Opinion
Case No. C2-01-0131
March 2, 2001
OPINION AND ORDER
This matter is before the Court for consideration of the Motion to Dismiss filed by Defendant California Power Exchange Corporation ("CalPX") made pursuant to Rules 12(b)(1), (2), (3) and (6) of the Federal Rules of Civil Procedure. Essentially, CalPX contends that the Court lacks personal jurisdiction over it, that venue is improper in this Court, and that the parties irrevocably selected California as the forum for resolution of disputes.
For the reasons that follow, the Court finds that it does not have personal jurisdiction over CalPX, that the parties did select California as the forum in which disputes are to be resolved, and that this case should be transferred to the United States District Court for the Central District of California pursuant to 28 U.S.C. § 1406.
I.
This case arises out of an agreement between Plaintiff, American Electric Power Service Corporation ("AEPSC") and CalPX, a California nonprofit corporation created by California statute in 1996. CalPX conducts auctions for the purchase and sale of electric power for use in the California market. Such actions result in contracts which must operate in accordance with a tariff approved and authorized by the Federal Energy Regulatory Commission ("FERC"). Plaintiff AEPSC is a wholly owned subsidiary of the American Electric Power Company, Inc. and functions as a seller of electricity.
In June of 1998, AEPSC and CalPX entered into an agreement in which the Plaintiff agreed to become a participant in what is termed CalPX's core market. The participants in this scheme purchase electricity in advance. By the terms of the participation agreement, both parties agreed in Paragraph A that the tariff authorized and approved by the FERC was to be incorporated and made a part of the contract. The original participation agreement was amended and reexecuted in October of 2000. (Ex. C, Complaint).
The Tariff expressly provides in § 19.6:
This Tariff shall be governed by and construed in accordance with the law of the State of California, except its conflict of laws provisions; provided however, that if a party is a federal entity that party shall be governed by applicable federal law. PX participants irrevocably consent that any legal action or proceeding arising under or relating to this Tariff to which the PX ADR procedures do not apply shall be brought either in a Court of the State of California, a federal court of the United States of America located in the State of California, or, with respect to federal entities, a federal court of competent jurisdiction. PX participants irrevocably waive any objection that they may have now or in the future to courts located in the State of California or, in the case of a federal entity, such other courts consistent with applicable federal law, as the proper and exclusive forum for any legal action or proceeding arising under or relating to this Tariff
The Plaintiff was required to post collateral to insure payment of any obligations incurred with its participation in the electricity market. In conformity with its obligations, the Plaintiff supplied an irrevocable, standby Letter of Credit from National City Bank with CalPX designated as the beneficiary (the "Letter of Credit"). Under the terms of the PX Tariff, the participants, including AEPSC, are required to pay the pro rata share of the costs incurred by a default by other participants.
On December 18, 2000, Plaintiff advised CalPX that it was terminating the agreement in accordance with the provisions of the contract. According to CalPX, AEPSC continues to owe amounts representing the pro rata share of certain payment obligations owed by another market participant who has defaulted. While AEPSC contends that such amounts are only chargeable to current participants, the parties do not dispute that the Tariff and the participation agreement sets forth the rights and obligations of both parties and that any obligation of AEPSC to pay a pro rata share of amounts owed by a defaulting participant must be contained in one or both such documents.
As a result of the Plaintiff's refusal to pay its pro rata share of the default, on January 30, 2001, CalPX notified National City Bank that it was drawing upon the Letter of Credit in the amount of $500,000.00. On February 1, 2001, the Plaintiff initiated the instant law suit in the Franklin County, Ohio, Court of Common Pleas. The Common Pleas Court issued an ex parte restraining order preventing National City Bank from honoring the Letter of Credit. Thereafter, CalPX removed the case to the United States District Court for the Southern District of Ohio.
The parties agreed through a Consent Order that the National City Bank would deposit the sum of $500,000.00 with the Clerk of this Court. Consequently, the temporary restraining order previously issued by the Court of Common Pleas has now expired by passage of time.
II.
CalPX first asserts that it is not subject to the personal jurisdiction of this Court. Further, CalPX argues that venue is improper given that the parties have irrevocably selected California as the forum for any disputes. Resolution of both of these issues involves an analysis of specific facts under the familiar standards set forth in International Shoe Co. v. State of Washington, 326 U.S. 310, 319 (1945) and its progeny, as discussed below.The record with regard to the motion of CalPX includes facts stipulated by the parties and additional matters submitted by way of affidavit. As noted in Calphalon, Inc. v. Rowlette, 228 F.3d 718, 721 (6th Cir. 2000), in the absence of an evidentiary hearing, the Court must view the pleadings and affidavits submitted with respect to personal jurisdiction in a light most favorable to the nonmovant, AEPSC. In the context of this case, the Court will construe the affidavits submitted by both parties in a light most favorable to AEPSC, since the testimony was not adduced at an evidentiary hearing. The same standard does not apply, however, with regard to the stipulated facts. Because both panics have agreed to the stipulations, the Court views those facts as tantamount to having been conclusively established in the course of an evidentiary hearing.
The stipulated facts reveal that CalPX is a nonprofit public benefit corporation created by a statute enacted by the California legislature in 1996. CalPX has its principle place of business in Pasadena, California, is not registered as a foreign corporation in Ohio, and does not have a registered agent for service of process in Ohio. CalPX does not own real property in Ohio, does not have any offices or mailing addresses in Ohio and no officer or director of the company resides in Ohio.
At one time, CalPX employed a Richard Seide, who worked out of an office in Cincinnati. Ohio. Seide was employed to explore new electricity market opportunities in the Midwest. He was employed by CalPX from September 11, 2000 to January 24, 2001. He did not have involvement with the contracts or Tariff at issue in this case.
CalPX had various telephone contacts with participants in the market, including AEPSC. These calls would have involved matters including payments, billing and collateral levels. Further, CalPX sent and received e-mails from AEPSC, which is located in Ohio. In August of 2000. Mark Hoppe. an account executive for CalPX, visited AEPSC in Ohio to provide training on electronic training terminals.
In addition to the stipulations, the parties submitted several affidavits. The Plaintiff first submitted the affidavit of Christopher T. Morran. He avers that CalPX representatives made personal trips to Columbus on at least two occasions and engaged in at least seven telephone calls from January through October of 2000. He also stated that numerous e-mails were sent between CalPX and ALP.
The Plaintiff also submitted the affidavit of Robert C. Ellis. Ellis is an assistant secretary for National City Bank. Ellis stated that the bank has no branch offices in the State of California, has no business operations in the state and does not employ any individuals in the State of California.
CalPX submitted the affidavits of four individuals beginning with John E. Flory, Vice President of Strategic Planning and Business Development. Flory stated That the original participation agreement was executed by AEPSC, which was then operating out of Houston, Texas. The negotiations regarding the participation agreement took place in California and Texas. AEPSC subsequently moved its operations to Ohio. Flory further testified that while Richard Seide was previously employed by CalPX to work in Ohio and generate additional market opportunities, the work performed by Seide was unrelated to the agreement between CalPX and AEPSC.
CalPX has also submitted the affidavit of William G. Markis, Human Resources Manager. Markis avers that Richard Seide is no longer employed by CalPX and was employed by the company for a period of approximately three months in late 2000 through January 24, 2001.
The final two affidavits submitted by CalPX are made by Lynn M. Miller, Chief Financial Officer and Controller of the company. The first affidavit, given prior to the stipulation of facts made by the parties, contains much of the same information set forth on the agreed statement of facts. The affidavit from the Plaintiff's employee makes clear that the power sold by AEPSC to CalPX is not power otherwise used in Ohio and is delivered by the Plaintiff to California and other western states. The second affidavit of Ms. Miller explains the method by which CalPX would, if permitted, deposit funds obtained from National City Bank.
III.
Because this Court's jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1331, the Court looks to the law of the State of Ohio. See LAK, Inc. v. Deercreek Enter., 885 F.2d 1293, 1298 (6th Cir. 1989). While the Ohio Supreme Court has held that the Ohio Long Arm statute, O.R.C. § 2307.382, does not extend beyond the full constitutional limits of the due process clause, the question this Court must answer is "whether minimum contacts are satisfied so as not to offend traditional notions of fair play and substantial justice."Calphalon Corp., 228 F.3d at 721.
In Goldstein v. Christianson, 70 O.S. 3d 2326, n. 1 (1994), the Ohio Supreme Court held that O.R.C. 2307.382 does not fully extend to the limits of the Due Process Clause of the Fourteenth Amendment. For purposes of the issues before this Court, as explained in Calphalon Corp. at 721, the traditional minimum contacts test remains the touchstone.
As explained in Third Nat. Bank in Nashville v. WEDGE Groups Inc., 882 F.2d 1087, 1089 (6th Cir. 1989), a distinction is made between general and specific jurisdiction. With regard to general jurisdiction, a defendant's contacts with the forum must be of a "continuous and systematic" nature sufficient that an action may be maintained within the state even if the action is otherwise unrelated to the defendant's contacts with the state. See Perkins v. Benguet Cons. Mining Co., 342 U.S. 437 (1952). As for specific jurisdiction, personal jurisdiction may exist over a defendant with regard to the defendant's contacts or conduct within the forum state that give rise to the actual subject matter of the litigation.
This Court first concludes that general jurisdiction does not exist with regard to CalPX. The record fails to indicate that CalPX engaged in continuous and systematic contacts in the State of Ohio. While at one time it employed a person in charge of future business development, such employment was for only four months, and terminated on January 24, 2001. Moreover, CalPX does not own property in Ohio, has no place of business, and performs no contracts within the state.
With regard to specific jurisdiction, the case of Southern Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 376, 381 (6th Cir. 1968) sets forth a three prong test for determining whether personal jurisdiction may be exercised:
First, the defendant must purposefully avail himself [sic] 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.
As further explained in Reynolds v. International Amateur Athletic Fed., 23 F.3d 1110, 1116 (6th Cir. 1994), a defendant purposely avails itself of the privilege of acting in the forum state by engaging in actions that create a substantial connection with the forum state. As stated in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980), the defendant's conduct and connection with the state must be sufficient so that it "should reasonably anticipate being haled into court there."
Several recent decisions from the United States Court of Appeals for the Sixth Circuit further define the scope and limitations of the minimum contacts test originally articulated in International Shoe, supra. InCompuserve, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996), a computer network service brought a declaratory judgment action against one of its subscribers who alleged that the service had infringed on his trademarks. The subscriber, located in Texas had previously entered into an agreement with Compuserve, Inc. whereby various software programs which he had developed were marketed through the computer service. In essence, Compuserve served as his marketing source with regard to the various computer programs. The contract entered into between Patterson and Compuserve, Inc. expressly provided that the agreement was entered into in Ohio and would be governed and construed in accordance with Ohio law.
After being threatened by Patterson with a trademark infringement suit, Compuserve filed a declaratory judgment action in the United States District Court for the Southern District of Ohio. The Court of Appeals found that Patterson had purposely contracted to market a product with the Ohio based Compuserve essentially operating as his distribution center. From this finding, the Court concluded that Patterson was therefore subject to suit in Ohio. The Court emphasized that merely entering into a contract with Compuserve did not, without more, establish the minimum contacts necessary to sustain personal jurisdiction. Id. at 1265.
In Kerry Steel, Inc. v. Paragon Indus., Inc., 106 F.3d 147 (6th Cir. 1997), a different result obtained. The plaintiff, a Michigan steel service center, telephoned an Oklahoma pipe fabricator and offered to sell it steel coils. The defendant accepted the offer by telephone and, following negotiations, engaged in additional telephone calls and fax communications. After a dispute arose, the plaintiff brought suit in Michigan claiming money was due and owing.
The Court concluded that the defendant had not purposefully availed itself of the benefits and protections of Michigan's law. Id. at 151. The Court noted:
It is immaterial that Paragon placed telephone calls and sent faxes to Kerry Steel in Michigan. To borrow language employed by this Court in LAK, 885 F.2d at 1301 "the telephone calls and letters on which the plaintiffs claim of jurisdiction primarily depends strike us as precisely the sort of `random' `fortuitous' `attenuated' contacts that the Burger King Court rejected as a basis for haling non-resident defendants into foreign jurisdictions." Id. at 1300. See also Scullin Steel Co. v. National Railway Utilization Corp., 676 F.2d 309, 314 (8th Cir. 1982). (The use of interstate facilities (telephone, mail), the making of payments in the forum state, and the provision for delivery within the forum state are "secondary or ancillary" factors and cannot alone provide the "minimum contacts" required by due process.).
In applying these considerations to the facts before it, the Court concludes that it does not have specific in personam jurisdiction over CalPX. The contract at issue was to be performed in the State of California in that AEPSC was to transmit electricity to CalPX in that state. Neither party was obligated to perform even a part of the contract within the State of Ohio. The negotiations leading to the original agreement made by the parties were conducted in Texas. The product to be received by CalPX was to be delivered by the plaintiff to California. While the parties did engage in various telephone calls and e-mails, theKerry Steel case makes clear that such contacts are insufficient to create in personam jurisdiction.
The Court also finds that the conduct of Mark Hoppe, an employee of CalPX, who traveled to Ohio to assist in the setting up and training of Plaintiff's employees to facilitate communications between the two entities, is also insufficient to create specific in personam jurisdiction. Hoppe was only present in Ohio for a few days and only traveled to Ohio because that is where AEPSC's terminals are located. In addition, the work he performed was only secondary or ancillary to the subject of the panics contract. Further, his activities have no relevance to the dispute involved in this case.
Moreover, the fact that the contract and Tariff agreed to by the parties includes a provision that the agreement was to he construed under the laws of California and that all disputes arising under the agreement were to be resolved in the courts of California is further indication that CalPX did not purposefully avail itself of the forum in which it is now sued. The contract clearly anticipates that the State of California is the appropriate site of judicial dispute resolutions. See Compuserve, Inc. v. Patterson, 89 F.3d at 1266.
Finally, the fact that the holder of the Letter of Credit is located in Ohio does not by itself establish in personam jurisdiction over CalPX. The Plaintiff selected National City Bank. The selection of a bank in Ohio was undertaken solely by AEPSC and cannot constitute purposeful availment on the part of CalPX. See Nationwide Mut. Ins. Co. v. Tryg Int'l Ins. Co. Ltd., 91 F.3d 790, 796 (6th Cir. 1996).
Based upon the foregoing, the Court concludes that it does not have personal jurisdiction over CalPX.
IV.
The parties have also addressed whether this Court should transfer the action to the United States District Court for the Central District of California. Under 28 U.S.C. § 1404(a), a district court may transfer a civil action to another district for the convenience of parties and witnesses. The provisions of this statute do not apply, however, if the district court does not have personal jurisdiction over the defendant.Pittock v. Otis Elevator Co., 8 F.3d 325, 329 (6th Cir. 1993). For the sake of completeness, this Court notes that even if it found that an exercise of personal jurisdiction against CalPX was appropriate, it would nonetheless transfer the case to the United States District Court for the Central District of California based upon the provisions of 28 U.S.C. § 1404(a).
In contrast, 28 U.S.C. § 1406(a) permits a district court to transfer a case to another district if venue is improper and a transfer is in the interest of justice. Further, this section does not require that the district court first have personal jurisdiction over the defendants before transferring the case. Goldlawn, Inc. v. Heiman, 369 U.S. 462 (1962). This Court finds that this case is improperly venued in the Southern District of Ohio under 28 U.S.C. § 1391(a) in that CalPX does not reside in the district, the claims at issue do not arise in the district, and CalPX is not subject to personal jurisdiction at the time the action is commenced. The Court finds in the interest of justice, and in conformity with the agreement reached by the parties in which California is selected as the proper forum for resolution of disputes, that this case should be transferred to the United States District Court for the Central District of California.
The Court notes that the parties entered into an agreement incorporating the terms of a Tariff which included a stipulation that any disputes over matters "arising under or relating to this Tariff" shall be litigated in the State of California, or United States Courts located in California. (Ex. 1, Aff. of Lynn Miller, FERC Electric Tariff ¶ 19.6). The Court finds that the dispute in this case arises under the Tariff in that any contribution owed, or not owed, by AEPSC must be determined by the language of the Tariff or contract entered into by the parties. Consequently, this Court should, to the greatest extent possible. enforce an agreement bargained for and reached by the parties.
Finally, the Court recognizes that this case involves a dispute as to a Letter of Credit. Letters of Credit are essential to commerce and are typically irrevocable and intended to provide payment without recourse to prior dispute resolutions through a court or other means. In this case, the parties fundamentally dispute whether CalPX should be permitted to draw on the Letter of Credit. While the Plaintiff has a high burden to meet in order to prevent CalPX from drawing on the Letter of Credit, resolution of the matter should be prompt so as not to otherwise defeat the purpose of the Letter of Credit. For these reasons, the Court believes that an immediate transfer of venue is in the interests of justice.
The Court notes that the Letter of Credit is in the amount of $500,000.00, the precise sum deposited by National City Bank with the Clerk of this Court. Neither party will be jeopardized by the Court's order of transfer in that the funds will also be transferred to the Clerk of the United States District Court for the Central District of California.
V.
Based upon the foregoing, the Motion to Dismiss filed by CalPX is GRANTED. This case is transferred in its entirety to the United States District Court for the Central District of California, pursuant to 28 U.S.C. § 1406(a). The Clerk of Courts is also directed to transfer to the Clerk of Courts for the United States District Court for the Central District of California the sum of $500,000.00 plus any accrued interest, minus appropriate expenses. The Clerk is directed to remove this case from the list of pending matters.IT IS SO ORDERED.