Service Team of Professionals, Inc. v. Folks et al

Filing 23

ORDER. The Court lacks personal jurisdiction over Defendants. The Court will defer taking any further action for fourteen days, so that Plaintiff can indicate whether it wants the case transferred to the Middle District of Louisiana.Signed on 5/2/18 by District Judge Beth Phillips. (Cordell, Annette)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
SERVICE TEAM OF PROFESSIONALS, INC., )
)
Plaintiff,
)
v.
)
)
WILLIAM C. FOLKS, et al.,
)
)
Defendants.
)

No. 18-0048-CV-W-BP

ORDER AND OPINION (1) CONCLUDING THAT THE COURT LACKS PERSONAL
JURIDICTION OVER DEFENDANTS AND (2) DIRECTING PLAINTIFF TO
INDICATE WHETHER IT DESIRES FOR THE CASE TO BE TRANSFERRED

Plaintiff filed this suit, alleging Defendants breached a contract. Defendants have filed a
Motion to Dismiss, contending that they are not subject to personal jurisdiction in Missouri.
Alternatively, Defendants ask that the case be transferred to the Middle District of Louisiana for
the convenience of the parties pursuant to 28 U.S.C. § 1404(a). The Court concludes that it does
not have personal jurisdiction over Defendants, so the Court cannot consider transferring the case
based on § 1404(a). The Court will defer taking any further action, however, to allow Plaintiff
an opportunity to indicate whether it would like the case transferred to the Middle District of
Louisiana pursuant to 28 U.S.C. § 1406(a).
I. BACKGROUND
Plaintiff is in the business of granting franchises to businesses engaged in providing
cleaning and restoration services. (Doc. 1, ¶ 7.) Defendants entered into a Franchise Agreement
with Plaintiff for the operation of a franchise in Baton Rouge, Louisiana. (Doc. 1, ¶¶ 10-11.)
Section 26 of the Franchise Agreement contained a forum selection clause stating that “[p]roper

venue for any action shall be in Kansas City, Missouri.” (Doc. 1, ¶ 6; Doc. 8, p. 2.) 1 The
Franchise Agreement was due to expire on July 31, 2016. (Doc. 8-1, p. 2.)2
A dispute arose between the parties, and in April 2016 they entered into a Mutual
Settlement and General Release Agreement, (“the Settlement Agreement”). (Doc. 1, ¶ 14; Doc.
1-1; Doc. 14-4, pp. 39-43.) The Settlement Agreement provides that the Franchise Agreement
was deemed to have been terminated as of January 1, 2016, and that “none of the Settling Parties
shall have any remaining obligations or rights thereunder, except for those post termination
obligations and rights described within Section 13a through Section 13d and Section 13f through
Section 13h of the Franchise Agreement.” (Doc. 1-1, p. 1 (emphasis supplied).) Generally,
these specified sections (hereafter “Section 13”) describe the franchisee’s obligation to stop
using Plaintiff’s service marks, refrain from divulging trade secrets, return certain materials to
Plaintiff, and cancel or abandon all fictitious names, service marks, advertising, and business
listings incorporating or related to Plaintiff’s name or mark. (Doc. 1, ¶ 16.) However, with the
exception of Section 13, the Settlement Agreement specifies that “the Settling Parties are
relieved from all of the terms and conditions” of the Franchise Agreement. (Doc. 1-1, p. 1.)
Another dispute arose between the parties, this time over whether Defendant had
breached the Settlement Agreement. Plaintiff filed suit in the District of Nevada, contending that
Defendants had breached the Settlement Agreement by continuing to use Plaintiff’s promotional
videos, service marks, and other materials. (Doc. 8-4, ¶¶ 17-19, 23.) Defendants moved to
dismiss the suit, arguing that they were not subject to personal jurisdiction in Nevada. (Doc. 144.) The District of Nevada agreed that Defendants lacked minimum contacts with that state, and
1

All page numbers are those generated by the Court’s CM/ECF system.

2

The Record does not include the Franchise Agreement that was actually executed by the parties. However, the
parties agree with this description of the Franchise Agreement. Plaintiff has provided a blank or form agreement,
(Doc. 14-1; Doc. 14-4, pp. 18-37), which is consistent with the description agreed to by the parties.

2

granted Defendants’ Motion to Dismiss in January 2018. (Doc. 8-5.)

Plaintiff then filed this

suit, which is essentially the same as the one it filed in Nevada.
Defendants contend that the case must be dismissed because (1) the forum selection
clause did not survive the Franchise Agreement’s termination, and (2) they do not have the
minimum contacts with Missouri necessary to satisfy the Due Process Clause. Alternatively,
they ask that the case be transferred to the Middle District of Louisiana for the convenience of
the parties pursuant to 28 U.S.C. § 1404(a). Plaintiff opposes Defendants’ Motion. As discussed
more fully below, the Court concludes that Defendants are not subject to personal jurisdiction in
this forum, but the Court defers further action so that Plaintiff can indicate whether it wants the
case transferred to a proper forum.
II. DISCUSSION
A. The Forum Selection Clause
“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, LLC v.
Emerson, 248 F.3d 720, 726 (8th Cir. 2001) (citing Burger King v. Rudzewicz, 471 U.S. 462, 472
n.14 (1985) and M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972)); see also St. Paul
Fire & Marine Ins. Co. v. Courtney Enterprises, Inc., 270 F.3d 621, 624 (8th Cir. 2001).
Plaintiff contends that the Franchise Agreement’s forum selection clause was valid and that it
survived the Franchise Agreement’s termination. Defendants do not dispute that the forum
selection clause was valid; they only contend that it is no longer in effect because in the
Settlement Agreement the parties agreed to no longer be bound by that provision. The Court
agrees with Defendants.

3

Normally, the parties’ obligations expire when a contract terminates, but provisions
related to the manner in which disputes are resolved generally survive the contract’s termination.
Such provisions govern disputes that (1) accrued before the agreement’s termination or (2) relate
to post-termination obligations specified in the contract. E.g, Silverpop Sys., Inc. v. Leading
Market Tech., Inc., 641 Fed. App’x 849, 857 (11th Cir. 2016); 13 Corbin on Contracts § 67.2
(2003). Courts have applied this general principle to forum selection clauses and concluded that
such clauses generally survive the termination of the agreement and apply to pre-termination
disputes and to post-termination obligations specified in the agreement. E.g., United States
Smoke & Fire Curtain, LLC v. Bradley Lomas Electrolok, Ltd., 612 Fed. App’x 671, 672-73 (4th
Cir. 2015); Tristate HVAC Equipment, LLP v. Big Belly Solar, Inc., 752 F. Supp. 2d 517, 534-35
(E.D. Pa. 2010); AGR Fin., LLC v. Ready Staffing, Inc., 99 F. Supp. 2d 399, 401 (S.D.N.Y.
2000); Allied Sound, Inc. v. Dukane Corp., 934 F. Supp. 272, 275 (M.D. Tenn. 1996); Baker v.
Economic Research Servs., Inc., 2018 WL 1415501, *2 (Fla. Dist. Ct. App. 2018). However, the
common law rule assumes that the contract containing the contract has expired by its terms or
that the parties have merely agreed to terminate the contract. The parties are free to negotiate a
different outcome.
The question before the Court is whether the Settlement Agreement terminated the
parties’ agreement to litigate disputes in Kansas City, Missouri.

When interpreting the

Settlement Agreement, the Court’s objective is to ascertain and give effect to the parties’ intent.
E.g., Armbruster v. Mercy Med. Grp., 465 S.W.3d 67, 71 (Mo. Ct. App. 2015).3 The parties’
intent is to be gleaned solely from the contract if the contract’s terms are unambiguous, e.g,. id.,

3

The parties do not clearly suggest which law governs the Settlement Agreement, particularly if Section 26 of the
Franchise Agreement (which also included a choice of law provision) is no longer applicable after the Settlement
Agreement. However, the contractual principles discussed in this paragraph are of such a general nature that they
are undoubtedly the same in all other jurisdictions.

4

and in conducting this inquiry “the terms of a contract should be read as a whole.” State ex rel.
Vincent v. Schneider, 194 S.W.3d 853, 858 (Mo. 2006) (en banc).
The Settlement Agreement does not contain a forum selection clause or choice of law
provision. The parties discussed the issue during negotiations but were unable to agree. (Doc. 82, ¶¶ 4-5.) However, they were able to agree that, with the exception of certain obligations in
Section 13, “the Settling Parties are relieved from all of the terms and conditions” of the
Franchise Agreement. (Doc. 1-1, p. 1 (emphasis supplied).) This language is unambiguous, and
the only possible interpretation is that the parties agreed that all of the Franchise Agreement’s
provisions ended effective January 1, 2016, except for the specified provisions in Section 13.
This means that the parties were relieved of obligations contained in Section 26, including the
obligation to resolve disputes in Kansas City, Missouri.
Plaintiff opposes this conclusion by relying on the common law principles referenced
earlier. It suggests that the common law principles apply and a forum selection clause remains
applicable whenever and regardless of how a contract ends. However, there can be no doubt that
the parties retain the ability to agree to terminate a forum selection clause; the question in a given
case is whether they did so. For the reasons set forth in the preceding paragraph the Court
concludes that the parties in this case agreed to terminate the forum selection clause.
Moreover, the case upon which Plaintiff principally relies is distinguishable. Plaintiff
cites the Eastern District of Pennsylvania’s decision in Tristate HVAC Equip., LLP v. Big Belly
Solar, Inc. for the proposition that a forum selection clause survives even if a terminated
agreement does not specifically state that the forum selection clause survives the contract’s
termination. (Doc. 14, pp. 12-13.) In Tristate HVAC, one party terminated a contract for cause
pursuant to the agreement’s provisions, and the contract specified that certain provisions

5

survived after termination. Although the forum selection clause was not specified as a surviving
provision, the court nonetheless ruled that the forum selection clause survived.

However,

Tristate HVAC is distinguishable in two important respects. First, the agreement’s provisions
caused the agreement to terminate, and when that happens the common law presumes that the
choice of law provision remains applicable. In contrast, in the present case the parties executed a
separate agreement to terminate the Franchise Agreement.

Second, and perhaps more

importantly, the events giving rise to the claim in Tristate HVAC occurred before the contract
was terminated, and the common law establishes that a forum selection clause applies to disputes
that arise before the contract is terminated. In contrast, Plaintiff’s claim is that Defendants
breached the Settlement Agreement after the Franchise Agreement was terminated. For these
reasons, Tristate HVAC does not support Plaintiff’s argument.
Finally, Plaintiff contends that Defendants conceded that the Franchise Agreement’s
forum selection clause applies when they argued that the District of Nevada lacked jurisdiction in
Plaintiff’s initial lawsuit. The Court disagrees with this interpretation of Defendants’ argument
to the District of Nevada. The issue addressed there was whether Defendants were subject to
personal jurisdiction in Nevada. In the course of that discussion Defendants contended that the
parties’ prior business relationship had no connection to that state, and they identified all of the
places relevant to that relationship – including where the Franchise Agreement was executed,
negotiated, and performed. At the conclusion of this discussion, Defendants observed that
“[f]urther, the Franchise Agreement [has] a choice of law clause and forum selection clause,
which designates Missouri, which is further evidence that Defendants have not purposely availed
themselves to the benefits of the subject forum.” (Doc. 14-4, p. 11.) Defendants were not
contending that they were subject to personal jurisdiction in Missouri; they were explaining why

6

the Franchise Agreement provided no connection to Nevada. Later, Defendants observed that
“[t]he Franchise Agreement and Settlement Agreement, which govern the operation of the
franchise in Louisiana and the agreement between the parties, were not executed in Nevada.”
(Doc. 14-4, p. 12.)

Plaintiff interprets this sentence as a concession that the Franchise

Agreement governs the parties’ settlement, but the Court disagrees. The sentence is describing
two agreements between the parties: the Franchise Agreement, which governed the franchise’s
operation, and the Settlement Agreement, which governed the parties’ agreement to terminate the
Franchise Agreement.

Defendants’ sole point was that neither agreement was executed in

Nevada, and Defendants were not arguing or conceding that the Franchise Agreement’s forum
selection clause applies to disputes under the Settlement Agreement.
By executing the Settlement Agreement, the parties agreed that only Section 13 of the
Franchise Agreement would continue past January 1, 2016, and that the parties were relieved
from all other from all of the other provisions of the Franchise Agreement. Therefore, Plaintiff
cannot rely on the forum selection clause in Section 26 of the Franchise Agreement as a basis for
asserting personal jurisdiction over Defendants.
B. Minimum Contacts
Plaintiff alternatively argues that even if the forum selection is no longer in effect, the
Defendants have sufficient minimum contacts with Missouri to support personal jurisdiction.
The Court disagrees.
“When personal jurisdiction is challenged by a defendant, the plaintiff bears the burden to
show that jurisdiction exists” and must “make a prima facie showing of personal jurisdiction
over the challenging defendant.” Fastpath, Inc. v. Arbela Tech. Corp., 760 F.3d 816, 820 (8th
Cir. 2014). “While the plaintiffs bear the ultimate burden of proof, jurisdiction need not be

7

proved by a preponderance of the evidence until trial or until the court holds an evidentiary
hearing.” Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 647 (8th Cir. 2003). “When
assessing whether personal jurisdiction exists over a nonresident defendant, jurisdiction must be
authorized by Missouri’s long arm statute and the defendant must have sufficient minimum
contacts with the forum state to satisfy due process.” Downing v. Goldman Phipps, PLLC, 764
F.3d 906, 911 (8th Cir. 2014). These are separate inquiries under the Missouri long arm statute.
See Myers v. Casino Queen, 689 F.3d 904, 909-10 (8th Cir. 2012). Here, the Court is not
persuaded that either the long arm statute or the Due Process Clause has been satisfied.
1. The Long Arm Statute
Under the long arm statute, a party submits itself to jurisdiction in Missouri if it, among
other things, transacts business in the state or makes a contract in the state. Mo. Rev. Stat. §
506.500.1(1)-(2).

Plaintiff primarily relies upon the Franchise Agreement to contend that

Defendants transacted business in Missouri, (Doc. 14, pp. 14-15), but as noted earlier Plaintiff’s
claims arise from Defendants’ conduct after the Franchise Agreement was terminated.
Assuming that Defendants’ negotiation, execution, and contractual obligations related to the
Franchise Agreement satisfied the long arm statute, that transaction of business ended when the
Franchise Agreement ended.
Plaintiff alternatively relies on the Settlement Agreement, contending that it was made in
Missouri and so the long arm statute is satisfied. For support, it presents an Affidavit from Tina
Farrell, who avers that she has personal knowledge of the fact that Plaintiff’s attorney
“conducted settlement negotiations and communicated acceptance of the settlement agreement

8

terms from his Missouri office.” (Doc. 14-2, ¶ 13.)4 However, “[f]or purposes of the long-arm
statute, a contract is made where acceptance occurs,” Strobehn v. Mason, 397 S.W.3d 487, 498
(Mo. Ct. App. 2013), and Farrell’s Affidavit does not represent that the Settlement Agreement
was executed in Missouri. Plaintiff does not indicate where acceptance occurred. However, the
District of Nevada found that Defendants signed the Settlement Agreement in Louisiana and
Plaintiff executed it in California. (Doc. 8-5, p. 3.) It is not clear which of those two states
constitutes the state where acceptance occurred, but Missouri is not a possibility. Therefore, the
Court has no basis for concluding that the Settlement Agreement was made in Missouri.5
Plaintiff claims that Defendants breached the Settlement Agreement executed in April
2016. However, Plaintiff has not provided any reason to believe that Defendants conducted
business in Missouri after that date, nor has Plaintiff demonstrated that the Settlement Agreement
was made in Missouri. Therefore, Plaintiff has not satisfied its obligation to present a prima
facie case establishing that Defendants are subject to Missouri’s long arm statute.
2. The Due Process Clause
Even if the long arm statute is satisfied, Plaintiff must present a prima facie case
establishing that the requirements of the Due Process Clause have been satisfied. Plaintiff
contends that Defendants are subject to specific jurisdiction, see Epps, 327 F.3d at 648
(describing the difference between general and specific jurisdiction). There is “a five-factor test
to determine the sufficiency of a non-resident defendant’s contacts with the forum state to
exercise specific jurisdiction over defendants. The five factors are: 1) the nature and quality of

4

The fact that Farrell is describing conversations involving other people does not mean that her description is not
based on personal knowledge, as she represents at the beginning of her Affidavit. The Court therefore denies
Defendants’ request, (Doc. 18, p. 7, n.7), to disregard the Affidavit because it is not based on personal knowledge.
5

The Court notes that Plaintiff argued to the District of Nevada that the Settlement Agreement was executed in
Nevada. (Doc. 18-1, p. 7.)

9

contacts with the forum state; 2) the quantity of the contacts; 3) the relation of the cause of action
to the contacts; 4) the interest of the forum state in providing a forum for its residents; and 5)
convenience of the parties. We give significant weight to the first three factors.” Fastpath, 760
F.3d at 821. The third factor analyzes the connection between the cause of action and the
contacts, so “[t]he third factor distinguishes whether the jurisdiction is specific or general.”
Johnson v. Arden, 614 F.3d 785, 794 (8th Cir. 2010). The balance of these factors does not favor
a finding of personal jurisdiction.
Many of the Court’s observations related to the long arm statute are applicable to the Due
Process analysis.

Plaintiff’s claim involves conduct that occurred after the Settlement

Agreement was entered in April 2016, and after the Franchise Agreement was terminated in
January 2016. Therefore, any activity Defendants conducted in Missouri in connection with the
Franchise Agreement is irrelevant to the analysis. The conduct complained of occurred in
Louisiana. The only relevant conduct occurring in Missouri, according to Farrell’s Affidavit, are
some discussions about the Settlement Agreement. However, Plaintiff represented to the District
of Nevada that “many of the events related to the Settlement Agreement took place in Nevada,
including the review, negotiation, and execution of the same” and that “[t]he Settlement
Agreement was significantly prepared in Nevada, with numerous rounds of negotiations and
drafting occurring in Nevada.” (Doc. 18-1, pp. 7, 10.) These facts persuade the Court that to the
extent negotiation of the Settlement Contract is relevant to the Due Process analysis, the
negotiations were centered in Nevada and Defendants’ the nature and quality of Defendants’ few
contacts with Missouri were too slight to support personal jurisdiction.

10

C. Dismissal or Transfer
A court has two options when personal jurisdiction is lacking. One is to dismiss the case
without prejudice. The other is to transfer the case to a forum where personal jurisdiction exists.
28 U.S.C. § 1406(a); see also Eggleton v. Plasser & Theurer Exp. Von Bahnbaumaschinen
Gesellschaft, MBH, 495 F.3d 582, 588 (8th Cir. 2007) (§ 1406(a) permits transfer when personal
jurisdiction is lacking); Follette v. Wal-Mart Stores, Inc., 41 F.3d 1234, 1238 (8th Cir. 1994)
(same). However, the Court will transfer the case only if Plaintiff indicates that it wants the case
transferred. The Court will defer taking any action until Plaintiff expresses its views on the
matter.
III. CONCLUSION
When the parties agreed to terminate their Franchise Agreement, they specified that –
with one exception – none of the terms or conditions remained operative. Therefore, the parties
were no longer subject to the Franchise Agreement’s forum selection clause. Furthermore,
Defendants are not subject to personal jurisdiction in Missouri because the requirements of
Missouri’s long arm statute and the Due Process Clause have not been satisfied.
The Court will defer taking any further action for fourteen days, so that Plaintiff can
indicate whether it wants the case transferred to the Middle District of Louisiana.
IT IS SO ORDERED.

/s/ Beth Phillips
BETH PHILLIPS, JUDGE
UNITED STATES DISTRICT COURT

DATE: May 2, 2018

11