287 Retamco Operating, Inc. v. Republic Drilling Co.

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Retamco Operating, Inc. v. Republic Drilling Co., 278 S.W.3d 333 (Tex. 2009) examines whether a Texas court has personal jurisdiction over an out-of-state defendant accused of acquiring oil and gas interests in Texas in violation of the Uniform Fraudulent Transfer Act. Retamco Operating, Inc., a Texas corporation (“Retamco”), sued Paradigm Oil, Inc., another Texas corporation (“Paradigm”), in a Texas district court for unpaid royalties on several oil and gas leases located in Texas. After obtaining a $16 million default judgment against Paridigm, Retamco amended its petition, alleging that during the pendency of the litigation, Paradigm transferred 72% of its oil and gas interests in leases and wells in Fayette, Dimmit, and Webb Counties to Republic Drilling Company, a California corporation (“Republic”), rendering Paradigm insolvent and unable to satisfy Retamco’s judgment against Paradigm.
 
Retamco argued that Republic, as a fraudulent transferee of Texas real property, was subject to personal jurisdiction in Texas. Republic argued that because all activities related to the transfer of the property occurred outside Texas, it was not subject to personal jurisdiction. The Texas Supreme Court held, that by accepting the transfer of title to Texas real property, Republic purposefully established minimum contacts with Texas and availed itself of Texas laws, so that Republic became subject to specific personal jurisdiction in Texas.
 
The supreme court employed minimum contacts analysis, reasoning “Republic’s contacts with Texas were purposeful, not random, fortuitous, or attenuated. . . . Republic, by taking assignment of Texas real property, reached out and created a continuing relationship in Texas.” The supreme court considered that unlike with personal property, Republic’s oil and gas property interests would always be located in Texas, leaving “no doubt” about Republic’s continuing relationship with the state. “Should Republic ever wish to enforce rights under its interest in Texas oil and gas leases and wells, it is this state where those rights can be enforced, not California.” The supreme court also noted that though a nonresident may purposefully structure a transaction so as to not gain any benefit from its contacts with a state, and thus avoid the state’s exercise of personal jurisdiction over it, Republic “sought a ‘benefit, advantage or profit’ in Texas” and garnered $1.2 million in revenues from its Texas real property interests.
 
The supreme court concluded that Republic’s contacts with Texas were sufficiently related to its potential liability to support the exercise of personal jurisdiction. “Republic is alleged to have received transfer of Texas real property from a Texas resident, during the pendency of a Texas suit, for the purpose of defrauding a Texas resident. . . . These contacts are sufficient to demonstrate that this alleged tort occurred at least, in part, in Texas.”
 
The supreme court next examined whether exercising personal jurisdiction over Republic would comport with “traditional notions of fair play and substantial justice.” It considered “(1) the burden on the defendant; (2) the interests of the forum state in adjudicating the dispute; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several States in furthering fundamental substantive social policies.” The supreme court noted that Republic may be burdened by litigating outside California, but that the burden on Republic is far outweighed by other factors supporting litigation in Texas. “[Retamco] has an interest in resolving this controversy in Texas because that is where the litigation began. Texas has an interest in resolving controversies involving real property within its borders and, given that the prior litigation deals with this property, it is most efficient to continue to use Texas as the forum to resolve the dispute.”
 
The significance of this case is the holding that a nonresident may be subject to personal jurisdiction in Texas merely by owning oil and gas or other real property interests in Texas, even if all activities related to the transfer of such property interests occurred outside the state.