Complex Dispute Over Oil Drilling Rights: No Jurisdiction Over Parent Due to Foreign Subs' Texas Contacts

On April 10, 2008, the 14th District Houston Court of Appeals held that a Texas trial court did not have jurisdiction over the foreign parent company of various foreign subsidiaries with minimum contacts to the state, as well as the sole shareholder of that parent company, because the parent and shareholder were not the alter ego of those subsidiaries for the purposes of imputing the subsidiaries' jurisdictional contact.

In Greenfield Energy, Inc. v. Duprey, --- S.W.3d ---, 2008 WL 961312 (Tex.App.--Houston [14 Dist.] 4/10/08, certain energy companies sued numerous foreign companies and the parent company's sole shareholder, alleging a litany of tort and contract claims concerning drilling rights to foreign oil and gas property. The parent company and its sole shareholder filed special appearances requesting dismissal of the claims against them because the court lacked jurisdiction. The court of appeals affirmed the trial court's order granting the special appearances.

In so doing, the court of appeals recognized the parent owned the property, while its subsidiaries pursued development of the property. Nonetheless, the court found that the parent and its sole shareholder did not control the internal business operations and affairs of the subsidiaries and, thus, were not the alter ego of the subsidiaries for the purposes of imputing their jurisdictional contacts.  The companies had independent management, boards of directors, and accounting practices. The subsidiaries had a different chief executive officer than parent; there was no overlap between the daily operations of the parent and the subsidiaries; the entities filed separate tax returns, kept separate accounts, and had separate home offices; and the subsidiaries were not operating on behalf of their parent when negotiating regarding the property.

The court also held the subsidiaries did not serve as parent's agents for the purposes of imputing the subsidiaries' jurisdictional contacts, where the parent did not exert control over the details of subsidiaries' work, there were no communications indicating either actual or apparent authority, and the parent did not ratify the subsidiaries' activities in pursuing development of the property (but only transferred the rights to the property to one of the subsidiaries). In addition, the parent's negotiations with another entity in Texas was not a minimum contact with the state sufficient to support jurisdiction over the parent where those negotiations were initiated by the other entity, the agreement resulting from the discussions was an agreement with another foreign entity, and the parent was not a party to the resulting agreement.

If you would like a copy of this opinion, or more information on the topic, please contact the Business Litigators at Clouse Dunn Khoshbin LLP at info@cdklawyers.com.