Horter Investment Management, LLC v. Cutter et al
Filing
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ORDER denying [38 & 48] Boer's Motions to Dismiss. Signed by Judge Sandra S Beckwith on 1/28/16. (mb)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
Horter Investment
Management, LLC,
Plaintiff,
vs.
Jeffrey Cutter, et al.,
Defendants.
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) Case No. 1:15-CV-477
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ORDER
This matter is before the Court on Defendant Ryan Borer’s motions to dismiss for
lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil
Procedure. (Doc. Nos. 38 & 48). For the reasons that follow, Defendant’s motions to
dismiss are not well-taken and are DENIED.
I. Background
This lawsuit arises out the alleged breach of a non-competition agreement between
Plaintiff Horter Investment Management, LLC (“Horter”) and Defendant Jeffrey Cutter.
Defendant Ryan Borer, who, along with Cutter, is a principal in a new business venture
allegedly competing against Horter, contends that he is not subject to personal jurisdiction
in Ohio. Where, as in this case, the court rules on a Rule 12(b)(2) motion without benefit
of an evidentiary hearing, the court must construe the pleadings and affidavits in the light
most favorable to the plaintiff. CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir.
1996).
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Horter is an Ohio limited liability company with its principal place of business located
in Cincinnati, Ohio. Second Amended Complaint ¶ 1. Defendant Jeffrey Cutter is a citizen
of the State of Massachusetts. Id. ¶ 2. Defendant PCM Advisory, d/b/a/ Precision Capital
Management (“Precision”), is Texas limited liability company with its principal place of
business in Coppell, Texas. Id. ¶ 3. Defendant Ryan Borer is a citizen of the State of
Texas. Id. ¶ 4. The Court has subject matter jurisdiction in this case because Plaintiff and
each of the Defendants are diverse and the amount in controversy exceeds $75,000. 28
U.S.C. § 1332(a).
Horter is an investment advisor and is registered as such with the Securities and
Exchange Commission. Second Amended Complaint ¶ 9. Horter sustains and grows its
business by entering into Investment Adviser Representative (“IAR”) agreements with
individuals to provide investment management services using Horter’s investment platform.
Id. ¶ 10; Second Amended Complaint, Ex. A, IAR Agreement § 1. The IAR remains an
independent contractor under the agreement. Id. The IAR agreement contains a noncompete clause in which the IAR agrees, for a period of twelve months after the termination
of the agreement, not to solicit Horter’s employees or contractors. The non-compete
clause also prohibits the IAR from establishing, directly or indirectly, his own registered
investment adviser firm for a period of twelve months after the termination of the
agreement. IAR Agreement § 3. Cutter began providing investment adviser services on
behalf of Horter in 2011. Second Amended Complaint ¶¶ 13, 15. Cutter periodically
executed new and updated IAR agreements, most recently in March 2014. Id. ¶ 16;
Second Amended Complaint Ex. A. This agreement contains the non-compete clause just
described.
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Horter alleges that in late 2014, Cutter began soliciting another Horter IAR, Pete
Lang, to leave Horter and establish their own investment advisory firm. Second Amended
Complaint ¶ 20. Horter alleges further that in January 2015, before terminating his
relationship with Horter, Cutter, Lang, and Borer established Precision to provide
investment advisory services. Id. ¶ 21. Additionally, Horter alleges that Cutter retained one
of its own recruiting contractors, 3 Mentors, Inc., to assist in recruiting Horter’s IAR’s to
Precision. Id. Cutter terminated his relationship with Horter on February 4, 2015 and
formally signed on with Precision on February 5, 2015. Id. ¶¶ 23, 24.
Horter alleges that Borer and Precision were aware of Cutter’s non-compete
agreement and, therefore, Borer agreed to hold himself out as Precision’s owner and/or
managing officer until Cutter’s non-compete clause expired. Second Amended Complaint
¶¶ 27, 28. Nevertheless, Horter alleges that Cutter controls and manages Precision. Id. ¶
29.
Horter alleges that Precision, Borer, and Cutter host conferences and seminars for
the purpose of recruiting Horter’s IAR’s. Second Amended Complaint ¶ 31. As a result of
their recruitment efforts, between March 20, 2015 and April 6, 2015, four of Horter’s IAR’s
terminated their relationship with Horter and joined Precision, taking some $72,000,000 in
assets and nearly $2,000,000 in annual fees with them. Id. ¶¶ 32, 33. Between April 2015
and September 2015, another nineteen IAR’s left Horter and signed on with Precision. Id.
¶ 36. All told, these IAR’s transferred almost $235,000,000 in assets and $6,000,000 in
fees to Precision. Id. ¶ 37.
Horter filed suit against Cutter, Lang, and Precision in the Hamilton County Court
of Common Pleas in June 2015. The original complaint asserted claims against the
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defendants for breach of contract, breach of fiduciary duty, tortious inference with contract,
and tortious inference with business relations. Defendants removed the complaint from
state court in July 2015 on the basis of diversity jurisdiction. Horter and Lang later agreed
to voluntarily dismiss their claims and counterclaims against each other. Doc. No. 30.
Horter then filed an amended complaint (Doc. No. 31) which dropped Lang and
added Borer as a defendant. The Court later ordered Horter to file another complaint to
correct defective jurisdictional allegations. Doc. No. 42. The second amended complaint
(Doc. No. 43) correctly establishes the Court’s diversity jurisdiction and asserts claims
against Cutter for breach of the non-compete clause (Count One) and breach of fiduciary
duty (Count Two), against Precision and Borer for tortious interference with contract (Count
Three), against all Defendants for tortious interference with business relations (Count Four).
Borer now moves to dismiss the complaint against him pursuant to Rule 12(b)(2) for
lack of personal jurisdiction.
II. Analysis
Borer contends that he is not subject to personal jurisdiction in Ohio under Ohio’s
long-arm statute and that asserting jurisdiction over him in this case would in any event
violate the Due Process Clause because he lacks sufficient contacts with Ohio. Horter
argues that Borer is subject to personal jurisdiction in Ohio, and that the Due Process
Clause is satisfied, because Borer purposefully directed tortious activities into the State of
Ohio and caused tortious injury here. The Court concludes that the requirements for
establishing personal jurisdiction over Borer are easily satisfied in this case.
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As the plaintiff, Horter bears the burden of proving that Borer is subject to personal
jurisdiction in Ohio. Air Products & Controls, Inc. v. Safetech Int’l, Inc., 503 F.3d 544, 549
(6th Cir. 2007).
The Court first notes that Horter does not contend that Borer is subject to general
jurisdiction in Ohio, that is, that his contacts are continuous and systematic such that “that
the state may exercise personal jurisdiction over the defendant even if the action is
unrelated to the defendant’s contacts with the state.” Third Nat’l Bank in Nashville v.
WEDGE Group Inc., 882 F.2d 1087, 1089 (6th Cir. 1989). Accordingly, the Court must
decide whether specific personal jurisdiction over Borer exists.
In a specific jurisdiction case, “a State exercises personal jurisdiction over a
defendant in a suit arising out of or related to the defendant’s contacts with the forum.” Id.
If Borer is subject to Ohio’s long-arm personal jurisdiction statute, the Court must then
determine whether exercising personal jurisdiction over Borer comports with the Due
Process Clause. In Bird v. Parsons, 289 F.3d 865 (6th Cir. 2002), the Sixth Circuit set forth
the requirements for the proper assertion of specific personal jurisdiction by the trial court:
First, the defendant must purposefully avail himself of the privilege of acting in the
forum state or causing a consequence in the forum state. Second, the cause of
action must arise from the defendant’s activities there. Finally, the acts of the
defendant or consequences caused by the defendant must have a substantial
enough connection with the forum state to make the exercise of jurisdiction over the
defendant reasonable.
Id. at 874 (citing Southern Mach. Co., Inc. v. Mohasco Ind., Inc., 401 F.2d 374, 381 (6th Cir.
1968)). Horter must establish all three parts of the Mohasco test for the Court to assert
personal jurisdiction over Borer. Id.; Bridgeport Music, Inc. v. Still N The Water Publ’g, 327
F.3d 472, 477 (6th Cir. 2003). Because the Court is deciding the issue of personal
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jurisdiction without discovery or an evidentiary hearing, Horter needs only to make a prima
facie showing that the Court has jurisdiction over Borer. Nationwide Mut. Ins. Co. v. Tryg
Int’l Ins. Co. Ltd., 91 F.3d 790, 792 (6th Cir. 1996). Additionally, the Court must construe
the pleadings in the light most favorable to Horter. Id. at 793.
As an initial matter, the Court concludes that Borer is subject to personal jurisdiction
under Ohio’s long-arm statute because, at a minimum, the second amended complaint
alleges facts showing that Borer caused “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[.]” Ohio
Rev. Code § 2307.382(A)(6). The facts alleged show that Cutter was subject to a twelvemonth non-compete clause upon the termination of his relationship with Horter in which he
agreed not to establish, directly or indirectly, a competing investment advisory firm. Cutter
also agreed not to solicit or recruit Horter’s IAR’s for a twelve-month period. Cutter,
nevertheless, formed Precision with Lang and Borer while he was still under contract with
Horter. It is reasonable to infer that Cutter made Borer aware of his covenant not to
compete, particularly in light of the allegation that Borer was installed as the managing
partner of Precision in order to circumvent the clause. Despite Borer’s knowledge of
Cutter’s non-compete clause, he and Cutter not only established a competing advisory firm,
but they conducted conferences and seminars for the sole purpose of recruiting away
Horter’s IAR’s. And they were indeed successful in their efforts. These facts, accepted as
true, are sufficient to find that Borer intentionally interfered with not only Cutter’s noncompetition clause, but also with the agreements of the Horter IAR’s he and Cutter
successfully recruited.
The facts alleged, therefore, show that Borer purposefully
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committed tortious acts knowing that they would cause an injury to a person in Ohio.
Consequently, he is subject to personal jurisdiction in Ohio pursuant to § 2307.382(A)(6).
Cf. Fern Exp. Serv., LLC v. Lenhof, No. C-130791, 2014 WL 3723883, at *3 (Ohio Ct. App.
July 25, 2014)(holding that out-of-state defendant was subject to jurisdiction under §
2307.382(A)(6) where the facts alleged showed that he tortiously interfered with Ohio
corporation’s contractual relationship).
Borer contends that he committed the tortious acts alleged in his corporate, not
individual, capacity. Borer argues, therefore, that the fiduciary shield doctrine applies and
precludes the Court’s assertion of personal jurisdiction over him. Generally speaking, the
fiduciary shield doctrine protects a corporate officer from personal jurisdiction for actions
taken in his corporate capacity. Balance Dynamics Corp. v. Schmitt Ind., 204 F.3d 683,
697 (6th Cir. 2000). However, even if, as Borer contends, he committed the alleged
tortious acts in his corporate capacity, his protection under the fiduciary shield doctrine is
not absolute. Id. at 698. The fiduciary shield doctrine does not apply if the corporate officer
was actively and personally involved in the conduct giving rise to the claim. Id. If so, “the
exercise of personal jurisdiction should depend on traditional notions of fair play and
substantial justice; i.e., whether [he] purposely availed [himself] of the forum and the
reasonably foreseeable consequences of that availment.” Id.
In this case, the second amended complaint shows that Borer was personally and
actively involved in the conduct giving rise to the claim. As indicated, according to the
complaint, Borer held conferences and seminars for the sole purpose of recruiting away
Horter’s IAR’s. Moreover, the complaint alleges that Cutter and Borer made Borer the
managing officer of Precision for the purpose of attempting to circumvent Cutter’s non7
compete clause. The facts show that Borer was personally and actively involved in the
conduct giving rise to Horter’s intentional interference with contract claim.
In addition, the facts alleged show that Borer purposefully availed himself of acting
in Ohio and that it was reasonably foreseeable that his conduct would cause consequences
in Ohio. Indeed, by actively recruiting Horter’s IAR’s, Borer had to have known that he was
causing an injury to an Ohio citizen. This conclusion also satisfies the Mohasco factors
cited, supra. The Court concludes that Calder v. Jones, 465 U.S. 783 (1983), controls the
outcome of the Due Process inquiry. In Calder, the Court held that for purposes of
personal jurisdiction, the Due Process Clause is satisfied when the defendant’s intentional
and tortious acts are “expressly aimed” at the forum state. Id. at 789. The Court stated
that a defendant who expressly aims his tortious conduct at the forum state “must
reasonably anticipate being haled into court there.” Id. at 790.
Here, as in Calder, Borer purposefully directed tortious conduct to an Ohio citizen
and caused substantial injury to an Ohio citizen. He, therefore, purposefully caused a
consequence in Ohio. Horter’s claims arise from Borer’s actions that were directed at
Horter in Ohio. Since the first two Mohasco factors are satisfied, an inference arises that
Borer’s acts have a substantial enough connection with Ohio to make the exercise of
jurisdiction reasonable. Bird, 289 F.3d at 875. Exercising personal jurisdiction over Borer
in Ohio would nevertheless be reasonable under Calder because, by expressly directing
tortious acts at Ohio, Borer must reasonably have anticipated being haled into court here.
Moreover, Horter has a substantial interest in obtaining relief in Ohio because an individual
injured in Ohio should not have to go to Texas to obtain redress from a person who
knowingly caused an injury in Ohio. Cf. Calder, 465 U.S. at 790 (“An individual injured in
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California need not go to Florida to seek redress from persons who, though remaining in
Florida, knowingly cause the injury in California.”).
Conclusion
The Court finds that Horter has made a prima facie showing that Defendant Borer
is subject to personal jurisdiction in Ohio. Accepting the facts alleged in the complaint as
being true, Borer satisfies Ohio’s long-arm statute because he purposefully committed
tortious acts outside of the state that caused an injury to a person within Ohio. Additionally,
the Due Process Clause is satisfied because Borer expressly directed tortious conduct at
Ohio and should reasonably have anticipated being called into court here.
Accordingly, Defendant Borer’s motions to dismiss pursuant to Rule 12(b)(2) are not
well-taken and are DENIED.
IT IS SO ORDERED
s/Sandra S. Beckwith
Sandra S. Beckwith
Senior United States District Judge
Date January 28, 2016
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