“My company does business here, but you can’t sue me in Texas.”

By Richard Muñoz 
 
Foreign companies and their employees working in Texas

YYZ is a Chinese oil and gas company. The president of YYZ, Mr. John Wu, is a Chinese citizen and lives in Beijing. He visits Texas on behalf of YYZ at least once every few months. YYZ and a Texas company, Big Bubba Oil, are negotiating a contract in Texas. Mr. Wu is the chief negotiator for YYZ. After months of dinners, golf and building relationships, the parties reach an agreement and sign an agreement in Dallas, Texas.

A few months later, YYZ and Big Bubba are in a monetary dispute related to the agreement. While Mr. Wu is visiting Texas for YYZ on an unrelated matter, he is served with a lawsuit from Big Bubba Oil. Big Bubba Oil has sued YYZ and Mr. Wu, individually, for breach of contract. Mr. Wu comes to your office for representation.  After you explain the intricacies of personal jurisdiction, the Texas Long Arm Statute and the Special Appearance to Mr. Wu, you discover that he only comes to Texas on behalf of his employer, YYZ.

Fiduciary Shield Doctrine

In this case, you may be able to defeat an assertion of personal jurisdiction through the Fiduciary Shield Doctrine (the “Doctrine”). The Doctrine holds that when an officer or employee for a business entity does business in Texas solely as the result of their employment for that entity, then that entity’s Texas contacts will not be imputed to that officer or employee for purposes of personal jurisdiction. The Fiduciary Shield Doctrine has its roots in the legal fiction that a corporation is a separate legal entity from its representatives. Since the corporate form normally shields shareholders, officers, employees and directors from the liability of a corporation, it follows that the corporation’s contacts with Texas will not generally be attributed to the corporate representative.

In this case, you review the petition and find that Big Bubba has alleged that YYZ and Mr. Wu have breached their contract with Big Bubba. The contract is an exhibit to the petition. The Agreement refers only to YYZ and not Mr. Wu. Mr. Wu signs the document “John Wu, President of YYZ”. There are also no allegations in the petition that Mr. Wu made promises to Big Bubba in his individual capacity. You also have affidavits and other evidence such as correspondence on official letterhead that shows that Mr. Wu was negotiating the agreement only on behalf of YYZ. Given this evidence, you should be able to show that Mr. Wu is entitled to protection under the Doctrine.

Exceptions to Fiduciary Shield Doctrine

What if the petition alleged that Mr. Wu had committed fraud in his individual capacity during the negotiations with Big Bubba? When a nonresident defendant commits a tort in Texas that act can be enough to confer specific jurisdiction over the defendant and a Special Appearance could be denied. This exception is rooted in well-settled agency law that an agent is liable for their own torts. As such, you would need to come up with solid evidence to negate the tort as a basis for jurisdiction. The same holds true if Big Bubba alleged that YYZ was a sham or an alter-ego of Mr. Wu. In those situations, however, Big Bubba would have the burden to prove the sham or alter-ego but Mr. Wu would still need to produce evidence to negate those allegations.

Practice Tips

Many of the cases dealing with the Fiduciary Shield Doctrine focus on the plaintiff’s pleadings and evidence regarding the how the defendant held themselves out to the plaintiff. So if you have a client whose only contacts with Texas are because of their employment, then it is important to remind them to:

  • be transparent and clear on who they represent during a transaction;
  • use business cards and letterhead when appropriate; and
  • sign documents in their representative capacity.

Absent tortious conduct or alter-ego corporate situation, the Fiduciary Shield Doctrine is a useful tool for nonresident officers or employees of international companies from being subjected to personal jurisdiction in a Texas court.