Summary
finding that minimum contacts with Louisiana existed when a non-resident executed a Guaranty in order to induce a company to provide credit
Summary of this case from S. Filter Media, LLC v. HalterOpinion
Civil Action No. 99-2704, Section "L"(3)
July 25, 2000
ORDER REASONS
Before the Court is the motion of defendant Peter C. Kern ("Kern") to dismiss for lack of personal jurisdiction and improper venue pursuant to Rules 12(b)(2) and 12(b)(3) of the Federal Rules of Civil Procedure. For the following reasons, defendant Peter C. Kern's motion to dismiss on the grounds of lack of personal jurisdiction is denied, but the defendant's motion to dismiss for improper venue is GRANTED.
I. BACKGROUND
Plaintiff Consolidated Companies, Inc. ("Conco") filed suit on September 2, 1999, seeking to recover on a guaranty debts allegedly owed to Conco by companies for whom the defendant executed the guaranty.
Conco is a Louisiana corporation which sells wholesale food and service products. Its principal place of business and office headquarters are located in Metairie, Louisiana. Kern is a Texas resident and is the primary shareholder of Texas Health Enterprises, Inc. ("Texas Health"), Health Enterprises of Michigan, Inc. ("HEM"), Health Enterprises of Oklahoma, Inc. ("HEO"), Health Enterprises of Wisconsin, Inc., HEA of Iowa, Inc., HEA of New Mexico and HEA Management Group, Inc. (collectively, the "Companies"). The Companies purchased food and supplies from Conco for several years, and Conco delivered these goods to 58 facilities throughout Texas.
On June 24, 1994, Kern executed a guaranty in which he personally guaranteed all the debts owed by the Companies to Conco ("Guaranty"). The recitals of the Guaranty state that it was executed by Kern in order to induce Conco to continue to provide credit to the Companies. In connection with the Guaranty, a payment agreement was established between Conco and the Companies which created a specific schedule whereby the Companies would repay past indebtedness as well as all other debts owed to Conco by the Companies ("Payment Agreement"). At the time of the agreement, the past indebtedness exceeded $2.6 million.
Since 1997, Texas Health has been the only entity of the Companies doing business with Conco. On August 3, 1999, several of the Companies, including Texas Health, filed for bankruptcy relief in the United States Bankruptcy Court for the Eastern District of Texas. Despite its bankruptcy, Texas Health continues to do business, with the plaintiff, purchasing the largest share of its food requirements from Conco.
Conco alleges that Texas Health currently owes it over $1.3 million and that, pursuant to the Guaranty, Kern is liable to Conco for that amount. Kern has moved to dismiss this suit on procedural grounds, arguing that the Court lacks personal jurisdiction over him and is an improper venue for this action. The plaintiff contends that such jurisdiction does exist because the Guaranty creates the minimum contacts required for a valid assertion of personal jurisdiction and that venue is correct because Conco is based in New Orleans.
II. ANALYSIS
A. Jurisdiction
A federal court presiding over a diversity suit may exercise personal jurisdiction over a nonresident defendant to the extent permitted by a state court in the state in which the federal court resides. See Bullion v. Gillespie, 895 F.2d 213, 215 (5th Cir. 1990). This rule dictates that the Court must satisfy two requirements in order to exercise jurisdiction over a nonresident defendant. See Dickson Marine Inc. et al. v. Panalpina, Inc., et al., 179 F.3d 331, 336 (5th Cir. 1999). First, the Court must satisfy the requirements of the State's long-arm statute. See id. Second, the assertion of personal jurisdiction must be consistent with the Due Process Clause of the Fourteenth Amendment. See id. The Louisiana long-arm statute, La. Rev. Stat. Ann. § 13:3201(B) (West 1991), has been interpreted to extend to the limits of due process. See Dickson Marine, 179 F.3d at 336. Therefore, the Court's inquiry collapses into the single investigation of whether subjecting Kern to suit in Louisiana would offend the Due Process Clause of the Fourteenth Amendment. See id.
An assertion of in personam jurisdiction over Kern is consistent with the Due Process Clause if he has "certain minimum contacts with [Louisiana] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). This requirement shields a defendant from being subject to the binding judgment of a forum with which the defendant has no significant "contacts, ties, or relations." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985) (quoting International Shoe, 326 U.S. at 319). Minimum contacts are established when there is "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253 (1958).
The concept of in personam jurisdiction has been divided into two categories: specific jurisdiction and general jurisdiction. See Marathon Oil Co., et al. v. A.G. Ruhrgas, 182 F.3d 291, 295 (5th Cir. 1999). Only if Conco's cause of action arises from or is directly related to Kern's contacts with Louisiana is an exercise of specific jurisdiction appropriate. See id. at 295. If Kern has contacts with Louisiana that are continuous, systematic and substantial, even if unrelated to the circumstances engendering Conco's suit, an assertion of general jurisdiction is proper. See id.
Procedurally, the plaintiff bears the burden of establishing minimum contacts justifying the court's assertion of jurisdiction over a nonresident defendant. See Guidry v. U.S. Tobacco Co., Inc., 188 F.3d 619, 625 (5th Cir. 1999), reh'g denied, Guidry v. U.S. Tobacco., Inc., 199 F.3d 441 (5th Cir. 1999). When the nonresident defendant moves to have the case dismissed on the grounds that the presiding court lacks personal jurisdiction, the plaintiff need only make a prima facie showing that an exercise of jurisdiction does not offend the Due Process Clause. See id. The court must resolve all factual disputes in favor of the nonmoving party, and accept as true the nonmovant's allegations. See id.
The defendant argues that this Court cannot exercise personal jurisdiction by means of either general or specific jurisdiction because contacts between Kern and Louisiana sufficient to justify an exercise of personal jurisdiction do not exist. The defendant asserts that an exercise of general jurisdiction is not appropriate, as Kern personally has had almost no contact with Louisiana. The defendant contends that an exercise of specific jurisdiction is also improper, since the plaintiff's suit does not arise out of Kern's contacts with Louisiana. The defendant feels that these reasons justify granting its motion to dismiss.
Plaintiff argues that the Court should exercise jurisdiction over Kern according to a theory of specific jurisdiction. Plaintiff contends that its suit arises out of Kern's execution of the Guaranty because that agreement was integral to Conco's continued business with the Companies. Without Conco's reliance on the Guaranty, credit would not have been extended to the Companies, and the debts allegedly owed by the Companies would not have been incurred. Therefore, according to the plaintiff, specific jurisdiction is warranted.
The Court cannot exert jurisdiction over Kern on a theory of general jurisdiction because Kern does not have the continuous, systematic, and substantial contacts with Louisiana necessary to sustain an exercise of general jurisdiction. See Dickson Marine, 179 F.3d at 336. According to his affidavit, the defendant neither conducts, nor has ever conducted, any business or other activity in Louisiana. Kern does not own or maintain any property, bank accounts or other interests in Louisiana. Moreover, the plaintiff does not argue that Kern should be subject to general jurisdiction. Lacking the necessary contacts, an exercise of general jurisdiction over Kern is inappropriate.
Although Kern may not be subject to suit in Louisiana according to a theory of general jurisdiction, the Court finds that an assertion of specific jurisdiction is proper. Specific jurisdiction is appropriate when three questions are answered affirmatively: "(1) Did the defendant have minimum contacts with the forum state . . . ? (2) Did the plaintiffs [sic] cause of action arise out of or result from the defendant's forum-related contacts? (3) Would the exercise of personal jurisdiction be reasonable and fair?" Guidry, 188 F.3d at 625. The facts demonstrate that each of these requirements is satisfied, and thus an exercise of specific jurisdiction is proper.
As stated above, minimum contacts are established when the nonresident defendant performs some act that illustrates purposeful availment of the privilege of conducting business within the forum state. See Hanson, 357 U.S. at 253. The fact that a contract between the nonresident defendant and a party within the forum state was executed is not automatically dispositive on the issue of whether minimum contacts with the forum exist. See Electrosource, Inc. v. Horizon Battery Technologies, Ltd., 176 F.3d 867, 872 (5th Cir. 1999). But, when a nonresident defendant voluntarily enters into a contract which contemplates business activity by a forum-state entity foreseeable to the nonresident defendant, such action establishes a minimum contact sufficient for a valid exercise of jurisdiction over the nonresident defendant. See Mississippi Interstate Express, Inc. v. Transpo, Inc., 681 F.2d 1003, 1007 (5th Cir. 1982). This rule applies even in cases where the nonresident defendant is on the "receiving end" of the contract, as in the present case. See id. at 1007, n. 2.
The facts demonstrate that Kern purposefully availed himself of the privileges of conducting business in Louisiana. First, no evidence has been presented demonstrating that Kern's execution of the Guaranty was not completely voluntary. Without any compulsion, Kern consciously chose to enter into a business relationship with a Louisiana company. Next, the Guaranty explicitly states that Kern agreed to execute the Guaranty in order to induce Conco to continue to provide credit to the Companies. Subsequent business activity was certainly foreseeable to Kern. Also, implicit within the Guaranty's extension of credit to the Companies is the fact that the credit would be used to purchase food and supplies sold by Conco. It is reasonable to assume that Kern, as the sole shareholder of the Companies, could anticipate these future purchases. Because the Guaranty was entered into voluntarily and because it contemplated future business activity foreseeable to Kern, it creates a contact with Louisiana sufficient for the exercise of jurisdiction by this Court.
Having determined that the Guaranty creates an adequate minimum contact with Louisiana, the Court must next decide whether Conco's suit arises out of or is directly related to this contact. The debts allegedly owed to Conco by Texas Health arise under the Payment Agreement. As the defendant notes, though, the Payment Agreement was executed in connection with the Guaranty. (Def.'s Mem. Supp. Mot. Dismiss at 1.) The recitals to the Guaranty state that it is meant to induce Conco to extend credit to the Companies. Conco further states that it relied on the Guaranty in continuing its business relationship with Texas Health. (Pl.'s Mem. Opp'n at 5.) This assertion must be accepted as true. See Guidry, 188 F.3d at 625. Therefore, but for the existence of the Guaranty, Conco would not have sold Texas Health any food or supplies, and the alleged debt would not have been incurred. Conco's suit arises out of Kern's contact with Louisiana.
Finally, the Court must consider whether exercising jurisdiction over Kern is fair and reasonable. The Court must evaluate several factors: "the interest of the state in providing a forum for the suit, the relative conveniences and inconveniences to the parties, and the basic equities." Southwest Offset, Inc. v. Hudco Publ'g Co., Inc., 622 F.2d 149, 152 (5th Cir. 1980). This Guaranty engendered significant business activity within Louisiana. Notwithstanding the debts alleged under this suit, the defendant admits that Texas Health has paid Conco approximately $1.5 million dollars since 1997. (Def.'s Mem. Supp. Mot. Dismiss at 2.) The Guaranty was executed in 1994, so the amount of commerce between the two companies up to the time of this suit is likely much greater than just the amounts Texas Health has paid. Louisiana certainly has an interest in providing a forum for litigation concerning a contract generating such significant business activity. See, e.g., Marathon Metallic Bldg. Co. v. Mountain Empire Constr. Co., 653 F.2d 921, 923 (5th Cir. Unit A Apr. 1981) (noting, under similar facts, that Texas would have an interest in such litigation).
The Court does not find that the inconveniences to the parties are disproportionately skewed against Kern. Kern has no offices in Louisiana; Conco has no offices outside of Louisiana. It would be equally as inconvenient for Conco to bring suit outside of Louisiana as it would be inconvenient for Kern to defend suit in the state; "thus, the convenience factor is a 'stand off.'" Southwest Offset, 622 F.2d at 152-53. Furthermore, the ease of travel between Texas and Louisiana will lighten any burden that litigation within Louisiana may impose on Kern.
Regarding the equities, the Court does not view its retention of jurisdiction over Kern as unfair. In Marathon, a nonresident defendant who had signed a guaranty in order to induce credit sales by a Texas corporation to a Colorado corporation in which he had a substantial financial interest moved the Texas court to dismiss the case for lack of personal jurisdiction. See Marathon, 653 F.2d at 922. After finding that the guaranty established an adequate minimum contact, the Fifth Circuit addressed the equities of retaining jurisdiction:
Nor do we ascertain any want of equity in requiring Mr. Ginther [the defendant] to respond in Texas to an action on a warranty that he voluntarily signed, that he must have known was forwarded to a Texas corporation, and which invited that corporation's reliance on it as a basis for credit sales, made in Texas, to a corporation in which he had a substantial economic interest.Marathon, 653 F.2d at 923. The jurisdictional facts of the case sub judice and of the Marathon case, where the Fifth Circuit reversed the district court's dismissal for lack of personal jurisdiction, are nearly identical. Therefore, because Louisiana does have an interest in providing a forum for this suit, the suit presents no great inconvenience to Kern, and it is not inequitable to require Kern to litigate in this forum, an assertion of jurisdiction over Kern by this Court is both fair and reasonable.
The underlying agreement in the Marathon case contained a choice-of-law clause stipulating that Texas law would govern construction of the contract. See Marathon, 653 F.2d at 922. In the instant case, a choice-of-law clause also specifies that Texas law, rather than Louisiana law, controls. "A choice-of-law provision should neither be ignored nor considered sufficient alone to confer jurisdiction." Electrosource, 176 F.3d at 873. The Court feels that the jurisdictional facts noted above militating in favor of retaining jurisdiction outweigh the choice-of-law provision's significance.
The three requirements for an exercise of specific jurisdiction are satisfied, and thus holding Kern subject to suit in Louisiana is valid. The Court also notes that, by its very nature, a guaranty symbolizes the willingness of the guarantor to "stand in the shoes" of the guaranteed company or individual. A guaranty would be worthless if the guarantor could not be held responsible for the guaranteed obligations. The Court finds that the Companies have sufficient contacts with Louisiana to warrant an exercise of specific jurisdiction over them. Therefore, even assuming, arguendo, that Kern's Guaranty alone is insufficient to support jurisdiction, the implications of such a contract justify this Court's retention of jurisdiction.
General jurisdiction over the Companies is untenable, as the Companies lack the requisite continuous, systematic and substantial contacts with Louisiana. None of the Companies currently operates or has operated any long-term facilities in Louisiana. No evidence suggests that the Companies have any other type of contact with Louisiana. Given the dearth of ties between Louisiana and the Companies, an exercise of general jurisdiction is inappropriate.
Evaluating the Companies connections with Louisiana according to the three factors mentioned above, it is clear that a valid basis for an assertion of specific jurisdiction exists. First, there is sufficient minimum contact between the Companies and Louisiana. The Companies have purchased food and supplies from Conco for several years. The debt which the Payment Agreement addressed exceeded $2.6 million; Texas Health has paid Conco approximately $1.5 million since 1997. This relationship, spanning several years and generating millions of dollars of business activity by a Louisiana corporation, establishes a minimum contact with Louisiana. Next, the suit does arise out of the Companies' contacts with Louisiana. But for the Companies' purchase of food and supplies from Conco, the Guaranty would not have existed; without the Guaranty, this lawsuit would not exist. Finally, it would be fair and reasonable for this Court to assert jurisdiction over the Companies. As noted earlier, Louisiana has an interest in providing a forum for litigation significantly affecting one of its own businesses. The inconvenience to the Companies of litigating in Louisiana mirrors the inconvenience to Conco of prosecuting its claim outside of Louisiana, so this concern does not alter the Court's conclusion. Also there is no want of equity in dictating that an entity with such an extended and substantial connection to a Louisiana corporation defend itself in this forum. The Companies' relationship with Louisiana contains the requisite elements for a valid exercise of specific jurisdiction. Because the Guaranty symbolizes Kern's willingness to answer for the obligations of the Companies, jurisdiction over him can be predicated on the Court's jurisdiction over the Companies, even if the Guaranty alone was not a sufficient basis for the Court to exercise its jurisdiction.
B. Venue
In addition to asserting that personal jurisdiction over Kern is lacking, the defendant argues that the Eastern District of Louisiana is an improper venue and, therefore, this action should be dismissed or transferred to the Eastern District of Texas, pursuant to 28 U.S.C. § 1406 (a).
The statute governing the determination of where a diversity action may properly be brought is 28 U.S.C. § 139 1(a). This law provides, in pertinent part, that venue is proper "only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, [or] (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred." 28 U.S.C.A. § 1391 (West 1993). The plaintiff argues that this Court is the proper venue for the suit because Conco, a corporation based in New Orleans, extended credit to the Companies in reliance on Kern's Guaranty. The defendant contends that venue is improper because the Companies are not located within this district, and neither the Guaranty nor the Payment Agreement were executed in the district.
The plaintiff also states that there is normally a bias in favor of the plaintiff's choice of forum that should be ignored only when public and private interest factors point toward a different forum. These arguments pertain to forum non conveniens principles; improper venue is a distinctly different issue. Whereas forum non conveniens addresses instances where a suit could legitimately proceed in at least two forums, improper venue relates to situations where the suit can not validly be prosecuted in the chosen forum. See Dubin v. United States, 380 F.2d 813, 816 (5th Cir. 1967) (noting the distinction between the two concepts when discussing the venue statutes relevant to each). The Court in the present case must determine whether the Eastern District of Louisiana is a proper forum, not whether it is the most convenient one. Facts regarding where the defendant resides and where a substantial part of the events engendering the suit control this evaluation. See 28 U.S.C.A. § 1391. Although the plaintiff's choice of forum is persuasive in a forum non conveniens inquiry, it carries little weight when considering whether venue is proper.
The facts of this case and the plaintiff's own documents dictate that the Eastern District of Louisiana is not the proper forum. Plaintiff seeks to recover over $1 million allegedly owed to Conco by Texas Health arising from the sale of food and supplies by Conco. There is no evidence that any of these purchases occurred in this district. "The food and supplies were provided . . . from Conco's Shreveport facilities and the account of Texas Health was administered by Conco from the Shreveport office." (Pl.'s Mem. Opp'n at 2.) Notices to Conco under the Guaranty also were to be sent to a Shreveport address, and this same address is used in the Payment Agreement. (Compl. Ex. 1 at 3, Ex. 2 at 1.) Other than the fact that this Shreveport facility was owned by a company based within this district, the plaintiff alleges no connection between the activities giving rise to this suit and the Eastern District of Louisiana. Therefore, venue is improper.
A district court confronted with a suit improperly filed within its district may either dismiss the case or transfer it to a proper district. See 28 U.S.C.A. § 1406(a) (West 1993). A court has broad discretion in determining which option to pursue. See Cote v. Wadel, 796 F.2d 981, 985 (7th Cir. 1986). In the present case, the Court notes that there are at least two permissible forums: the Eastern District of Texas and the Western District of Louisiana. Also, Texas law creates a four-year period in which an individual may commence an action for the collection of a debt, and thus the plaintiff's case, if dismissed here, will not be time-barred elsewhere. See Tex. Bus. Coin. Code Ann. § 16.004(a)(3) (West, WESTLAW through 1999 Reg. Sess.). Because no adverse effects to the plaintiff's case will result from this dismissal, the Court chooses to dismiss, rather than transfer, the suit.
III. CONCLUSION
For the foregoing reasons, the Court concludes that although defendant Peter C. Kern's contacts with Louisiana are legally sufficient to justify the exercise of specific jurisdiction by this Court, the Eastern District of Louisiana is an improper venue for this action. IT IS ORDERED that the defendant's motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) is denied but the motion to dismiss for improper venue pursuant to Rule 12(b)(3) is HEREBY GRANTED.