Opinion
1:03-cv-59-LJM-WTL
September 25, 2003
ORDER ON DEFENDANTS' MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
This matter comes before the Court on Defendants', Kent J. Tolley ("KJ Tolley") and Lisa A. Hatch ("Hatch"), Motion to Dismiss for Lack of Personal Jurisdiction. Plaintiff, BFS Diversified Products, LLC ("BFS"), filed a complaint against defendants to recover money owed on a promissory note, and KJ Tolley and Hatch moved to dismiss for lack of personal jurisdiction under Rule 12(b)(2) of the Federal Rules of Civil Procedure. The motion is now ripe for ruling.
I. FACTUAL BACKGROUND
Defendants Tolley — Hughes, Inc. ("Tolley — Hughes") and Building Specialties Wholesale Company ("Building Specialties") are Idaho corporations with principal places of business located in Idaho. Comp. ¶ 2. Defendants Alan D. Tolley ("Alan Tolley"), KJ Tolley, and Hatch are citizens of the state of Idaho. Id. ¶¶ 3 — 4. KJ Tolley is the President of Tolley — Hughes, Alan Tolley is the President of Building Specialties, and Hatch is a principal of Tolley — Hughes.
A. TOLLEY — HUGHES NOTE AND PERSONAL GUARANTY
On or about May 1, 2002, Tolley — Hughes executed and delivered to BFS a promissory note (the "Note") whereby Tolley — Hughes promised to pay BFS the principal sum of $191,604.89 with interest thereon at the rate of 5.75% per annum. Ex. 1. The Tolley — Hughes Note provides for payments of principal and interest to be made to BFS on the 25th day of every month beginning on May 25, 2002, and ending when the debt was paid in full. Ex. A. On or about May 1, 2002, KJ Tolley and Hatch executed and delivered a Personal Guaranty (the "Guaranty") pursuant to which KJ Tolley and Hatch unconditionally guaranteed "the full, prompt and faithful performance" of Tolley — Hughes "and all the obligations" of Tolley — Hughes under the Note. Ex. 1.B. DEFAULT
The last payment Tolley — Hughes made on the Note was received and credited by BFS on July 31, 2002, leaving a balance due of $173,441.11. Comp. ¶ 14. Tolley — Hughes has made no further payments to BFS. Id. ¶ 15. By letter mailed to Tolley — Hughes on December 13, 2002, BFS gave notice of default to Tolley — Hughes. Ex. 3.
Under the Note, continued failure to make payment for five days after notice of default constitutes a default. Ex. 1. Pursuant to Section 3 of the Note, the entire unpaid principal balance on the Note becomes payable upon default. Ex. 1. Tolley — Hughes did not make any payment after the December 13, 2002, notice of default. Comp. ¶ 18.
BFS also seeks to recover the unpaid balance on a note that was signed by Alan Tolley on behalf of Building Specialties. However, Alan Tolley has not challenged this Court's jurisdiction to hale him into court, and the Building Specialties note is not relevant to this motion.
II. STANDARDS PERSONAL JURISDICTION
Because KJ Tolley and Hatch have challenged the jurisdiction of this Court, BFS has the burden of demonstrating that such jurisdiction exists. See RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997). For purposes of this motion, the Court will assume as true any affidavits or other specific evidence BFS offers, and will construe any disputed facts in its favor. Id. at 1275.A federal court exercising diversity jurisdiction has personal jurisdiction, "only if a court of the state in which it sits would have such jurisdiction." Klump v. Duffus, 71 F.3d 1368, 1371 (7th Cir. 1995). The Indiana Supreme Court explained that a two — step analysis is required to determine whether an Indiana state court may exercise personal jurisdiction over a nonresident defendant. See Anthem Ins. Cos., Inc. v. Tenet Healthcare Corp., 730 N.E.2d 1227, 1232 (Ind. 2000). The Court must first determine whether a defendant's conduct falls within Indiana's long — arm statute. If it does, the Court must then determine if the defendant's contacts with Indiana satisfy federal due process requirements. Id.
Ind. Trial Rule 4.4(A) performs the same function as a long — arm statute. Although technically a trial rule, the Court will refer to it throughout this opinion as the "long — arm statute."
Under the familiar due process analysis enunciated by the Supreme Court in International Shoe Co. v. Washington, a court must determine whether a nonresident defendant has sufficient "minimum contacts with [the forum] such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). See also Wilson v. Humphreys (Cayman) Ltd., 916 F.2d 1239, 1243 (7th Cir. 1990). These minimum contacts must be established by a defendant's purposeful acts.
As the Supreme Court explained in Hanson v. Denckla:
The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State. The application of that rule will vary with the quality and nature of the defendant's activity, but is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws.357 U.S. 235, 253 (1958). In short, exercising jurisdiction over a defendant will comply with due process only if the defendant "reasonably should have anticipated `being haled into court' in Indiana" and "purposefully . . . availed itself of the `privilege of conducting activities' in Indiana." Wilson, 916 F.2d at 1244 (quoting World — Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); Hanson, 357 U.S. at 253). Once minimum contacts have been established, a court must "determine whether the assertion of personal jurisdiction would comport with' fair play and substantial justice.'" Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985) (quoting Int'l Shoe, 326 U.S. at 320).
The Supreme Court has recognized two separate forms of personal jurisdiction that will satisfy this "minimum contacts" requirement: general and specific. See RAR, 107 F.3d at 1277. "General jurisdiction" allows a court to exercise its jurisdiction over a defendant who has had such "continuous and systematic" contacts with the forum state that the court's exercise of jurisdiction over the defendant is reasonable and just, even if those contacts bear no relation to the underlying controversy. Id. The standard for establishing general jurisdiction is fairly high. See Wilson, 916 F.2d at 1245.
By contrast, "specific jurisdiction" exists where the defendant has had only "minimum contacts" with the forum state but the cause of action arises from those contacts. See RAR, 107 F.3d at 1277. "[T]he defendant's conduct and connection with the forum state [must be] such that he should reasonably anticipate being haled into court there" to answer for his conduct. World — Wide Volkswagen, 444 U.S. at 297. See also RAR, 107 F.3d at 1277 (stating that the court must consider "whether, by traditional standards, [a defendant's contacts with the forum] would make personal jurisdiction reasonable and fair under the circumstances"). Random, fortuitous, or attenuated contacts will not suffice to support a finding of specific personal jurisdiction. See Burger King, 471 U.S. at 475; RAR, 107 F.3d at 1277 — 78 (discussing what constitutes "purposeful availment" such that litigating in the forum is foreseeable to the defendant). With these standards in mind, the Court will now address the parties' arguments.
III. DISCUSSION
In their answer, KJ Tolley and Hatch (the "Guarantors") move to dismiss BFS' complaint for lack of personal jurisdiction and move to quash the service and summons. According to the Guarantors, they do not have sufficient minimum contacts with this jurisdiction such that they could reasonably anticipate being haled into court in Indiana. In addition, the Guarantors assert that the exercise of jurisdiction over them does not comport with the traditional notions of fair play and substantial justice that underlie the Due Process Clause.
At the outset, the Court notes that the Guarantors have not complied with Local Rule 7.1. Local Rule 7.1 provides that: "A motion to dismiss under Rule 12 of the FED. R. Civ. P. . . . shall be accompanied by a separate supporting brief." L.R. 7.1. Although the Guarantors moved to dismiss in their answer, they did not favor the Court with a separate supporting brief. Instead, they recited the familiar personal jurisdiction standards in their answer, and stated that jurisdiction is not proper without discussing any of the relevant facts or citing to case law. As a result, the only information available to aid the Court in deciding the motion comes from the allegations in the complaint, and the assertions and arguments contained in BFS' Brief in Opposition to the Guarantor's Motion to Dismiss.
A. INDIANA'S LONG — ARM STATUTE
Despite the Guarantors' failure to comply with the local rules, the Court will consider the jurisdiction issue. BFS asserts that jurisdiction is proper over the Guarantors under Indiana's long — arm statute because the Guarantors were "doing business" in Indiana. T.R. 4.4(A)(1). Indiana case law on the "doing business" prong of the long — arm statute focuses on numerous common sense factors, such as where the business relationship was formed, where the contract negotiations and signing occurred, who initiated the relationship, defendants' place of performance, and if defendant ever physically entered the state. See, e.g., Freemond v. Somma, 611 N.E.2d 684, 689 — 90 (Ind.Ct.App. 1993) (collecting cases). See also Woodmar Coin Ctr., Inc. v. Owen, 447 N.E.2d 618, 621 (Ind.Ct.App. 1983) (asserting jurisdiction over out — of — state defendant who initiated relationship and engaged in substantial contract negotiations with Indiana resident).
Indiana Trial Rule 4.4 provides, in relevant part:
(A) Acts Serving as a Basis for Jurisdiction. Any person or organization that is a nonresident of this state, a resident of this state who has left the state, or a person whose residence is unknown, submits to the jurisdiction of the courts of this state as to any action arising from the following acts committed by him or her or his or her agent:
(1) doing any business in this state . . .
Unfortunately, the Court has little information about where the business relationship was formed, where the contract negotiations and signing occurred, who initiated the relationship, and whether or not the Guarantors ever physically entered the state. However, the Guarantors' place of performance was Indiana — they were required to send notice and payments to BF S' Carmel, Indiana, address. Moreover, according to BFS, KJ Tolley and Hatch, as principal owners of Tolley — Hughes, bought products manufactured in Indiana from BF S, and generally conducted business with Firestone Building Products Company ("Firestone"), headquartered in Carmel, Indiana. Pl.'s Opposition at 3. The Guarantors have not opposed BFS' contention that they generally conducted business with Firestone.
Defendant BFS Diversified Products, LLC, is a subsidiary of Bridgestone Americas Holding, Inc., whose parent, Bridgestone Corporation of Japan, is the world's largest tire and rubber company. Firestone Building Products is a Division of BFS Diversified Products, LLC.
In addition, KJ Tolley and Hatch, in their capacity as principals of Tolley — Hughes, signed the Note in which Tolley — Hughes promised to repay BFS the principal sum of $191,604.89 plus interest. Ex. 1. Any notice and all monthly payments to BFS on the Note were to be mailed to its Carmel, Indiana, address. Id. at 2 — 3. KJ Tolley and Hatch invoked the benefits and protections of Indiana law by agreeing that any dispute about the Note would be resolved under the laws of Indiana. Ex. 1 at 4. Moreover, the Guaranty was made in order to induce BFS, an Indiana LLC, to make the loan to Tolley — Hughes. The Guarantors' actions constitute "doing business" in Indiana.
B. DUE PROCESS
Under the second prong of Indiana's personal jurisdiction test, the Court must consider the nature of the Guarantors' contacts with Indiana and whether those contacts are sufficient such that the defendants could "reasonably anticipate being haled into court there." Burger King, 471 U.S. at 474. If those contacts are sufficient, the Court must examine whether the exercise of personal jurisdiction offends "traditional notions of fair play and substantial justice." Id. at 476. In the instant case, BFS does not argue that the Court has general jurisdiction over the Guarantors. Thus, the Court must evaluate whether the Guarantors' contacts with the forum state are sufficiently related to the subject matter of the lawsuit such that an exercise of specific jurisdiction is proper.
KJ Tolley and Hatch's contacts with Indiana did in fact give rise to the instant suit. As related above, KJ Tolley and Hatch, in their capacity as principals of Tolley — Hughes, signed the Note in which Tolley — Hughes promised to repay BFS the principal sum of $191,604.89plus interest. Ex. 1. Any notice and all monthly payments to BFS on the Note were to be mailed to its Carmel, Indiana, address. Ex. 1 at 2 — 3. KJ Tolley and Hatch executed the Guaranty in order to induce BFS to make the loan to Tolley — Hughes, and any payments by the guarantors were to be sent to the Carmel, Indiana, address. Tolley — Hughes defaulted on its monthly payments, and the Guarantors did not continue the payments. BFS filed this suit to recover on the Note or on the Guaranty. This direct connection between the Guarantors' contacts with Indiana and the subject matter of the suit supports a finding of specific personal jurisdiction.
Numerous courts, including the Seventh Circuit, have required out — of — state guarantors to defend suit in similar circumstances. See Continental Bank, N.A. v. Everett, 964 F.2d 701 (7th Cir. 1992) (concluding that guarantors were subject to the jurisdiction of Illinois courts where they guaranteed a loan with a Chicago bank, promised to make payments in Illinois, and agreed that dispute would be resolved under laws of Illinois). See also Nat'l Can Corp. v. K Beverage Co., 674 F.2d 1134 (6th Cir. 1982); Marathon, Etc. v. Mountain Empire Const. Co., 653 F.2d 921 (5th Cir. 1981); Forsythe v. Overmyer, 576 F.2d 779 (9th Cir. 1978); O'Hare Int'l Bank v. Hampton, 437 F.2d 1173 (7th Cir. 1971); Kimball Int'l, Inc., v. Warmack, 1989 WL 432179 (S.D. Ind.) (collecting cases); Reliance Elec. Co. v. Luecke, 695 F. Supp. 917 (S.D. Ohio 1988).
The courts in the cases cited above focused on whether the guarantors were parties to the underlying contracts at issue, and whether the plaintiff would have entered into the underlying contract without the guaranties. When a guarantor controls the company that entered into the underlying contract and the plaintiff would not have entered the contract without the guaranty, courts have little difficulty concluding that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. See, e.g, Nat'l Can Corp., 674 F.2d at 1138 (asserting jurisdiction over guarantors who had economic interest in debtor — defendant, and noting that credit would not have been advanced without the guaranty); Marathon Metallic Bldg. Co., 653 F.2d at 923 (asserting jurisdiction over guarantor who was corporate officer, director, and shareholder of debtor — defendant).
Those exact circumstances are present in the instant case. As directors and principal shareholders of Tolley — Hughes, KJ Tolley and Hatch had a strong interest in securing the loan from BFS. In addition, they both signed the "Personal Guaranty" attached to the Note:
TO INDUCE BFS DIVERSIFIED PRODUCTS, LLC, a Delaware limited liability company, to make the loan evidenced by that [Note], to which this Guaranty is attached and forms a part . . . Kent J. Tolley and Lisa A. Hatch, as individuals . . . guarantee the full, prompt and faithful performance of the Maker . . . under the Note . . .
Ex. 1 (caps and underlining in original). When the principals of a corporation personally guarantee repayment on a note in order to assure the extension of credit from an Indiana domiciliary, it is reasonable and fair to require the guarantors to honor that promise in Indiana courts. The Court concludes that the exercise of jurisdiction over the guarantors would not offend traditional notions of fair play and substantial justice. Thus, Defendants' Motion to Dismiss for Lack of Personal Jurisdiction is DENIED.
IV. CONCLUSION
For the reasons stated herein, the Court DENIES Defendants' Motion to Dismiss for Lack of Personal Jurisdiction.
IT IS SO ORDERED.