Opinion
NO. 2018-CA-000148-MR
05-24-2019
LYCOM COMMUNICATIONS, INC. APPELLANT v. DON AND MARY RICE, INC., D/B/A RITEL SYSTEMS [RTS] APPELLEE
BRIEFS FOR APPELLANT: Eldred E. Adams, Jr. Louisa, Kentucky BRIEF FOR APPELLEE: Nathan L. Swehla Ft. Mitchell, Kentucky
NOT TO BE PUBLISHED APPEAL FROM LAWRENCE CIRCUIT COURT
HONORABLE JOHN DAVID PRESTON, JUDGE
ACTION NO. 17-CI-00241 OPINION
AFFIRMING
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BEFORE: JONES, MAZE, AND TAYLOR, JUDGES. TAYLOR, JUDGE: Lycom Communications, Inc. (Lycom) brings this appeal from a January 19, 2018, order of the Lawrence Circuit Court concluding that Kentucky did not possess personal jurisdiction over Don and Mary Rice, Inc., d/b/a Ritel Systems [RTS] (collectively referred to as Ritel Systems) and dismissing Lycom's complaint. We affirm.
The affidavit of Donald Rice states that Ritel Systems is a Pennsylvania Corporation and Donald Rice is its President.
Lycom is a corporation doing business in Kentucky and is a member of the National Cable Television Corporation (NCTC). In early 2016, Lycom sought to purchase billing software and solicited a bid for the software from Mega Hertz. Mega Hertz is a retailer of computer software and makes purchases for NCTC's members. Mega Hertz is a Texas corporation with its principal place of business in Texas.
Upon receipt of Lycom's request for a bid, Mega Hertz sought a bid for the billing software from Ritel Systems. Ritel Systems develops and sells computer software. Ritel Systems is a Pennsylvania corporation with its only place of business located in Pennsylvania. Per Mega Hertz's request, Ritel Systems provided Mega Hertz with a proposed contract including a price quote for the billing software. Eventually, Mega Hertz purchased the billing software from Ritel Systems, and Mega Hertz then sold the billing software directly to Lycom. At the request of Mega Hertz, Ritel Systems shipped the billing software to Lycom in May of 2016.
On August 22, 2017, and September 25, 2017, Lycom filed a Complaint and Amended Complaint against Ritel Systems in the Lawrence Circuit Court. Lycom alleged that it purchased billing software developed by Ritel Systems on May 4, 2016, and that the purchase included technical support. Lycom claimed "the software was defective, failed to perform its function as warranted, and was neither merchantable nor fit for the particular purpose for which it was to be used." Amended Complaint at 1.
Ritel Systems filed a motion to dismiss pursuant to Kentucky Rules of Civil Procedure (CR) 12.02(b). Ritel Systems maintained that Kentucky lacked personal jurisdiction over it. Lycom filed a response and argued that Kentucky could properly exercise personal jurisdiction over Ritel Systems under Kentucky's long arm statute (Kentucky Revised Statutes (KRS) 454.210).
By order entered January 19, 2018, the circuit court determined that the circuit court lacked personal jurisdiction over Ritel Systems under Kentucky law. In particular, the court concluded:
1) KRS 454.210 is the Kentucky long arm statute. It allows a court in Kentucky to exercise personal jurisdiction as to claims arising from a number of contacts, including transacting any business in the Commonwealth of Kentucky under Subsection (1) of section (2)(a) of the statute or Subsection (2), which relates to contracting to supply services or goods to or in the Commonwealth.
2) The Sixth Circuit Court of Appeals has outlined a three-part test to determine whether long arm jurisdiction will apply in a particular case in the case of Southern Machine Company v.
Mohasco Industries, Inc., 401 F.2d 374 (6th Circuit 1968), in which the court stated the following:
First, the defendant must purposely avail himself of the privilege of acting in the forum state or causing a consequence state in the forum state. Second, the cause of action must arise from the defendants' activities there. Finally, 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.
January 19, 2018, Order at 2-3. This appeal follows.
3) Applying that standard and the statute to this case, the Court concludes as a matter of law that the contacts between the Defendant and the State of Kentucky were so minimal as to make exercising jurisdiction over the Defendant unreasonable. The Defendant did not directly contract with the Plaintiff, but rather sold the software through another company. The software was remotely installed, and the Defendant apparently had no more contact with the Plaintiff other than tech support emails.
4) Further, the record establishes that the Defendant has done no business in Kentucky other than this transaction within the past five years, and has had essentially no business contacts with the State of Kentucky. . . .
To begin, CR 12.02 and CR 12.03 permit the circuit court to consider matters outside of the pleadings when ruling upon a motion to dismiss. However, reliance upon matters outside of the pleadings converts a motion to dismiss into a motion for summary judgment. CR 12.02; CR 12.03; Cabinet for Human Res. v. Women's Health Servs. Inc., 878 S.W.2d 806, 807 (Ky. App. 1994). In this case, the parties filed affidavits, and the affidavits were considered by the circuit court. Hence, we shall treat the January 19, 2018, order as a summary judgment.
Summary judgment is proper where there exists no material issue of fact and movant is entitled to judgment as a matter of law. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky. 1991). When considering a motion for summary judgment, all facts and inferences therefrom are to be viewed in a light most favorable to the nonmoving party. Id. Our review proceeds accordingly.
Lycom contends the circuit court erroneously concluded that the court lacked personal jurisdiction over Ritel Systems. For the following reasons, we disagree.
To determine if a Kentucky court may properly exercise personal jurisdiction over a nonresident defendant, the Kentucky Supreme Court has instructed that the requirements for jurisdiction under our long arm statute (KRS 454.210) must be satisfied and the exercise of personal jurisdiction must not offend the due process clause found in the Fourteenth Amendment of the United States Constitution. Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 57 (Ky. 2011); Hinners v. Robey, 336 S.W.3d 891, 895 (Ky. 2011).
KRS 454.210, the long arm statute, reads in relevant part:
(1) As used in this section, "person" includes an individual, his executor, administrator, or other personal representative, or a corporation, partnership, association, or any other legal or commercial entity, who is a nonresident of this Commonwealth.
(2) (a) 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:
Additionally, it must be demonstrated that plaintiff's "claim is one that arises from the conduct or activities described in the subsection" of KRS 454.210. Caesars Riverboat Casino, 336 S.W.3d at 55.1. Transacting any business in this Commonwealth;
2. Contracting to supply services or goods in this Commonwealth[.]
The federal due process clause requires a nonresident defendant to "have certain minimum contacts with [the forum state] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Hinners, 336 S.W.3d at 897 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The Supreme Court of Kentucky has adopted a three-prong test to determine if in personam jurisdiction over an out-of-state defendant offends due process:
The first prong of the test asks whether the defendant purposefully availed himself of the privilege of acting within the forum state or causing a consequence in the forum state. The second prong considers whether the cause of action arises from the alleged instate activities [or consequence.] The final prong requires such connections to the state as to make jurisdiction reasonable.Hinners, 336 S.W.3d at 898 (footnote omitted) (quoting S. Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968)). Also, the plaintiff carries the burden of proving that the forum state possesses personal jurisdiction over a defendant. Hinners, 336 S.W.3d at 895.
In this case, we shall initially address whether personal jurisdiction over Ritel Systems is permissible under Kentucky's long arm statute, KRS 454.210. Lycom asserts that Ritel Systems transacted business in Kentucky or contracted to supply services or goods in Kentucky under KRS 454.210(2)(a)(1) - (2). It is undisputed that Ritel Systems sold its software to Mega Hertz, and Mega Hertz then sold the software to Lycom. Thus, Mega Hertz, not Ritel Systems, contracted to sell services and/or goods to Lycom in Kentucky per KRS 454.210(2)(a)(2).
As for KRS 454.210(2)(a)(1), Ritel Systems did directly provide technical assistance to Lycom, which could be viewed as transacting business in Kentucky. However, it does not appear that Lycom's claim "arises from" Ritel Systems' technical assistance. See Ceasars Riverboat Casino, 336 S.W.3d at 55. In its complaints, Lycom claimed that "the software was defective, failed to perform its functions as warranted, and was neither merchantable nor fit for the particular purpose for which it was to be used." Amended Complaint at 1. As a consequence, we cannot conclude a Kentucky court could obtain personal jurisdiction over Ritel Systems under KRS 454.210(2)(a)(1) or (2).
Additionally, the exercise of personal jurisdiction by a Kentucky court over Ritel Systems would offend federal due process. To satisfy federal due process, Ritel Systems must have purposefully availed itself of the privilege of acting in Kentucky or causing a consequence in Kentucky. See Hinners, 336 S.W.3d at 899. Once again, it is pivotal that Mega Hertz actually sold the software to Lycom and that Mega Hertz entered into the contract for the sale of software with Lycom. See Hinners, 336 S.W.3d at 899-900. From the perspective of Ritel Systems, the fact "[t]hat the buyer's home state was Kentucky is a purely fortuitous consequence, not a purposeful choice[.]" Id. at 900. Indeed, Ritel Systems has transacted no business in Kentucky for the past five years, owned no property in Kentucky, and had no service agent in Kentucky. Upon the whole, it cannot be said that Ritel Systems purposely availed itself of doing business in the Commonwealth or causing a consequence in the Commonwealth.
Lycom Communications, Inc., also argues that Kentucky possessed general personal jurisdiction over Don and Mary Rice, Inc., d/b/a Ritel Systems [RTS]. This argument is patently meritless. It is undisputed that Ritel Systems did not have "continuous corporate operations within [Kentucky] [are] so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities." Daimler AG v. Bauman, 571 U.S. 117, 127 (2014) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 318 (1945)).
In sum, we are of the opinion that the circuit court properly rendered summary judgment concluding that the court lacked personal jurisdiction over Ritel Systems in this action.
For the foregoing reasons, the order of the Lawrence Circuit Court is affirmed.
ALL CONCUR. BRIEFS FOR APPELLANT: Eldred E. Adams, Jr.
Louisa, Kentucky BRIEF FOR APPELLEE: Nathan L. Swehla
Ft. Mitchell, Kentucky