Texas Court Finds Out-of-State Defendant With Majority Ownership in Texas-Based Entity Not Subject to Personal Jurisdiction in Texas

EnerQuest Oil & Gas, L.L.C. v. Antero Resources Corporation, No. 02-18-000178CV, 2019 BL 130860 (Tex. App. – Fort Worth Apr. 11, 2019)

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Sophia L. Cahill

A Texas appellate court recently found that an out-of-state Oklahoma-based limited liability company was not subject to personal jurisdiction in Texas for alleged misappropriation of trade secrets claims.

The underlying action involved an investment company’s claim against seven defendants in the 141st District Court in Tarrant County, Texas, alleging fraud and other causes of action and seeking disgorgement of approximately $225,000.00 in illegal profits.  Non-party Antero Resources Corporation (“Antero”), a corporation headquartered in Colorado engaged in the oil and gas exploration business in West Virginia, filed a motion to intervene in the underlying action because it believed that the investment company sought profits, which were generated by the misappropriation of Antero’s trade secrets.

Antero also sought to add EnerQuest Oil & Gas, LLC (“EnerQuest”), an Oklahoma based entity, as a defendant in the underlying action.  Antero claimed that EnerQuest actively participated in and passively benefited from the misappropriation of Antero trade secrets.  Antero alleged that EnerQuest, through an e-mail by the EnerQuest president, to another defendant, “reached out” to Texas to acquire and thereby misappropriate Antero’s trade secrets.  Antero also alleged that trade secrets were utilized by EnerQuest subsidiary Braxton Minerals III, LLC (“BMIII”), of which it had a 75% ownership interest, to purchase assets adverse to Antero. EnerQuest and Braxton Minerals-Appalachia, LLC (“BMA”) entered into a “Limited Liability Company Agreement” (“Formation Agreement”) to form BMIII.  BMIII was a limited liability company organized under and to be governed by the laws of Delaware with its principal place of business in Texas.

EnerQuest filed a special appearance pursuant to Tex. R Civ. P. 120a, arguing that the Texas court lacked general or personal jurisdiction over it.  The lower court overruled the special appearance.  On appeal, EnerQuest argued that general jurisdiction did not exist because it was organized under the laws of Oklahoma and maintained its principle place of business in Oklahoma.  EnerQuest further argued that the court also lacked specific jurisdiction because Antero did not allege any actions which arose from EnerQuest’s activity intentionally or purposefully directed at Texas.

The Texas appellate court agreed with EnerQuest.  It found no basis to exercise personal jurisdiction, despite EnerQuest contracting with Texas residents.  Antero argued that EnerQuest received, or benefited from, Antero’s trade secrets through its Formation Agreement with BMA (a Texas LLC) to form BMIII (a company conducting business in Texas and having a Texas principal place of business).  While the court recognized BMA’s connections to Texas, it stressed that the Formation Agreement was subject to Delaware law, contained an Oklahoma forum selection clause, and was created for the express purpose of developing oil and gas business in West Virginia, Pennsylvania, and Ohio, not Texas.

The court reasoned that EnerQuest “purposefully avoided” Texas through the Delaware forum selection and choice of law clauses in the Formation Agreement.  The court also found it to be irrelevant that BMIII conducted work, or maintained a principal place of business, in Texas.  Those facts concerned BMA’s and BMIII’s relationships to Texas, not EnerQuest’s.  The court thus held that it could not exercise personal jurisdiction over EnerQuest simply because it  had entered into the Formation Agreement.

The court also found no basis to exercise personal jurisdiction, despite EnerQuest registering to do, and conducting some, business in the state of Texas.  Antero argued that Texas had personal jurisdiction because EnerQuest committed a tort in Texas when it “reached out to Texas” to solicit, fund, and acquire alleged trade secrets that were sent from Texas.  Antero pointed to a specific e-mail from the EnerQuest president to BMA and BMIII owner Scott Bauer, in which the EnerQuest president requested certain drill schedules.  Mr. Bauer responded that he did not have digital copies of these records and kept them on his person at all times.  The court found it unclear how EnerQuest committed a tort in Texas with the above e-mail.  The court said nothing demonstrated that EnerQuest sent the e-mail to Texas or that the EnerQuest president received and acquired the trade secrets in Texas.

The court specifically questioned Antero’s contention that an e-mail can be sent to a particular state.  It said that e-mails are not sent to a designated computer or electronic device, nor do they have physical addresses; e-mails are simply sent into “cyberspace”, saved onto a server and retrieved by a recipient wherever that may person may be at any given time.  According to the court, to purposefully direct an e-mail to a particular state, the sender would be required to know, at the very least, where the recipient’s server is located or where the recipient will be when he opens the email.  As such, the e-mail exchange did not constitute “reaching into Texas” to acquire trade secrets, and EnerQuest did not purposefully avail itself of the benefits and protection of Texas law by sending the e-mail.  The court explained that EnerQuest’s contacts, i.e., the subject e-mail, lacked the substantial connection to Texas and were too attenuated to the tortious act allegedly committed in Texas to establish personal jurisdiction over EnerQuest.

Ultimately, the Texas appellate court reversed the lower court’s decision and dismissed EnerQuest for lack of personal jurisdiction.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.