H.H. Franchising Systems, Inc. v. Klaits et al

Filing 16

ORDER granting 9 Motion to Dismiss as to Shore Help but finding as moot Plaintiff's claims against Klaits for lack of service. Signed by Judge Michael R. Barrett on 3/30/14. (ba1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
H.H. Franchising Systems. Inc.,
Plaintiff,
v.

Case No. 1:12cv709

Drew Klaits, et al.,

Judge Michael R. Barrett

Defendants.
OPINION & ORDER
This matter is before the Court upon Defendants’ Motion to Dismiss. (Doc. 9).
Plaintiff filed a Response (Doc. 12) and Defendants filed a Reply (Doc. 13).
I. BACKGROUND
On September 18, 2012, Plaintiff H.H. Franchising filed its Complaint against
Defendants Drew Klaits and Shore Help, LLC. (Doc. 1). H.H. Franchising is an Ohio
corporation with its principal place of business in Cincinnati, Ohio. (Id. ¶ 1). Shore
Help, LLC is a New Jersey limited liability company. (Id., ¶ 4). Drew Klaits, a New
Jersey resident, is the sole member of Shore Help. (Id., ¶ 5).
This case arises out of a franchise agreement between the parties. Plaintiff has
brought claims for (1) breach of contract; (2) operation of a franchise without a home care
agency license; (3) refusal to adopt smart platform as required by the franchise
agreement; (4) establishment of independent website as required by the franchise
agreement; (5) trademark infringement; (6) an action for an accounting; and (7) unjust
enrichment.
On November 8, 2012, Klaits and Shore Help filed their Answer and also filed a

Counterclaim. (Doc. 3). Defendants’ counterclaims are (1) breach of the franchise
agreement

through

establishment

of

a

competing

franchise;

(2)

fraud

and

misrepresentation; (3) negligent misrepresentation; and (4) breach of good faith and fair
dealing.
On May 23, 2013, Defendants moved to dismiss all claims against them, arguing
that Plaintiff failed to perfect service upon Klaits within 120 days of the filing of the
Complaint and also arguing this Court does not have personal jurisdiction over Shore
Help.
Subsequent to the filing of the Motion to Dismiss, on June 11, 2013, Plaintiff filed
the Waiver of Service for Klaits. (Doc. 10). Therefore, to the extent that Defendants
seek to dismiss Plaintiff’s claims against Klaits for lack of service, the Motion to Dismiss is
DENIED as MOOT. Therefore, the remaining issue is whether this Court has personal
jurisdiction over Shore Help.
II. ANALYSIS
A. Applicable legal standards
The plaintiff bears the burden of proving personal jurisdiction exists.
CompuServe Inc. v. Patterson, 89 F.3d 1257, 1262-63 (6th Cir. 1996). In the face of a
supported motion to dismiss, the plaintiff may not rest on his pleadings, but must, by
affidavit or otherwise, set forth specific evidence supporting jurisdiction. Theunissen v.
Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991) (citing Weller v. Cromwell Oil Co., 504
F.2d 927, 930 (6th Cir. 1974)). When a court considers a motion to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(2) without an evidentiary hearing, the plaintiff “need
only make a prima facie showing of jurisdiction.” Bird v. Parsons, 289 F.3d 865, 871 (6th

2

Cir. 2002) (quoting Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir.
2002)) (internal citation omitted). The plaintiff can make this prima facie showing by
“establishing with reasonable particularity sufficient contacts between [the Defendant]
and the forum state to support jurisdiction.” Neogen Corp., 282 F.3d at 887 (quoting
Provident Nat'l Bank v. California Savings Loan Ass’n, 819 F.2d 434, 437 (3d Cir. 1987)).
The pleadings and affidavits are to be considered in a light most favorable to the plaintiff,
and dismissal is proper only if all the specific facts which the plaintiff alleges collectively
fail to state a prima facie case for jurisdiction. CompuServe, 89 F.3d 1257 at 1262. The
court “does not weigh the controverting assertions of the party seeking dismissal.”
Theunissen, 935 F.2d at 1459. A court is not required, however, to “ignore undisputed
factual representations of the defendant which are consistent with the representations of
the plaintiff.” Kerry Steel, Inc. v. Paragon Industries, Inc., 106 F.3d 147, 153 (6th Cir.
1997).
In analyzing personal jurisdiction in diversity actions, federal courts must look to
the law of the forum state to determine the reach of the district court's personal jurisdiction
over parties, subject to constitutional due process requirements. Lanier v. Am. Bd. of
Endodontics, 843 F.2d 901, 909 (6th Cir. 1988). The Sixth Circuit has established a
two-step inquiry to determine whether a federal district court sitting in a
diversity-of-citizenship case can exercise personal jurisdiction over a defendant: (1)
whether the law of the state in which the district court sits authorizes jurisdiction, and (2)
whether the exercise of jurisdiction comports with the Due Process Clause.
CompuServe, 89 F.3d at 1262; see also Air Products & Controls, Inc. v. Safetech Int'l,
Inc., 503 F.3d 544, 550 (6th Cir. 2007).

3

There are two kinds of personal jurisdiction: general and specific jurisdiction.
Nationwide Mut. Ins. Co. v. Tryg Int'l Ins. Co., 91 F.3d 790, 793 (6th Cir. 1996)
(“Jurisdiction may be found to exist either generally, in cases in which a defendant’s
“continuous and systematic” conduct within the forum state renders that defendant
amenable to suit in any lawsuit brought against it in the forum state . . . or specifically, in
cases in which the subject matter of the lawsuit arises out of or is related to the
defendant's contacts with the forum.”).

However, the Sixth Circuit has concluded that

“under Ohio law, a court may exercise personal jurisdiction over a non-resident defendant
only if specific jurisdiction can be found under one of the enumerated bases in Ohio’s
long-arm statute.” Conn v. Zakharov, 667 F.3d 705, 718 (6th Cir. 2012). Accordingly,
this Court will only analyze whether specific jurisdiction exists.
B. Forum selection clause
Plaintiff argues that the franchise agreements at issue states that the franchisee
consents to jurisdiction in the U.S. District Court for the Southern District of Ohio. 1
“A party to a contract may waive its right to challenge personal jurisdiction by
consenting to personal jurisdiction through a forum selection clause.” M/S Bremen v.
Zapata Off–Shore Co., 407 U.S. 1, 11 (1972). However, the franchise agreements in
this case state that the agreement is between Klaits and Plaintiff. The agreements name
Klaits as the franchisee, without any mention of Shore Help. (Doc. 1-1, at 1, 44). The
1

The provision in the agreement provides:
Franchisee hereby consents and agrees that the following courts shall have
personal jurisdiction over Franchisee in all lawsuits relating to or arising out of this
Agreement, and hereby submits to the jurisdiction of the following courts and
irrevocably waives any defense Franchisee may have of lack of personal
jurisdiction in any such lawsuits filed in these courts: . . . (b) all courts of the United
States of America sitting within the State of Ohio, including, without limitation, all
United States District Courts within the State of Ohio.
4

franchise agreements are form contracts. The form provides two alternative signature
lines for the franchisee. One is for “INDIVIDUAL/PARTNERSHIP FRANCHISEE(S)”
and the other is for “CORPORATE/LIMITED LIABILITY COMPANY FRANCHISEE.”
Klaits signed as an individual on the signature line for individuals. (Id. at 37, 80). The
signature line for limited liability companies is left blank. (Id. at 38, 81). While Klaits
signed an addendum to one of the franchise agreements on behalf of Shore Help, the
addendum says nothing about changing the parties to the original franchise agreement.
Therefore, the Court concludes that Shore Help is not bound by the forum selection
clause in the franchise agreement.
C. Counterclaim
Plaintiff argues that Shore Help consented to personal jurisdiction when they filed
a counterclaim in this case.
While Rule 12(b)(2) provides for a defense based on “lack of personal jurisdiction,”
“[t]he requirement that a court have personal jurisdiction is a due process right that may
be waived either explicitly or implicitly. The actions of the defendant may amount to a
legal submission to the jurisdiction of the court.” Gerber v. Riordan, 649 F.3d 514, 518
(6th Cir. 2011).
However, the Court notes that in its initial responsive pleading, Shore Help filed an
Answer which included an affirmative defense based on lack of personal jurisdiction.
(Doc. 3, at 24). The Court notes that the federal courts of appeals which have addressed
the issue have concluded that the filing of a counterclaim, in and of itself, does not operate
as a waiver to personal jurisdiction. Neifeld v. Steinberg, 438 F.2d 423, 428–29 (3d Cir.
1971); Bayou Steel Corp. v. M/V Amstelvoorn, 809 F.2d 1147, 1149 (5th Cir. 1987);

5

Knapp–Monarch Co. v. Dominion Elec. Corp., 365 F.2d 175 (7th Cir. 1966); Gates Learjet
Corp. v. Jensen, 743 F.2d 1325, 1330 n.1 (9th Cir. 1984); Hasse v. Am. Phonograph
Corp., 299 F.2d 666 (10th Cir. 1962); Chase v. Pan Pacific Broad., Inc., 750 F.2d 131,
132 (D.C.Cir. 1984); Frank's Casing Crew & Rental Tools, Inc. v. PMR Techs., Ltd., 292
F.3d 1363, 1372 (Fed.Cir. 2002); see also 5C Wright & Miller, supra, § 1397 (“Since a
defendant who is contemplating the assertion of a counterclaim always can avoid waiver
by raising his defenses through pre-answer motion or by asserting his counterclaim
through a pleading amendment, permitting a counterclaim to be asserted in the answer
as well as by motion comports with the policy behind the federal rules of favoring
substance over form.”). While it appears that the Sixth Circuit has not addressed the
issue, the Court concludes that Shore Help did not waive its objection to personal
jurisdiction by filing a counterclaim.
D. Ohio’s long-arm statute
Plaintiff argues Shore Help is subject to personal jurisdiction under the following
provisions of Ohio’s long-arm statute:
(A) A court may exercise personal jurisdiction over a person who acts
directly or by an agent, as to a cause of action arising from the person's:
(1) Transacting any business in this state;
...
(4) Causing tortious injury in this state by an act or omission outside this
state 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 state;
...
(6) Causing tortious injury in this state to any person by an act outside this
state committed with the purpose of injuring persons, when he might
reasonably have expected that some person would be injured thereby in
this state;
6

...
Ohio Rev.Code § 2307.382.
The Ohio Supreme Court has explained that the “transacting business” provision
of Ohio’s long-arm statute “is very broadly worded and permit[s] jurisdiction over
nonresident defendants who are transacting any business in Ohio.” Kentucky Oaks Mall
Co. v. Mitchell's Formal Wear, Inc., 559 N.E.2d 477, 481 (Ohio 1990); see also Brunner v.
Hampson, 441 F.3d 457, 464 (6th Cir. 2006) (“[t]he term ‘transacting any business’ as
used in . . . the statute . . . will be given broad interpretation.”) (quoting Ricker v.
Fraza/Forklifts of Detroit, 828 N.E.2d 205, 209 (Ohio Ct. App. 2005)).
Plaintiff points to the franchise agreements to support its argument that Shore Help
transacted business in Ohio. However, as discussed above, the parties to the franchise
agreements are Plaintiff and Klaits. Shore Help is not a party to those agreements, and
therefore the agreements cannot be relied upon to show that Shore Help was transacting
business in Ohio.
Plaintiff also points to a week-long training session which Klaits attended. (Doc,
12, Ex. 3, Emma Dickison Aff. ¶ 9). However, this is not a case where a corporate officer
is relying upon the fiduciary shield doctrine to defeat jurisdiction. See Balance Dynamics
Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 697 (6th Cir. 2000) (explaining that as a
general matter, jurisdiction over a corporate officer cannot be predicated merely upon
jurisdiction over the corporation). This case presents the opposite situation: personal
jurisdiction over the corporate officer but the corporate entity is challenging personal
jurisdiction.

This Court has previously not permitted personal jurisdiction over a

corporation to be established based on the personal jurisdiction of a corporate officer.

7

H.H. Franchising Systems, Inc. v. Dockter, Case No. 1:10cv854 (Sept. 12, 2011).
Plaintiff has not cited to any caselaw which would alter this Court’s position.
Next, the Court finds that personal jurisdiction over Shore Help cannot be
established under § 2307.382(A)(4). While Plaintiff has presented the gross revenue
reported by Shore Help for the years 2005 through 2008 (Doc. 12, Ex. 4, Keith Tilley Aff.¶
¶ 3-6), there is no evidence that this revenue was derived from goods used or consumed
or services rendered in Ohio.
Finally, under § 2307.382(A)(6), Plaintiff argues that Shore Help might reasonably
have expected that Plaintiff would be injured by its trademark infringement. The act of
trademark infringement occurs in the state where the infringing product is sold or passed
off and the injury occurs in the location where the plaintiff primarily does business. Bird
v. Parsons, 289 F.3d 865, 876 (6th Cir. 2002). However, the Court finds that even if this
provision of Ohio’s long arm statute would support personal jurisdiction, Plaintiff cannot
establish that “there are sufficient minimum contacts between the nonresident defendant
and the forum state so as not to offend ‘traditional notions of fair play and substantial
justice.’” Id. at 871.
E. Due Process
The Ohio Supreme Court has held that the Ohio long-arm statute does not extend
to the constitutional limits of the Due Process Clause. Cole v. Mileti, 133 F.3d 433, 436
(6th Cir. 1998) (citing Goldstein v. Christiansen, 638 N.E.2d 541, 545 n. 1 (1994)).
To comport with due process, an exercise of personal jurisdiction requires that a
defendant “have certain minimum contacts such that the maintenance of the suit does not
offend ‘traditional notions of fair play and substantial justice.’” International Shoe Co. v.

8

Washington, 326 U.S. 310, 316 (1945). The Sixth Circuit has set forth a three-part
analysis to determine whether jurisdiction satisfies due process concerns:
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.
Calphalon Corp. v. Rowlette, 228 F.3d 718, 721 (6th Cir. 2000) (quoting Southern Mach.
Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir. 1968)).
“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,’ and when the defendant’s conduct and
connection with the forum are such that he ‘should reasonably anticipate being haled into
court there.’ CompuServe, 89 F.3d at 1263 (quoting Burger King Corp. v. Rudzewicz,
471 U.S. 462, 474-75 (1985)). “The ‘purposeful availment’ requirement ensures that a
defendant will not be haled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or
‘attenuated’ contacts.” Burger King Corp., 471 U.S. at 475.
Plaintiff argues that Shore Help “purposely availed” itself by coming to Cincinnati to
sign the franchise agreement. However, as discussed above, it was Klaits who traveled
to Cincinnati and Shore Help is not a party to the franchise agreements. Plaintiff also
argues that Shore Help communicated with Plaintiff through email and telephone calls.
(Dickison Aff. ¶¶ 15-28). However, Plaintiff’s claims are not based upon these emails
and telephone calls, and it appears that these are the only contacts Shore Help made with
someone in Ohio. While Shore Help did operate a website which was accessible in
Ohio, Plaintiff does not claim that the website targeted customers in Ohio. See Oasis
9

Corp. v. Judd, 132 F. Supp. 2d 612, 623 (S.D. Ohio 2001) (“As far as this Court has been
able to ascertain, no federal court has ever upheld personal jurisdiction solely on the
ground that the defendant's web site happened to be accessible from the forum state . . .
”). Accordingly, the Court concludes that it does not have personal jurisdiction over
Shore Help.
III.

CONCLUSION
Based on the foregoing, Defendants’ Motion to Dismiss (Doc. 9) is GRANTED as

to Shore Help but DENIED as MOOT to the extent that Defendants seek to dismiss
Plaintiff’s claims against Klaits for lack of service. Shore Help is hereby DISMISSED
without prejudice as a party from this matter based on lack of personal jurisdiction.
Accord Nafziger v. McDermott Int'l, Inc., 467 F.3d 514, 520 (6th Cir. 2006) (explaining that
dismissals for lack of personal jurisdiction should be without prejudice).
IT IS SO ORDERED.
/s/ Michael R. Barrett
Michael R. Barrett
United States District Judge

10