Mechatronic Techniques, Inc et al v. Jin-Il et al

Filing 24

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE re 7 MOTION to Dismiss for Lack of Jurisdiction Personal filed by Joon Ho, 8 MOTION to Dismiss for Lack of Jurisdiction Personal filed by Kevin Lee. Signed by Magistrate Judge Don D. Bush on 6/17/2014. (baf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
MECHATRONIC TECHNIQUES, INC.,
TED COX, and BRENT MCMILLAN,
Plaintiffs,
v.
SONG JIN-IL, JOON HO, KEVIN LEE,
FASTECH CO LTD,
Defendants.

§
§
§
§
§
§
§
§
§

Case No. 4:13-cv-127

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
ON DEFENDANTS’ MOTIONS TO DISMISS
Pending before the Court are Defendants’ Motions to Dismiss (Dkts. 7, 8), Plaintiffs’
Response (Dkt. 11). On May 14, 2014, Plaintiffs filed an Amended Complaint (Dkt. 23). The
Court recommends that Defendant Kevin Lee’s Motion (Dkt. 8) be GRANTED and that
Defendant Joon Ho’s Motion (Dkt. 7) be DENIED.
I. BACKGROUND
Mechatronic Techniques, Inc. is owned by Ted Cox and Brent McMillan. Defendant
Song Jin-Il is the president of Fastech, Ltd., a Korean company. Mechatronic entered into a
Manufacturers Representation Agreement with Fastech Co., Ltd. Together, Mechatronic and
Fastech Co., Ltd. formed Fastech America, a Texas limited liability company. Cox and
McMillan were each given a ten percent interest in Fastech America and Song held an eighty
percent interest in Fastech America. Plaintiffs were to serve as Fastech Co., Ltd.’s exclusive
sales representatives in certain U.S. states. Song agreed to capitalize Fastech America with three
quarterly capital infusions. Plaintiffs allege that initial funding was provided as agreed, but that
Fastech Co., Ltd. never provided any additional funding. Plaintiffs claim that instead Fastech
Co., Ltd. established a separate office in a different United States location to compete directly

1

with Fastech America and is taking Fastech America’s proprietary customer information to do
so. Plaintiffs have alleged claims for (1) anticipatory breach of contract; (2) shareholder
oppression; (3) fraud in the inducement; and (4) derivative action on behalf of Fastech America.
Defendants Joon Ho and Kevin Lee move the court to dismiss the claims against them arguing
that this court lacks personal jurisdiction over them.
II. LEGAL STANDARD
A federal court’s jurisdiction extends over a non-resident defendant to the extent
permitted by state law. 1 “Because the Texas long-arm statute extends to the limits of federal due
process, the two-step inquiry collapses into one federal due process analysis.” 2 “Federal due
process requires a plaintiff to prove: (1) that the non-resident purposely availed himself of the
benefits and protections of the forum state by establishing minimum contacts with the state; and
(2) that the exercise of jurisdiction does not offend traditional notions of fair play and substantial
justice.” 3 “There are two types of ‘minimum contacts’: those that give rise to specific personal
jurisdiction and those that give rise to general personal jurisdiction.” 4 General jurisdiction exists
when the defendant has had “continuous and systematic” contact with the forum state. 5 Specific
personal jurisdiction is appropriate when the controversy is “related to or arises out of the
defendants’ contacts with the forum.” 6 “The analysis of specific jurisdiction may be refined
further into a three-part test: (1) Did the defendant have minimum contacts with the forum
state—purposely directing its activities toward the forum state or purposely availing itself of the
1

See Gen. Retail Servs., Inc. v. Wireless Toyz Franchise, LLC, 255 F. App’x 775, 792-93 (5th
Cir. 2007).
2
Id.
3
Id. (internal quotation marks omitted).
4
Lewis v. Fresne, 252 F.3d 352, 358 (5th Cir. 2001).
5
Id.
6
Guidry v. U.S. Tobacco Co., Inc., 188 F.3d 619, 624 (5th Cir. 1999) (internal quotation marks
omitted).

2

privilege of conducting activities therein? (2) Did the plaintiffs cause of action arise out of or
result from the defendant’s forum-related contacts? (3) Would the exercise of personal
jurisdiction be reasonable and fair?” 7 “When a court rules on a motion to dismiss for lack of
personal jurisdiction without holding an evidentiary hearing . . . the nonmoving party need only
make a prima facie showing, and the court must accept as true the nonmover’s allegations and
resolve all factual disputes in its favor.” 8
III. ANALYSIS
Plaintiffs’ Original Complaint (Dkt. 1) does not allege any misconduct on behalf of
Defendants Ho and Lee. Instead, Plaintiffs made detailed allegations in support of their claims
only against Defendants Song and Fastech Co., Ltd. Plaintiffs’ First Amended Complaint by and
large redirects those allegations to include Defendants Ho and Lee and “Defendants” generally.
For instance, in support of their claim for anticipatory breach of contract, Plaintiffs amended
their allegation that “Fastech, through Song . . .” to “Fastech, through Defendants, had decided,
after the initial funding, to cease further funding to Fastech America and to establish a sales
office in another location in the U.S.” 9 Further, Plaintiffs amended “[t]he conduct of Fastech and
Song . . .” to “[t]he conduct of Defendants constitutes an anticipatory breach of contract.” 10 In
support of their claim labeled “Fraud in the Inducement,” Plaintiffs amended “Song made
representations” to “Defendants made representations to Cox and McMillan,” 11 and “[w]hen
Song made these representations . . .” to “[w]hen Defendants made these representations, they
knew that they were false, or they made them recklessly, as a positive assertion, and without
7

Id. at 625 (citing 4 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure §
1069, at 174 (Supp.1999)).
8
Id.
9
Compare Dkt. 1 ¶ 19 (emphasis added), with Dkt. 23 ¶ 20 (emphasis added).
10
Compare Dkt. 1 ¶ 19 (emphasis added), with Dkt. 23 ¶ 20 (emphasis added).
11
Compare Dkt. 1 ¶ 26 (emphasis added), with Dkt. 23 ¶ 27 (emphasis added).

3

knowledge of their truth.” 12 In support of their claim labeled “Derivative Action,” Plaintiffs’
First Amended Complaint states that “Song has caused damage to the Plaintiffs and Fastech
America,” that “Song controls Fastech America’s operations,” and that “Song has caused Fastech
America to abandon this purpose and take the actions stated above in complete disregard of his
fiduciary obligation to Fastech America.” 13 Plaintiffs add one additional paragraph under this
claim, stating that “Ho and Lee, as officers and directors of Fastech America, have also taken
actions in complete disregard of their fiduciary obligations to Fastech America” 14 but do not
make any specific allegations against either Ho or Lee.
Defendants Ho and Lee move to dismiss Plaintiffs’ complaint against them, arguing that
the Court does not have either general or specific personal jurisdiction over them. Defendants
claim that they do not have sufficient minimum contacts with Texas to support this Court’s
exercise of personal jurisdiction. In their supporting affidavits, Defendants Ho and Lee state that
the cause of action concerns a dispute between Mechatronics, Cox, McMillan, Fastech Co., Ltd.,
and Song. Ho and Lee claim that they are merely employees of Fastech Co., Ltd. 15 Plaintiffs
respond that the Court does have specific personal jurisdiction over Ho and Lee because they
served as officers and directors of Fastech America, a Texas limited liability company, and
because their actions in that role directly led to the claims asserted by Plaintiffs in this action.
The Fifth Circuit has held that “it is not enough to simply rest on the use of the collective
term, ‘Defendants,’ in the allegations.” 16 The only allegations in the First Amended Complaint
that relate specifically to Ho and Lee are as follows:
12

Compare Dkt. 1 ¶ 29 (emphasis added), with Dkt. 23 ¶ 30 (emphasis added).
Compare Dkt. 1 ¶ 34-37 (emphasis added), with Dkt. 23 ¶ 35-38 (emphasis added).
14
Dkt. 23 ¶ 39 (emphasis added).
15
Dkts. 7-1, 8-1.
16
Gen. Retail Servs., Inc. v. Wireless Toyz Franchise, LLC, 255 F.App’x 775, 793 (5th Cir.
2007) (citing Rush v. Savchuk, 444 U.S. 320, 332-33 (1980)).
13

4

•

“Song is the President of Fastech America and controls the actions of the other Defendant
officers and directors of Fastech America, i.e., Joon Ho Jang – also known as Daniel Jang
– and Kevin Lee.” Dkt. 23 ¶ 1.

•

“Joon Ho Jang and Kevin Lee, as officers and directors of Fastech America, and in
furtherance of their relationship with Plaintiff in forming and operating Fastech America,
Joon Ho Jang and Kevin Lee each made trips to Texas. Specifically Joon Ho Jang was
present in Texas numerous times to attend meetings, to train Plaintiffs, and to review
business plans. He was also involved in discussing and directing sales strategies and
involved in sales representatives meetings.” Dkt. 23 ¶ 5 (emphasis added).

•

“In furtherance of this agenda, both Joon Ho Jang and Kevin Lee were in Texas in or
around late July, 2012 to discuss with Plaintiffs the business plan for Fastech America. At
that time, Joon Ho Jang and Kevin Lee – individually and on behalf of Song – ambushed
Plaintiffs and voted to discontinue Fastech America’s operations. Joon Ho Jang and
Kevin Lee then had Plaintiffs physically escorted from their own offices.” Dkt. 23 ¶ 7.

•

“Defendant, Joon Ho Jang (“Ho”) has appeared herein and subjected himself to this
Court’s jurisdiction.” Dkt. 23 ¶ 15.

•

“. . . Fastech – though [sic] Song, Ho and Lee – is secretly collecting proprietary
customer information . . .” Dkt. 23 ¶ 20.

•

“Ho and Lee, as officers and directors of Fastech America, have also taken actions in
complete disregard to their fiduciary obligations to Fastech America.” Dkt. 23 ¶ 39.

Plaintiffs have failed to allege sufficient factual content to make a prima facie showing of
specific personal jurisdiction over Defendant Lee. Even construing Plaintiffs’ factual allegations
related to Lee as true, Plaintiffs have not pleaded any specific factual content or put forth any
evidence of specific conduct or statements by Lee that support their claims as alleged in the First
Amended Complaint. Plaintiffs have made a prima facie showing of specific personal
jurisdiction over Ho. With regard to Ho, Plaintiffs add that Ho “was present in Texas numerous
times to attend meetings, to train Plaintiffs, and to review business plans” and that Ho “was also
involved in discussing and directing sales strategies and involved in sales representatives

5

meeting.” 17 Therefore, the Court recommends that Defendant’s Motion to Dismiss (Dkt. 8) be
DENIED and that Defendant’s Motion to Dismiss (Dkt. 7) be GRANTED.
IV. RECOMMENDATION
The Court recommends that Defendant Kevin Lee’s Motion (Dkt. 8) be GRANTED and
that Defendant Joon Ho’s Motion (Dkt. 7) be DENIED. The Court notes however, that the
deadline for amending pleadings in this case does not expire until September 9, 2014, giving
Plaintiffs time to amend their complaint.
Within fourteen (14) days after service of the magistrate judge’s report, any party may
serve and file written objections to the findings and recommendations of the magistrate judge. 28
U.S.C.A. § 636(b)(1)(C).
A party is entitled to a de novo review by the district court of the findings and
conclusions contained in this report only if specific objections are made, and failure to timely file
written objections to any proposed findings, conclusions, and recommendations contained in this
report shall bar an aggrieved party from appellate review of those factual findings and legal
conclusions accepted by the district court, except on grounds of plain error, provided that the
.

party has been served with notice that such consequences will result from a failure to object. Id.;
Thomas v. Arn, 474 U.S. 140, 148 (1985); Douglass v. United Servs. Auto Ass’n, 79 F.3d 1415,
1417 (5th Cir. 1996) (en banc), superseded by statute on other grounds, 28 U.S.C. § 636(b)(1)
(extending the time to file objections from ten to fourteen days).
SIGNED this 17th day of June, 2014.
.

17

____________________________________
DON D. BUSH
UNITED STATES MAGISTRATE JUDGE

Dkt. 23 ¶ 5.

6