Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:In April 2001, Abraham Martinez, a Texas resident and marketing agent for SPA Marketing LLC, approached Enrique and Sonya Griego about an investment in coin-operated telephones through American Telecommunications Company Inc. (ATC). The Griegos agreed to purchase five such payphones for $5,000 each pursuant to a service contract with Alpha TelCom Inc., ATC’s parent corporation. Under the contract, Alpha would maintain the phones, and the Griegos would receive a guaranteed percentage of revenues. To fund the investment, the Griegos rolled an individual retirement account into a self-directed IRA administered by IRA Resources, a California corporation headquartered in San Diego. Martinez provided the Griegos with forms to open the IRA account and execute the rollover, an investment directive to purchase the phones and an indemnity agreement in favor of IRA Resources. The Griegos completed the forms and tendered a check for $25,500 payable to IRA Resources and a $50 money order payable to IRA Resources, forwarding these items to IRA Resources in California. IRA Resources retained the $50 money order as an account initiation fee and opened a self-directed IRA for the Griegos. The Griegos’ check for $25,500 was then deposited in a California bank account for the benefit of self-directed IRA holders. Pursuant to the Griegos’ investment directive, IRA Resources issued a check in the amount of $25,000 payable to ATC to purchase the telephones. IRA Resources acted as the third-party administrator of the Griegos’ self-directed IRA, but it followed its clients’ investment directives and provided no investment advice. In June 2001, ATC ceased making payments to the payphone owners. When IRA Resources learned this, it informed ATC that it would halt all account applications directing investments in ATC until ATC met its obligations to IRA Resources’ existing clients. The investment failed, and in September 2003 the Griegos sued IRA Resources and others, alleging that the Griegos’ sale and service agreement with ATC and Alpha constituted the illegal sale of an unregistered security in violation of the Texas Securities Act (TSA) and that IRA Resources participated in this illegal sale by providing the underlying investment mechanism and by aiding and abetting ATC and Alpha in a scheme to defraud investors. The defendants filed special appearances, arguing that Texas courts could exercise neither specific nor general jurisdiction over them. The trial court summarily denied the defendants’ special appearances without specifying grounds. The court of appeals reversed and rendered in part, saying every defendant except IRA Resources lacked the minimum contacts necessary for either type of jurisdiction. The trial court, however, held that specific jurisdiction existed over IRA Resources. The trial court concluded IRA Resources purposefully directed its activities to Texas when it agreed to administer the Griegos’ self-directed IRA and accepted Griego’s payment sent from Texas. The court did not discuss general jurisdiction. The 13th Court of Appeals affirmed the trial court’s judgment. HOLDING:Reversed and remanded. The Texas long-arm statute, the Texas Supreme Court stated, authorizes personal jurisdiction over a nonresident defendant who does business in Texas, but the statute’s broad, doing-business language reaches only as far as federal due process criteria permits. For jurisdiction to be consistent with due process, the defendant must have established minimum contacts with the forum state, and the assertion of jurisdiction must gel with “traditional notions of fair play and substantial justice.” The minimum contacts analysis, the court stated, requires purposeful availment, which has at least three aspects. First, only the defendant’s forum-state contacts matter. Second, the contacts must be purposeful not merely random, isolated or fortuitous. Third, a nonresident defendant must seek some benefit, advantage or profit by availing itself of the jurisdiction, thus impliedly consenting to its laws. First, the court found that the Griegos failed to present evidence that IRA Resources had any contact with them whatsoever, much less made any misrepresentations. Next, the court found that the Griegos failed to show that IRA Resources’ contacts with Texas were purposeful as opposed to random and attenuated. IRA Resources did not market or solicit in Texas, nor did it send the forms to Texas, the court noted. Finally, the court found that although IRA Resources received some financial benefit from contracting with a Texas resident, this benefit did not spring from a constitutionally cognizable contact. The court concluded that IRA Resources’ actions did not constitute the purposeful availment required to exercise specific jurisdiction. Accordingly, the court reversed the 13th Court’s judgment and remanded to that court to consider the Griegos’ general jurisdiction argument. OPINION:Per curiam.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.