International Paper v. Paperboard US CV-99-184-JD 02/08/00 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

International Paper Box Machine Co., Inc.

v. Civil No. 99-184-JD Opinion No.

Paperboard U.S. Industries, Inc., et a l .

O R D E R

International Paper Box Machine Company brought suit, based

on diversity jurisdiction, in which it alleged claims that arose

from a failed business relationship with the defendants. The

defendants are two related corporations. Paperboard U.S.

Industries, Inc. and Paperboard Industries Corporation, and an

individual, Germain Villemarie, who worked for the corporate

defendants. All three defendants move to dismiss the claims

against them for lack of personal jurisdiction, or alternatively

to transfer venue to the Eastern District of Kentucky.

Background1

The plaintiff. International Paper Box Machine Company

("IPBMC") is a New Hampshire corporation with its principal place

1The facts are taken from the complaint and the parties' submissions and are used only as background for the order. of business in Nashua, New Hampshire. IPBMC is in the business

of manufacturing and installing machines for the packaging

industry. IPBMC has a division in Ohio called Multifold

International. All of the work and the employees at Multifold

are controlled or supervised by IPBMC's management in New

Hampshire.

International Paperboard U.S. Industries, Inc. is a Canadian

corporation with its principal place of business in Kentucky, and

Paperboard Industries Corporation, also a Canadian corporation,

has its principal place of business in Montreal, Canada. The

corporate defendants are referred to jointly as "Paperboard."

Germain Villemarie is a resident of Quebec in Canada and, during

the time pertinent to this case, was either an employee of or an

independent consultant to Paperboard. Somerville Packaging,

which is not a defendant in the case, is a division of Paperboard

with a plant in Hebron, Kentucky.

Somerville had previously done business with IPBMC through

IPBMC's office in Nashua, New Hampshire. In September of 1997, a

sales representative from IPBMC's Multifold International

division in Ohio negotiated and entered an agreement with

Somerville Packaging in Toronto, Canada, to provide Somerville

with a system called a "stacker." IPBMC's president, Hugh A.

McAdam, authorized the sales representative at Multifold to

2 conduct the negotiations. Although the stacker system was

originally purchased to be used in Canada, Somerville decided to

use it in its plant in Kentucky. After making the agreement.

Paperboard notified IPBMC that it would use Germain Villemarie as

its project manager for the agreement and that Villemarie would

serve as the contact person for Paperboard.

The Somerville stacker system was developed by using new

design as well as modifications of previous designs and by

integrating certain component parts from subcontractors. The

design work was done in New Hampshire and at Multifold in Ohio

and was supervised by Jeffrey Lindberg of IPBMC in New Hampshire.

Beginning in the winter of 1998, Villemarie met with Multifold

personnel about changes he wanted made in the design and

specifications of the stacker system. In July of 1998,

Villemarie called IPBMC's vice president, William Richardson, in

New Hampshire, to express deep concern about delays in production

of the stacker system. Thereafter, Richardson and IPBMC chief

engineer, Lindberg, who were in New Hampshire, talked extensively

with Villemarie by telephone about the changes and about the

schedule for the stacker system. Villemarie called them back in

New Hampshire to agree to their proposal to extend the schedule.

Other IPBMC engineering personnel in New Hampshire also

communicated with Villemarie about the project, sending manuals

3 and other information about the system to Villemarie.

Multifold sent notice to Villemarie in September of 1998 to

make payments by wire transfer to Bankers Trust Company in New

York or to send payments to IPBMC in Newark, New Jersey. In

December of 1998, IPBMC shipped the stacker system from New

Hampshire to Somerville in Kentucky. McAdam, along with

Richardson and Lindberg, traveled to Somerville during the

installation and testing of the stacker system. Other IPBMC

personnel also went to the Somerville plant in Kentucky to

perform services related to installation of the stacker system

and training Somerville employees in its use.

In January of 1999, Villemarie sent a memorandum by fax on

the status of the project and problems with the stacker system to

Larry Macko, the sales representative at Multifold who was

responsible for the deal with Somerville, which began, "Larry,

Excuses are now not acceptable any more." A copy was also sent

to McAdam in New Hampshire. In response, McAdam went to Kentucky

to try to resolve the remaining issues.

Under the terms of the agreement, the stacker system was

quoted at a price of $841,595 with an optional item called a 575

Volt Operation quoted at a price of $1,200. Paperboard was to

pay 25% as a down payment with the order, 55% prior to shipment,

10% net 30 days after shipment, and 10% net after acceptance of

4 the system. After the system was delivered in December of 1998,

Richardson along with other IPBMC employees in New Hampshire

repeatedly communicated with the defendants about payments due on

the system. Paperboard refused to pay the amount outstanding,

which along with another outstanding invoice totaled $458,517 due

on the order.

On February 25, 1999, Paperboard's counsel sent a letter to

McAdam giving notice to resolve all problems to Paperboard's

satisfaction by March 1, 1999. In April, Paperboard's counsel

sent notice to McAdam of Paperboard's damages due to problems

with the stacker system and of their intent to deduct the cost of

repairs from the amount due and to seek recovery of other

damages.

IPBMC brought suit in April of 1999 alleging claims against

the defendants for nonpayment of goods sold and delivered, unjust

enrichment, tortious interference, breach of the good faith duty,

and violation of the New Hampshire Consumer Protection Act.

Discussion

Paperboard and Villemarie move to dismiss the claims against

them pursuant to Federal Rule of Civil Procedure 12(b) (2),

contending that the court lacks personal jurisdiction over them.

Alternatively, the defendants argue that New Hampshire would be

5 an inconvenient forum and ask that the case be transferred,

pursuant to

(a), to the Eastern District of

Kentucky. IPBMC objects to both dismissal and transfer.

A. Personal Jurisdiction

In response to a motion to dismiss for lack of personal

jurisdiction pursuant to Rule 12(b) (2), the plaintiff bears the

burden of establishing personal jurisdiction. See Massachusetts

School of Law v. American Bar Assoc.,

(1st Cir.

1998). When, as here, there has not been an evidentiary hearing,

the court proceeds on a prima facie standard, taking the

plaintiff's affirmative allegations as true and construing them

in the plaintiff's favor. See

A plaintiff cannot rely

exclusively on allegations in the pleadings, however, but must

provide evidence of specific relevant facts. See Foster-Miller.

Inc. v. Babcock & Wilcox Canada,

(1st Cir.

1995). The court also accepts the defendants' factual

allegations to the extent they are uncontradicted. See

Massachusetts School of Law,

. In considering a

prima facie showing, the "court acts not as a factfinder, but as

a data collector." Foster-Miller, Inc.,

.

When personal jurisdiction is challenged by a non-resident

defendant, "a federal court exercising diversity jurisdiction 'is

6 the functional equivalent of a state court sitting in the forum

state.'" Sawtelle v. Farrell,

(1st Cir. 1995)

(quoting Ticketmaster-New York, Inc. v. Alioto,

(1st Cir. 1994)). The court must therefore satisfy both the

forum state's long-arm statute and the due process requirements

of the Fourteenth Amendment. See

Because New Hampshire's

long-arm statute applicable to foreign corporations has been

interpreted to be coextensive with the constitutional due process

requirements, the scope of personal jurisdiction depends on a due

process analysis. See id. at 1388.

IPBMC contends that the defendants are subject to specific

personal jurisdiction in New Hampshire. Specific jurisdiction

depends on a three-part analysis that examines the defendants'

contacts with the forum state in light of the claims at issue in

the case. See Phillips Exeter Academy v. Howard Phillips Fund.

(1st Cir. 1999) . The specific jurisdiction

analysis requires the following inquiries: (1) whether the claim

in the case "directly relates to or arises out of the defendant's

contacts with the forum[,] . . . [(2)] whether those contacts

constitute purposeful availment of the benefits and protections

afforded by the forum's laws," and (3) whether the exercise of

jurisdiction is reasonable and fundamentally fair in light of the

"Gestalt factors."

A defendant may not avoid personal

7 jurisdiction merely because the defendant has never been

physically present in the forum state, since communications to

the forum state by telephone calls, letters, and other means may

constitute sufficient contacts to confer jurisdiction. See

Burger King Corp. v. Rudzewicz,

62, 476 (1975); accord

Sawtelle,

.

1. Relatedness.

The first question in the personal jurisdiction analysis is

whether the claims in the case are related to or arose out of the

defendant's contacts with the forum state. New Hampshire. See

Phillips Exeter Academy,

. Each of the

plaintiff's causes of action must by analyzed separately to

determine the relatedness of the defendants' contacts with the

forum state in light of the elements of the particular cause of

action. See

.

In this case, IPBMC alleges causes of action for nonpayment

of the amount owed under the agreement, unjust enrichment,

tortious interference with contractual and advantageous

relations, breach of the implied duty of good faith and fair

dealing under the agreement, and violation of the New Hampshire

Consumer Protection Act. The claims for nonpayment and breach of

the implied duty of good faith are, in essence, breach of contract claims based on the agreement for the stacker system.2

In the context of a contract action, the court must determine

whether "the defendant's contacts with the forum were

instrumental either in the formation of the contract or in its

breach." Phillips Exeter Academy,

. A mere

contractual relationship between an in-state party and an out-of-

state party, however, is insufficient to support personal

jurisdiction. See

. In addition, while communications

or transmittal of information into the forum state are contacts,

they are meaningful contacts, in the jurisdictional analysis,

only if they are sufficiently related to the plaintiff's cause of

action. See Sawtelle,

.

The initial contract negotiation and formation in this case

occurred between the Multifold sales representative in Ohio and

employees of Somerville (a division of Paperboard) in Canada.

Although Somerville likely understood that it was doing business

with a division of a New Hampshire company, the contract

formation process occurred in Ohio and Canada, not New Hampshire.

2There are three related doctrines of the implied good faith obligation that pertain to contract formation, termination of at- will contracts, and limits on discretion in contract performance. See Centronics Corp. v. Genicom Corp.,

(1989) . IPBMC has not specified whether it is alleging breach of the good faith obligation in contract formation or in performance.

9 While the project was in progress, the parties (with Villemarie

acting on behalf of the corporate defendants) apparently

renegotiated the production schedule through telephone

conversations to and from New Hampshire. Neither the nonpayment

claim nor breach of the implied good faith duty claim appears to

arise from the renegotiation of the project's schedule. The

design and specification changes in the project, which might have

led to some of IPBMC's claims, were made by Villemarie at

meetings with IPBMC's sales representatives in Ohio and Canada,

not New Hampshire. To the extent information was sent between

the parties that related to the design and specifications of the

project, IPBMC has shown that its employees sent information from

New Hampshire to the defendants in Kentucky, not vice versa. Cf.

Sawtelle,

(transmission of information into

New Hampshire constitutes a contact).

After the stacker system was installed in Kentucky, the

corporate defendants responded to IPBMC's demands for payment

through counsel who wrote to IPBMC's president, McAdam, in New

Hampshire, refusing to pay and asserting claims for damages. The

breach occurred, however, where the defendants decided not to pay

the amounts due, which is likely to have been either Kentucky or

Canada, but was not New Hampshire. See Phillips Exeter Academy,

. Alternatively, since the payments were to be

10 made in either New York or New Jersey, to the extent that the

location where the payments were due is material, that factor

does not implicate contacts with New Hampshire. See

at 2 91.

For similar reasons, the defendants' contacts with New

Hampshire are not related to IPBMC's claim for unjust enrichment.

A claim for unjust enrichment, under New Hampshire law, arises

where no express contractual relationship exists between the

parties and the defendant has received a benefit that it would be

unconscionable to retain without restitution.3 See Pella Windows

and Doors, Inc. v. Faraci,

(1990) . The stacker

system is installed in Kentucky. The demands for payment were

sent from New Hampshire or Ohio to Kentucky or Canada. Although

Paperboard's counsel sent two letters to IPBMC in New Hampshire,

the unjust enrichment claim did not arise from the letters, but

instead arose from the fact that the defendants did not pay the

amount IPBMC believes remains due for the system and they have

kept and used the system.

With respect to IPBMC's tortious interference with

contractual and advantageous relations, personal jurisdiction

depends upon the "causal nexus between the defendant's contacts

3The parties have not addressed a choice of law question in this case, and the court refers to New Hampshire law only as guidance in the context of the personal jurisdiction analysis.

11 and the plaintiff's cause of action." Phillips Exeter Academy,

. A cause of action for tortious interference

requires the plaintiff to show that it had a contractual or

economic relationship with a third party, that the defendant knew

of the relationship, that the defendant intentionally and

improperly interfered with the relationship, and caused damages.

See Jav Edwards, Inc. v. Baker,

(1987); accord

Barrows v. Boles,

(1997). The complaint

alleges that by engaging in all of the conduct related to the

parties' agreement and its demise, the defendants "intentionally

and wrongfully interfered with Plaintiff's advantageous business

relations." IPBMC's theory of liability is not entirely clear.

The defendants' few contacts with New Hampshire, telephone calls

about the project's design and schedule changes, and Paperboard's

notices through counsel of dissatisfaction about the system and

its repair, do not appear to be causally tied to the interference

with advantageous relations claim.

IPBMC's Consumer Protection Act,

-A, claims alleges that the defendants' conduct, described in

the complaint as a whole, constitutes unfair and deceptive acts

or practices within the meaning of the statute. The defendants'

conduct occurred primarily in Kentucky and Canada, but not in New

Hampshire. IPBMC has not shown that the contacts are

12 sufficiently related to the cause of action to serve as a basis

for personal jurisdiction.

Having found that IPBMC has not carried its burden of

showing that the defendants' contacts with New Hampshire are

related to its claims against them, the remaining inquiries in

the personal jurisdiction analysis require little consideration.

2. Purposeful availment.

Contacts with a forum that are merely random or fortuitous

do not satisfy due process. See Burger King, 471 U.S. at 474-75.

Instead, personal jurisdiction must be based on a defendant's

"purposeful activity related to the forum that would make the

exercise of jurisdiction fair, just or reasonable." Sawtelle,

(internal quotation omitted). The two focal points

of purposeful availment are voluntariness and foreseeability.

See Nowak v. Tak How Invs., Ltd.,

(1st Cir.

1996).

a. Voluntariness.

Voluntary actions are not based on the unilateral actions of

another party or a third person, but are the defendant's own

activities directed at the forum. See

To be voluntary, the

defendant must reach out to the plaintiff's state to create a

13 relationship, not merely accept a relationship tendered from the

state. See Phillips Exeter Academy,

. In this

case, IPBMC has shown that the defendants knew that Multifold, an

Ohio company, was a division of IPBMC, a New Hampshire company.

The circumstances do not show that the defendants reached out to

New Hampshire to create a relationship with IPBMC, but instead

reached to IPBMC's division in Ohio to do business. The

defendants' later communications with IPBMC in New Hampshire

appear to have been the result of IPBMC's own processes and

procedures rather than the defendants' choice.

b . Foreseeability.

The foreseeability factor relates to whether the defendant's

contacts with the forum state are "such that he should reasonably

anticipate being haled into court there." Nowak.

.

When a defendant has deliberately engaged in significant

activities in the forum state and has purposefully directed its

commercial activities to the state, it is reasonably foreseeable

that the defendant may be subject to suit in that state. See

Burger King, 471 U.S. at 474-76.

In this case, the defendants' worked initially with

Multifold in Ohio, not IPBMC in New Hampshire. The defendants

then continued to communicate with Multifold even after the

14 relationship included IPBMC. IPBMC has not shown that the

defendants benefitted from their contacts with IPBMC in New

Hampshire, since those contacts were largely acrimonious, being

addressed to delays in the project schedule and issues about the

performance of the stacker system. From the record. Paperboard's

contacts with IPBMC in New Hampshire did not have positive

results from Paperboard's point of view, and do not show the kind

of commercial benefits that would subject them to suit in New

Hampshire. See, e.g., Phillips Exeter Academy,

;

Sawtelle,

.

3. The Gestalt factors.

The final test of whether the exercise of personal

jurisdiction comports with the requirements of due process

depends upon the reasonableness and fairness of subjecting the

defendant to suit in the forum state. See Nowak, 96 F.3d at 717.

When the plaintiff has made a prima facie showing on the first

two steps of the analysis, fairness is assessed on a sliding

scale so that a weak showing on the first two prongs of the

personal jurisdiction analysis puts a lighter burden on the

defendant to show that jurisdiction here would be unreasonable or

unfair. See id. The factors used to assess whether jurisdiction

comports with fair play and substantial justice under the

15 circumstances of a particular case are:

(1) the defendant's burden of appearing, (2) the forum state's interest in adjudicating the dispute, (3) the plaintiff's interest in obtaining convenient and effective relief, (4) the judicial system's interest in obtaining the most effective resolution of the controversy, and (5) the common interests of all sovereigns in promoting substantive social policies.

Id. (quoting United Elec. Workers v. 163 Pleasant St. Corp., 960

F .2d 1080, 1088 (1st Cir. 1992)).

In this case, the Gestalt factors do not fortify IPBMC's

weak case as to relatedness and purposeful availment. Since the

defendants are residents of Kentucky and Canada, jurisdiction in

New Hampshire would impose a burden on them to appear. While New

Hampshire may have some interest in adjudicating the dispute,

because IPBMC is a New Hampshire corporation, the agreement was

negotiated, entered into, and substantially performed elsewhere.

Witnesses and evidence are in several locations, including New

Hampshire. The stacker system is installed in Kentucky, and the

greater part of the information about its performance, problems,

and repairs is located there. While it is no doubt more

convenient for IPBMC to litigate in New Hampshire, that factor

alone cannot serve as a basis to reasonably and fairly exert

jurisdiction over defendants who have so few contacts with New

Hampshire.

As IPBMC has not shown that the exercise of personal

16 jurisdiction over the defendants in this case would comport with

the requirements of due process, the defendants' motion to

dismiss must be granted. There is no need, therefore, to

consider the defendants' alternative motion to transfer the case

to the Eastern District of Kentucky. The dismissal of the case

is without prejudice to IPBMC's right to refile the case in any

district where the defendants may be subject to personal

jurisdiction. See Phillips Exeter Academy,

n.4.

Conclusion

For the foregoing reasons, the defendants' motion to dismiss

(document no. 10) is granted. The clerk of court shall enter

judgment accordingly, and close the case.

SO ORDERED.

Joseph A. DiClerico, Jr. District Judge

February 8, 2000

cc: William C. Saturley, Esquire Joseph H. Walsh, Esquire Andrew W. Serell, Esquire Mark A. Robinson, Esqurie

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