Procarsa S.A. de C.V. v. Blue Racer Midstream, LLC

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PROCARSA S.A. DE C.V., Appellant v. BLUE RACER MIDSTREAM, LLC, Appellee

No. 05-23-00901-CV

Court of Appeals of Texas, Fifth District, Dallas

December 11, 2024

On Appeal from the 68th Judicial District Court Dallas County Texas Trial Court Cause No. DC-21-07310.

Before Justices Molberg, Nowell, and Kennedy

MEMORANDUM OPINION

KEN MOLBERG, JUSTICE

Appellant Procarsa S.A. de C.V. appeals the trial court's order denying its special appearance, arguing the trial court erred because appellee Blue Racer Midstream, LLC failed to carry its burden to show the court had specific jurisdiction over Procarsa S.A. de C.V. We affirm in this memorandum opinion.

Background

On June 8, 2021, Blue Racer filed its original petition, asserting claims for strict products liability, breach of warranty negligent misrepresentation, and negligence against defendants Procarsa USA Inc. and Procarsa Tube & Pipe Company, Inc., two entities based in Brownsville, Texas. Blue Racer alleged it purchased pipe in Dallas that had been manufactured by the defendants in Mexico, the defendants represented and warranted that the pipe met the American Petroleum Institute's specifications and requirements the pipe failed during testing, and subsequent lab testing "determined that the failure was caused by defects in the pipe welds that occurred during the manufacturing process, which resulted in the failure of the weld lines to properly bond."

In its second^[1] and third amended petitions, Blue Racer added claims against defendant Industrial Procarsa S.A. de C.V. and appellant Procarsa S.A. de C.V., two Mexican entities headquartered in Ciudad Frontera, Coahuila, Mexico. In the third amended (live) petition, Blue Racer generally alleged the court has personal jurisdiction over all parties and claims and stated that "[a]ll parties are doing business, are incorporated in, or otherwise maintain principal places of business in the State of Texas."

Blue Racer is "a natural gas midstream company based in Dallas" with operations in Ohio and West Virginia. Blue Racer alleged Procarsa^[2],

is a manufacturer, seller, distributor, and importer of carbon steel tubular goods for use in a variety of applications, including natural gas pipelines. Procarsa manufactures its steel products in Mexico, and then sells them from its Texas headquarters to customers throughout Texas and the United States. Procarsa deliberately conceals which of its family of entities is responsible for the pipe it manufactures and supplies. This is not disclosed to end-users, nor was it discovered until this lawsuit was filed.

In Dallas, Blue Racer purchased pipe manufactured by Procarsa for use in Blue Racer's pipeline construction project in West Virginia, "and the material considerations relating to its decision to purchase the specific pipe in question occurred in Dallas." "Markings, etchings, and/or stamps [on the pipe] showed" the pipe was manufactured by Procarsa, which "was aware of the specific, planned use of the pipe, and made express representations and warranties concerning its attributes."

Procarsa represented and warranted that the pipe met "the requirements and specifications set forth in the American Petroleum Institute's Specification 5L for [API 5L X65M PSL 2] pipe," meaning the pipe has "very specific characteristics as it relates to yield strength, tensile strength, and welds, and requires that the pipe be able to withstand hydrostatic testing without leakage through the weld seam or pipe body."

Blue Racer alleged the pipe was the appropriate grade for the twenty-four-inch pipeline it was constructing, and it used the pipe for its intended purpose. On or about December 19, 2019, the pipeline "was hydrostatically tested in anticipation of it being placed into operation. The pipeline was unable to handle hydrostatic pressure and ruptured during the testing process." The ruptured pipe section was removed and tested in a metallurgical lab, with the participation of Procarsa's representatives. The lab determined "the failure was caused by defects in the pipe welds that occurred during the manufacturing process, which resulted in the failure of the weld lines to properly bond."

Blue Racer alleged that,

[b]y manufacturing and selling defective pipe, Procarsa failed to comply with its express and implied warranties and placed defective, unreasonably dangerous product into the stream of commerce. As a result, Blue Racer has sustained significant damage associated with the loss of the pipe, efforts to repair the ruptured pipe, and metallurgical testing of the ruptured pipe, for which it hereby demands compensation.

Blue Racer also alleged that it learned during discovery "that previously undisclosed entities were involved with the manufacture of the pipe at issue," which had been "concealed by Procarsa and could not have been discovered by Blue Racer through the exercise of any level of care or diligence." Blue Racer asserted causes for strict products liability, breach of warranty, negligent misrepresentation, and negligence.

Procarsa S.A. de C.V. filed an amended special appearance arguing it is subject to neither the court's general jurisdiction nor specific jurisdiction because it "has no case-related contacts with the State of Texas." Procarsa S.A. de C.V. "has never sold, distributed, manufactured, or placed products in the stream of commerce in Texas" and "does not conduct any business in the State of Texas." It is a company "whose only purpose is to test and certify certain products manufactured by [Procarsa S.A. de C.V.'s] only client, defendant Industrial Procarsa, S.A. de C.V., a separate and distinct Mexican corporation with its principal place of business in Coahuila, Mexico."

Procarsa S.A. de C.V. contended that its "only contact with the United States, albeit not with Texas, relates to its certification by the American Petroleum Institute, a nonprofit entity originally incorporated in New York and headquartered in Washington, D.C."

Procarsa S.A. de C.V. supported its special appearance with declarations from its legal representative and Procarsa Tube & Pipe's director, as well as deposition excerpts from its legal director. Jose Neira Olvera (Neira) stated he is the legal representative and attorney for Procarsa S.A. de C.V., whose "sole corporate purpose and function is to provide testing and certification services to verify other companies' compliance with certain manufacturing processes and standards in Mexico." Procarsa S.A. de C.V. is not registered to do business in Texas, and has no operations, offices, other places of business, employees, property, or bank accounts in Texas. It "does not sell, distribute, or place any products in the stream of commerce in Texas, or anywhere else in the world." Procarsa S.A. de C.V.'s only connection to the United States is its certification by API. Procarsa S.A. de C.V. "had nothing to do with the design, manufacture, sale, or export of the pipe" at issue in the suit.

Neira stated Procarsa S.A. de C.V. has never performed any work for Blue Racer, and "has never spoken to or otherwise communicated with anyone employed by, affiliated with, or acting on behalf of Blue Racer . . . ." Its involvement with the events at issue in the suit was limited to providing "certain testing and certification services to (and requested by) Industrial Procarsa, S.A. de C.V., the Mexican entity that manufactured and exported the pipe at issue" in the suit.

In his deposition, Neira testified Procarsa S.A. de C.V.'s business involved "the service of certification" and "the monitoring of processes and testing." Procarsa S.A. de C.V. monitors the production of Industrial Procarsa and no other entities. Procarsa S.A. de C.V. services Industrial Procarsa when Industrial Procarsa sends it a written work order, which lists the client for which Industrial Procarsa is manufacturing a product and the type of pipe or product required. He said that, when Procarsa S.A. de C.V. receives a work order from Industrial Procarsa, the product has not yet been manufactured-Procarsa S.A. de C.V. "steps in and monitors the full fabrication and manufacturing process." After manufacturing is completed, Procarsa S.A. de C.V. performs testing or inspection for ultimate certification of the product. Industrial Procarsa pays Procarsa S.A. de C.V. for its inspection services. Neira said Procarsa S.A. de C.V. never contacts Industrial Procarsa's client. Procarsa S.A. de C.V. holds an API license and performs testing and inspection services to issue API certifications on pipe manufactured by Industrial Procarsa. Given that Procarsa S.A. de C.V. only provides its services to Industrial Procarsa, counsel to Blue Racer questioned Neira why Procarsa S.A. de C.V. employs a sales representative. He responded, "She's the one who receives all our orders from Industrial Procarsa."

Neira acknowledged Procarsa S.A. de C.V. did inspections for Industrial Procarsa's client Steel Professionals but said Procarsa S.A. de C.V. never contacted Steel Professionals about the pipe in question. Procarsa S.A. de C.V. became aware of the failure of the pipe in 2020. Neira said Procarsa S.A. de C.V. did not send a representative to the site of the failure, but he said he traveled to Texas to observe the post-rupture testing. He did not speak with anyone from Steel Professionals or Blue Racer about the post-rupture testing but did speak with Leo Vega from Stress Engineering.

Sergio Vigil Gonzalez (Sergio) stated in his declaration he is the director of defendant Procarsa Tube & Pipe, a Texas corporation based in Brownsville whose "sole corporate purpose is for the import and export of structural steel and piping products." Procarsa Tube & Pipe purchased the pipe at...