Intrust Financial Corporation v. Entrust Federal Credit Union
Filing
48
MEMORANDUM AND ORDER. Entrust's motion to dismiss for lack of personal jurisdiction (Dk. 19) is denied. The Court directs that this case be transferred to the United States District Court for the Eastern District of Virginia, at Richmond, pursu ant to 28 U.S.C. § 1631. It is ordered that the clerk transfer this action to the United States District Court for the Eastern District of Virginia, at Richmond, pursuant to 28 U.S.C. § 1631. See attached for more details. Signed by U.S. District Senior Judge Sam A. Crow on 7/20/2012. (bmw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
INTRUST FINANCAL CORPORATION,
Plaintiff,
vs.
Case No. 11-1312-SAC
ENTRUST FINANCIAL CREDIT UNION,
Defendant.
MEMORANDUM AND ORDER
This trademark infringement case comes before the Court on
Defendant Entrust Financial Credit Union’s motion to dismiss for lack of
personal jurisdiction, or in the alternative, to transfer venue to Virginia.
Plaintiff Intrust Financal Corporation opposes the motion to dismiss and the
motion to transfer, contending that specific jurisdiction is proper.
I. Motion to Dismiss Standard
Plaintiff bears the burden of establishing a prima facie case of personal
jurisdiction by a preponderance of the evidence. Dudnikov v. Chalk &
Vermilion Fine Arts, Inc., 514 F.3d 1063 (10th Cir. 2008). Plaintiff may make
this showing by demonstrating, via affidavit or other written materials, facts
that if true would support jurisdiction over the defendant. TH Agric. &
Nutrition, LLC v. Ace European Grp. Ltd., 488 F.3d 1282, 1286 (10th Cir.
2007). To the extent they are uncontroverted, the Court must accept the
well-pleaded allegations of the complaint. Wenz v. Memery Crystal, 55 F.3d
1503, 1505 (10th Cir. 1995). The Court resolves any factual disputes in
favor of the plaintiffs. Wenz, 55 F.3d at 1505.
II. Facts
The facts are undisputed. Entrust Federal Credit Union was founded in
1970 as a not-for-profit credit union to serve the “banking” needs of the
home office staff of the Foreign Mission Board (now the International Mission
Board.) Several years later, it expanded its services to include its overseas
missionaries, then expanded again in the early 1990’s to include other
organizations sharing a similar Christian heritage. Dk. 36, Exh. A. On August
12, 2011, Entrust Federal Credit Union ceased to exist and Entrust Financial
Credit Union (Entrust) began.
Entrust is a Virginia state-chartered credit union having one location
(Richmond, Virginia), 21 employees, and 9,690 members. During the past
five years, 46 of those members listed a Kansas address when applying for
membership with Entrust. An additional 22 members listed a Kansas address
on Entrust documents at some point after initial membership.
Entrust is not registered with the Kansas Secretary of State to do
business in Kansas. It is incorporated in Virginia, has its principal place of
business there, and has never sent any of its employees to Kansas for
business purposes. Entrust has never directly solicited business in the State
of Kansas, but has sent its Kansas members the same advertising and
2
marketing materials it sent to all of its members, regardless of their
residence. These materials bear the allegedly-infringing Entrust mark. One
such document encourages Entrust members to have their family members
join Entrust, and states no geographical restriction.
Entrust has no branch offices bearing its name, in Kansas or
elsewhere, but has entered into a “Shared Services Agreement” which
enables Entrust’s members to transact business with Entrust at many
locations outside the State of Virginia. By that agreement, Entrust appointed
a special agent to represent it for the sole purpose of conducting
transactions for Entrust through the network of shared service centers. By
that agreement, Entrust offers its members various financial services in
Kansas via approximately 321 “Credit Union Service Centers,” and multiple
ATM machines. Those services include account inquiries, withdrawals,
deposits, loan payments, account transfers, and check cashing. Entrust tells
its members that it is “part of a network of more than 4,000 Credit Union
Service Centers that act as branches of Entrust…”, Dk. 36, Exh. K, and
otherwise refers to these locations as “shared branches.” Dk. 36, Exh. M.
The Credit Union Service Centers function similarly to an ATM machine, but
have an employee present to provide various services to members as if the
members were transacting business in the lobby of their own credit union.
1
Entrust listed thirty-two of its credit union service centers in Kansas on July 11, 2011.
3
Credit Union Service Centers in Kansas reported a total of twenty-two
transactions (20 deposits and two withdrawals), made by persons at four
addresses in Kansas, between August 2011 and March 7, 2012. Dk. 36, Exh.
M. Each transaction produced a receipt bearing the allegedly infringing
“Entrust” name. In a period of over five years (from 2007–2012), Entrust
members completed approximately 250 transactions at ATMs located in
Kansas, 160 of which were completed by persons listing a Kansas residential
address. Id., Exh. O.
Entrust’s membership application form, which does not state any
geographical restriction, asks prospective members to state the number of
miles they are located from “the credit union or one of its service centers.”
Dk. 36, Exh. P. But Entrust’s membership eligibility page on its website
states, “Our membership consists of churches and Christian-based
organizations in the Richmond and surrounding area.” Dk. 20, Exh. D.
Entrust’s webpage also lists each church and organization eligible for
membership, all of which are based in the Richmond, Virginia area. Id.
Entrust’s online loan application form includes a drop-down box
allowing the applicant to select the state in which their home is located, and
Kansas is included in the list of states. Entrust’s loan agreements specifically
reference Kansas in some of its provisions, as noted later in this
memorandum.
4
The record does not include Entrust’s charter, constitution, or by-laws,
but an uncontradicted affidavit from its President and CEO establishes the
following: 1) all of Entrust’s clientele are associated with Christian
organizations in the Richmond, Virginia area; 2) only individuals affiliated
with Christian churches or organizations located in the Richmond, Virginia
area are eligible to become members of Entrust; 3) membership and loan
applications of individuals and organizations not affiliated with a Richmond,
Virginia area Christian organization are not considered by Entrust; 4)
Entrust’s target market is Christian individuals and organizations in the
Richmond, Virginia area; 5) The Virginia State Corporation Commission’s
Bureau of Financial Institutions acts as a regulator for Entrust and must
approve all organizations before they are eligible for membership with
Entrust, and would not approve an organization located outside of Virginia;
and 6) to the best of her knowledge, all Entrust members with ties to Kansas
are missionaries living abroad. Dk. 20, Exh. A.
III. Motion to Dismiss
“[J]urisdiction is in the first instance a question of authority rather
than fairness.” J. McIntyre Machinery, Ltd. v. Nicastro, __ U.S. __, 131 S.Ct.
2780, 2789 (2011).
[P]ersonal jurisdiction requires a forum-by-forum, or sovereign-bysovereign, analysis. The question is whether a defendant has followed
a course of conduct directed at the society or economy existing within
the jurisdiction of a given sovereign, so that the sovereign has the
power to subject the defendant to judgment concerning that conduct.
Personal jurisdiction, of course, restricts “judicial power not as a
5
matter of sovereignty, but as a matter of individual liberty,” for due
process protects the individual's right to be subject only to lawful
power. Insurance Corp., 456 U.S., at 702, 102 S.Ct. 2099. But
whether a judicial judgment is lawful depends on whether the
sovereign has authority to render it.
Id.
The Court first asks whether any applicable statute authorizes the
service of process on the defendant, then examines whether the exercise of
such statutory jurisdiction comports with due process. Trujillo v. Williams,
465 F.3d 1210, 1217 (10th Cir. 2006). Plaintiff’s claims are brought
pursuant to The Lanham Act, which does not provides for nationwide service
of process, see 15 U.S.C. § 1051 et seq. This Court therefore applies the law
of the state in which it sits. See Dudnikov, 514 F.3d at 1070. Kansas’ longarm statute is construed liberally so as to allow jurisdiction to the full extent
permitted by due process, Fed. Rural Elec. Ins. Corp. v. Kootenai Elec.
Coop., 17 F.3d 1302, 1305 (10th Cir. 1994), making the personal
jurisdiction issue one of federal constitutional law.
For the court's exercise of jurisdiction to comport with due process,
defendant must have “minimum contacts” with the State of Kansas, “such
that having to defend a lawsuit there would not ‘offend traditional notions of
fair play and substantial justice.’ ” Dudnikov, 514 F.3d at 1070. These
contacts with the forum state must be more than “random, fortuitous, or
attenuated.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)).
“Minimum contacts” can be established either generally or specifically.
6
A. General Jurisdiction
Entrust has not explicitly consented to jurisdiction in Kansas, is not
alleged to be incorporated or have its principal place of business in Kansas,
and has no registered agent in Kansas. No facts show circumstances of a
course of conduct evidencing Entrust’s intention to benefit from or submit to
the laws of Kansas. “Simply because a defendant has a contractual
relationship and business dealings with a person or entity in the forum state
does not subject him to general jurisdiction there.” Shrader v. Biddinger,
633 F.3d 1235, 1246-47 (10th Cir. 2011). Entrust’s affiliations with the
State of Kansas have not been shown to be so “continuous and systematic”
as to render it essentially at home in the forum State. See International
Shoe Co. v. Washington, 326 U.S. 310, 317 (1945). No general jurisdiction
is alleged, see Dk. 36, p. 9, or has been shown. Thus Entrust, which
operates primarily outside Kansas, has a “due process right not to be
subjected to judgment in its courts as a general matter.” J. McIntyre
Machinery, 131 S.Ct. at 2787.
B. Specific Jurisdiction
Only specific jurisdiction is alleged in this case. Specific jurisdiction
depends on an
“affiliatio[n] between the forum and the underlying controversy,”
principally, activity or an occurrence that takes place in the forum
State and is therefore subject to the State's regulation. (Citations
omitted.). In contrast to general, all-purpose jurisdiction, specific
jurisdiction is confined to adjudication of “issues deriving from, or
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connected with, the very controversy that establishes jurisdiction.” von
Mehren & Trautman 1136.
Goodyear Dunlop Tires Operations, S.A. v. Brown, __ U.S. __, 131 S.Ct.
2846, 2850-51 (2011). As a general rule, the exercise of judicial power is
not lawful unless the defendant “purposefully avails itself of the privilege of
conducting activities within the forum State, thus invoking the benefits and
protections of its laws.” J. McIntyre Machinery, Ltd., __ U.S. __, 131 S.Ct. at
785, quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958).
The Tenth Circuit applies a three-part test to determine specific
jurisdiction. Dudnikov, 514 F.3d at 1071.
First, the out-of-state defendant must have “purposefully directed” its
activities at residents of the forum state; and second, plaintiff's
injuries must “arise out of” defendant's forum-related activities.
Dudnikov, 514 F.3d at 1071 (quoting Burger King, 471 U.S. at 472).
Taken together, the first two parts of the test determine whether
plaintiff has demonstrated minimum contacts. Third, the exercise of
personal jurisdiction over defendant must be consistent with traditional
notions of fair play and substantial justice.
Dudnikov, 514 F.3d at 1071 (citing International Shoe, 326 U.S. at 316).
To meet its burden to show minimum contacts with Kansas, Plaintiff
points to the following:1) Entrust knowingly received membership
applications from individuals listing Kansas addresses; 2) Entrust continues
to service Kansas members through its 32 shared branches and ATMs in
Kansas, enabling them to transact business with Entrust and to receive
receipts bearing the name “Entrust”; 3) Entrust’s loan application form
includes “Kansas” in its drop-down menu of states, and its loan documents
8
have “very specific instructions for Kansas residents,” and 4) Entrust sent
advertisements directly to Kansas members, encouraging them to use other
financial services offered by Entrust and to tell others about them,
regardless of their geographical location.
1. Members and Transactions in Kansas
Plaintiff finds it significant that Entrust has members who apparently
reside in Kansas.2 But the record reflects that only 68 of 9,690 members
have ties to Kansas, and that they collectively do business with Entrust via
the credit union service centers or an ATM three or four times a month
(average).
These are insignificant numbers. “[S]mall percentages of business
contacts do not satisfy the substantial contacts threshold…” Advisors Excel,
LLC v. Senior Advisory Group, LLC, 2011 WL 3489884, at 4 (D.Kan. 2011)
(finding 0.52% of its total number of independent advisors and 0.30% of
defendant’s total revenue insufficient for general jurisdiction), citing Capitol
Fed. Sav. Bank v. E. Bank Corp., 493 F.Supp.2d 1150, 1165 (D.Kan. 2007)
(holding that Kansas residents comprising 0.008% of Massachusetts bank's
customers were not ‘substantial’).
Additionally, Plaintiff has not shown that Kansas residents in general
are eligible for membership in Entrust. Instead, the undisputed facts show
2
Entrust’s Kansas members may be missionaries living abroad who own property in Kansas
or have designated someone in Kansas to handle their finances for them in their absence.
But for purposes of this motion, the Court assumes Entrust’s members with Kansas ties are
Kansas residents.
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that Entrust’s membership is limited to individuals affiliated with Christian
churches or organizations located in the Richmond, Virginia area – thus it is
merely incidental and not purposeful that any members reside in Kansas.
2. Loan Documents Reference Kansas
Plaintiff contends that Entrust’s loan documents3 specifically reference
Kansas, signaling a “desire and intent to continue growing its business” in
Kansas. Dk. 36, p. 12. The cited document contains two references to
Kansas. The first provides:
12. DEFAULT – The following paragraph applies to borrowers in
Idaho, Kansas, Maine and state chartered credit unions lending to
South Carolina borrowers: You will be in default if you do not make a
payment of the amount required when it is due. You will also be in
default if we believe the prospect of payment, performance, or
realization on any property given as security is significantly impaired.
Dk. 36, Exh. F, p. 2. Three separate paragraphs follow, respectively
addressing default of borrowers in Wisconsin, in Iowa, and in all other states
and federally chartered credit unions loaning to South Carolina borrowers.
The second provision states:
13. ACTIONS AFTER DEFAULT – The following paragraph applies
to borrowers in Colorado, District of Columbia, Iowa, Kansas, Maine,
Massachusetts, Missouri, Nebraska, West Virginia and state chartered
credit unions lending to South Carolina borrowers: When you are in
default and after expiration of any right you have under applicable
state law to cure your default, we can demand immediate payment of
the entire unpaid balance under the Plan without giving you advance
notice.
Dk. 36, Exh. F, p. 2.
3
The referenced document appears to be a stock credit and security agreement not
necessarily drafted by Entrust.
10
The referenced document is drafted so that it may be used by anyone
in the United States, and does not specifically target Kansas residents. It
may reveal Entrust’s intent to serve its members who happen to reside in
Kansas, but does not assist Plaintiff in showing that Entrust purposefully
directed its business or contacts to the State of Kansas or its residents.
3. Website Includes Kansas
Plaintiff additionally points to various references to the State of Kansas
on Entrust’s website. Both parties recognize the Tenth Circuit’s holding that
“[t]he maintenance of a web site does not in and of itself subject the owner
or operator to personal jurisdiction, even for actions relating to the site,
simply because it can be accessed by residents of the forum state.” Shrader,
633 F.3d at 1241 (noting that in the internet context, specific jurisdiction
asks whether a defendant “deliberately directed its message at an audience
in the forum state and intended harm to the plaintiff occurring primarily or
particularly in the forum state.”) Compare Silver v. Brown, 382 Fed.Appx.
723 (10th Cir. 2010).
Nonetheless, Plaintiff contends that Entrust purposefully directed its
activities to Kansas by “allowing users to select Kansas from a drop-down
menu of states when submitting an online loan application.” Dk. 36, p. 11.
Plaintiff cites two cases as support for this proposition. But the first
recognizes that “in the majority of cases in which a court has found that a
website has conferred jurisdiction, part of the reasoning has been that a
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significant amount of business or communication has occurred between the
defendant and resident of the forum state through the site.” Tristar
Products, Inc. v. SAS Group, Inc., 2009 WL 3296112, at 3 (D.N.J. 2009).
The second echoes that rationale in finding, “[a] website whose owners
engage in repeated online contacts with forum residents through the site will
likely satisfy the minimum contacts requirement.” AdvanceMe, Inc. v.
Rapidpay LLC, 450 F.Supp.2d 669, 673 (E.D.Tex. 2006). No showing of
repeated or significant online communication or business between Entrust
and Kansas residents has been made in this case.
Further, both cases assume a fact not present in this case – that by
using the website, including its drop-down box, any Kansas resident could
transact business with the alleged infringer. But the facts show that a person
could not “select Kansas from a drop-down menu of states when submitting
an online loan application” unless that person were already an Entrust
member, and one cannot become an Entrust member without being affiliated
with a Virginia Christian organization. This is a significant limitation. Given
the facts, nothing about Entrust’s inclusion of the State of Kansas among all
50 states listed on its website materials indicates that Entrust purposefully
directed its activities to residents of Kansas. Entrust’s knowledge that some
of its members, whose eligibility to become members rested on their
affiliation with Virginia organizations, reside in Kansas is insufficient. The
Supreme Court’s precedents make clear that “it is the defendant's actions,
12
not his expectations, that empower a State's courts to subject him to
judgment.” J. McIntyre Machinery, 131 S.Ct. at 2789. See be2 LLC v.
Ivanov, 642 F.3d 555, 558 -559 (7th Cir. 2011).
4. Advertising in Kansas
Plaintiff contends that Entrust’s advertising in Kansas helps show
minimum contacts in the forum state. But the record does not show that
Entrust directs any advertising, whether by mass mailings or other media, to
persons residing in Kansas who are not its members. Entrust’s advertising
targets the market of Christian individuals and organizations in the
Richmond, Virginia area. It sends advertisements to its members, regardless
of their location. That Entrust members living in Kansas were asked to tell
their family members about Entrust’s services does not show that those
members would have been accepted for membership, absent an affiliation
with a Richmond-area Christian organization. That some of Entrust’s
advertising reaches Kansas residents is only incidental to their membership,
and is insufficient to establish purposeful availment. See Capitol Federal Sav.
Bank v. Eastern Bank Corp., 493 F.Supp.2d 1150, 1165 (D.Kan. 2007)
(bank’s advertising which targeted the New England states and reached
Kansas residents only incidentally, if at all, is insufficient to establish
purposeful availment); cf, Doering ex rel. Barrett v. Copper Mountain, Inc.,
259 F.3d 1202, 1210 (10th Cir. 2001) (advertising in national publications
13
that makes its way into the state is insufficient to justify general jurisdiction
where there is no direct advertising in the forum).
Viewed collectively, the contacts between Entrust and the State of
Kansas are constitutionally insufficient to warrant the exercise of personal
jurisdiction over Entrust. Thus the Court finds that it lacks personal
jurisdiction over Entrust in this case.
IV. Motion to Transfer
Entrust moves the Court, as an alternative to dismissal, to transfer the
case to Virginia pursuant to § 1404(a). Plaintiff opposes that motion, and the
Court lacks sufficient facts to weigh the convenience of the parties and
witnesses, as that statute requires.
This court has the power, however, to sua sponte transfer Intrust’s
case to the United States District Court for the District of Virginia pursuant
to 28 U.S.C. § 1631. Trujillo v. Williams, 465 F.3d 1210, 1223 (10th Cir.
2006). Where a court determines that it lacks jurisdiction and the interests
of justice require transfer rather than dismissal, the correct course of action
is to transfer pursuant to § 1631. Id. Because this lawsuit could have been
brought in the Eastern District of Virginia, and a transfer to that forum would
conserve judicial resources and avoid unnecessary legal expenses, and
Plaintiff’s case does not appear to be legally frivolous, the Court finds that
the interests of justice compel transfer rather than dismissal. The Court
therefore directs that this case be transferred to the United States District
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Court for the Eastern District of Virginia, at Richmond, pursuant to 28 U.S.C.
§ 1631.
IT IS THEREFORE ORDERED that Entrust’s motion to dismiss for lack of
personal jurisdiction (Dk. 19) is denied.
IT IS FURTHER ORDERED that the Clerk transfer this action to the
United States District Court for the Eastern District of Virginia, at Richmond,
pursuant to 28 U.S.C. § 1631.
Dated this 20th day of July, 2012, at Topeka, Kansas.
s/ Sam A. Crow
Sam A. Crow, U.S. District Senior Judge
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