Opinion
CIVIL ACTION NO. 3:01CV-65-S
January 23, 2002
MEMORANDUM OPINION
This matter is before the court on the motion of defendants, CNS Communications, Ltd. ("CNS"), Best Telecommunications and Technology, Inc. ("Best"), and Wael Al Khatib ("Khatib"), to dismiss pursuant to Fed.R.Civ.P. 12(b)(2), (3). For the reasons set forth below, defendants' motion will be GRANTED. Plaintiff has also filed a motion requesting leave to file a surreply. As defendants have not objected to this motion, it will also be GRANTED.
BACKGROUND
This case arises from a contract between plaintiff, a Kentucky corporation with its principal place of business in Kentucky, and CNS, a Georgia corporation with its principal place of business in Georgia. Under the contract plaintiff agreed to provide services for prepaid telephone cards that CNS sold to consumers. The contract was solicited and signed in Georgia but the contractual services plaintiff provided included thousands of telephone calls to and from Kentucky.
Several months into the contract CNS allegedly became delinquent in its payments to plaintiff. CNS sent several payments to plaintiff in Kentucky drawn upon a bank account held by Best, a New York corporation with its principal place of business in New York. It is unclear at this time what the precise relationship is between CNS and Best.
The payments from Best's account apparently did not remedy CNS's delinquency. Lightyear consequently telephoned CNS and sent a letter from its offices in Kentucky demanding payment and threatening to discontinue its services under the contract. Khatib, president of CNS and a Georgia domiciliary, phoned Lightyear's Kentucky offices and reassured them that payment was being sent. Lightyear consequently continued to provide services. Khatib also provided financial references for CNS which, when verified by Lightyear, concerned Khatib's personal brokerage account rather than an account held by CNS.
After the conversation with Khatib, Lightyear received two more checks in Kentucky drawn on Best's account. However, the checks subsequently bounced and this action was filed soon afterwards. Plaintiff's claims include breach of contract, fraudulent misrepresentation and unjust enrichment. Its claims against Best and Khatib are based on the theory that they are alter egos of CNS. Defendants filed a joint answer in which CNS asserted a counter claim alleging breach of contract.
DISCUSSION
As a threshold matter, plaintiff argues that defendants' motion should be denied as untimely because, pursuant to Fed.R.Civ.P. 12(b), "[a] motion making any [Rule 12(b)] defenses shall be made before pleading if a further pleading is permitted." We disagree. Lack of personal jurisdiction and improper venue defenses are only waived if omitted from a pre-answer motion or responsive pleading. See Fed.R.Civ.P. 12(h)(1). Here, defendants did not make a pre-answer motion but instead raised the defenses in their answer. (Def. Answr. at 5, ¶¶ 1,2). The defenses are therefore preserved and defendants' current motion is proper. See Classic Motel, Inc. v. Coral Group, Ltd., 149 F.R.D. 528 (S.D.Miss. 1993) (finding defendant did not waive lack of personal jurisdiction defense by waiting two years to file motion to dismiss because defense was raised in answer); 5A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1391 (1990) ("If a party does not make a preliminary motion . . . he may present a Rule 12(b)(2) through Rule 12(b)(5) challenge but it must be included in his responsive pleading.").
I. Personal Jurisdiction
A federal court sitting in diversity jurisdiction may exercise personal jurisdiction over a non-resident defendant if permitted by the forum state's long-arm statute and the Due Process Clause of the United States Constitution. Aristech Chem. Int'l., Ltd. v. Arcrylic Fabricators, Ltd., 138 F.3d 624, 627 (6th Cir. 1998). However, since Kentucky's long arm statute is understood to extend to the limits of the Due Process Clause, we "need only determine whether the assertion of personal jurisdiction . . . violates constitutional due process." Id.(citing Wright v. Sullivan Payne Co., 839 S.W.2d 250, 253 (Ky. 1992); quoting Nationwide Mut. Ins. Co. v. Tryg Int'l Ins. Co., 91 F.3d 790, 763 (6th Cir. 1996)). Therefore, personal jurisdiction exists here if defendants have "minimum contacts" with Kentucky "such that maintenance of the suit does not offend traditional notions of fair play and substantial justice." Gateway Press, Inc. v. Leejay, Inc., 993 F. Supp. 578, 580 (W.D.Ky. 1997) (quoting International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945)). Plaintiff has the burden of establishing personal jurisdiction and when, as here, the court relies only on the parties' written submissions to decide the issue, plaintiff succeeds by making a prima facie showing of proper jurisdiction. See id.(citing Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980)).
The Sixth Circuit has established a three part test for determining whether personal jurisdiction exists:
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 Industries, Inc., 401 F.2d 374, 381 (6th Cir. 1968).
The first prong of the Southern Machine test is satisfied if defendants entered into a "substantial business contract" with plaintiff. See Gateway Press, 993 F. Supp. at 581 (citations omitted). "In making this determination, the Court must consider the prior negotiations of the parties, the future consequences contemplated by the parties, the terms of the contract, and the parties' actual course of dealing." Id. Here, the contract was solicited, negotiated, and executed in Georgia. (Khatib Aff. ¶¶ 3-5). Defendants did not "deliberately `reach out beyond' [Georgia] and negotiate with a [Kentucky] corporation." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 479, 105 S.Ct. 2174, 2186, 85 L.Ed.2d 538 (1985) (quoting Travelers Health Assoc. v. Virginia, 339 U.S. 643, 647, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950)). Instead, plaintiff approached them in Georgia and solicited their business. (Khatib Aff. ¶ 3). "The defendant was not attempting to `exploit any market for its products' in the state of [Kentucky], but rather had contact with the state only because the plaintiff chose to reside there." Calphalon Corp. v. Rowlette, 228 F.3d 718, 723 (6th Cir. 2000) (quoting Intn'l Tech. Consultants v. Euroglas, 107 F.3d 386, 395 (6th Cir. 1997)). Any contacts between defendants and Kentucky were thus merely "random, fortuitous, or attenuated" and cannot support jurisdiction in Kentucky. Burger King, 471 U.S. at 2183 (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774, 104 S.Ct., 1473, 1478, 79 L.Ed.2d 790 (1984); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 299, 100 S.Ct. 559, 568, 62 L.Ed.2d 490 (1960)) (internal quotations omitted).
Plaintiff argues that the contract was performed in Kentucky because CNS customers used its services in making thousands of phone calls to and from Kentucky. We find that the calls are more accurately characterized as the performance of the sales contract between CNS and its customers rather than of the contract between CNS and plaintiff.
Plaintiff also claims that defendants consented to jurisdiction in Kentucky. Although the contract CNS signed cannot be located, plaintiff claims it was a standard form contract that provided for personal jurisdiction and venue in Kentucky. (Winkler Aff. ¶ 6). Defendants, on the other hand, claim no such term was included in the contract. (Khatib Aff. ¶ 6, Thorpe Aff. ¶ 4). Plaintiffs argue we must find defendants consented to jurisdiction in Kentucky because we are relying on the parties' affidavits in ruling on defendants' motion and therefore must "view the facts in the light most favorable to the plaintiff and [may] not consider facts proffered by the defendant[s] that conflict with those offered by the plaintiff." Aristech Chem., 138 F.3d at 626 (citing Theunissen v. Matthews, 935 F.2d 1454, 1459(6th Cir. 1991). We disagree. While factual disputes are resolved in the plaintiff's favor, plaintiff bears the burden of establishing personal jurisdiction. See Gateway Press, Inc. v. Leejay, Inc., 993 F. Supp. at 580 (citing Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980)). Plaintiff cannot satisfy this burden through factual inferences.
The Southern Machine test's second prong is satisfied if "the operative facts of the controversy arise from the defendant's contacts with the state." Calphalon, 228 F.3d at 723. Here, plaintiff's breach of contract claim arises from defendants' alleged failure to make payment under the contract. The Sixth Circuit has found that such a delinquency does not satisfy the "arising from" requirement "because defendant's alleged breach by failure to pay the purchase price occurred out of state." Calphalon, 228 F.3d at 724 (citing Kerry Steel, Inc. v. Paragon Industries, Inc., 106 F.3d 147, 151 (6th Cir. 1997)).
Plaintiff's fraud claim also fails to satisfy the "arising from" requirement. Plaintiff bases this claim on representations made by Khatib during phone calls he placed to Kentucky. The Sixth Circuit has held that "when a foreign defendant purposefully directs communications into the forum that cause injury within the forum, and those communications form the `heart' of the cause of action, personal jurisdiction may be present over that defendant without defendant's presence in the state." Neal v. Janssen, 270 F.3d 328, 333 (6th Cir. 2001). We find this case distinguishable from Neal. In Neal the defendant "engaged in a course of conduct over a period of time that involved a single business transaction . . . with plaintiffs, conducted by phone and fax." Id. at 332. Here Khatib only made one phone call to plaintiff and it was in response to plaintiff's threat to discontinue service under the contract. (Rabe Aff. ¶ 16, Loehr Aff. ¶¶ 3,4). Such a communication is insufficient to support personal jurisdiction in Kentucky. See, e.g., Market/Media Research v. Union Tribune Pub., 951 F.2d 102, 105 (6th Cir. 1991) ("Even though Defendants made telephone calls and sent mail to [Plaintiff] in Ohio, the quality and nature of their contacts fall short of the requirements of due process."), Serras v. First Tenn. Bank Nat'l Assoc., 875 F.2d 1212, 1217 (6th Cir. 1989) (finding "a case in which the only alleged contact besides the plaintiff's Michigan residency, is the defendant's making a telephone call from an out-of-state location to the plaintiffs in Michigan . . . ." insufficient to support personal jurisdiction.").
Finally, under the third prong of the Southern Machine test, it would clearly be unreasonable to subject defendants to personal jurisdiction in Kentucky. It is well established that the mere act of entering into a contract with a Kentucky resident is not substantial enough to support jurisdiction. See, e.g., Calphalon, 228 F.3d at 722 ("[T]he mere existence of a contract between [defendant] and an Ohio citizen for seventeen months is insufficient to confer personal jurisdiction. . . ."), Kerry Steel, 106 F.3d at 152 ("[T]o subject an Oklahoma defendant to suit in Michigan simply because the defendant placed an order with a Michigan seller would be far from reasonable."), Nationwide Mut. Ins. Co. v. Tryg Int'l. Ins. Co., 91 F.3d 790, 795 (6th Cir. 1996) (citing Burger King, 471 U.S. at 478, 105 S.Ct. at 2185) ("[T]he existence of a contract with a citizen of the forum state, standing alone, will not suffice to confer personal jurisdiction over a foreign defendant.").
CONCLUSION
For the reasons set forth above, the court will grant the defendants' motion to dismiss as we find personal jurisdiction in this court to be improper. The court will also grant plaintiff's motion for leave to file a surreply.
ORDER
Motions having been made by defendants to dismiss plaintiff's claims and by plaintiff for leave to file a surreply, and for the reasons set forth in the memorandum opinion entered herein this date, and the court being otherwise sufficiently advised, IT IS HEREBY ORDERED AND ADJUDGED that the defendants' and the plaintiff's motions are GRANTED. Plaintiff's Surreply Memorandum in Opposition to Dismiss is deemed filed in the record as of this date. Further, the Complaint is dismissed without prejudice for lack of jurisdiction.
IT IS SO ORDERED this 23rd day of January, 2002