Daikin Applied Americas Inc. v. Kavlico Corporation

Filing 22

MEMORANDUM OPINION AND ORDER denying 5 Defendant's Motion to Dismiss/Motion to Stay (Written Opinion). Signed by Judge Ann D. Montgomery on 06/11/2015. (TLU)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Daikin Applied Americas Inc.,
Plaintiff,
MEMORANDUM OPINION
AND ORDER
Civil No. 15-1492 ADM/HB

v.
Kavlico Corporation,

Defendant.
______________________________________________________________________________
William F. Auther, Esq., Bowman and Brooke, LLP, Phoenix, AZ; Jesse E. Sater, Esq., Bowman
and Brooke, LLP, Minneapolis, MN, on behalf of Plaintiff.
Jared D. Kemper, Esq., Dykema Gossett, PLLC, Minneapolis, MN, on behalf of Defendant.
______________________________________________________________________________
I. INTRODUCTION
On June 3, 2015, the undersigned United States District Judge heard oral argument on
Kavlico Corporation’s (“Kavlico”) Motion to Dismiss or Stay [Docket No. 5]. Kavlico argues
that this Court lacks personal jurisdiction and that California is the forum to adjudicate this
dispute. Plaintiff Daikin Applied Americas Inc. (“Daikin Applied”) opposes the Motion. For
the reasons set forth below, Kavlico’s Motion is denied.
II. BACKGROUND1
Daikin Applied is a Delaware corporation with its principal place of business in
Minneapolis, Minnesota. Compl. [Docket No. 1] ¶ 1. Daikin Applied manufactures commercial
heating, ventilation, and air-conditioning (“HVAC”) systems. Id. ¶ 6. Kavlico is a California
corporation maintaining its principal place of business in California. Id. ¶ 2. Kavlico designs

1

In considering a motion to dismiss, the pleadings are construed in the light most
favorable to the nonmoving party, and the facts alleged in the complaint must be taken as true.
Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994).

and manufactures components which Daikin Applied has used in some of its HVAC systems. Id.
¶¶ 7, 9.
Beginning in 2010, Kavlico began supplying Daikin Applied with high and low pressure
transducers. Id. ¶ 8. The parties primarily conducted their business through written agreements.
One such written agreement includes a forum selection clause in the Terms and Conditions. The
forum selection clause states:
PURCHASER AND SELLER IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
MINNESOTA STATE COURT LOCATED IN THE COUNTY OF HENNEPIN,
STATE OF MINNESOTA, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO ANY ORDER DOCUMENT AND PURCHASER
AND SELLER HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE LITIGATED IN
SUCH COURTS.
Id. ¶ 4; Ex. A, Art. 18 (capitalization in original).
In early 2014, Daikin Applied discovered that Kavlico’s transducers were causing
refrigerant leaks in some of its HVAC systems. Id. ¶ 10. Kavlico, after being alerted to the
leaks, determined that defects in the transducers’ housing porosity and o-ring material were
causing the leaks. Id. ¶ 13. Daikin Applied has demanded that Kavlico cover all past and future
repair costs caused by the defective transducers, but Kavlico has refused. Id. ¶ 16.
On February 25, 2015, the parties unsuccessfully mediated their dispute. The very next
day, Kavlico sued Daikin Applied in California state court, seeking payment and interest for 43
invoices on which Daikin Applied withheld payment. Daikin Applied removed the case to
federal court and moved to dismiss. Daikin Applied’s motion has been under advisement since
May 20, 2015 in California federal court. Daikin Applied filed this Minnesota federal action on
March 13, 2015.
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III. DISCUSSION
A.

Standard of Review
“To successfully survive a motion to dismiss challenging personal jurisdiction, a plaintiff

must make a prima facie showing of personal jurisdiction over the challenging defendant.”
Fastpath, Inc. v. Arbela Techs. Corp., 760 F.3d 816, 820 (8th Cir. 2014). In considering a
motion to dismiss, the plaintiff’s prima facie showing of jurisdiction must be tested, “not by the
pleadings alone, but by affidavits and exhibits supporting or opposing the motion.” Id. The
Court must assume that all facts alleged in the complaint are true. Hamm, 15 F.3d at 112. Any
ambiguities concerning the sufficiency of the claims must be resolved in favor of the nonmoving
party. Ossman v. Diana Corp., 825 F. Supp. 870, 880 (D. Minn. 1993).
B.

Personal Jurisdiction
Kavlico argues that this Court lacks personal jurisdiction. Kavlico argues that since it

has insufficient minimum contacts with Minnesota, subjecting it to suit here would offend due
process. Daikin Applied counters by arguing that the forum selection clause in Article 18 of the
parties’ written agreement is valid and makes jurisdiction here proper.
Determining whether this Court has personal jurisdiction over an out of state defendant
requires a two part inquiry: first, whether the facts support jurisdiction under the state long-arm
statute, and second, whether the exercise of jurisdiction comports with due process. Dakota
Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1387–88 (8th Cir. 1991). Because
Minnesota’s long-arm statute is “coextensive with constitutional limits,” the only question is
whether the exercise of personal jurisdiction comports with due process. Johnson v. Woodcock,
444 F.3d 953, 955 (8th Cir. 2006).

3

Due process requires that the defendant has minimum contacts with the forum state. Int’l
Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). “Due Process is satisfied when a defendant
consents to personal jurisdiction by entering into a contract that contains a valid forum selection
clause.” Dominium Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 726 (8th Cir. 2001). A
forum selection clause is prima facie valid and enforceable unless unjust, unreasonable, or
invalid for reasons such as fraud or overreaching. M.B. Rests., Inc. v. CKE Rests., Inc., 183
F.3d 750, 752 (8th Cir. 1999).
Kavlico concedes that the forum selection clause was incorporated into the sales
agreement for at least some of the allegedly defective transducers that are the subject of this
lawsuit. Moreover, Kavlico does not allege that the forum selection clause is unjust or
unreasonable, or that it is invalid due to fraud or overreaching. Despite this, Kavlico argues that
the forum selection clause is not dispositive because most of the transducers were sold pursuant
to an agreement that did not include such a clause, or the transducers were sold without any
formalized terms. Kavlico’s position, however, would eviscerate the plain language of the
contract that it agrees is valid as to at least some of the subject transducers. According to Article
2 of that contract, Kavlico’s “shipment of the [transducers]” constitutes acceptance to submit
litigation “to the exclusive jurisdiction” of any court in Hennepin County, Minnesota. Compl.,
Ex. A, Art. 2, 18. Kavlico’s shipment of transducers constituted acceptance of the forum
selection clause. Because the forum selection clause is valid, due process is not offended by
adjudicating this dispute here.2

2

Kavlico has additional contacts with Minnesota, beyond merely the forum selection
clause. In addition to conducting years of business with a company that has its headquarters in
Minnesota, Kavlico delivered approximately 3,700 transducers to Daikin Applied’s facility in
4

C.

First to File
Kavlico also argues that the suit should be dismissed because an action arising from the

same controversy is currently pending in the United States District Court for the Central District
of California. Kavlico Corp. v. Daikin Applied Ams. Inc., No. 15-cv-2434 (C.D. Cal. removed
Apr. 2, 2015). Kavlico points to the first-filed rule in support of its position. Under the firstfiled rule, the court in which the first of two parallel cases is filed generally has priority to
consider the case. Nw. Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1005 (8th Cir. 1993).
However, the first-filed rule should not be applied in a “rigid, mechanical, or inflexible” manner.
Id. The rule “will not be applied where a court finds compelling circumstances supporting its
abrogation.” Id. at 1006 (internal quotation marks omitted). The Eighth Circuit has identified
knowledge of intent to file and a race to the courthouse as “red flags” that there may be
compelling circumstances supporting departure from the first-filed rule. Id. at 1007.
Compelling circumstances exist in the California action. There is evidence that Kavlico
both raced to the courthouse and was aware that Daikin Applied intended to file suit against it in
Minnesota. After mediation concluded unsuccessfully, Kavlico filed suit in California the very
next day. Daikin Applied’s mediation brief advised Kavlico of its intention to file suit in
Minnesota if the mediation was unsuccessful. Rajkumar Decl. [Docket No. 15] ¶ 2. The
presence of these two “red flags” warrants abrogation of the first-filed rule in this case.
IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS

Faribault, Minnesota. This is further evidence that jurisdiction here does not offend traditional
notions of fair play and substantial justice. See Int’l Shoe Co., 326 U.S. at 316.
5

HEREBY ORDERED that Defendant’s Motion to Dismiss or Stay [Docket No. 5] is DENIED.
BY THE COURT:

s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: June 11, 2015.

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