Mueller et al v. Heath et al
Filing
13
MEMORANDUM OPINION AND ORDER by Judge John G. Heyburn, II on 8/22/13; 8 Motion to Dismiss for Lack of Jurisdiction is SUSTAINED, and Plaintiffs complaint is DISMISSED WITHOUT PREJUDICE. This is a final order. cc:counsel (DAK)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CIVIL ACTION NO. 3:13-CV-352-H
MARK C. MUELLER and
THOMAS W. MUELLER
PLAINTIFFS
V.
CHRISTOPHER A. HEATH and
FREDERICK J. MAURICE
DEFENDANTS
MEMORANDUM OPINION AND ORDER
Defendants, Christopher Heath and Frederick Maurice, move to dismiss the single count
complaint filed by Plaintiffs, Mark Mueller and Thomas Mueller. In their complaint, Plaintiffs
allege that Defendants fraudulently induced them into furnishing $500,000 to Defendants for the
purpose of purchasing the assets of a security alarm business. Plaintiffs further contend that by
failing to apply those funds to the investment or to return those funds to Plaintiffs, Defendants
breached their contract with Plaintiffs. Defendants now move to dismiss the complaint on
several grounds. For the following reasons, the Court will grant Defendants’ motion.
I.
The facts as alleged in the complaint and recited in briefs and affidavits attached thereto
are unclear at best. Heath is a citizen of Indiana, Maurice is a citizen of California, and Plaintiffs
are citizens of Kentucky. Plaintiffs argue that Defendants tendered a PowerPoint presentation to
some people at some point regarding the investment in the Colorado security alarm business at
issue.
Aside from this statement, Plaintiffs have not identified the mechanism by which
Defendants actually prompted Plaintiffs to invest in this company. Heath’s brother-in-law,
Jimmy Roth, a Kentuckian, engaged in a series of email correspondence with Heath posing and
answering financial questions about a number of business entities. How these emails relate to
Plaintiffs, and to the specific investment at issue, is entirely uncertain from the record.
Moreover, it is unclear whether and to what extent Defendants made misrepresentations
inducing the investment. In fact, the Court can glean little about this case other than that the
dispute may involve the capitalization of Mountain Acquisition Company, LLC through the
purchase of the security assets from Integrated Alarm Systems, and that Mark and Thomas
Mueller evidently transferred a certain amount of money to Monticello Capital, located in
California. See ECF Nos. 11-5, 11-6. Based on these facts, the Court must proceed to evaluate
Defendants’ motion to dismiss.
II.
Defendants move to dismiss on the grounds that this Court lacks personal jurisdiction
over them.
Plaintiffs, the parties asserting personal jurisdiction, bear the burden of
demonstrating that jurisdiction exists. See Serras v. First Tenn. Bank Nat’l Ass’n, 875 F.2d
1212, 1214 (6th Cir. 1989).
As stated by one court:
A Rule 12(b)(2) motion, such as the motion made by the defendants
here, is inherently a matter which requires resolution of factual issues
outside the pleadings, i.e. whether in personam jurisdiction actually lies.
Once the defense has been raised, then the plaintiff must sustain its
burden of proof in establishing jurisdictional facts through sworn
affidavits or other competent evidence. . . . Once the motion is made,
plaintiff must respond with actual proofs, not mere allegations.
Morrison v. Taurus Int’l Co., Ltd., 2012 WL 5493962, *1 (S.D. Ohio Nov. 13, 2012) (quoting
Patterson by Patterson v. Fed. Bureau of Investigation, 893 F.2d 595, 603-04 (3d Cir. 1990)).
In assessing this motion, the Court may 1) rule on the motion on the basis of affidavits; 2)
permit discovery on the motion; or 3) hold an evidentiary hearing on the motion. Dean v. Motel
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6 Operating L.P., 134 F.3d 1269, 1272 (6th Cir. 1998). This decision is within the Court’s
discretion. Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). The Court will
proceed on the first mechanism. Neither party has requested to take discovery on the issue. The
record aptly demonstrates Plaintiffs’ inability to establish personal jurisdiction. Accord Booth v.
Verity, Inc., 124 F. Supp. 2d 452, 457-58 (W.D. Ky. 2000) (citing Chrysler Corp. v. Fedders
Corp., 643 F.2d 1229, 1240 (6th Cir. 1981) for the proposition that “[w]here there is no
reasonable basis to expect that further discovery would reveal contacts sufficient to support
personal jurisdiction, it is not an abuse of discretion to deny discovery”). For the same reasons,
an evidentiary hearing is neither necessary nor prudent at this stage. Because this Court has held
no evidentiary hearing on the motion, Plaintiffs need only make a prima facie showing of
jurisdiction to overcome Defendants’ motion. Third Nat’l Bank in Nashville v. WEDGE Grp.,
Inc., 882 F.2d 1087, 1089 (6th Cir. 1989).
III.
“Personal jurisdiction over an out-of-state defendant arises from ‘certain minimum
contacts with’” the forum state, such that jurisdiction over the case complies with federal due
process rights. Air Prods. & Controls, Inc. v. Safetech Int’l, Inc., 503 F.3d 544, 549 (6th Cir.
2007) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). “Depending on the
type of minimum contacts in a case, personal jurisdiction can either be specific or general.” Id.
at 549-50. Defendants argue that Plaintiffs lack both.
To obtain general jurisdiction, “a defendant’s contacts with the forum state [must be] of
such a ‘continuous and systematic’ nature that the state may exercise personal jurisdiction over
the defendant even if the action is unrelated to the defendant’s contacts with the state.” Third
Nat’l Bank in Nashville, 882 at 1089. Plaintiffs have failed to demonstrate that Defendants
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maintain continued or systematic contacts with the state of Kentucky. Indeed, Plaintiffs make no
argument to this effect.
Defendants reside outside of Kentucky; they maintain residences,
employment, and most other integral contacts in states other than Kentucky. Heath claims to
have only visited Kentucky incidentally, and for no more than two consecutive days. ECF No.
8-2. Maurice contends that he also has only visited the state incidentally in recent years. ECF
No. 8-5. Accordingly, the Court does not maintain general jurisdiction over Defendants.
IV.
To sustain specific jurisdiction, “the claims in the case [must] arise from or [] relate[] to
the defendant’s contacts with the forum state.” Intera Corp. v. Henderson, 428 F.3d 605, 615
(6th Cir. 2005). The Sixth Circuit developed a two-pronged inquiry to determine whether
“personal jurisdiction over a defendant exists[:] ‘if the defendant is amenable to service of
process under the forum state’s long-arm statute and if the exercise of personal jurisdiction
would not deny the defendant due process.’” Bird v. Parsons, 289 F.3d 865, 871 (6th Cir. 2002)
(quoting Mich. Coal. of Radioactive Material Users, Inc. v. Griepentrog, 954 F.2d 1174, 1176
(6th Cir. 1992)); see Gerber v. Riordan, 649 F.3d 514, 517 (6th Cir. 2011) (applying the same to
a diversity case).
A.
Kentucky’s long arm statute has been interpreted to reach the limits of federal due
process, so the relevant inquiry is whether Defendants fall within the statute. Spectrum Scan,
LLC v. AGM Cal., 519 F. Supp. 2d 655, 657 (W.D. Ky. 2007). Plaintiffs must first show that
Defendants’ contacts with Kentucky or conduct in Kentucky comports with one of the nine
enumerated categories of the long-arm statute. Then, Plaintiffs “must also show that his claim is
one that arises from the conduct or activities described in the subsection.” Caesars Riverboat
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Casino, LLC v. Beach, 336 S.W.3d 51, 55 (Ky. 2011); accord Thompson v. Koko, 2012 WL
374054, *2 (W.D. Ky. Feb. 3, 2012).
In relevant part, Kentucky’s long-arm statute provides personal jurisdiction
over a person who acts directly or by an agent, as to a claim arising from the
person’s:
1. Transacting any business in this Commonwealth; . . .
3. Causing tortious injury by an act or omission in this Commonwealth; [and]
4. Causing tortious injury in this Commonwealth by an act or omission outside
this Commonwealth if he regularly does or solicits business, or engages in any
other persistent course of conduct, or derives substantial revenue from goods
used or consumed or services rendered in this Commonwealth, provided that the
tortious injury occurring in this Commonwealth arises out of the doing or
soliciting of business or a persistent course of conduct or derivation of
substantial revenue within the Commonwealth;
KY. REV. STAT. ANN. § 454.210(2)(a).
Plaintiffs first argue Defendants’ conduct falls within the first enumerated category of
specific personal jurisdiction. Evident from the pleadings, Defendants in fact did not transact
business in Kentucky. Plaintiffs and Roth, a non-party, may have wired funds from Kentucky
and suffered injury in Kentucky, but Plaintiffs do not actually allege that Defendants transacted
business in the Commonwealth, as transacting business is defined in Kentucky law. See Ford v.
RDI/Caesars Riverboat Casino, LLC, 503 F. Supp. 2d 839, 844 (W.D. Ky. 2007) (holding that
the defendant transacted business in Kentucky where half of its customers resided in Kentucky, it
derived substantial revenues from Kentucky residents, and it advertised, sponsored events, and
made charitable contributions in Kentucky); Am. Trade Alliance, Inc. v. S. Cross Trading, 2011
WL 112439, *2 (Ky. Ct. App. Jan. 14, 2011) (holding that defendant transacted business in
Kentucky where it shipped goods and promoted sales in Kentucky). Accordingly, Defendants’
conduct does not fall within this enumerated category of personal jurisdiction.
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Similarly, Defendants’ conduct could not be said to have caused tortious injury in
Kentucky by an act or omission in this Commonwealth, as Plaintiffs provide no reasonable
argument or specific allegation that Defendants acted at all in Kentucky, let alone in a tortious
manner.
Rather, all indications in the pleadings lead to the conclusion that the conduct
complained of occurred in Defendants’ states of residency, if at all.
Finally, Plaintiffs fail to show that Defendants caused their tortious injury in Kentucky by
acts or omissions outside the state within the strictures outlined in the statute. Plaintiffs have not
established that Defendants solicited business, engaged in persistent conduct, or derived
substantial revenue from goods used or consumed or services rendered in Kentucky; accordingly,
Plaintiffs’ injuries could not have arisen from Defendants’ business, fruits thereof, or other
persistent conduct in the Commonwealth.
In sum, Defendants’ conduct, as alleged, does not fall within the Kentucky long-arm
statute.
Moreover, Plaintiffs failed to establish that their injuries arise from the conduct
enumerated in the statute’s recognized categories. Therefore, Plaintiffs have failed to show that
this Court exercises personal jurisdiction over this case.
B.
Although the Court’s analysis could end here, the Court also finds that exercising
personal jurisdiction over these Defendants would violate due process rights. To satisfy due
process, Plaintiffs must “establish with reasonable particularity sufficient ‘minimum contacts’
with [Kentucky] so that the exercise of jurisdiction over [Defendants] would not offend
‘traditional notions of fair play and substantial justice.’” Neogen Corp. v. Neo Gen Screening,
Inc., 282 F.3d 883, 889 (6th Cir. 2002) (quoting Int’l Shoe, Co. v. Washington, 326 U.S. 310,
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316 (1945)). The Sixth Circuit “has distilled the[] due process requirements into a three-part
test.” Id.
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.
Id. (quoting S. Mach Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968)).
Defendants contend that Plaintiffs have not proven any of these elements. The Court finds that
Plaintiffs cannot satisfy the first two elements, and given such deficiencies, will not address the
third.
“[T]he purposeful availment requirement ensures that the defendant’s actions create a
‘substantial connection’ to the forum state, such that the defendant ‘should reasonably anticipate
being haled into court there.’” Cmty. Trust Bancorp, Inc. v. Cmty. Trust Fin. Corp., 692 F.3d
469, 472-73 (6th Cir. 2012) (quoting Neogen Corp., 282 F.3d at 889). “The ‘purposeful
availment’ requirement is satisfied when the defendant’s contacts with the forum state
‘proximately result from actions by the defendant himself that create a “substantial connection”
with the forum state.’” CompuServe Inc. v. Patterson, 89 F.3d 1257, 1264 (6th Cir. 1996)
(quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474-75 (1985)).
Plaintiffs provide the following evidence to establish purposeful availment: Defendants’
PowerPoint presentation used to solicit investments; Plaintiffs’ investments made from
Kentucky, based on that presentation; Defendants’ knowledge that Plaintiffs were making such
investments from Kentucky; an e-mail from Roth, a Kentucky resident and non-party, to
Defendants confirming the transfers of funds from investors; Roth’s investments made with
Defendants from Kentucky; and Defendants’ participation in another deal with Roth concerning
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a Kentucky limited liability company, Shuttlease, LLC. Assuming these allegations are true,
none of the allegations amount to purposeful availment.
That Defendants delivered a
PowerPoint presentation at an unclear time and location and upon which Plaintiffs allegedly
relied cannot amount to a purposeful contact, because neither of these allegations necessarily
concern Kentucky. Plaintiffs’ business activity in Kentucky and Defendants’ awareness of such
conduct do not constitute purposeful availment, because Defendants did not themselves create
the connection. The same reasoning forbids consideration of Roth’s business in Kentucky
related to Defendants as purposeful availment.
The only allegation tending to show purposeful availment is Defendants’ involvement
with a Kentucky limited liability corporation. Plaintiffs state that Shuttlease held meetings in
Kentucky and that its mailing address and principal office were located in Kentucky, facts which
of themselves do not relate to Defendants’ purposeful availment. Moreover, Plaintiffs fail to
allege the extent of Defendants’ involvement with this company. Plaintiffs simply claim that
Roth stated that he “participated in” the deal with Defendants at issue, and that Maurice kept the
books for the company in California, where checks were mailed to him. 1 Defendants contest
this, and further claim that Shuttlease was dissolved in 2009 and has since remained inactive, so
actions concerning Shuttlease cannot be a basis for personal jurisdiction in this current litigation.
Maurice’s accounting responsibilities, if they existed, necessarily ended years ago. Accordingly,
Defendants’ nebulous “participation in” Shuttlease, if true, does not amount to purposeful
availment.
1
Roth submitted as an exhibit to his affidavit the printout from the Secretary of State for Shuttlease. ECF No. 1110. The only people named on the printout are John Hampton as the Registered Agent and James Roth as the
member. Accordingly, Roth, by his own affidavit and attachments thereto, cannot provide support for his
contentions that Defendants were involved in Shuttlease.
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Even if the Court ruled differently on the purposeful availment prong, Plaintiffs have
failed to establish the second element of the personal jurisdiction test. Plaintiffs’ causes of action
for breach of contract and fraud must arise from Defendants’ activities in Kentucky. As stated
above, Defendants performed no activities in Kentucky relating to Plaintiffs’ claims. According
to Plaintiffs, the only activities taking place in Kentucky were Plaintiffs’ wiring of funds and
Plaintiffs’ alleged injuries. Plaintiffs do not allege that Defendants acted in Kentucky, except to
say that Defendants solicited investments from Kentucky residents. However, Plaintiffs fail to
claim how frequently or allege in what manner Defendants performed the solicitation. Unlike in
Purdue Pharma L.P. v. Impax Labs., Inc., 2003 WL 22070549 (S.D.N.Y. Sept. 4, 2003), where
the defendant solicited business in the forum state through advertising in trade catalogues and
journals, mailing product brochures to customers in the forum state, making sales calls to forum
state residents, and operating a website that solicited business nationally and internationally,
Plaintiffs cannot point to a single method of solicitation implicating conduct within Kentucky.
Accordingly, Plaintiffs fail to establish this prong as well.
In sum, the Court’s exercise of personal jurisdiction over this case does not comply with
Kentucky’s long-arm statute and would violate federal due process requirements.
Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendants’ motion to dismiss for lack of personal
jurisdiction is SUSTAINED, and Plaintiffs’ complaint is DISMISSED WITHOUT PREJUDICE.
This is a final order.
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August 22, 2013
cc: Counsel of Record
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