COMBAT MEDICAL SYSTEMS, LLC. V. ATHENA GTX, INC.
Filing
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MEMORANDUM OPINION AND ORDER signed by JUDGE N. C. TILLEY, JR on 12/07/2015. For the reasons stated herein, IT IS HEREBY ORDERED that Defendant's Motion to Dismiss for Lack of Personal Jurisdiction or, in the Alternative, for Trans fer of Venue Pursuant to 28 U.S.C. § 1404 (Doc. # 6 ) is denied without prejudice to refiling at the conclusion of jurisdictional discovery, and that Plaintiff's Alternative Motion for Jurisdictional Discovery (Doc. # 11 ) is granted as to requests (1) through (4) only and denied as to requests (5) and (6).(Taylor, Abby)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
COMBAT MEDICAL SYSTEMS,
LLC, a North Carolina Limited
Liability Company,
Plaintiff,
v.
ATHENA GTX, INC., an Iowa
Corporation,
Defendant.
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1:15CV258
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Defendant Athena GTX, Inc.’s
(“Athena”) Motion to Dismiss for Lack of Personal Jurisdiction or, in the
Alternative, for Transfer of Venue Pursuant to 28 U.S.C. § 1404 (Doc. #6,
referred to as “Athena’s Motion to Dismiss”) and Plaintiff Combat Medical
Systems, LLC’s (“CMS”) Alternative Motion for Jurisdictional Discovery
(Doc. #11, referred to as “CMS’s Motion for Jurisdictional Discovery”).
Both motions have been fully briefed and are ripe for review. For the
reasons explained below, Athena’s Motion to Dismiss is denied without
prejudice to renewing its motion at the completion of jurisdictional discovery,
and CMS’s Motion for Jurisdictional Discovery is granted in part and denied
in part.
I.
CMS, a North Carolina limited liability company, develops and
distributes “innovative medical products, devices[,] and supplies that
simplify tactical medical care” to the U.S. Department of Defense, safety
and law enforcement agencies, and emergency medical workers. (Compl. ¶
14 (Doc. #3).) Athena, an Iowa corporation, is a development company that
also sells wireless medical monitoring products for trauma injury care and
telemedicine needs worldwide. (Darrah Aff. ¶¶ 5, 7 (Doc. #7-1).)
In December 2009, CMS and Athena entered into a Distribution
Agreement (“Agreement”), according to which CMS would serve as
Athena’s exclusive world-wide distributor of wireless vital signs monitoring
units (“WVSM Units”) and had the option of serving as the exclusive
distributor for the “Mini-Medic” once the Food and Drug Administration
(“FDA”) cleared it for marketing. (Compl. Ex. A.) In January 2012, they
executed an Addendum to the Agreement which provided, among other
things, that CMS could require Athena to buy back incremental inventory of
WVSM Units and that Athena would pay CMS commissions for any WVSM
Units Athena sold. (Compl. Ex. B.) It is Athena’s alleged failure to abide by
its obligations in the Addendum that is the subject of the instant action.
2
In an affidavit, CMS’s CEO Lisa Tweardy avers that a business
relationship existed between CMS and Athena as a result of a prior working
relationship between Athena’s CEO Mark Darrah and CMS’s Vice President
of Research and Development Chris Murphy. (Tweardy Aff. ¶¶ 2, 9 (Doc.
#9-1).)1 However, CMS does not allege any facts as to which party initiated
contact with the other to begin negotiations for the Agreement between
Athena and CMS. The only evidence of the beginning of the specific
business relationship at issue comes from Athena. In an affidavit, Darrah
avers that, in 2009, CMS approached Athena to serve as Athena’s exclusive
world-wide distributor of certain Athena products. (Darrah Aff. ¶ 11.)
CMS’s then-CEO and its President flew to Texas to meet with Darrah,
among others, at Athena’s San Antonio offices about CMS’s proposed
distributorship. (Id. ¶ 12.)
CMS alleges that, during the negotiations: (a) Athena initiated
telephone calls, emails, and other written correspondence in connection with
the contract at issue, (b) Athena’s owner participated in conference calls
with CMS to discuss wireless medical monitors that Athena could provide to
1
Tweardy suggests that Murphy may have more information as to the
business relationship, both generally and specific to the Agreement at issue,
between CMS and Athena. (Tweardy Aff. ¶ 9.) At the time Tweardy
submitted her affidavit in April 2015, Murphy was deployed in a combat
zone. (Id.)
3
CMS, (c) Athena’s officers participated in conference calls and emails with
CMS to discuss, promote, and negotiate the terms of a contract with CMS
for the sale of WVSM Units to CMS, and (d) Athena sent a proposed
distribution agreement to CMS. (Compl. ¶ 7(a)-(d).) Athena adds that the
parties also discussed a forum selection clause. (Darrah Aff. ¶ 21.) Athena
rejected CMS’s requests that New York or North Carolina serve as the
chosen forum and, instead, required the forum to be California, where it was
then incorporated. (Id. ¶¶ 22-23.)
As a result of these negotiations, in December 2009, CMS entered
into the Distribution Agreement with Athena. (Compl. ¶ 2; Compl. Ex. A at
1.) According to the Agreement, CMS would serve as Athena’s exclusive
world-wide distributor of specific products, including WVSM Units. (Compl.
Ex. A at 1-2.) To retain its exclusivity, CMS was required to make certain
quarterly purchases at an agreed-upon unit price. (Id. at 2, 13.) CMS was
required to purchase 50 WVSM Units the first and second quarters, 100 the
third quarter, 150 the fourth quarter, 200 the fifth quarter, and 250 the
sixth quarter, for a total of 800 units by the end of the sixth quarter. (Id. at
13.)
Although the Agreement provided that Athena would ship directly to
CMS’s customers as directed, CMS has alleged that Athena shipped the
4
WVSM Units to CMS in North Carolina. (Compl. ¶ 7.f.; Compl. Ex. A at 3.)
As part of this process, Athena agreed to send CMS invoices for the
products it delivered, and CMS agreed to provide Athena with purchase
orders for the specific products it ordered. (Compl. Ex. A at 3.) The term of
the Agreement was eighteen months with the option to renew for a period
of one year. (Id. at 6.) The parties agreed that California law would govern
any disputes about the Agreement. (Id. at 10.)
According to both Tweardy and Darrah, after the parties executed the
Agreement, an Athena employee traveled to CMS’s office in Fayetteville,
North Carolina to train CMS’s sales staff on the sale of Athena’s products.
(Tweardy Aff. ¶ 11; Darrah Aff. ¶ 33.) Tweardy asserts that, during the
course of the Agreement, Athena routinely initiated email and telephone
communications with CMS. (Tweardy Aff. ¶ 11.) Pursuant to the
Agreement, Athena ultimately shipped 400 WVSM Units to CMS on eight
separate occasions between March 2011 and April 2012 for which CMS
paid Athena in incremental payments totaling $1,160,000. (Id. ¶¶ 12, 13.)
In January 2012, CMS and Athena executed an Addendum to the
Agreement which included, among other terms, CMS’s right to request
Athena to buy back CMS’s incremental inventory of 300 WVSM Units,
Athena’s right to sell WVSM Units, and Athena’s obligation to pay CMS a
5
commission of $2,350 for each of the WVSM Units Athena sold. (Compl.
Ex. B.)
According to CMS, in July 2012, it exercised its buy-back rights under
the Addendum, and Athena represented that it would purchase WVSM Units
from CMS per the terms of the Addendum. (Compl. ¶¶ 28-30; Tweardy Aff.
¶ 15.) CMS shipped 237 WVSM Units back to Athena between May 2012
and April 2015. (Tweardy Aff. ¶ 16.) However, CMS alleges that Athena
did not comply with the terms of the Addendum. Although Athena has paid
$272,119 for the returned WVSM Units, CMS alleges that Athena still owes
$182,185. (Id. ¶ 17.) In addition, CMS alleges that Athena owes CMS for
the remaining WVSM Units and is wrongfully retaining commissions. (Compl.
¶¶ 30-46.) As a result, CMS filed the instant action.
CMS alleges that the Court has general and specific personal
jurisdiction over Athena pursuant to North Carolina General Statutes §§ 175.4 and 1.75-8. (Id. ¶ 5.) In addition to its allegations and averments of
Athena’s contact with CMS in North Carolina regarding the Agreement and
its Addendum, CMS alleges that “Athena is engaged in substantial activity
within North Carolina” through the sale of the WVSM Units that CMS agreed
to sell and other WVSM Units sold by Athena to other North Carolina
distributors. (Id. ¶ 7.e.) CMS also alleges that “Athena visited potential
6
distributors and business partners” in North Carolina and that “Athena has
such other and further contacts with North Carolina such that personal
jurisdiction over Athena in North Carolina is appropriate.” (Id. ¶¶ 7.i., 7.j.)
Athena has moved to dismiss, arguing that this Court lacks personal
jurisdiction over it, and, in the alternative, has moved to transfer venue to
the Southern District of California per the Agreement’s forum selection
clause. Darrah asserts that Athena does not own property in or maintain
offices in North Carolina and that Athena’s only in-person contact with CMS
in North Carolina was when its employee trained CMS’s sales staff. (Darrah
Aff. ¶¶ 9, 33.)
In response, CMS has moved for jurisdictional discovery should the
Court find that the evidence before it does not support exercising personal
jurisdiction over Athena. (Doc. #11.) In addition to seeking discovery on
information specifically related to the parties’ interactions with respect to
the Agreement, CMS seeks discovery on Athena’s: (a) total sales and offers
for sale in North Carolina, (2) overall revenues from sales of all products in
the United States to determine the proportion of sales comprised by
transactions with North Carolina entities, (3) marketing efforts of shipping,
directly or indirectly, into North Carolina, and (4) distribution and marketing
7
in North Carolina through Athena’s U.S. and non-U.S. subsidiaries, if any.
(Id. at 2.)
II.
A.
When a defendant asserts a Rule 12(b)(2) challenge to a court’s
personal jurisdiction, the question is one for the court and the plaintiff bears
the burden to prove the existence of a ground for personal jurisdiction.
Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989). Although the
plaintiff’s burden is usually a preponderance of the evidence, when, as here,
the court addresses the question of personal jurisdiction on the basis of the
motion papers, supporting legal memoranda, relevant allegations of the
complaint, and supporting affidavits, the plaintiff has the burden of making a
prima facie showing in support of jurisdiction. Id.; Universal Leather, LLC v.
Koro AR, S.A., 773 F.3d 553, 558 (4th Cir. 2014). A plaintiff makes a
prima facie showing of personal jurisdiction by presenting facts that, if true,
would support jurisdiction. Mattel, Inc. v. Greiner & Hausser GmbH, 354
F.3d 857, 862 (9th Cir. 2003) cited in Universal Leather, 773 F.3d at 561.
Absent an evidentiary hearing, the court “must construe all relevant pleading
allegations in the light most favorable to the plaintiff, assume credibility, and
draw the most favorable inferences for the existence of jurisdiction.”
Combs, 886 F.2d at 676; see also Universal Leather, 773 F.3d at 560
8
(requiring the court to assume the plaintiff’s version of the facts is credible
and to construe any conflicting facts in the affidavits in the light most
favorable to the plaintiff). However, “[t]he allegations of the complaint are
taken as true only if they are not controverted by evidence from the
defendant.” Vision Motor Cars, Inc. v. Valor Motor Co., 981 F. Supp.2d
464, 468 (M.D.N.C. 2013) (citing Wolf v. Richmond Cty. Hosp. Auth., 745
F.2d 904, 908 (4th Cir. 1984)). When a defendant presents evidence that
the court lacks personal jurisdiction, the plaintiff must present affidavits or
other evidence to the contrary. Id. (citing Clark v. Remark, 993 F.2d 228
(Table), 1993 WL 134616, *2 (4th Cir. April. 29, 1993)). If both sides
present evidence about personal jurisdiction, the court must resolve factual
conflicts in the plaintiff’s favor “for the limited purpose” of determining if the
plaintiff has made a prima facie showing. Id. (citing Mylan Labs., Inc. v.
Akzo, N.V., 2 F.3d 56, 62 (4th Cir. 1993)).
A federal court may exercise personal jurisdiction over a non-resident
defendant only if the forum state’s long-arm statute authorizes the exercise
of jurisdiction and the exercise of jurisdiction comports with the Fourteenth
Amendment due process requirements. Christian Sci. Bd. of Dirs. of First
Church of Christ, Scientist v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001).
North Carolina’s long-arm statute, General Statute § 1-75.4, “is designed to
9
extend jurisdiction over nonresident defendants to the fullest limits permitted
by the Fourteenth Amendment’s due-process clause.” Church v. Carter, 94
N.C. App. 286, 290, 380 S.E.2d 167, 169 (1989); see also Christian Sci.
Bd. of Dirs., 259 F.3d at 215 (stating same). Thus, the court’s focus
becomes whether the plaintiff has made a prima facie showing that the
defendant’s contacts with North Carolina satisfy constitutional due process.
Universal Leather, 773 F.3d at 558-59.
B.
Due process allows a court to exercise specific or general jurisdiction
over a defendant. Specific jurisdiction exists when the forum state exercises
personal jurisdiction over the defendant “in a suit arising out of or related to
the defendant’s contacts with the forum[.]” Helicopteros Nacionales de
Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 8 (1984). When a court
exercises jurisdiction over a defendant in a suit that does not arise out of or
is not related to the defendant’s contacts with the forum state, the court
exercises general jurisdiction, but can only do so if the defendant’s contacts
with the state are “so ‘continuous and systematic’ as to render [it]
essentially at home in the forum State.” Daimler AG v. Bauman, ___ U.S.
___, 134 S. Ct. 746, 761 (2014) (quoting Goodyear Dunlop Tires
Operations, S.A. v. Brown, ___ U.S. ___, 131 S. Ct. 2846, 2851 (2011)).
10
1.
To exercise specific jurisdiction over a defendant, due process requires
that the court examine “(1) the extent to which the defendant purposefully
availed itself of the privilege of conducting activities in the State; (2)
whether the plaintiff[‘s] claims arise out of those activities directed at the
State; and (3) whether the exercise of personal jurisdiction would be
constitutionally reasonable.” Consulting Eng’rs Corp. v. Geometric Ltd., 561
F.3d 273, 278 (4th Cir. 2009) (quoting ALS Scan, Inc. v. Digital Serv.
Consultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002)).
The inquiry into “purposeful availment . . . is grounded on the
traditional due process concept of ‘minimum contacts[.]’” Universal Leather,
773 F.3d at 559. A resident’s contract with a non-resident defendant is not
by itself sufficient to establish sufficient minimum contacts with the forum
state. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985). Because
the contract is “but an intermediate step serving to tie up prior business
negotiations with future consequences which themselves are the real object
of the business transaction[,]” a court must evaluate “prior negotiations[,]
contemplated future consequences, . . . the terms of the contract[,] and the
parties’ actual course of dealing[.]” Id. at 479. In the business context,
courts analyze “various nonexclusive factors” to determine if a defendant
11
has purposefully availed itself of the privilege of conducting activities in the
state, including, but not limited to:
whether the defendant maintains offices or agents in the
forum state,
whether the defendant owns property in the forum state,
whether the defendant reached into the forum state to solicit
or initiate business,
whether the defendant deliberately engaged in significant or
long-term business activities in the forum state,
whether the parties contractually agreed that the law of the
forum state would govern disputes,
whether the defendant made in-person contact with the
resident of the forum in the forum state regarding the
business relationship,
the nature, quality and extent of the parties’ communications
about the business being transacted, [and]
whether the performance of contractual duties was to occur
within the forum[.]
Consulting Eng’rs Corp., 561 F.3d at 278 (citations omitted). Although
several of these factors involve the physical presence of a defendant in a
forum state, “[s]o long as a commercial actor’s efforts are ‘purposefully
directed’ toward residents of another State, [the Supreme Court has]
consistently rejected the notion that an absence of physical contacts can
defeat personal jurisdiction there.” Burger King Corp., 471 U.S. at 475. On
the other hand, “the Fourth Circuit has given great weight to the question of
who initiated the contact between the parties.” Pan-Am. Prods. & Holdings,
LLC v. R.T.G. Furniture Corp., 825 F. Supp. 2d 664, 682 (M.D.N.C. 2011).
12
Here, Athena presented uncontroverted evidence that it neither
maintains offices nor owns property in North Carolina. (Darrah Aff. ¶ 9.)
Both parties agree that Athena made one in-person contact after the
Agreement was executed to train CMS’s sales staff, which implies that
Athena also does not maintain agents in North Carolina. (Darrah Aff. ¶ 33;
Tweardy Aff. ¶ 11.) In addition, at no time during negotiations did anyone
from Athena visit CMS in North Carolina. (Darrah Aff. ¶ 19.) While a single
in-person contact does not provide significant support for a finding of
personal jurisdiction, the lack of any other physical presence in North
Carolina would not by itself defeat jurisdiction.
The only evidence before the Court on whether Athena reached into
North Carolina to solicit or initiate the Agreement, the factor to which the
Fourth Circuit gives great weight, is Darrah’s uncontroverted averment that
CMS’s then-CEO and President flew to Texas to meet with Athena at its San
Antonio office to discuss CMS’s proposal to serve as Athena’s exclusive
world-wide distributor. (Id. ¶ 12.) Tweardy avers that the business
relationship between CMS and Athena resulted from a prior working
relationship between Murphy and Darrah (Tweardy Aff. ¶ 9), but this is not
evidence specific to the Agreement at issue. Neither Tweardy’s assertion
nor the allegation in the Complaint that Athena “initiated communications
13
with CMS[] . . . in connection with the contract at issue” (Compl. ¶ 7)
(emphasis added) contradict the only evidence on the issue of whether
Athena reached into North Carolina to solicit or initiate business. See PanAm. Prods. & Holdings, LLC, 825 F. Supp. 2d at 682 (“[T]he FAC is
significant for what it does not say. [The plaintiff] has not alleged that . . .
Defendants, or their agents, initiated contact with [the plaintiff] regarding
the [products at issue], despite this fact being within the direct knowledge
of [the plaintiff].”)
Furthermore, instead of agreeing that North Carolina law would govern
disputes, the parties actually contracted that the Agreement would “be
governed by and construed in accordance with the laws of the State of
California, excluding its conflict of laws rule.” (See Compl. Ex. A at 10.) Cf.
Burger King Corp., 471 U.S. at 482 (recognizing that the parties’ agreement
that the law of the forum state would govern disputes alone is insufficient to
confer jurisdiction, but when combined with the business relationship, “it
reinforced [the defendant’s] deliberate affiliation with the forum State and
the reasonable foreseeability of possible litigation there”) (emphasis added).
In addition, the uncontroverted evidence is that, during negotiations, the
parties “specifically discussed and negotiated both verbally and in writing”
the forum selection clause. (Darrah Aff. ¶ 21.) Athena refused CMS’s
14
requests that New York or North Carolina serve as the exclusive jurisdiction
and required that the Southern District of California be the exclusive
jurisdiction and venue. (Id. ¶¶ 22-24.)
In addition, although the parties’ performance of some of their
contractual duties was to occur within North Carolina, this factor does not
sufficiently support personal jurisdiction either. “An agreement coupled with
a plaintiff’s performance of some contractual obligations in the forum do not
show sufficient contacts by the defendant with the forum.” Sloane v.
Laliberte, No. 1:08CV381, 2011 WL 2938117, at *9 (M.D.N.C. July 19,
2011) (finding that the plaintiffs’ partial performance of work within North
Carolina did not warrant the exercise of personal jurisdiction when the
defendant’s performance occurred in Canada and the plaintiffs directed
activities into Canada), adopted (M.D.N.C. Sept. 15, 2011); see also PanAmerican Prods. & Holdings, LLC, 825 F. Supp. 2d at 683 (“There is an
important distinction . . . between alleged contacts with a forum arising
simply from a plaintiff’s location and promise to perform some services
there, on the one hand, and situations where a defendant has purposefully
directed activities toward the state, on the other hand.”).
Athena obligated itself to, among other things, offer for sale and
supply certain products to CMS, send CMS invoices for the products
15
delivered to CMS, acknowledge in writing each purchase order CMS
provided, warehouse products and drop ship those products to CMS’s
customers as directed at CMS’s option, and buy-back incremental inventory
and pay CMS a commission on Athena’s sales of WVSM Units should CMS
exercise its buy-back rights. (Compl. Exs. A, B.) Meanwhile, CMS obligated
itself to, among other things, purchase certain products from Athena, sell
and distribute those products world-wide to governments and their
subdivisions for use by their military, security, or law enforcement branches,
provide Athena with purchase orders for products, and pay Athena by check
or wire for products purchased. (Id.) As is evident, the parties contracted to
perform at least some of their duties in North Carolina, including Athena’s
sending invoices to and CMS’s receipt of invoices in North Carolina,
Athena’s purchase of incremental inventory from CMS, and Athena’s
payment to CMS of commissions. In addition, Athena actually shipped the
400 WVSM Units directly to CMS, according to Tweardy. (Tweardy Aff. ¶
12.)
However, other contractual duties were to be performed outside of
North Carolina, including CMS’s sale of products world-wide. As Darrah
averred, and CMS has not disputed, because “CMS would be attempting to
distribute and sell Athena’s products world-wide to the market it served, the
16
fact that CMS was located in North Carolina was immaterial[;] CMS could
have been located anywhere.” (Darrah Aff. ¶ 13.) In further support of this
statement, Darrah explained that, at the time CMS visited Athena’s San
Antonio offices, “Athena was entertaining competing bids from alternative
distributors” outside of North Carolina. (Id. ¶ 15.) “Where the bidding
companies were located was of no consequence to Athena. Athena was
not intent on establishing a distributor or relationship with a particular forum;
rather, Athena was seeking capable distributors in the markets desired to sell
its products world-wide.” (Id. ¶ 17.) CMS’s world-wide distributorship
coupled with its performance of some contractual obligations in North
Carolina is insufficient to support a finding of minimum contacts with North
Carolina.
While these factors above weigh against the exercise of personal
jurisdiction, other factors support a finding of sufficient minimum contacts.
For example, the Agreement and its associated Addendum contemplated an
ongoing relationship, rather than a single transaction, between the parties.
(See Compl. Exs. A, B). See Fatboy USA, LLC v. Schat, No. 1:07CV965,
2009 WL 3756947, *6 (M.D.N.C. Nov. 6, 2009), adopted (M.D.N.C. Mar.
1, 2010) (noting that an ongoing relationship “weighs towards” personal
jurisdiction). The term of the Agreement, entered into in December 2009,
17
was eighteen months with the option to renew for one year. (Compl. Ex. A
at 6.) Over two years later, in January 2012, the parties executed the
Addendum. (See Compl. Ex. B.)
Furthermore, the Agreement required CMS to purchase numerous
WVSM Units each quarter, with increasing purchase requirements over time,
totaling 800 WVSM Units to be purchased by the end of the sixth quarter.
(Compl. Ex. A at 2, 13.) According to Tweardy, although CMS only
purchased 400 WVSM Units over eight separate occasions by April 2012, it
paid Athena $1,160,000.00 for those units. (Tweardy Aff. ¶¶ 12, 13.) In
addition, the Addendum contemplated that CMS could exercise buy-back
rights according to which Athena would be required to purchase 300 WVSM
Units from CMS for the price CMS had paid Athena. (Compl. Ex. B.) Athena
also agreed that it would pay CMS a commission of $2,350 for each WVSM
Unit Athena sold. (Id.)
The length of the term of the Agreement, the parties’ obligations
throughout the term of the Agreement, the quantity of WVSM Units CMS
was required to purchase for exclusivity, the quantity of WVSM Units CMS
actually purchased and could thereafter require Athena to buy back, and the
money exchanged pursuant to the Agreement and the Addendum support a
finding that the parties intended their business activity to be significant and
18
long-term. See, e.g., Hanes Cos., Inc. v. Galvin Bros., Inc., No. 1:09CV918,
2013 WL 594013, *10 (M.D.N.C. Feb. 15, 2013), adopted (M.D.N.C. Mar.
11, 2013) (noting “[t]he size of the contract is relevant in determining
whether [an out-of-state defendant’s] actions directed toward [the plaintiff’s
home-state] were sufficient to establish personal jurisdiction” and finding
factor favored jurisdiction where contract’s value was approximately
$2,000,000 and required numerous shipments over a period of months)
(alterations in original); Cortex Surveillance Automation, Inc. v. Sec.
Integrators & Consultants, Inc., No. 1:05CV562, 2006 WL 994951, *3
(M.D.N.C. Apr. 12, 2006) (finding agreement that forecasted “an ongoing
relationship between the parties comprised of numerous transactions”
strongly suggestive of jurisdiction where the term of the agreement was at
least two years, numerous orders were placed over the course of
approximately two and a half years totaling $117,300.00, and the
agreement contemplated hours of technical support, training and assistance
for the product).
In addition, the nature, quantity, and extent of the parties’
communications, when construed in the light most favorable to CMS,
support a finding of sufficient minimum contacts. See Hanes Cos., Inc.,
2013 WL 594013, at *13 (finding this factor favored personal jurisdiction
19
because evidence showed the exchange of at least a dozen emails during
negotiations with at least seven of those from the defendant, highly
substantive communications during negotiations, the defendant’s routine
telephone calls to the plaintiff in North Carolina, the exchange of at least
forty emails during the performance of the contract, and the defendant’s
payment of $1,445,720.06 to the plaintiff by nine separate checks).
CMS alleges that (a) Athena initiated telephone, email, and other
written communications with CMS’s officers and employees in North
Carolina in connection with the Agreement, (b) Athena’s owner participated
in conference calls with CMS’s officers in North Carolina to discuss Athena’s
wireless medical monitors, (c) Athena’s officers participated in conference
calls and emails with CMS’s officers in North Carolina to discuss, promote,
and negotiate the terms of a contract with CMS to sell WVSM Units, and (d)
Athena sent a proposed distribution agreement and addendum to CMS in
North Carolina. (Compl. ¶ 7.) Tweardy avers that throughout the course of
the Agreement, “Athena routinely initiated contact with CMS in North
Carolina through both email and telephone communications.” (Tweardy Aff.
¶ 11.)
Athena shipped 400 WVSM Units on eight separate occasions for
which CMS made numerous incremental payments. (Id. ¶¶ 12, 13.)
20
According to the Agreement, these exchanges were accompanied by
invoices and purchase orders. (Compl. Ex. A at 3.) When CMS exercised its
buy-back rights under the Addendum, it shipped 237 WVSM Units to Athena
on eleven separate occasions, several shipments of which were
accompanied by a purchase order from Athena. (Tweardy Aff. ¶ 16.) In
sum, this factor favors finding that Athena had sufficient minimum contacts
with North Carolina.
Nevertheless, after weighing all of the factors outlined in Consulting
Engineers Corp., it is determined that CMS has failed to allege or present
evidence of the presence of sufficient factors to warrant a finding that
Athena purposefully availed itself of the privilege of doing business in North
Carolina. Of the eight factors recognized in Consulting Engineers Corp.,
three support a finding of sufficient minimum contacts. Athena deliberately
engaged in significant and long-term business activities with CMS in North
Carolina; Athena sent an employee to North Carolina to train CMS sales
staff; and the parties communicated substantively during the negotiation and
performance of the Agreement. However, the uncontroverted evidence of
the five other factors does not support a finding that Athena purposefully
availed itself of the privilege of doing business in North Carolina. Not only
does Athena not maintain offices or agents in North Carolina, it does not
21
own property in North Carolina. More significantly, though, it did not reach
into North Carolina to solicit or initiate the Agreement with CMS. In
addition, the parties contracted for California law to govern their disputes
over the Agreement, and, while some of the contractual duties were to be
performed in North Carolina, others were not. Indeed, CMS was to
distribute WVSM Units world-wide. As a whole, this evidence does not
support a finding that Athena invoked the “benefits and protections” of
North Carolina law, Hanson v. Denckla, 357 U.S. 235, 253 (1958), such
that it could “reasonably anticipate being haled into court” in North Carolina,
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).
Because CMS has not made a prima facie showing that Athena
purposefully availed itself of the privilege of doing business in North
Carolina, the remaining two factors for the exercise of specific jurisdiction
will not be addressed.
2.
Despite CMS’s allegation that its “claims against Athena arise out of
and relate to Athena’s activities within North Carolina,]” CMS also alleges
that this Court has general jurisdiction over Athena. (Compl. ¶¶ 6, 7, 8.)
“[T]he paradigm forum for the exercise of general jurisdiction is . . . one in
which the corporation is fairly regarded as at home.” Goodyear Dunlop Tire
22
Operations, S.A., ___ U.S. ___, 131 S. Ct. at 2853-54 (citing Brilmayer et
al., A General Look at General Jurisdiction, 66 Tex. L. Rev. 721, 728 as
“identifying domicile, place of incorporation, and principal place of business
as ‘paradig[m]’ bases for the exercise of general jurisdiction”). While
“Goodyear did not hold that a corporation may be subject to general
jurisdiction only in a forum where it is incorporated or has its principal place
of business[,]” it is not enough that the corporation “engages in a
substantial, continuous, and systematic course of business” in the forum
state. Daimler AG, ___ U.S. ___, 134 S. Ct. at 760, 761. Instead, general
jurisdiction exists when a corporation’s “affiliations with the State are so
‘continuous and systematic’ as to render [it] essentially at home in the forum
State.” Id., ___ U.S. ___, 134 S. Ct. at 761 (quoting Goodyear Dunlop Tire
Ops., S.A., ___ U.S. ___, 131 S. Ct. at 2851).
In Goodyear, the jurisdictional defendants, Goodyear’s foreign
subsidiaries, were not registered to do business in North Carolina; had no
place of business, employees, or bank accounts in North Carolina; did not
design, manufacture, or advertise their products in North Carolina; did not
solicit business in North Carolina; and did not themselves sell or ship tires to
North Carolina customers. ___ U.S. ___, 131 S. Ct. at 2852. Other
Goodyear affiliates did distribute a small percentage of the jurisdictional
23
defendants’ tires within North Carolina, but the tires at issue were never
distributed in North Carolina. Id., 131 S. Ct. at 2852. These facts did not
support the exercise of general jurisdiction over the foreign subsidiaries. Id.,
131 S. Ct. at 2856-57. The jurisdictional defendants were “in no sense at
home in North Carolina[,]” and “[t]heir attenuated connections to the State .
. . fall far short of the continuous and systematic general business contacts
necessary to empower North Carolina to entertain suit against them on
claims unrelated to anything that connects them to the State.” Id., 131 S.
Ct. at 2857.
Here, CMS asserts that “Athena is engaged in substantial activity
within North Carolina” through its sale of WVSM Units to other distributors
in North Carolina, that Athena conducted business “with others in North
Carolina[,]” that “Athena visited potential distributors and business partners
. . . in North Carolina[,]” and more generally that “Athena has such other
and further contacts with North Carolina such that personal jurisdiction over
Athena in North Carolina is appropriate.” (Id. ¶ 7.)
CMS cites Taltwell, LLC v. Zonet USA Corp., No. 3:07CV543, 2007
WL 4562874, at *7 (E.D. Va. Dec. 20, 2007) for the proposition that “a
broad distributorship network in a forum state that generates a substantial
amount of revenue for the defendant may warrant general jurisdiction.” The
24
Federal Circuit case that the Taltwell court cites in support of the
aforementioned statement involved a defendant, incorporated in Connecticut
with a principal place of business in Virginia, that was sued in Ohio. LSI
Indus. Inc. v. Hubbell Lighting, Inc., 232 F.3d 1369, 1370 (Fed. Cir. 2000).
That defendant “employ[ed] multiple distributors in Ohio and net[ted] several
million dollars per year from sales in Ohio.” Id.
CMS argues that “Athena has done more than distribute a few items
to North Carolina” and that its actions pursuant to the Agreement create a
“contact [that] gives this Court general jurisdiction over Athena.” However,
there is no evidence, as there was in LSI Industries, Inc., that Athena has a
broad distributorship in North Carolina nor has CMS alleged the existence of
such a network of distributors. Darrah acknowledges that Athena has
entered into other distribution agreements for its products, but there is no
indication as to whether those distributors are in North Carolina, whether
they distribute products in North Carolina, or whether their sales in North
Carolina generate net revenue for Athena. (See Darrah Aff. ¶ 27.) In fact,
the evidence is that CMS was, for a time, the only world-wide distributor of
WVSM Units and had the option of serving as the exclusive distributor of the
“Mini-Medic” once the FDA provided marketing clearance. (Compl. Ex. A.)
25
Athena argues that because CMS cannot establish specific jurisdiction
over Athena, general jurisdiction is also lacking. (Doc. #7 at 13.) However,
even where there is no specific jurisdiction, “general jurisdiction may exist
when the defendant has sufficient contacts with the forum State.” ALS
Scan, Inc., 293 F.3d at 715. Athena argues that it does not maintain
offices or a place of business in North Carolina and does not own property in
North Carolina. (Doc. #7 at 13.) In addition, Athena is not incorporated in
North Carolina. (Darrah Aff. ¶ 7 (averring that in 2009, Athena was a
California corporation and, in 2012, became an Iowa corporation); Compl. ¶
3 (alleging that Athena is incorporated in Iowa).)2
In sum, there is simply no evidence before the Court that Athena has
sufficient continuous and systematic contacts with North Carolina such that
it is essentially at home in North Carolina. The exercise of general
jurisdiction over Athena, at this time, is improper. However, because the
Court exercises its discretion to permit CMS to conduct limited discovery on
whether Athena is subject to general jurisdiction, Athena’s Motion to
2
Athena has proffered uncontroverted evidence that it does not maintain
offices in or own property in and is not incorporated in North Carolina
(Darrah Aff. ¶¶ 7, 9), but it does not offer evidence of, or even argue that, it
does not otherwise conduct sufficient business in North Carolina that would
support the exercise of general jurisdiction. This, among other reasons,
supports the Court’s determination to grant, in part, CMS’s Motion for
Jurisdictional Discovery, infra 27-32.
26
Dismiss is denied without prejudice to refiling after the close of jurisdictional
discovery.
III.
Although CMS argues that it has satisfied its prima facie burden of
showing that Athena is subject to personal jurisdiction in this Court, it
argues that it “is entitled to jurisdictional discovery[.]” (Doc. #9 at 13.)
CMS seeks discovery “related to the circumstances under which either party
‘initiated’ contact that resulted in the execution of the parties’ Distribution
Agreement . . . [and] to the extent of the communications between Athena
and CMS from December 2009 to present.” (Doc. #11 at 2.) Because this
information is within CMS’s personal knowledge, this portion of CMS’s
motion is denied.
CMS also seeks discovery related to the Court’s exercise of general
jurisdiction, including, “at least[,]” Athena’s: (1) total sales and offers for
sale in North Carolina, (2) overall revenues from sales of all products in the
United States to determine the proportion of sales comprised by transactions
with North Carolina entities, (3) marketing efforts of shipping, directly or
indirectly, into North Carolina, and (4) distribution and marketing in North
Carolina through Athena’s U.S. and non-U.S. subsidiaries, if any. (Id.)
27
A court has discretion to grant discovery on the question of personal
jurisdiction. See Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334
F.3d 390, 402-03 (4th Cir. 2003); see also Rich v. KIS Ca., Inc., 121 F.R.D.
254, 259 (M.D.N.C. 1988) (“When plaintiff can show that discovery is
necessary in order to meet defendant’s challenge to personal jurisdiction, a
court should ordinarily permit discovery on that issue unless plaintiff’s claim
appears to be clearly frivolous.”). However, when a plaintiff offers no more
than speculation or conclusory assertions about a defendant’s contacts with
the forum state, “a court is within its discretion in denying jurisdictional
discovery.” Carefirst of Md., Inc., 334 F.3d at 402. This is particularly the
case when the defendant makes specific denials of jurisdiction and, in
response, the plaintiff makes conclusory allegations in support of
jurisdiction. See Rich, 121 F.R.D. at 259 (“[W]here a plaintiff’s claim of
personal jurisdiction appears to be both attenuated and based on bare
allegations in the face of specific denials made by defendants, the Court
need not permit even limited [jurisdictional] discovery . . . should it conclude
that such discovery will be a fishing expedition.”) cited in Carefirst of Md.,
Inc., 334 F.3d at 403; see also ALS Scan, Inc., 293 F.3d at 716 n. 3
(affirming the denial of the plaintiff’s motion for jurisdictional discovery
where the plaintiff made conclusory allegations in support of its motion,
28
failed “to proffer any further facts that it could demonstrate that would be
material to the limited jurisdictional ruling[,]” and did not suggest that the
defendant’s asserted jurisdictional facts were inaccurate).
Here, neither party provides detailed allegations in support of its
argument. In the face of CMS’s Motion for Jurisdictional Discovery, Athena
merely states in a one-page opposition brief3 that such discovery is
“unnecessary and unwarranted” and that it relies on its “positions stated” in
its brief in support of its Motion to Dismiss and its reply brief in further
support. (See Doc. #13.) In its brief in support of its motion4, Athena simply
argues that it does not maintain offices or a place of business in North
Carolina and does not own property in the state. (Doc. #7 at 13.)
What is even more enlightening than this argument are Darrah’s
averments in support of Athena’s Motion to Dismiss. He never states and
Athena never argues that it does not conduct business in North Carolina
with companies other than CMS. All of Darrah’s protestations of contact
with North Carolina are specific to CMS. For example, he states, “I have
3
The substance of the brief is one page. The date and counsel’s signature
constitute the entirety of the second page. The certificate of service is the
third page. (See Doc. #13.)
4
Athena does not actually further its argument against general jurisdiction in
its reply brief. Instead, it focuses on the lack of specific jurisdiction (Doc.
#12 at 1-3) and the validity of the forum selection clause (id. at 3-6).
29
never visited CMS in North Carolina; nor have I ever spoken to CMS
representatives while being present in North Carolina” (Darrah Aff. ¶ 18);
“At no time while negotiating the Agreement did anyone from Athena visit
CMS in North Carolina” (id. ¶ 19); “No principle member of Athena has
visited North Carolina to conduct business with CMS” (id. ¶ 32); and
“Athena has only made in-person contact with CMS in North Carolina once
during their relationship to date” (id. ¶ 33). Even if Athena could not deny
doing other business in North Carolina, it does not even attempt to describe
that such business is still insufficient to support the exercise of general
jurisdiction.
Meanwhile, Darrah acknowledges that Athena does business with
other distributors. For example, he states, Athena “sells wireless medical
monitoring products . . . both commercially and to the military through
distributors” (id. ¶¶ 5, 6) and “[t]o date, all of the Agreements that Athena
has entered into for the distribution of its products have included a forum
selection clause” (id. ¶ 27).
Athena’s acknowledgement that it sells its equipment through
distributors and has entered into agreements with other distributors,
Darrah’s protestations of contact with North Carolina that are highly specific
to CMS alone, and the complete absence of any attestation that Athena
30
does not do business in North Carolina other than with CMS suggest that
Athena may, in fact, do business in North Carolina with distributors or
others in addition to its relationship with CMS.
Although the entirety of CMS’s argument in support of jurisdictional
discovery is the purported “ample factual support and specific allegations
concerning Athena’s contact with the State of North Carolina” in CMS’s
Response to Athena’s Motion to Dismiss (see Doc. #11 at 2), this is not a
case where the defendant presented specific denials of general jurisdiction
that the plaintiff would need to controvert in a substantive way. While both
parties could have presented a more developed argument in support of their
positions, it appears to the Court that Athena has not opposed CMS’s
Motion for Jurisdictional Discovery in such a way that would require CMS to
proffer more than it has in support of this limited discovery request and, in
fact, some of Darrah’s own averments suggest that Athena may do business
in North Carolina other than with CMS.
Therefore, CMS’s Motion for Jurisdictional Discovery is denied in part
and granted in part. It is denied as to “[d]iscovery related to the
circumstances under which either party ‘initiated’ contact that resulted in
the execution of the parties’ Distribution Agreement” and “[d]iscovery
related to the extent of the communications between Athena and CMS from
31
December 2009 to present.” (See Doc. #11 at 2 requests (5) and (6).)
However, CMS’s Motion for Jurisdictional Discovery is granted as to
requests (1) through (4) because those requests relate to the discovery of
information about the exercise of general jurisdiction.
IV.
Because the Court has not found, at this time, that it can exercise
jurisdiction over Athena, Athena’s alternative motion to transfer venue
pursuant to 28 U.S.C. § 1404 is denied without prejudice to refiling after
jurisdictional discovery concludes.
V.
For the reasons stated herein, IT IS HEREBY ORDERED that
Defendant’s Motion to Dismiss for Lack of Personal Jurisdiction or, in the
Alternative, for Transfer of Venue Pursuant to 28 U.S.C. § 1404 (Doc. #6)
is denied without prejudice to refiling at the conclusion of jurisdictional
discovery, and that Plaintiff’s Alternative Motion for Jurisdictional Discovery
(Doc. #11) is granted as to requests (1) through (4) only and denied as to
requests (5) and (6).
This the 7th day of December, 2015.
/s/ N. Carlton Tilley, Jr.
Senior United States District Judge
32
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