  Id.  Consequently, we must sustain the trial court=s ruling if Lathrop failed to establish that specific jurisdiction did not arise from his acts in Texas or from the software license agreement, or if the record supports a finding of general jurisdiction.

A.        Due Process Challenge to Specific Jurisdiction

Lathrop first argues that the trial court=s implied findings of fact are contradicted by the record, and its implied conclusions of law overlook the due process requirement of purposeful availment.  The requirements of purposeful availment and minimum contacts are related: a nonresident defendant that has Apurposefully availed@ itself of the privileges and benefits of conducting business in the foreign jurisdiction has sufficient contacts with the forum to confer personal jurisdiction.  Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474B76, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); BMC Software, 83 S.W.3d at 795.  Lathrop argues that (a) the trial court erred in failing to enforce the forum selection clauses of his nondisclosure agreements with Manatech, (b) Lathrop=s visits to Texas do not satisfy the minimum contacts requirement because he traveled to Texas as a Manatech employee at Personalysis=s invitation, and any disclosure by Personalysis in Texas was Personalysis=s unilateral act.

1.         The Trial Court=s Alleged Refusal to Enforce the Forum-Selection Clauses in the Non-Disclosure Agreements

Here, all the written agreements between Manatech and Lathrop prior to August 16, 2001, contain

provisions requiring those specific agreements to be governed by the laws of the State of

Washington, and requiring the parties to litigate any dispute arising from the agreements in Spokane

County, Washington.  Relying on these agreements, Lathrop contends the trial court erred in

refusing to enforce Athe forum-selection clauses in the non-disclosure agreements upon which

Personalysis brought its third-party beneficiary claims . . .@ However, on August 16, 2001, Lathrop

entered into a license agreement directly with Personalysis for the first time.  That license

agreement contains no forum or venue selection clause, and by its express terms, is governed by

Texas law.  A[D]eletion of a forum-selection clause designating a foreign jurisdiction is some

evidence that local jurisdiction was anticipated.@  Michiana, 168 S.W.3d at 792.  Hence, there is

some evidence that, at least in disputes between Personalysis and Lathrop, jurisdiction in Texas was

Aanticipated.@  Id.  AAlthough not determinative, foreseeability is an important consideration in

deciding whether the nonresident defendant has purposefully established >minimum contacts= with

the forum state.@  BMC Software, 83 S.W.3d at 795.   

2.         Lathrop=s Visits to Texas

Lathrop contends that Personalysis bases its claims of jurisdiction in part on  Lathrop=s visits to Texas at Personalysis=s invitation.  He further contends  he did not initiate these visits, but was required to attend by his employer, Manatech.  However, the evidence relating to whether Manatech required his attendance is equivocal, as is demonstrated by Lathrop=s deposition testimony:

Q:        As part of that contract, were you required to go to Houston to learn training techniques?

 

A:        I don=t know if we were required.  I know that Personalysis would invite us down.  I don=t remember a portion of the contract that said it was a requirement.  I think I remember Pat [Powers] talking about early on that it was a requirement that you had to go down for training, but I can=t recall that specific language in my contract.

Q:        All right.  Do you believe that you were required to go to Houston?

A:        YesCwell, yeah, I thinkCI felt I was required.  If I wasn=t required in writing, Pat [Powers] would have not looked at it kindly if I had refused to go.

Moreover, in analyzing minimum contacts, it is not the number, but rather the quality and nature of the nonresident defendant=s contacts with the forum state that are important.  Guardian Royal Exch. Assur., Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 230 n.11 (Tex. 1991).  Lathrop=s contacts with Texas do not arise solely from isolated visits to the State at the request or requirement of a third party, but are rooted in Lathrop=s continuing relationship with Personalysis, of which these visits are a part.^[4]  This Acontinuing relationship@ most closely resembles the franchising relationship described in Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S. Ct. 2174, 85 L.Ed.2d 528 (1985). 

 

In Burger King, the Supreme Court noted that Burger King licenses its franchisees to use its trademarks and service marks and leases standardized restaurant facilities to them.  471 U.S. at 464, 105 S. Ct. at 2178.  In addition, Afranchisees acquire a variety of proprietary information concerning the >standards, specifications, procedures and methods for operating a Burger King restaurant.@ 471 U.S. at 464B65, 105 S. Ct. at 2178.  Franchisees also receive ongoing training.  Id.  Burger King=s contracts with its franchisees provide that the franchise relationship is established in Miami, governed by Florida law, and requires all fees and notices to be sent to Burger King=s Miami headquarters.  Id. at 465B66, 105 S. Ct. at 2178.  Day-to-day monitoring of franchisees is conducted through a network of district offices that report to Miami.  Id.

Rudzewicz, the appellant in Burger King, applied for a franchise by sending his application to the local district office.  Id. at 466, 105 S. Ct. at 2179.  The application was forwarded to Miami, and Rudzewicz negotiated the ensuing agreements directly with Miami.  Id. at 466B67, 2179.  Rudzewicz negotiated with Burger King by mail and telephone.  Id. at 468, 105 S. Ct. at 2179B80.  However, Rudzewicz never traveled to Florida.

In holding that the trial court could properly exercise specific jurisdiction over Rudzewicz, the Supreme Court emphasized that parties Awho reach out beyond one state and create continuing relationships and obligations with citizens of another state= are subject to regulation and sanctions in the other State for the consequences of their activities.@  Id. at 473, 105 S. Ct. at 2182.  The Court further stated:

The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State.  The application of that rule will vary with the quality and nature of the defendant=s activity, but it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.

Id. at 474B75, 105 S. Ct. at 2183.  This Apurposeful availment@ requirement Aensures that a defendant will not be haled into a jurisdiction solely as a result of >random,= >fortuitous,= or >attenuated= contacts, or of the >unilateral activity of another party or a third person.=@ Id. (internal citations omitted).  Where the defendant deliberately has created A>continuing obligations= between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there . . . .@  Id. at 475B76, 105 S. Ct. at 2184.  As the Texas Supreme Court summarized the case, A[a] long-term franchise agreement may establish minimum contacts because, though it stems from a single contract, it involves many contacts over a long period of time.@  Michiana, 168 S.W.3d at 787.

 

Here, the license agreement between Lathrop and Personalysis is governed by the laws of the State of Texas, and states that the software Ashould be used by persons affiliated with Licensee [i.e., Powers and Lathrop] who have been trained by the Licensor [Personalysis] to use the Personalysis Management System.@ (emphasis added).  See Burger King, 471 U.S. at 482, 105 S.Ct. 2174 (holding that choice-of-law provisions should not be ignored in considering whether a defendant has Apurposefully invoked the benefits and protections of a State=s laws@).  Unlike the appellant in Burger King, Lathrop made one two-day training trip and one or two additional one-day trips to the forum state.  Although those trips were made while Lathrop was employed by Manatech, additional trips to Texas were contemplated in Lathrop=s sales representative agreement with Manatech of September 7, 2001, which states: AThe contractor should attend all annual training session[s] to stay current on new products and workshop format.  All travel expense for training in Spokane or Houston will at [sic] the contractor[=]s expense.@ (emphasis added). 

Similar to the appellant in Burger King, Lathrop agreed to follow the procedures, policies, standards, and materials of the licensing corporation:

Lathrop shall promote, offer training programs and do consulting conforming to such procedures, policies, standards, materials and the like as have been prescribed by Personalysis Corp., a Texas Corporation[,] and no other manner . . . Ken Lathrop agrees not to dispose, sell or offer for sale any item or services that do not conform to such standards, specifications, proportions, appearance, quality, or characteristics as may be prescribed by Personalysis Corp.[,] a Texas Corporation[,] and approved by [Manatech].

Lathrop=s day-to-day activities were monitored by Manatech, a local licensee analogous to the local district office reporting directly to the forum state in Burger King.

 

Although Lathrop denies engaging in prolonged communications by mail, email, fax, or telephone with Personalysis of the type found in Burger King, Lathrop does admit that, in addition to his training visits, he telephoned Personalysis three times and received emails directly from Personalysis twice a day.  Although we do not consider the emails as part of Lathrop=s contacts with Texas because Ait is only the defendant=s contacts with the forum that count,@^[5] the emails illustrate the continuing relationship between Lathrop and Personalysis, provide context for Lathrop=s visits and the license agreement, and indicate that Lathrop=s contacts with Texas are not random, fortuitous, attenuated, or the result of the unilateral activity of another party or a third person.

B.        Evidentiary Challenge to Specific Jurisdiction

In his second issue, Lathrop appears to challenge the legal sufficiency of the evidence supporting the trial court=s ruling.  He argues that Personalysis=s specific jurisdiction claims must fail because there is no evidence that trade secrets or confidential information were disclosed to him in Texas, and therefore, nothing in Texas gave rise to Personalysis=s claims.          Adrienne McDunn, Avice president executive consultant@ of Personalysis, met with Lathrop at least twice in Houston.  She testified that Lathrop was given a reference manual in Houston, and that the manual was confidential.  Lathrop testified in his deposition that the reference manual is publicly available, and that he obtained the same manual before he was employed by Manatech.  Lathrop contends that Personalysis gave no documents to him in Houston that were confidential or that Lathrop had not already received in Washington.

However, not all of the information Lathrop received in Houston was in document form.  In her affidavit, McDunn testified that while Lathrop was in Houston, she disclosed confidential information to him that was not found in the manual, including information regarding how the Personalysis test was designed, the importance of word selection in the questionnaire, the importance of comparing words of different types, the specific theory behind the test, how to teach interpretation of the test, and business strategy on using the test to develop business.  McDunn further testified:

 

I made clear to Mr. Lathrop that the confidential information that was disclosed, was not to be disclosed to clients.  Based on my discussions with Mr. Lathrop, at the time of the disclosure, he understood that the information was confidential and not to be disclosed to clients or third parties, and was not to be used by him outside of his consulting with the Personalysis test.

Personalysis contends Lathrop used the information obtained in Texas, his access to Personalysis questionnaires in Washington, and the test results he received by email to reverse engineer the test, thereby breaching the licensing agreement.  For the purpose of determining jurisdiction, McDunn=s testimony is evidence that Lathrop received confidential information or trade secrets in Houston.  When considered in conjunction with the continuing relationship between Lathrop and Personalysis, we conclude that the evidence is legally and factually sufficient to support the trial court=s implied finding that Lathrop failed to negate all bases of specific personal jurisdiction.^[6]

C.        Lathrop=s Motion for Sanctions

Because Personalysis refused to dismiss the suit, Lathrop moved for sanctions under  Tex. R. Civ. P. 13, alleging that Personalysis produced no evidence in jurisdictional discovery to support its contentions.  Although this court has jurisdiction to review the denial of a defendant=s special appearance, we do not have jurisdiction to hear an interlocutory appeal of the denial of a motion for sanctions.  See Tex. Civ. Prac. & Rem. Code Ann. ' 51.014 (Vernon Supp. 2006).  Accordingly, we dismiss this issue.

 

V.  Conclusion

We hold that Lathrop failed to negate all bases of personal jurisdiction, and that the evidence is legally and factually sufficient to support the trial court=s finding of specific jurisdiction.  Accordingly, we affirm the trial court=s judgment.

 

 

 

/s/        Eva M. Guzman

Justice

 

 

Judgment Rendered and Memorandum Opinion filed October 31, 2006.

Panel consists of Justices Anderson, Hudson, and Guzman.