Baker Hughes Inc. v. Brooks

Citations: 405 S.W.3d 246; 2013 Tex. App. LEXIS 6795; 2013 WL 2996754Docket: No. 14-12-00534-CV

Court: Court of Appeals of Texas; June 4, 2013; Texas; State Appellate Court

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An appeal was made regarding whether an individual signing a contract on behalf of a Delaware corporation, which had forfeited its corporate charter, concedes personal jurisdiction in Texas due to a forum selection clause. Baker Hughes Inc. sued Robert E. Brooks, who signed a promissory note as president of Delphi Consulting, Inc., for defaulting on payments. The promissory note included a clause specifying Harris County, Texas, as the venue for disputes. After making payments until September 2011, Delphi defaulted, leading Baker Hughes to file suit in Texas in January 2012. Brooks contested personal jurisdiction, asserting his limited connection to Texas and noting that Delphi was originally incorporated in Delaware, albeit in bad standing at the time of signing. Following the trial court's ruling in favor of Brooks, which dismissed the lawsuit, the appellate court upheld this decision. The legal standards for determining personal jurisdiction were outlined, indicating that the plaintiff initially carries the burden to establish jurisdiction, which then shifts to the defendant to refute it. The appellate review was de novo, emphasizing that implied findings support the trial court's ruling when no explicit findings are made.

An appellate court must uphold a trial court's findings if sufficient evidence supports them or if the material facts are undisputed, subsequently determining whether those facts negate bases for personal jurisdiction. Texas courts can only exercise personal jurisdiction over nonresident defendants if both federal due process and the Texas long-arm statute are satisfied. A nonresident can be subject to Texas jurisdiction if a mandatory forum selection clause exists, which indicates consent to jurisdiction in Texas. In this case, Baker Hughes claims personal jurisdiction over Brooks based on his signing a settlement agreement and a promissory note that designate Texas as the forum for disputes. However, Brooks signed these documents as president of Delphi, not individually. Baker Hughes argues that if an agent knows the principal lacks capacity to enter a contract, that agent may be held liable for breaches. At the time Brooks signed, Delphi's corporate charter was forfeited due to unpaid franchise taxes, raising questions about its capacity to contract under Delaware law. The determination of a corporation's existence after charter surrender and its ability to defend suits is governed by the laws of the state of incorporation, in this case, Delaware, which states that failure to pay franchise taxes renders a corporate charter void and its powers inoperative.

Baker Hughes contends that Delphi's prolonged failure to pay franchise taxes for seventeen years was deliberate, not inadvertent. According to Delaware law, an officer is not personally liable for contracts signed on behalf of a corporation with a forfeited charter unless they were aware of the forfeiture (Del.Code tit. 8, 312; Plummer Co. Realtors v. Crisafi, 533 A.2d 1242, 1245). Baker Hughes argues that Brooks, Delphi's president, must have known about this tax issue before the settlement agreement and promissory note were executed. However, the law cited by Baker Hughes indicates that once a corporation renews or revives its charter, all actions taken during the forfeiture period are validated, making only the corporation liable for those actions (Del.Code tit. 8, 312(e)). The statute clarifies that upon renewal, the corporation is restored as if it had never been forfeited, validating all prior acts and retaining all property and rights. Evidence shows that Delphi renewed its corporate charter before Brooks filed his special appearance, with a certificate from the Delaware Secretary of State confirming that Delphi was in good standing and had paid all franchise taxes by February 7, 2012. This renewal occurred after Baker Hughes filed its original petition on January 13, 2012. A similar precedent in Plummer Co. upheld that renewal after the suit was filed did not establish personal liability for the contract signatory.

Revival of Delphi’s corporate charter validated the settlement agreement and promissory note, treating the certificate of incorporation as continuously in effect, per Delaware law (Del. Code tit. 8, 312(e)). Baker Hughes contended that allowing Brooks to avoid personal liability due to this renewal was inequitable, given that he signed the settlement agreement and note while Delphi's charter was forfeit. However, Delaware law permits the revival of a corporate charter to validate actions taken during forfeiture, which Baker Hughes did not contest under Texas or Delaware law for asserting personal jurisdiction over Brooks. Consequently, the court upheld the trial court's decision to grant Brooks’s special appearance and dismiss Baker Hughes's lawsuit. Brooks noted that interruptions in payments were due to a halt in natural gas sales and claimed that Delphi attempted to remedy a one-month default by tendering payments. The court did not address the merits of the underlying case. Baker Hughes named Brooks as a defendant, referencing him and Delphi interchangeably. Brooks became aware of Delphi’s forfeited charter only upon being sued personally by Baker Hughes regarding the promissory note, with service of citation confirmed on February 1, 2012, but he did not dispute the validity of the service.

The court in Plummer Co. determined that the corporation was merely a shell for the individual defendants, allowing for proper personal jurisdiction over them due to their substantial contacts with Delaware. If Baker Hughes had argued for piercing the corporate veil to establish personal jurisdiction over Brooks, the analysis would have extended beyond Delaware law, referencing Phillips v. United Heritage Corp. regarding both Texas and foreign law. The trial court found sufficient evidence implying that Delphi’s corporate charter had been revived, a point not contested by Baker Hughes, which mistakenly viewed this revival as a judicial tool for debtors to defraud creditors; however, such a revival is mandated by Delaware Code, title 8, section 312(e). Baker Hughes conflated personal jurisdiction with liability, a distinction highlighted in ACS Partners, LLC v. Gross, which is not applicable here because it involved Texas law and lacked a contract with a forum selection clause. Furthermore, Baker Hughes intended to contract with Delphi rather than Brooks personally, reinforcing that under Delaware law, the contract exists solely between Baker Hughes and Delphi.