Jurisdiction under the ‘Texas long-arm statute’

Jurisdiction under the ‘Texas long-arm statute’

The ‘Texas long-arm statute’ gives Texas courts broad jurisdiction in cases where a Texas resident is a party to a contract.

Winnsboro Auto Ventures, LLC is a corporation that is registered in the State of Louisiana (USA), where it has its main place of business. Winnsboro is an automobile dealer. Santander Consumer USA, Inc. is a corporation that is registered in the State of Illinois (USA), but having its main place of business (and headquarters) in the State of Texas (USA). Santander is a financial intermediary that assisted Winnsboro in selling vehicles to customers on the basis of ‘automobile retail installment sales contracts’. These are contracts under which the buyer of a vehicle gets possession of the vehicle, but becomes the owner of the vehicle only after he/she has made a number of instalment payments. In effect, Winnsboro sold vehicles to buyers that Santander pre-financed on behalf of those buyers. At some point, a dispute arose between Santander and Winnsboro over the sale of a vehicle with a value of $ 33,165.33. According to Santander, Winnsboro had misrepresented the condition of this vehicle, which caused the buyer to return the vehicle. Also according to Santander, Winnsboro had not duly dissolved the automobile retail instalment sales contract in respect of this particular buyer, which had led to a financial loss on the part of Santander.

Santander brought an action in court against Winnsboro in Texas, where it had its main place of business and headquarters (but where it was not registered). The court decided in favour of Santander, because Winnsboro failed to appear in court (‘a no-answer default judgment against Winnsboro’). Following this court decision, Winnsboro moved for a new trial in which it argued that Texas courts did not have jurisdiction in this case. This defence, in which the defendant appears principally to dispute the jurisdiction of a court, is called the defendant’s ‘special appearance’. This trial took place at the ‘162nd Judicial District Court Dallas County, Texas’. The District Court decided that Texas courts did have jurisdiction. Winnsboro appealed against that decision at the Fifth Court of Appeals of Texas, in Dallas. In a decision of 19 April 2018, the Court of Appeals affirmed the decision of the District Court.

The Court of Appeals decided the issue between Santander and Winnsboro on the basis of the so-called ‘Texas long-arm statute’, which stipulates that Texas courts have jurisdiction inter alia over disputes concerning contracts concluded between a Texas resident and a non-resident where ‘either party is to perform the contract in whole or in part in this state’. Against this background, the Court of Appeals looked at Winnsboro’s argument ‘that because Santander is an Illinois Corporation it is not a Texas resident entitled to utilize the long-arm statute to sue Winnsboro in Texas’. The Court of Appeals first considered that the Texas long-arm statute ‘is silent as to who may file suit and invoke the court’s long-arm power’. The Court of Appeals then considered inter alia that ‘No language in the statute, and no logical rationale, would support the conclusion that the legislature meant to exclude corporations maintaining their principal place of business here, despite being incorporated under a different law, from invoking the court’s long-arm power’, adding:

  • ‘Winnsboro voluntarily entered into the Agreement with Santander whereby it created a continuing relationship and obligations with a resident of Texas’,
  • ‘Because, contrary to Winnsboro’s assertion, this dispute involves a Texas resident, Texas courts have a substantial interest in adjudicating the claims’,
  • ‘Moreover, Texas has a manifest interest in ensuring “a convenient forum for redressing injuries inflicted by out-of-state actors.”’, and:
  • ‘As a Texas resident, Santander’s interest in obtaining convenient and effective relief weigh in favor of the exercise of jurisdiction’.

The decision of the Fifth Court of Appeals of Texas can be found at: www.txcourts.gov, courts, 5th Court of Appeals, case search.


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