Sledge v. Indico System Resources, Inc.
Sledge v. Indico System Resources, Inc.
Opinion of the Court
ORDER DENYING DEFENDANTS’ MOTION TO DISMISS FOR LACK OF JURISDICTION
Before the Court is the Motion to Dismiss for Lack of Jurisdiction under Federal Rule of Civil Procedure 12(b)(2). of Defendants Indico System Resources, Inc. and Cleal Watts, III (“Defendants”), filed December 3, 2013. (ECF No. 11). Plaintiffs filed their Response in Opposition to the Motion (ECF No. 13) on December 30, 2013. Defendants filed a Reply on January 23, 2014 (ECF No. 17), to which the Plaintiffs filed a Sur-Reply on January 30, 2014. (ECF No. 21). On December 2, 2014, the parties appeared for an eviden-tiary hearing on the Motion. For the reasons stated below, the Defendants’ Motion to Dismiss for Lack of Jurisdiction is DENIED.
BACKGROUND
I. Nature of the Claims
Plaintiffs Mary Phillipa Sledge, Mary Jane Pidgeon Sledge Trust, and Pidgeon Sledge Family Limited Partnership (“Plaintiffs”) filed a Complaint against Defendants Indico System Resources, Inc. (“ISR”) and Watts in his individual capacity and as an agent of ISR on July 29, 2013. (Pls.’ Compl., ECF No. 1). Mr. Watts is the President of ISR, a company in the business of consigning unrefined, new gold ore, dust. (See Defs.’ Mem. in Supp. 1, ECF No. 11-1). The Plaintiffs allege violations of various state laws and federal securities laws by claiming that Defendants fraudulently solicited approximately $5 million from Plaintiffs to purchase gold dust mined in the Republic of Ghana. (Pls.’ Compl. ¶¶1, 40-109). The Complaint alleges damages that satisfy the amount-in-controversy requirement under 28 U.S.C. § 1332. '
The Plaintiffs’ Complaint argues two separate theories in support of this Court’s personal jurisdiction over the Defendants for the claims alleged. (Id. ¶¶ 8-12). First, the Plaintiffs argue that the Court has personal jurisdiction over both Defendants because Watts, a resident of Texas, directed fraudulent communication and information into Tennesseé on behalf of himself and ISR, purposely availing himself and ISR of the forum. Second, the Plaintiffs argue that the Court has jurisdiction over the Defendants under both the Securities Act of 1933 and the Securities and Exchange Act of 1934, both of which contain nationwide-serviee-of-proeess provisions establishing personal jurisdiction.
II. Contacts with Tennessee
In support of this Court’s exercise of jurisdiction, the Plaintiffs have submitted numerous emails and testified to a myriad of calls between Watts and Sledge. These communications form the bases of the Plaintiffs’ claims. The Defendant does not seriously dispute that Watts made calls or sent emails over his 18-month period of communication with Sledge. Instead, the
III. Nationwide Service of Process
As an initial matter, the Court will not address the Defendants’ argument against the Court’s exercise of personal jurisdiction with respect to the Plaintiffs’ securities-law claims. Generally, a provision which allows for nationwide service of process confers jurisdiction upon a district court because “the strictures of International Shoe ” do not apply.
STANDARD
When a party challenges personal jurisdiction, the plaintiff bears the burden of establishing the existence of jurisdiction.
The Defendants briefly stated at the evidentiary hearing — but never included in their written briefs — that in order to prove personal jurisdiction at this stage, the Plaintiffs would also have to prove their actual claims. While a court may combine a personal-jurisdiction evidentiary hearing with the trial on the merits,
DISCUSSION
I. Personal Jurisdiction
A. Specific Jurisdiction
Federal courts apply state law, subject to constitutional limitations, to determine questions of personal jurisdiction.
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.17
Specific jurisdiction, then, depends upon the Defendants’ contacts with and availment of the forum state, taking into account the cause of action’s relation to Tennessee and the connection between the Defendants and Tennessee.
B. Tennessee’s Long-Arm Statute
Federal courts must rely on the law of the forum state to determine whether personal jurisdiction exists,
II. Analysis
Jurisdiction over two different defendants normally implicates two separate analyses: “In applying these [Mokasco] elements, the contacts of each defendant must be assessed individually.”
A. Purposeful Availment
The first prong of the Mohasco test often determines whether the Court has jurisdiction over the defendant. “The purposeful availment requirement serves to protect a defendant from being hailed into a jurisdiction by virtue of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts.”
1. Neal v. Janssen
In Neal, Tennessee plaintiffs were attempting to sell a horse that was boarded in the Netherlands. The plaintiffs met with the Belgian, defendant in Florida, where the defendant also had a home. The defendant, who would receive a standard 10% commission upon sale, agreed to sell the horse. The plaintiffs believed that the horse would sell for about $500,000, but the defendant later made phone calls and sent facsimiles to the plaintiffs stating that certain third-party buyers had made substantially lower bids. The defendant also told the plaintiffs that they had “placed an unrealistically high value on the horse” but later agreed that he would forgo his commission if the plaintiffs would allow him to sell the horse for $312,000. The plaintiffs agreed, and they received just under $312,000 by wire transfer at their bank in Tennessee shortly thereafter. They subsequently learned th.at the defendant had actually accepted a $480,000 offer for the horse and kept the excess money.
The Sixth Circuit upheld the district court in Tennessee’s exercise of jurisdiction over the defendant even though he had never stepped foot in Tennessee. The Court explained that the defendant
did not make just one phone call to plaintiffs in Tennessee in an effort to solicit business from them. The undisputed facts demonstrate that [the defendant] engaged in a course of conduct over a period of time that involved a single business transaction — the sale of an expensive horse — with plaintiffs, conducted by phone and fax. The actions that constitute the entire transaction were the allegedly fraudulent communications and these same communications form the bases for plaintiffs’ tort claims. The alleged misrepresentations are the elements of the cause of action itself.... As the court below aptly put it, the communications form the “heart of plaintiffs’ claims.” The conduct here was much more than a single phone call made in an effort to start a business relationship.37
Physical presence in the state is not a prerequisite for jurisdiction. Rather, “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.”
The Defendants argue that Neal is distinguishable and Rice was decided later. In Rice, Merchantonline.com, a Florida company, contracted with Pagan Lewis Motors, Inc., a Tennessee race-car team, and promised to sponsor Pagan Lewis and pay a sum of money over the five months. In return, Pagan Lewis promised advertising rights to Merchantonline.com. To guarantee performance, Merchantonline.com granted Pagan Lewis a security interest in shares of Merchantonline.com stock. Those shares were placed in escrow. Less than a month later, Merchantonline.com notified Pagan Lewis that it would default. The parties subsequently came up with a workout agreement, which rescheduled the payments. Merchantonline.com then breached this agreement. In arguing for jurisdiction, the plaintiff asserted that the defendant’s “alleged wrongdoing consisted], in part, of making fraudulent and negligent telephone calls to [plaintiff] in Jackson, Tennessee, of sending e-mails and letters to Rice in Jackson, Tennessee containing similar statements, and of making a call and sending an email to the [plaintiffs’] broker ... in Jackson.”
The Sixth Circuit focused on the communications in Rice to distinguish it from Neal. The Court held that the plaintiffs had not alleged that the defendant “solicited, negotiated, or performed any aspect of the contract in Tennessee.”
3. Neal as Controlling
The Court holds that the facts and legal conclusions in Neal are more akin to this case. First, as in Neal, the alleged fraudulent communications form the “heart” of this action. ■ In Rice, the heárt of the action was a breach of contract. The Rice plaintiffs only alleged that a small part of the defendants’ “wrongdoing” consisted of directing fraudulent and negligent communications. Almost all of those communications were responses from the defendants. Here, on the other hand, the “content of the communications into the forum gives rise to an intentional tort action,” which “alone may constitute purposeful availment.”
Second, the Defendants attempt to prove the applicability of Rice by showing that here, “there was no indication that [Watts] knew or should have known [he] was communicating into Tennessee.”
The Defendants’ contention that their contacts with Tennessee occurred solely because the Plaintiffs were located in Tennessee is also unpersuasive. They argue that ISR and Watts’s contacts with Tennessee were “random,” “fortuitous,” and “attenuated.”
B. Cause of Action Arises in the Forum
The Plaintiffs claim sounds primarily in fraud. In the first paragraph and throughout the rest of their Complaint, the Plaintiffs allege multiple misrepresentations, directed into the state of Tennessee, which created a “fraudulent investment scheme.”
C. Contacts and Reasonableness
Mohasco’s third prong requires the Court “to determine whether the contacts are substantial enough to make it reasonable to subject the defendant to the personal jurisdiction of the Tennessee courts.”
CONCLUSION
Watts knowingly directed communications into Tennessee. Those phone calls and emails contained allegedly fraudulently information and form the heart of the cause of action in this case. Therefore, the Defendant’s Motion to Dismiss for Lack of Personal Jurisdiction is DENIED.
IT IS SO ORDERED.
. See Pls.’ Exs. 3-5, 8-9.
. See United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1330 (6th Cir. 1993).
. See id. (citing Secs. Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1315 (9th Cir. 1985)).
. Indah v. SEC, 661 F.3d 914, 922 (6th Cir. 2011).
. See Jon Heller, Note, Pendent Personal Jurisdiction and Nationwide Service of Process, 64 N.Y.U. L.Rev. 113, 116 (1989) ("A problem arises when nationwide service of process is used for both federal claims and pendent state claims because even if the federal court has subject matter jurisdiction over the state claim, the court still has to consider whether the nationwide service or process used for the federal claim confers personal jurisdiction over the defendant with respect to the state claims. If such pendent process were not effective, the court would lack personal jurisdiction to adjudicate the state law claim.”).
. Generally, defendants may not raise a second pre-answer 12(b) motion. But here, the Defendants have fairly raised the issue of the Plaintiffs' alleged failure to state a claim on the securities claims. The Court chooses not to address the issue in the 12(b)(2) vehicle, and thus, if the Defendants so choose, they may raise the defense in a subsequent pre-answer motion, in the answer itself, or at later stage by proper motion. See Fed. R.Civ.P. 12(b), (g)-(h); 2 James Wm. Moore et al., Moore's Federal Practice § 12.23.
. Carrier Corp. v. Outokumpu Oyj, 673 F.3d 430, 449 (6th Cir. 2012); Serras v. First Term. Bank Nat’l Ass’n, 875 F.2d 1212, 1214 (6th Cir. 1989).
. Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991).
. Intera Corp. v. Henderson, 428 F.3d 605, 615 n. 7 (6th Cir. 2005) (citing Serras, 875 F.2d at 1214).
. Serras, 875 F.2d at 1214; see Schneider v. Hardesty, 669 F.3d 693, 697 (6th Cir. 2012).
. Schneider, 669 F.3d at 697.
. Id. (explaining that the different burdens prevent a defendant “from ‘defeating] personal jurisdiction by filing a written affidavit contradicting jurisdictional facts alleged by a plaintiff while simultaneously allowing a defendant to ‘invoke the court’s discretion to order a pretrial evidentiary hearing’ and thereafter apply the more-exacting standard when a plaintiff's jurisdictional allegations are wholly unfounded.” (quoting Serras, 875 F.2d at 1214)).
. The Plaintiff filed a Motion to Strike the Defendant’s Reply (ECF No. 18) because the Reply contained unsworn declarations. In response, and on the same day, the Defendant filed a Notice of Correction to its Reply. (ECF No. 19). In the Notice of Correction; Watts declared under penalty of perjury that his declaration was true. Thus, the Plaintiff's Motion to Strike the Defendant’s Reply is DENIED.
. See Ford Motor Co. v. Great Domains, Inc., 141 F.Supp.2d 763, 771 (E.D.Mich. 2001) (citing Serras, 875 F.2d at 1215).
. Intern Corp. v. Henderson, 428 F.3d 605, 615 (6th Cir. 2005) (citing Calphalon Corp. v. Rowlette, 228 F.3d 718, 721 (6th Cir. 2000)).
. Id.
. S. Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968).
. Calphalon Corp., 228 F.3d at 721.
. Intera Corp., 428 F.3d at 615 (citing Calphalon Corp., 228 F.3d at 721).
. Neal v. Janssen, 270 F.3d 328, 331 (6th Cir. 2001) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)).
. Tenn.Code Ann. § 20-2-214(a)(2).
. Intera Corp., 428 F.3d at 616 (citing Payne v. Motorists' Mut. Ins. Cos., 4 F.3d 452, 455 (6th Cir. 1993)); see Tenn.Code Ann. § 20-2-214(a)(6).
. Neal, 270 F.3d at 331 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980)).
. Id. (citing Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984)).
. Williams v. Firstplus Home, 310 F.Supp.2d 981, 991 (W.D.Tenn. 2004) (citing Rush v. Savchuk, 444 U.S. 320, 332, 100 S.Ct. 571, 62 L.Ed.2d 516 (1980)).
. Pls.’ Compl. 3, ECF No. 1.
. Simplex Healthcare, Inc. v. Marketlinlcx Direct, Inc., 761 F.Supp.2d 726, 730-31 (M.D.Tenn. 2011) (citing Stuart v. Spademan, 772 F.2d 1185, 1197 (5th Cir. 1985)).
. Defs.’ Mem. in Supp. of Mot. to Dismiss for Lack Personal Juris. 13, ECF No. 11-1.
. Simplex Healthcare, 761 F.Supp.2d at 731.
. Id. at 731-732 (citing Balance Dynamics Corp. v. Schmitt Indus., 204 F.3d 683, 698 (6th Cir. 2000)).
. See Balance Dynamics, 204 F.3d at 698.
. Infera Corp. v. Henderson, 428 F.3d 605, 615 (6th Cir. 2005).
. Id. at 616 (citing Neal v. Janssen, 270 F.3d 328, 332 (6th Cir. 2001)).
. See Rice v. Karsch, 154 Fed.Appx. 454, 462 (6th Cir. 2005).
. Neal, 270 F.3d at 332.
. See Neal, 270 F.3d at 330.
. Id. 332-33.
. Id. at 333.
. Rice, 154 Fed.Appx. at 456-57, 460.
. Id. at 461.
. Id. The Court also refused to consider emails sent after the filing of a complaint. Id.
. Id. at 462.
. Id. at 461 (quoting Neal, 270 F.3d at 332).
.See Nationwide Mut. Ins. Co. v. Tryg Int’l Ins. Co., 91 F.3d 790, 796 (6th Cir. 1996) ("[W]e explained in Southern Machine [v. Mohasco] that the dispositive fact is not whether the plaintiff or the defendant initiated the contact between the parties, but whether the defendant ultimately 'chose to deal’ with the plaintiff.”).
. At the evidentiary hearing, the Plaintiffs submitted emails in which Watts attached spreadsheets of allegedly misrepresented information about the existence, amounts, shipment dates, and events directly related to the alleged purchase and shipment of the gold. See Pls.’ Ex. 1-2. Furthermore, Sledge testified as to the numerous conversations she had with Watts.
. Neal, 270 F.3d at 332.
. The Court also heard evidence of wire transfers and soft corporate offers, which both parties used to support their positions on the-instant Motion. The Court’s holding here, however, relies on settled case law that confers jurisdiction upon the forum when allegedly fraudulent misrepresentations directed into the forum state form the heart of the action itself. The evidence strongly supports a finding of jurisdiction on this basis, and therefore, the Court does not discuss these other contacts.
. Defs.’ Reply 7, ECF No. 17.
.- See Pis.’ Ex. 9. Sledge also testified that she talked to Watts about some of Memphis's other attractions: the Peabody Hotel, the Rendezvous restaurant, and the Germantown Charity Horse Show. Such conversations, alone, do not mean that Watts purposefully availed himself of Tennessee. Instead, they show that Watts knew that when he emailed and phoned Sledge with allegedly fraudulent information, he was directing that information to her in Tennessee.
. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985).
. Pls.' Compl. 1, ECF No. 1.
. See Neal, 270 F.3d at 332-33.
. Id. at 333.
. Schneider v. Hardesty, 669 F.3d 693, 703-04 (6th Cir. 2012) (citing Air Prods. & Controls, Inc. v. Safetech Int’l, Inc., 503 F.3d 544, 554-55 (6th Cir. 2007)).
. .See id.
Reference
- Full Case Name
- Mary Phillipa SLEDGE, Mary Jane Pidgeon Sledge Trust, and Pidgeon Sledge Family Limited Partnership v. INDICO SYSTEM RESOURCES, INC and deal Watts, III
- Cited By
- 4 cases
- Status
- Published