District Court Finds Personal Jurisdiction over Non-Resident, Non-Signatories to Contract Based On Alter Ego Analysis

The World in U.S. Courts: Winter 2016 - Personal Jurisdiction | October.06.2016

Graduate Medical Education Development, LLC v. St. George’s University, US District Court for the Southern District of Texas, October 6, 2016

Plaintiff Graduate Medical Education Development LLC is a Texas corporation in the business of helping non-US medical schools place their graduates into accredited residency programs.  The defendants are various entities associated with St. George’s University School of Medicine in Grenada.  Graduate Medical brought suit against St. George’s for allegedly violating a non-disclosure/non-circumvention agreement by using confidential information from Graduate Medical to secure investments from third parties.  Only one defendant signed the agreement, and the other defendants argued that the Court lacked personal jurisdiction over them. 

The Court found it had jurisdiction over the signatory defendant because of the defendant's execution of an agreement with a forum selection clause that directed litigation to the Court in Texas.  It also found that this provision could be imputed to the non-signatory defendants because they were merely “alter egos” of the signatory, noting that the “alter ego” test was less demanding in connection with asserting jurisdiction that in establishing liability.  Specifically, the Court found that the jurisdictional test required only a showing that the defendant challenging jurisdiction was a shell for the defendant over whom the Court clearly had jurisdiction, not a showing of an actual fraud or wrong, as would be required to impute liability.  In support of its conclusion, the Court noted that the defendants shared multiple officers and directors, that the signatory defendant was wholly owned by St. George’s University, that the daily business activities of non-signatory St. George’s entities were intertwined with those of the signatory, and that the person who signed the contract had “clear connections” to other defendants.    

The Court also noted that the assertion of jurisdiction must satisfy the requirements of the Due Process Clause of the federal constitution.  Texas’ long-arm statute extends to the limits of federal due process, and the court applied the traditional two-part due process analysis to determine whether the nonresident “purposely availed” itself of the benefits and protections of the forum state, and the exercise of due process does not offend “traditional notions of fair play and substantial justice.”  The Court also noted that in a breach of contract case, it must decide “(1) whether the defendant has minimum contacts with the forum state, (2) whether the plaintiff's cause of action arises from the contract in question, and (3) whether the exercise of personal jurisdiction is fair and reasonable.”  If the plaintiff can establish the first two prongs, the burden shifts to defendant to show that the exercise of jurisdiction would not be fair and reasonable.  The Court concluded that the signatory defendant’s entry into the non-disclosure/non-circumvention agreement containing a forum selection clause established the necessary “purposeful availment” to satisfy due process concerns.

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