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According to the Texas Court of Appeals, where a foreign manufacturer and an American buyer have agreed to arbitrate disputes in Texas, the manufacturer has not necessarily consented to the personal jurisdiction of the Texas courts in a lawsuit brought by a nonsignatory where no party is asserting the right to arbitrate under the agreement.
In PCC Sterom, S.A. v. Yuma Exploration and Production Co., No. 01-06-00414-CV, 2006 WL 2864478 (Tex. Ct. App. Oct. 5, 2006), Sterom, a Romanian company, sold a valve to ValveWorks, a Louisiana company. Around the next bend in the stream of commerce, United bought the valve and integrated it into a Texas gas well owned by Yuma.
When the gas well started leaking, Yuma sued United in Texas state court. United brought third-party claims against Sterom, who argued that the trial court could not exercise personal jurisdiction over it without offending due process requirements. Unpersuaded, the trial court allowed the claims against Sterom to proceed.
On appeal, the Court considered two distinct theories that would support the exercise of personal jurisdiction: consent and specific jurisdiction.
In arguing that Sterom consented to personal jurisdiction in Texas, United relied on a distribution agreement between Sterom and ValveWorks that contained a forum selection clause providing for litigation in a Texas court. The Court gave two reasons for rejecting this argument. First, the evidence indicated that the valve at issue was sold under an earlier distribution agreement that provided for arbitration, not litigation, in Texas.
Alternatively, the Court held that even if the distribution agreement providing for litigation in Texas were applicable, United was a nonsignatory with no right of enforcement because United lacked a “close relationship” with ValveWorks. Similarly, United could not rely on the equitable estoppel theories that allow a non-signatory to invoke an arbitration agreement because neither of those theories fit the facts. Those theories typically apply where a signatory is suing a non-signatory.
Finally, in concluding that Sterom lacked the minimum contacts necessary for the Texas courts to exercise specific personal jurisdiction, the Court rejected the notion that Sterom’s agreement to arbitrate in Texas was sufficient to prove that Sterom “purposefully avail[ed] itself of Texas law.”
Although United based its arguments in favor of the Court’s exercise of personal jurisdiction over Sterom on the existence of an arbitration agreement, no party was asserting its right to arbitrate. In general, where arbitration-related matters are the subject of litigation—such as a motion to compel arbitration—“consent to arbitrate a dispute within a particular forum’s jurisdiction includes an implied consent by the parties to accept the jurisdiction of that forum’s courts.” Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 527 (1st Cir. 1985).
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