Opinion
Cause No. IP02-0752-C-M/S
June 12, 2003
B. William C. Potter II, Katz Korin, Indianapolis, IN
Richard A. Kempf, Sommer, Barnard Ackerson Pc, Indianapolis, IN
ORDER ON DEFENDANTS' MOTION TO DISMISS AMENDED COMPLAINT FOR LACK OF PERSONAL JURISDICTION
This matter is before the Court on Defendants', King Industrial of the Valley, Inc. ("King Industrial"), Robert DeLeon, Nora DeLeon, Thelma Garcia, and Raul DeLeon (collectively "Individual Defendants"), Motion to Dismiss Plaintiff's, SMC Corporation of America, Inc. ("SMC"), Amended Complaint. SMC initially filed a Complaint in the Superior Court of Marion County, Indiana, and all Defendants, on the basis of diversity jurisdiction, removed the matter to this Court pursuant to 28 U.S.C. § 1441 and 1446. SMC then filed an Amended Complaint in this Court, alleging breach of contract, open account, fraud, constructive fraud, and promissory estoppel. The Defendants responded with this Motion to Dismiss for lack of personal jurisdiction pursuant to FED. R. CIV. PRO. 12(b)(2). The parties have fully briefed the issue, and the motion is now ripe for ruling.
I. FACTUAL AND PROCEDURAL BACKGROUND
SMC is a subsidiary of SMC Corporation, a Japanese corporation having its principal office in Tokyo. Amended Comp. ¶ 1. SMC has its principal office in Indianapolis, Indiana. Id. King Industrial is incorporated in Texas, and has its principal place of business in Edinburg, Texas. Id. ¶ 2. All Individual Defendants reside in Texas. Id. ¶¶ 3-6. All Individual Defendants are principal investors in King Industrial, and occupy various positions within the corporation. Id. Robert DeLeon is the Vice-President, Nora DeLeon is the Treasurer, Thelma Garcia is the President, and Raul DeLeon is the Secretary. Id. ¶¶ 3-6.
Sometime during 1996, representatives of SMC solicited King Industrial at a trade show in Brownsville, Texas, to purchase its pneumatic products. Robert DeLeon Aff. Ex. A ¶ 3 (attached to Def.'s First Memo in Support of Motion to Dismiss). Thereafter, King Industrial began purchasing products from SMC by placing orders with SMC's regional offices in Texas. Id.
On April 1, 1997, SMC and King Industrial entered into a contract, SMC Pneumatics, Inc. [n/k/a SMC Corp. of America, Inc.] Partnering Distributor Agreement (the "Agreement"), to formalize their relationship. Ex. A to Comp. King Industrial received the Agreement in Texas by mail, and signed it in Texas before returning it to SMC. Robert DeLeon Aff. ¶ 4. The Agreement gave King Industrial the non-exclusive right to buy, market, and sell SMC pneumatic products in a number of designated counties in southern Texas and adjoining areas in Mexico. Ex. A. The Agreement contained a choice of law provision that provided: "This Agreement shall be governed and construed in accordance with the laws of the State of Indiana." Ex. A at 4.
King Industrial repeatedly became past due on its payments to SMC. Hammett Aff. ¶ 5. When King Industrial failed to meet its payment obligations under the Agreement, representatives of King Industrial called SMC in Indianapolis to negotiate repayment schedules. Id. On July 17, 2001, SMC agents in Indiana, SMC agents in other states, and Robert Garcia ("Mr. Garcia"), a King Industrial agent in Texas, had a conference call to discuss the payment problems. Id. ¶ 6. See also Tomamichel Aff. ¶ 8;
Siebert Aff. ¶ 8. Mr. Garcia assured SMC that King Industrial was in stable financial condition, and assured SMC that he would provide financial documentation to SMC that would verify King Industrial's stability. Id. In addition, Mr. Garcia represented that King Industrial intended to pay SMC its outstanding debt. Id. Mr. Garcia also made a subsequent phone call to SMC agents in Indianapolis to discuss terms by which King Industrial was to satisfy its repayment obligations. Id. ¶ 7. According to SMC, Mr. Garcia knew, at the time of the July 17, 2001, conference call with SMC, that the King Industrial investors (the Individual Defendants) were withdrawing their funds and the corporate assets from the company in order to avoid paying King Industrial's industrial debts. Amended Comp. ¶¶ 34-35.
When King Industrial ordered its products from SMC pursuant to the Agreement, it telephoned or faxed the orders to SMC's Houston, Texas, branch. Tomamichel Aff. ¶ 4. Approximately eighty percent of King Industrial's orders required that the ordered SMC products be shipped directly from Indianapolis. Id. ¶ 5. Of the products shipped to King Industrial from Indiana, approximately seventy-five percent were shipped directly to King Industrial, F.O.B. Indianapolis. Id. ¶ 6. Although King Industrial sent the majority of its payments to SMC to Bank of America in Illinois, King Industrial sent some payments directly to SMC's Indianapolis headquarters to be deposited by SMC. Reagan Aff. ¶ 5.
F.O.B. Indianapolis means that King Industrial bore the risk for the goods while they were in transit between Indianapolis and Texas.
King Industrial never maintained an office in Indiana, never advertised in Indiana or had any agents or employees or bank accounts in Indiana. Robert DeLeon Aff. ¶ 6. None of the Individual Defendants owns any property in Indiana. The only agent of King Industrial to ever visit Indiana was Mr. Garcia, who is not a defendant in this suit. Robert Garcia Aff. ¶ 9. He visited in October 2000 to attend a one-day meeting of the Council of SMC Distributors at the request of SMC. Id. None of the individual Defendants has ever visited Indiana. Prior to October 1999 when they became shareholders, neither Nora DeLeon, nor Thelma Garcia, nor Raul DeLeon had any involvement with King Industrial. Nora DeLeon Aff. ¶ 5; Thelma Garcia Aff. ¶ 4-5; Raul DeLeon Aff. ¶ 4-5.
II. STANDARD
Because King Industrial and the Individual Defendants have challenged personal jurisdiction, SMC 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 SMC 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), cert. denied, 518 U.S. 1004, 116 S.Ct. 2523, 135 L.Ed.2d 1047 (1996). 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), cert. denied, 499 U.S. 947 (1991). 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
A. LONG-ARM ANALYSIS: KING INDUSTRIAL
The Court must first determine whether or not King Industrial engaged in conduct covered by Indiana's long-arm statute. According to SMC, King Industrial's conduct fell within the ambit of Indiana Trial Rule 4.4(A)(1):
(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 . . .
Ind. T.R. 4.4(A)(1). SMC asserts that the following contacts establish that King Industrial transacted business in Indiana: (1) King Industrial made numerous, almost daily transactions with SMC, an Indiana corporation; (2) the transactions totaled thousands of dollars and constituted a large share of King Industrial's business activities; (3) the Agreement between the parties specified that Indiana law would control disputes about the Agreement; and (4) King Industrial sent some payments to Indiana. King Industrial contends that it was doing business with SMC's Texas offices, and never did any business in Indiana.
After reviewing Indiana case law on the "doing any business" prong the long-arm statute, the Court cannot conclude that King Industrial was doing business in Indiana within the meaning of Ind. T.R. 4.4(A)(1). Case law in Indiana 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).
In the instant case, the business relationship was formed at a trade show in Brownsville, Texas, where SMC representatives solicited King Industrial to sell their products. King Industrial placed orders with SMC offices in either Houston or Austin, and marketed and re-sold the products in designated counties in southern Texas and adjoining areas of Mexico. None of the contract negotiations took place in Indiana — King Industrial simply signed an SMC form contract which was sent to Texas. King Industrial never maintained an office in Indiana, never advertised in Indiana, and had no employees or bank accounts in the state. In short, King Industrial never transacted any business in Indiana.
SMC's contention that King Industrial "transacted business in Indiana on an almost daily basis" is inaccurate. It is undisputed that King Industrial placed numerous purchase orders with SMC's offices in Texas, and it is likely that King Industrial knew that many of the products were shipped from Indiana.
However, SMC's unilateral performance of its contractual obligations in Indiana (i.e., sending the pneumatic products to Texas after King Industrial placed orders with SMC's Texas office) does not lead to the conclusion that King Industrial was doing business in Indiana. See Lakeside Bridge Steel Co. v. Mountain State Const. Co, Inc., 597 F.2d 596, (7th Cir. 1979) (performance of contract obligations by plaintiff in forum state not sufficient to confer jurisdiction over an out-of-state defendant). The only King Industrial agent to enter Indiana visited for one day in 2001 for a marketing presentation, long after the relationship was established and the contract was negotiated in Texas. Compare Freemond, 611 N.E.2d at 690 (asserting jurisdiction over nonresident defendants who made two trips to Indiana to solicit, negotiate, and enter agreements with Indiana company). In addition, the amount of money that King Industrial spent on SMC's products would only be relevant if the transactions had a stronger connection to Indiana.
SMC's other reasons for arguing that King Industrial was doing business in Indiana are similarly unpersuasive. King Industrial's consent to have the Agreement construed in accordance with the laws of Indiana does not demonstrate that King Industrial was transacting business in Indiana. Moreover, although some payments were sent from King Industrial directly to Indiana, the vast majority were sent to Bank of America in Chicago. Reagan Aff. ¶ 5; Ex. C to Amended Comp. Accordingly, the Court concludes that King Industrial was not doing business in Indiana with the meaning of Indiana's long-arm statute.
The Agreement does not include a forum selection clause.
The Seventh Circuit's recent analysis of Illinois' analogous "doing business" provision supports the Court's conclusion. The Seventh Circuit explained:
As for the statute's "doing business" provision, SunAmerica [the out-of-state defendant] has no office, owns no property, and makes no sales in Illinois . . . One way of thinking about the concept of "doing business," as it is understood in cases interpreting long-arm statutes and the due process limitations on the reach of those statutes — an alternative to or refinement of the more common "quid pro quo" rationale . . . is that it picks out those nonresident businesses that are so like resident businesses, in so far as the benefits they derive from state services are concerned, that it would give them an undeserved competitive advantage if they could escape having to defend their actions in local courts.
IDS Life Ins. Co. v. SunAmerica Life Ins. Co., 136 F.3d 537, 540-41 (7th Cir. 1998) (emphasis added).
King Industrial does not fit the concept. Like the defendant parent corporation in IDS Life Insurance, it has no office, owns no property, and makes no sales in Indiana. King Industrial derives little, if any, benefit from Indiana state services. A company like King Industrial is not much like a resident business, and thus is not within the reach of the long-arm statute. Because King Industrial fails the first step of Indiana's two-part test for personal jurisdiction, the Court need not address the question of whether or not the exercise of jurisdiction over King Industrial comports with federal due process requirements.
SMC only argues under the "doing business" provision of the long-arm. Because SMC alleges that King Industrial made fraudulent representations in a phone call to SMC agents in Indiana, SMC could have argued that the personal injury provision applied. See Ind. Trial Rule 4.4(A)(2). However, it appears that Indiana requires physical presence within the state for the personal injury provision to apply. WILLIAM F. HARVEY, INDIANA PRACTICE, Vol. 1, at 227 (1999). But see Burger King Corp. v. Rudzewicaz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (jurisdiction may still be proper despite absence of physical presence in forum state). Moreover, this action is most accurately characterized as a collection/breach of contract suit, not an action in tort.
B. LONG-ARM ANALYSIS: INDIVIDUAL DEFENDANTS
The Individual Defendants also maintain that they are not subject to the jurisdiction of Indiana courts. The Court agrees with the Individual Defendants. None of the Individual Defendants has visited Indiana. Robert DeLeon is the only Individual Defendant who conducted any business at all with SMC — he was solicited by SMC at the trade show in Brownsville, Texas, and signed the contract with SMC in Texas on behalf of King Industrial. All of Robert DeLeon's contacts with SMC center around Texas, and SMC provides no indication that he was "doing business" in Indiana.
Without support from relevant authority, SMC makes the following argument: "Because personal jurisdiction over King Industrial is proper, this Court should disregard the corporate entity of King Industrial and find that jurisdiction also exists over the Principals [the Individual Defendants] under theories of piercing the corporate veil and agency." Pl.'s Response in Opposition at 11. First, jurisdiction is not proper over King Industrial, and even if the Court had jurisdiction over King Industrial, that would not confer jurisdiction over the Individual Defendants. Second, whether or not a court has personal jurisdiction over a defendant and whether or not a court should pierce the corporate veil are separate questions. Jurisdiction is the threshold question, and a court does not consider issues like piercing the corporate veil until it is satisfied that jurisdiction is proper. None of the authority cited by SMC stands for the proposition that jurisdiction is proper over corporate investors if they engaged in corporate malfeasance such that veil piercing is appropriate.
Nor does the Court have personal jurisdiction over the Individual Defendants under any agency theory. SMC cites case law from New York standing for the proposition that out-of-state corporate officers who had not personally transacted business in New York could still be subject to personal jurisdiction under the state's long-arm statute if it could be shown that the corporation transacted business in New York as the officer's agent. See Kreuter v. McFadden Oil Corp., 522 N.E.2d 40 (N.Y. 1988).
This argument hinges on SMC establishing that the corporation itself did business in Indiana and is subject to Indiana courts' jurisdiction, and the Court already concluded that it does not have jurisdiction over King Industrial. Accordingly, the Court rejects SMC's agency theory of jurisdiction argument, and concludes that the Court does not have personal jurisdiction over the Individual Defendants.
IV. CONCLUSION
Because King Industrial did not do business in Indiana in any meaningful way, the Court concludes that it cannot be brought into Indiana court under the long-arm statute. Moreover, SMC's arguments relating to the Court's jurisdiction over the Individual Defendants are equally deficient. The Court concludes that neither King Industrial nor the Individual Defendants are subject to the jurisdiction of Indiana courts. Thus, the court GRANTS Defendants' Motion and DISMISSES the case without prejudice.