Opinion
CIVIL ACTION NO. 3:02-CV-65-H
October 17, 2002
MEMORANDUM AND ORDER
Defendant Imperial Optical, Inc.'s ("Imperial") has moved to transfer pursuant to 28 U.S.C. § 1404(a) and 1406(a). Plaintiff Ganote Consulting and Software Design ("Ganote") is a Kentucky corporation which specializes in computer software development. These two formed a series of oral agreements, pursuant to which Imperial paid Ganote to develop computer software for Imperial which would then market to third-parties. Ganote alleges that it provided the software under Phase I of the agreement, but was never compensated. Ganote states claims for breach of contract, quantum meruit, and fraud and misrepresentation. Imperial now argues that this Court should transfer this action and consolidate it with the similar action pending in the United States District Court, Northern District of New York, Watertown Division.
I.
Imperial first contends that a transfer is appropriate under 28 U.S.C. § 1404(a) which provides:
For the convenience of parties and witnesses in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.28 U.S.C. § 1404(a).
The Court, therefore, must engage in a two-part inquiry. First, it must determine whether the action "might have been brought" in the Northern District of New York. Second, the Court must determine whether change of venue would facilitate the "convenience of the parties and witnesses" and serve "the interests of justice." Rutherford v. Good Year Tire and Rubber Co., 943 F. Supp. 789, 791 (W.D.Ky. 1996), aff'd, 142 F.3d 436 (6th cir. 1998). The Court concludes, and neither party appears to dispute, that the first part of this inquiry is satisfied. This action could have been brought in the Northern District of New York.
The more problematic part of the inquiry for the Imperial is the second part of the analysis. As a general rule, "unless the balance [of convenience] is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed." 943 F. Supp. at 791. Because Ganote has chosen the Kentucky courts as its forum, Imperials must present strong evidence that a change of venue is appropriate. Id. In assessing Imperials' arguments, the Court "must weigh in the balance the convenience of the witnesses and those public-interest factors of systematic integrity and fairness that, in addition to private concerns, come under the heading of `the interest of justice.'" Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 30 (1988); see also Moses v. Business Card Express, Inc., 929 F.2d 1131, 1137 (6th Cir. 1991).
Imperial's argument — premised entirely on judicial economy — simply fails to provide the strong evidence necessary to justify a change of venue under this test. Imperial contends that, because it filed an identical case in New York, its witnesses are predominately in New York, and because Ganote failed to contest the Northern District of New York's jurisdiction, a transfer is appropriate. There are several insurmountable flaws to this argument. First, at the outset, the default rule applicable in this case is that Ganote's choice of forum must be given great weight when considering whether to transfer venue under § 1404(a). 943 F. Supp. at 791; see also Texas E. Transmission Corp. v. Marine Office, 579 F.2d 561 (10th Cir. 1978); Akers v. Norfolk W. Ry. Co., 378 F.2d 78 (4th Cir. 1967). Ganote is a Kentucky corporation and Ganote has alleged that most of its work for Imperial was done in Kentucky.
Second, although convenience of the witnesses is a factor the Court must consider, that factor does not appear to favor either party here. See Picker Internat'l, Inc. v. Travelers Indemnity Co., 35 F. Supp.2d 570, 573 (N.D. Oh. 1998). For the most part, Imperial's witnesses are in New York and Ganote's are in Kentucky. That most of Ganote's representatives "have admittedly already traveled to New York," does not in any way make New York a more convenient location if they reside here. In fact, as Ganote has alleged, because almost all of its employees were involved in this project, "not only would it be financially burdensome in terms of out-of-pocket costs to have [Ganote's] employees testify at a trial in New York, it would virtually cause the company to stop conducting business in Kentucky." (Ganote Aff. ¶ 19). When the transfer of a case merely shifts the inconvenience from one party to the other, courts generally deny a motion for change of venue. Van Dusen v. Barrack, 376 U.S. 612 (1964); Dayton Power Light Co. v. E. Ky. Power Coorpoerative, Inc., 497 F. Supp. 553 (E.D.Ky. 1980).
Third, Ganote's most persuasive argument is that a pending proceeding in New York is on-going. This is certainly a relevant factor in resolving choice of venue questions. Codex Corp. v. Milgo Electronic Corp., 553 F.2d 735 (1st Cir. 1977). The general rule applicable when duplicative lawsuits are pending in separate federal courts is "that the entire action should be decided by the court in which the action was first filed." Smith v. S.E.C., 129 F.3d 356, 361 (6th Cir. 1997). As Ganote points out, the Court has the discretion to find an exception to the first-filed rule if circumstances suggest bad faith, a merely anticipatory suit or forum shopping. Plating Res., Inc. v. UTI Corp., 47 F. Supp.2d 899 (N.D.Ohio. 1999). Courts have emphasized that the first-filed rule is a flexible doctrine and that, in the interests of comity, a court must act "with regard to what is right and equitable under the circumstances and the law, and directed by the reason and conscience of the judge to a just result." EEOC v. University of Pennsylvania, 850 F.2d 969, 977 (3rd Cir. 1988).
In this instance, the Court does not find an exception to the first-filed rule. Imperial argues that Ganote, having received a letter offering a means of settling their dispute, rather than reply, decided to file suit in Kentucky. On the basis of this allegation, Imperial claims Ganote acted in bad faith and relies on Capitol Records, Inc. v. Optical Recording, Inc. , 810 F. Supp. 1350, 1353 (S.D.N.Y. 1992), for the rule that when a plaintiff files a defensive suit, the defendant's request for an exception to the first-filed rule should be granted. The facts in Capitol Records, however, are distinguishable from this case. There, defendant's choice of forum had already conducted a trial on the same, complicated patent infringement claims at issue. Further, the letter sent to the plaintiff in Capital Records constituted notice that a Declaratory Judgment Action would be filed if settlement talks did not resolve the dispute. In this case, not only is Imperial's choice of forum no more expert in the contract law issues in this case (and possibly less so if Kentucky contract law ultimately applies), but Imperial has also failed to allege that Ganote did anything more than give up on settlement talks.
Given the fact that no forum in this case is clearly better suited to resolve the claims in this case and the lack of a good argument to support the Court not following the first-filed rule, the Court declines to find an exception to the general rule.
II.
Imperial next argues that transfer is appropriate under 28 U.S.C. § 1406(a) which states:
The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.28 U.S.C. § 1406(a).
Imperial argues that transfer is proper because this Court lacks jurisdiction. Martin v. Stokes, 623 F.2d 469, 472 (6th Cir. 1980). On its face, Ganote's case for personal jurisdiction appears a weak one. However, Imperial provides the Court with little discussion or affidavits to counter Ganote's assertion that personal jurisdiction is proper. The Court must consider the arguments in light of the evidence before it.
To determine whether personal jurisdiction exists over a nonresident defendant in a diversity action, the Court must apply the law of the state in which it sits, subject to due process limitations. See Welsh v. Gibbs, 631 F.2d 436, 439 (6th Cir. 1980). Kentucky's long-arm statute provides that "a court may exercise personal jurisdiction over a person who acts directly or by an agent as to a claim arising from the person's . . . transacting any business in this Commonwealth . . ." K.R.S. 454.210(2)(a). This provision has been interpreted to allow courts to reach the full constitutional limits in entertaining jurisdiction over nonresident defendants. See Poyner v. Erma Werke Gmbh, 618 F.2d 1186 (6th Cir. 1980). Accordingly, this Court will merge the question of how far Kentucky intended its long-arm jurisdiction to reach into the question of whether taking jurisdiction in this case would comport with the requirements of due process. See First Nat'l Bank of Louisville v. J.W. Brewer Tire Co., 680 F.2d 1123, 1125 (6th Cir. 1982). The plaintiff has the burden of establishing personal jurisdiction over the defendant. See Welsh, 631 F.2d at 438. However, when the Court decides the jurisdictional issue based only upon the written submissions of the parties, the plaintiff meets this burden by making a prima facie case of jurisdiction. Id. The Court must consider the pleadings and affidavits in the light most favorable to the plaintiff. Id. at 439.
To subject a nonresident defendant to personal jurisdiction without violating due process, the defendant must have "minimum contacts" with the forum "such that maintenance of the suit does not offend traditional notions of fair play and substantial justice." Internat'l Shoe v. Washington, 326 U.S. 310, 316 (1945). To determine whether a nonresident defendant has the requisite minimum contacts, this Court employs the familiar three-part test followed in the Sixth Circuit:
First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.Southern Machine Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968).
The Sixth Circuit has held that the "purposeful availment" requirement is satisfied when the defendant's contacts with the forum state are such that "he should reasonably anticipate being haled into court there." Compuserve, Inc. v. Patterson, 89 F.3d 1257, 1263 (6th Cir. 1996). Courts require purposeful availment to insure that "random, fortuitous, or attenuated" contacts do not cause a defendant to be haled into a jurisdiction. Id. Importantly for our case, the purposeful availment does not require that a defendant be physically present in the forum state. Id at 1264. Imperial must be engaged in sufficient business activities and agreements to have reasonably anticipated being subject to Kentucky's jurisdiction. See Gateway Press, Inc. v. Leejay, Inc. 993 F. Supp. 578, 581 (W.D.Ky. 1997) ("the purposeful availment prong . . . may be satisfied in a breach of contract case if the facts show that the nonresident defendant entered into a `substantial business contract' with a party in the forum").
The agreements at issue were formed over the telephone. Ganote alleges that under those agreements Imperial was licensed to resell Ganote's Web Application Framework ("WAF"). Ganote would own the WAF system, and Imperial would receive a limited commission and licensing fees from billable work related to its sale of the WAF product to third-parties. Thus, the circumstances are more than merely the shipment of goods from Kentucky to another state. Imperial is using Ganote's services in Kentucky and marketing them elsewhere. While the number of these contacts are not extensive, the quality of them is high. Imperial was profiting directly from the sale of services developed in Kentucky.
Consistent with this finding, the Court notes Imperial planned to be a third-party provider of the software to other companies in the optical lense industry and therefore would have financially benefitted from Ganote's actions in this forum — a fact which also weakens its claim. See Compuserve, 89 F.3d at 1264 (finding personal jurisdiction over a nonresident defendant because that defendant benefitted from the intangible computer services provided by the plaintiff's network system). Imperial itself states in its counterclaim that, pursuant to these agreements, "[Imperial] would be granted an unlimited license to use computer software for its own business use and would also earn commissions on sales of the computer software to third-parties."
Perhaps more important, Imperial's contacts with Kentucky were continuous and in-person, rather than merely sporadic and distant. Ganote alleges that Imperial agreed to pay for its services, that Imperial made "continuous modifications and revisions to the original agreement during the course of [Ganote's] delivery of the software," and that Imperial was ultimately unjustly enriched by its receipt of the software. Imperial made innumerable contacts with Ganote personnel in Kentucky on a daily basis, often with numerous contacts in any one day. (Ganote Aff. ¶ 11). Moreover, an Imperial representative traveled to Kentucky for two visits to discuss Ganote's software. According to John Ganote, Ganote's President and CEO, Imperial's IT Director Greg McEuen traveled to Kentucky twice to meet with Ganote's personnel incidental to the product development. Id. "On one of those occasions. McEuen was here for a week; on the other occasion, several days." Id. In sum, the totality of the evidence suggests Ganote has alleged that Imperial's actions constitute ongoing, intentional contacts with Kentucky sufficient to meet the purposeful availment requirement.
The rest of the Mohasco analysis can be briefly disposed. As for the second prong of the Mohasco test, the Sixth Circuit has stated that the `arising from' requirement is satisfied when the operative facts of the controversy arise from the defendant's contacts with the state. 401 F.2d at 384. "Only when the operative facts of the controversy are not related to the defendant's contact with the state can it be said that the cause of action does not arise from that contract." Id. In this case, Ganote has provided no facts beyond the scope of its business relationship with Imperial which gave rise to the contract breach to support its assertion of personal jurisdiction. The Court has therefore not considered any facts beyond the scope of this second prong. Finally, the third prong requires that this Court conclude the Imperial's actions establish a substantial connection with the forum state. Because this Court made that finding in the course of analyzing the first prong, no further analysis is required.
The second prong requires, that "the cause of action must arise from the defendant's activities there."
The third prong requires that "the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable."
This is a close case. For the reasons stated here, the Court finds sufficient contacts to justify the exercise of personal jurisdiction. Being otherwise sufficiently advised,
IT IS HEREBY ORDERED AND ADJUDGED that there is no basis to support a change of venue under either 28 U.S.C. § 1404(a) or 28 U.S.C. § 1406(a) and Imperial's Motion to Transfer is therefore DENIED.