ScanSource Inc v. Mitel Networks Corporation

Filing 31

ORDER that the Clerk of Court TRANSFER this case to the United States District Court for the Southern District of Florida. Signed by Honorable G Ross Anderson, Jr on 6/24/11. (gpre, )

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
ScanSource, Inc.,

)
)
Plaintiff,
)
)
v.
)
)
Mitel Networks Corp.,
)
)
Defendant.
)
______________________________________)

C/A No.: 6:11-cv-00382-GRA

ORDER
(Written Opinion)

This matter comes before the Court on Defendant’s Motion to Dismiss and
Plaintiff's Motion for Jurisdictional Discovery. A hearing was held on June 21,
2011, and both parties have submitted various filings in support of their positions.
For the reasons stated below, this Court determines it may not exercise personal
jurisdiction over Defendant, and it directs the Clerk of Court to transfer the case to
the Southern District of Florida.
BACKGROUND
I. Parties
Plaintiff ScanSource, Inc. (“ScanSource”) is a South Carolina corporation.
Defendant Mitel Networks Corporation (“Mitel”) is a Canada corporation.

The

underlying case involves a contract (the “Distributor Agreement”) between Mitel and
Netpoint International d/b/a ScanSource Latin America (“Netpoint”), a wholly owned
Florida subsidiary of ScanSource, for the distribution of Mitel products in Mexico.
ScanSource claims this Court has jurisdiction over Mitel through its subsidiaries,
Page 1 of 15

Mitel Technologies, Inc. (“MTI”) and Mitel Networks, Inc. (“MNI”), both of which
have significant ties to South Carolina.
II. Procedural History
ScanSource filed this action in the Court of Common Pleas for Greenville
County, South Carolina. Mitel removed to this Court under 28 U.S.C. § 1441
(2006) and filed a motion to dismiss for failure to satisfy South Carolina’s Door
Closing Statute, S.C. Code Ann. § 15-5-150 (2005); for lack of personal
jurisdiction; and for improper venue. ScanSource then filed an amended complaint,1
and Mitel renewed its Motion to Dismiss, arguing lack of personal jurisdiction,
improper venue, failure to state a claim upon which relief can be granted, and failure
to satisfy the Door Closing Statute. ScanSource filed a Response in Opposition to
Mitel’s Motion to Dismiss and, alternatively, moved for jurisdictional discovery.
Mitel filed a Reply in support of its Motion to Dismiss and a Response in Opposition
to ScanSource’s Motion for Jurisdictional Discovery.2

1

ScanSource made claims of breach of contract entitling it to damages
and to a declaration terminating the contract and excusing future
performance, breach of contract accompanied by fraudulent act, willful
unfair trade practices, actual fraud, constructive fraud, and fraud in the
inducement of performance. In its original complaint, ScanSource made
these claims based on a purported assignment by Netpoint of all of
Netpoint’s claims against Mitel. In its amended complaint, ScanSource
also asserted these claims directly on its own behalf.

2

ScanSource also filed a Reply to Mitel’s Response in Opposition to the
Motion for Jurisdictional Discovery; however, the Reply was untimely
under Local Civil Rule 7.06 DSC.
Page 2 of 15

Meanwhile, Mitel sued Netpoint in Florida over the non-payment of Netpoint’s
outstanding balance under the Distributor Agreement. That action is now pending
in the Southern District of Florida (C/A No. 1:11-cv-20517-JEM).
STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure 12(b)(2), Defendant has moved
to dismiss for lack of personal jurisdiction. “When a court’s personal jurisdiction is
properly challenged by motion under Federal Rule of Civil Procedure 12(b)(2), the
jurisdictional question thereby raised is one for the judge, with the burden on the
plaintiff ultimately to prove grounds for jurisdiction by a preponderance of the
evidence.” Mylan Labs., Inc. v. Azko, N.V., 2 F.3d 56, 59–60 (4th Cir. 1993)
(citing Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989)). “Yet when, as here,
the district court decides a pretrial personal jurisdiction dismissal motion without an
evidentiary hearing, the plaintiff need prove only a prima facie case of personal
jurisdiction.” Id. at 60 (citing Combs, 886 F.2d at 676). The district court must
resolve all factual disputes and draw all reasonable inferences arising from the proof
in favor of the plaintiff. Id. However, the Court must also consider evidence
provided by the defendant in support of its motion. Harris v. Option One Mortg.
Corp., 261 F.R.D. 98, 109 (D.S.C. 2009) (citing Mylan, 2 F.3d at 62 (“[T]he district
court correctly looked both to [the plaintiff’s] and to [the defendant’s] proffered
proof in ruling upon [the defendant’s] motion.”)).

Page 3 of 15

DISCUSSION
I. Personal Jurisdiction
“[I]n the absence of a federal rule or statute establishing a federal basis for
the assertion of personal jurisdiction, the personal jurisdiction of the district courts
is determined in diversity cases by the law of the forum State.” Ins. Corp. of Ir. v.
Compagnie des Bauxites de Guinee, 456 U.S. 694, 711 (1982) (Powell, J.,
concurring). Therefore, in this diversity action, the Court applies South Carolina law
in determining whether it has personal jurisdiction over Defendant. Determining
whether a court’s jurisdiction over a defendant is proper begins by “(1) determining
if the state’s long-arm statute confers jurisdiction and (2) whether the exercise of
jurisdiction, if authorized [by the state’s long-arm statute], is consistent with the
Due Process requirements of the Fourteenth Amendment.” Harris, 261 F.R.D. at
109. Because South Carolina’s long-arm statute has been interpreted to extend
personal jurisdiction to the “full reach of Due Process,” courts analyzing personal
jurisdiction under South Carolina law focus their inquiry on whether exercising
personal jurisdiction is consistent with Due Process. Id.; see also In re Celotex
Corp., 124 F.3d 619, 627–28 (4th Cir. 1997).
As a matter of due process, “[p]ersonal jurisdiction exists where a defendant
has ‘minimum contacts’ with the forum ‘such that . . . maintenance of the suit does
not offend traditional notions of fair play and substantial justice.’” Dtex, LLC v.
BBVA Bancomer, S.A., 405 F. Supp. 2d 639, 644 (D.S.C. 2005) (quoting Lesnick

Page 4 of 15

v. Hollingsworth & Vose Co., 35 F.3d 939, 942 (4th Cir. 1994) (citing Int’l Shoe
Co. v. Washington, 326 U.S. 310, 316 (1945))). These contacts must sufficiently
demonstrate that the defendant is subject to either specific or general jurisdiction
in South Carolina. Id. at 644; Harris, 261 F.R.D. at 109.
A. Specific Jurisdiction
The Court does not have specific jurisdiction over Mitel. “With respect to
specific jurisdiction, ‘[t]he touchstone . . . remains that an out-of-state person have
engaged in some activity purposefully directed toward the forum state.’” ESAB
Group, Inc. v. Centricut, Inc., 126 F.3d 617, 625 (4th Cir. 1997) (quoting Lesnick,
35 F.3d at 945). “The contacts related to the cause of action must create a
‘substantial connection’ with the forum state, . . . . [and] the defendant's actions
must be directed at the forum state in more than a random, fortuitous, or attenuated
way.” Id.; see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)
(“[A] defendant will not be haled into a jurisdiction solely as a result of ‘random,’
fortuitous,’ or ‘attenuated’ contacts . . . .” (quoting Keeton v. Hustler Magazine,
Inc., 465 U.S. 770, 774 (1984))).

And, “[a]lthough it has been argued that

foreseeability of causing injury in another State should be sufficient to establish such
contacts there when policy considerations so require, the [Supreme] Court has
consistently held that this kind of foreseeability is not a ‘sufficient benchmark’ for
exercising personal jurisdiction.” Burger King, 471 U.S. at 474 (citing World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 295 (1980)); see also ESAB, 126

Page 5 of 15

F.3d at 626 (holding that “[a]lthough the place that the plaintiff feels the alleged
injury is plainly relevant to the [specific jurisdiction] inquiry, it must ultimately be
accompanied by the defendant’s own contacts with the state,” and finding there
was no in personam jurisdiction “[b]ecause those contacts in this case were too
attenuated and insubstantial to provide a constitutionally sufficient basis for South
Carolina courts to exercise . . . jurisdiction”).
ScanSource has not alleged that the contract at issue in this case was made
or executed in South Carolina. Both parties agree that all acts involved in the
underlying suit took place outside of South Carolina. ScanSource’s only claims in
support of specific jurisdiction are that it was injured in South Carolina by Mitel’s
acts towards Netpoint and that Mitel phoned ScanSource in South Carolina once to
discuss a settlement in this case.
A single phone call, especially one made for purposes of settlement, is not
sufficient to establish specific jurisdiction over a defendant. See CEM Corp. v. Pers.
Chemistry, AB, 55 F. App’x 621, 624 (4th Cir. 2003) (unpublished) (per curiam)
(refusing to consider a settlement agreement between the parties as sufficient to
subject the foreign defendant to specific jurisdiction in the forum state). And
ScanSource’s claim of injury through its Florida subsidiary, Netpoint, regarding a
contract over the distribution of products in Mexico is likewise far too attenuated
to establish specific jurisdiction over Mitel. Accordingly, ScanSource has failed to
establish the Court’s specific jurisdiction over Mitel.

Page 6 of 15

B. General Jurisdiction
General jurisdiction applies to defendants who have purposefully established
“continuous and systematic” contacts in the forum state. Helicopteros Nacionales
de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984). Due Process precludes the
exercise of general jurisdiction unless the plaintiff shows that the defendant has an
“enduring relationship” with the forum state. Dtex, 405 F. Supp. 2d at 644 (citing
Brown v. Geha–Werke GmbH, 69 F. Supp. 2d 770, 779 (D.S.C. 1999)); Coggeshall
v. Reprod. Endocrine Assocs. of Charlotte, 655 S.E.2d 476, 479 (S.C. 2007)
(“[G]eneral jurisdiction is based upon ‘an enduring relationship’ with the State.”).
Because general jurisdiction justifies suit against a defendant on any cause of action,
including one totally unrelated to the defendant’s contacts with South Carolina, the
defendant must have truly significant, meaningful contacts with the State. See
Cockrell v. Hillerich & Bradsby Co., 611 S.E.2d 505, 510 (S.C. 2005) (“These
contacts must be ‘so substantial and of such a nature as to justify suit against [the
respondents] on causes of action arising from dealings entirely different from those
activities.’”) (quoting Int’l Shoe Co., 326 U.S. at 318)).
Jurisdiction Based on Mitel’s Direct Contacts
ScanSource has not established that this Court may exercise general
jurisdiction over Mitel based on Mitel’s direct contacts with South Carolina.
According to the amended complaint, Mitel’s only contacts with South Carolina have
been a teleconference with ScanSource to discuss settlement options in this case

Page 7 of 15

and some emails exchanged with ScanSource regarding a completely unrelated
contract between ScanSource and MNI. In support of its Motion to Dismiss, Mitel
provided the affidavit of Todd Richardson, the Vice President of Finance & Corporate
Controller of Mitel. According to Mr. Richardson, Mitel is a Canada corporation; its
principal place of business is in Ontario, Canada; it does not do business in South
Carolina; and it is not licensed to do business in South Carolina. (Mot. to Dismiss,
Ex. 3, ¶ 3, ECF No. 17-5.) These scarce direct contacts between Mitel and South
Carolina do not provide sufficient basis for general jurisdiction over Mitel.
Jurisdiction Based on Mitel’s Subsidiaries
Additionally, ScanSource argues Mitel does business in South Carolina
through its subsidiaries, MNI and MTI. It is undisputed that MNI and MTI have
entered into contracts in South Carolina, have agreed to be subject to South Carolina
courts, maintain at least one office building in South Carolina, and do business with
several South Carolina companies. To support its allegations that Mitel “significantly
controls the marketing and operating policies of its subsidiaries”; that Mitel and its
subsidiaries “share common ownership, . . . are not financially independent, and .
. . share executive personnel”; and that Mitel and its subsidiaries “act as alter egos”
(Am. Compl. 6, ¶ 21, ECF No. 10), ScanSource relies on customer applications and
purchase orders between ScanSource and MNI regarding a contract between
ScanSource and MNI (the “MNI contract”), in which MNI listed Mitel’s payment
processing center address in Canada as MNI’s address, (id., Exs. B, E, G, ECF Nos.

Page 8 of 15

10-2, 10-3, 10-7); emails between Mitel employees in Canada and ScanSource
employees over payment issues regarding the MNI contract (id., Exs. H, I, ECF Nos.
10-8, 10-9); a screenshot of Mitel’s Web site listing all its “partners,” which include
businesses in several cities in South Carolina (id., Ex. J, ECF No. 10-10); and a
contract Mitel signed to guaranty MNI in the MNI contract, in which the same
person who signed on behalf of Mitel signed on behalf of MNI (Resp. in Opp’n, Ex.
A, ECF No. 22-1).
For the reasons states below, this Court finds that both of ScanSource’s
theories— piercing the corporate veil and agency—fail to support its assertion that
this Court may exercise jurisdiction over Mitel.
Piercing the Corporate Veil
South Carolina law instructs courts not to “extend jurisdiction to the parent
based solely on the activities of a subsidiary where those activities are unrelated to
the cause of action and do not bear a substantial connection to the case at hand.”
Builder Mart of Am., Inc. v. First Union Corp., 563 S.E.2d 352, 358 (S.C. Ct. App.
2002) overruled on other grounds by Farmer v. Monsanto Corp., 579 S.E.2d 325
(S.C. 2003).

“As the United States Supreme Court has explained, ‘when the

“minimum contact” that is a substitute for physical presence consists of property
ownership it must, like other minimum contacts, be related to the litigation.’” Id.
(quoting Burnham v. Super. Ct. of Cal., 495 U.S. 604, 620 (1990)) (emphasis
omitted).

Page 9 of 15

Additionally, in order to establish the Court’s general jurisdiction over a parent
company based on the activities of its subsidiaries, the plaintiff must plead or
demonstrate an adequate basis to pierce the corporate veil between the companies.
Dtex, 405 F. Supp. 2d at 647; see also Gray v. Riso Kagaku Corp.,No. 951741,1996 WL 181488, at *3 (4th Cir. Apr. 17, 1996) (unpublished) (per curiam)
(“[T]he mere fact that [the defendant’s] subsidiaries do business in South Carolina
does not confer personal jurisdiction over [the defendant].”).

To pierce the

corporate veil, the plaintiff must show the following:
(1) whether the corporation was grossly undercapitalized;
(2) failure to observe corporate formalities;
(3) non-payment of dividends;
(4) insolvency of the debtor corporation at the time;
(5) siphoning of funds of the corporation by the dominant
stockholder;
(6) non-functioning of other officers or directors;
(7) absence of corporate records; and
(8) the fact that the corporation was merely a façade for the
operations of the dominant stockholder.
Mid-S. Mgmt. Co. v. Sherwood Dev. Corp., 649 S.E.2d 135, 140–41 (S.C. Ct.
App. 2007) (quoting Dumas v. InfoSafe Corp., 463 S.E.2d 641, 644 (S.C. Ct. App.
1995)).
Piercing the corporate veil in order to subject a parent company to general
jurisdiction requires more than merely showing that the defendant failed to observe
some corporate formalities. For example, in Gray, the court of appeals affirmed the
district court’s decision to dismiss on the basis of jurisdiction even though the parent
company made the subsidiary terminate a financing program on which the parent
Page 10 of 15

acted as a guarantor, a majority of the subsidiary’s board of directors were also
associated with the parent company, the parent funded the subsidiary, and the
subsidiary relied on directions from the parent company to make hiring decisions and
resolve complaints. Gray, 1996 WL 181488, at *3. The Gray court explained that
[a]lthough these facts demonstrate that [the defendant] failed to
observe some corporate formalities, [the plaintiff] has not sustained
his burden of proving that [the defendant] has minimum contacts
with South Carolina. . . . [because] he has not proved that [the
defendant] exerts a degree of control greater tha[n] what is normally
associated with common ownership and directorship, or that [the
subsidiary] is a separate entity in name alone.
Id. (citing Donatelli v. Nat’l Hockey League, 893 F.2d 459, 466 (1st Cir. 1990)).
The mere fact that Mitel, like other sophisticated parent companies, shares
administrative functions and some executives with its subsidiaries, guarantees its
subsidiaries, and has a Web site that lists its and its subsidiaries’ business partners,
is not enough to subject it to this Court’s general jurisdiction. See Builder Mart, 563
S.E.2d at 358–59 (holding that “unified marketing and advertising and holding out to
the public as a single entity” are “insufficient to confer jurisdiction”); Nat’l Prod.
Workers Union Trust v. CIGNA Corp., No. 05-C-5415, 2007 WL 1468555, at *10
(N.D. Ill. May 16, 2007) (noting that provision of support services, including advanced
costs, by parent for subsidiary, “are part and parcel of the normal incidents of a
parent–subsidiary relationship”); Action Mfg. Co. v. Simon Wrecking Co., 375 F.
Supp. 2d 411, 425 (E.D. Pa. 2005) (noting that where the subsidiary reimburses the
parent for the services, sharing services “such as human resources and information

Page 11 of 15

technology services, and office space and infrastructure,” does not indicate a lack of
corporate formality); Weiss v. La Suisse, 69 F. Supp. 2d 449, 458 (S.D.N.Y. 1999)
(“[T]he overlap of directors and officers between parent and subsidiary alone does not
render the subsidiary a ‘mere department’ for jurisdictional purposes.”).

This

conclusion is emphasized by the significant, uncontroverted fact that the activities by
Mitel’s subsidiaries are completely unrelated to ScanSource’s claims. ScanSource has
presented no evidence that Mitels’ subsidiaries were parties to, participated in, or
otherwise influenced the Distributor Agreement between Netpoint and Mitel.
Along with failing to show how Mitel has meaningfully failed to observe
corporate formalities, ScanSource has also failed to support its allegation that Mitel’s
subsidiaries are merely façades for Mitel’s operations. ScanSource has not provided
any facts demonstrating that MNI or MTI were grossly undercapitalized, did not pay
dividends, were insolvent, had their funds siphoned off by Mitel, had non-functioning
officers or directors, or failed to maintain any corporate records. ScanSource has
failed to carry its burden to pierce the corporate veil between Mitel and its
subsidiaries.
Alter Ego/Agency
ScanSource also asserts that Mitel’s subsidiaries are its mere agents and,
therefore, Mitel is doing sufficient business in South Carolina for it to be subject to
this Court’s jurisdiction. See Arch v. Am. Tobacco Co., 984 F. Supp. 830, 837 (E.D.
Pa. 1997) (listing “whether a subsidiary is a mere alter ego or agent of the parent”

Page 12 of 15

as one factor used to determine if the court may impute the contacts of the subsidiary
onto the parent company in order to establish jurisdiction). To determine whether the
subsidiary is functioning as a mere agent of the parent company, the courts look at
four factors: “(1) common ownership, (2) financial independence, (3) degree of
selection of executive personnel and failure to observe corporate formalities, and (4)
the degree of control over marketing and operational policies.” Builder Mart, 563
S.E.2d at 358 (citing Jazini v. Nissan Motor Co., 148 F.3d 181, 185 (2d Cir. 1998)).
ScanSource has failed to show that Mitel controls its subsidiaries to such a
degree that they are each other’s mere alter egos.

The fact that Mitel and its

subsidiaries share a payment processing center does not equate to Mitel and its
subsidiaries failing to be financially independent of each other. Likewise, the fact that
they, like many companies, share executives does not establish that Mitel controls the
selection of the executives. See Arch, 984 F. Supp. at 837 (“‘The degree of control
exercised by the parent must be greater than normally associated with common
ownership and directorship.’” (quoting Savin Corp. v. Heritage Copy Prod., Inc., 661
F. Supp. 463, 469 (M.D. Pa. 1987))). Finally, little, if any control, is exemplified by
Mitel’s serving as a guarantor to its subsidiary and having a Web site that lists all of
its and its subsidiaries contacts. These facts, even in combination, do not rise to a
failure to observe corporate formalities. If these facts were sufficient to confer
jurisdiction over a parent company, virtually all parent companies could be hauled into
every forum in which its subsidiaries did business.

Page 13 of 15

Because ScanSource has failed to pierce the corporate veil or support its alter
ego allegations, it has failed to establish that this Court has personal jurisdiction over
Mitel.3
III. Jurisdictional Discovery
Plaintiff has moved for jurisdictional discovery.

This Court has “broad

discretion” in resolving discovery problems. Mylan, 2 F.3d at 64. It also has a
responsibility to resolve matters before it effectively and efficiently. United States v.
Dietz, No. 94-5733, 1995 WL 133353, at *3 (4th Cir. Mar. 28, 1995) (unpublished)
(per curiam) (finding “no abuse of discretion in the district court’s summarily denying
the motions [for disclosure of jury panel information and for discovery] in the name
of judicial economy”). Plaintiff has not presented any evidence that Mitel does not
observe corporate formalities, or that it controls its subsidiaries, to such a level as to
subject it to the general jurisdiction of this Court. Allowing Plaintiff to conduct
discovery would cost both parties time, money, and effort for what would merely
delay the inevitable. Plaintiffs are therefore not entitled to jurisdictional discovery.
Having determined that personal jurisdiction is lacking, the next step is to
dispose of the case appropriately. As an alternative to outright dismissal, Mitel has
suggested that this case be transferred to the Southern District of Florida, where the

3

Because this Court cannot exercise personal jurisdiction over Defendant,
it does not decide whether jurisdiction is proper under the Door Closing
statute, whether venue is improper, or whether ScanSource’s direct
claims against Mitel fail to state a claim for relief.
Page 14 of 15

other action is pending, (Mem. in Supp. of Mot. to Dismiss 3 n.3, ECF No. 17-1;
Reply in Supp. 2, ECF No. 26). Accordingly, this Court grants Mitel’s request to
transfer the case.
IT IS THEREFORE ORDERED that the Clerk of Court TRANSFER this case to the
United States District Court for the Southern District of Florida.
IT IS SO ORDERED.

June 24, 2011
Anderson, South Carolina

NOTICE OF RIGHT TO APPEAL
Pursuant to Rules 3 and 4 of the Federal Rules of Appellate Procedure, both
parties have the right to appeal this Order within thirty (30) days from the date of its
entry. Failure to meet this deadline, as modified by Rule 4 of the Federal Rule of
Appellate Procedure, will waive the right to appeal.

Page 15 of 15