Opinion
Civil Action No. 3:04-CV-0302-B.
April 11, 2005
MEMORANDUM ORDER
Before the Court are Defendant's Motion to Strike, Motions to Dismiss, and Alternative Motions to Transfer (doc. 7), filed March 24, 2004. After review of the pleadings and documents on file, the Court DENIES Defendant's Motions for the following reasons.
I. BACKGROUND FACTS
This case concerns a lockbox agreement made between Plaintiff CitiCapital Commercial Corporation ("CitiCapital"), Defendant First National Bank of Fort Smith ("FNB"), and Southern Transit Company, Inc. ("Southern"). According to CitiCapital's Complaint, CitiCapital and Southern entered into a Transportation Accounts Financing and Security Agreement (the "Loan Agreement") in 1996 in which CitiCapital provided financing to Southern and received a security interest in all of Southern's accounts receivable in return. (Pl.'s Compl. ¶ 6) In connection with the Loan Agreement, CitiCapital, Southern, and FNB executed a tri-party lockbox agreement (the "Lockbox Agreement") on August 29, 1996. ( Id. at ¶ 7) Under the Lockbox Agreement, FNB was to maintain a dedicated bank account for money paid on Southern's accounts and invoices. ( Id.) FNB was also required to rent a post office box, collect the mail from the box daily, and deposit all checks and payments received into the dedicated bank account. ( Id. at ¶ 8) Copies of invoices and/or checks were to be sent to Southern; however, Southern was not to have access to the post office box without authorization from CitiCapital. ( Id.) The Lockbox Agreement also provided that FNB notify CitiCapital by fax of the deposits made each day.
Beginning in March 2002, FNB allegedly permitted Southern to deposit checks and payments subject to CitiCapital's security interest directly into its own general account at FNB, instead of the dedicated bank account. ( Id. at ¶ 11) Some of these checks were allegedly addressed to the post office box. ( Id.) FNB also allegedly permitted Southern to access the post office box and deposit the checks from the box into other bank accounts. ( Id.) CitiCapital further takes issue with FNB's procedures for encoding deposit slips and asserts that FNB provided inaccurate monthly statements to CitiCapital. ( Id. at ¶¶ 13, 15)
As a result of the alleged actions, CitiCapital filed suit against FNB in the Northern District of Texas on February 12, 2004, bringing claims for breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, breach of bailment contract, negligence, and conversion. Subject matter jurisdiction was premised on diversity, as CitiCapital is a Delaware corporation with its principal place of business in Texas, and FNB is a federally chartered bank with its principal place of business in Arkansas. FNB then filed the instant Motion to Strike, Motions to Dismiss, and Alternative Motions to Transfer. FNB claimed that (1) it was not subject to personal jurisdiction in Texas, (2) venue was improper or, alternatively, more convenient in Arkansas, (3) allegations of a fraudulent scheme should be stricken from CitiCapital's Complaint, and (4) several of CitiCapital's causes of action did not state a claim for which relief could be granted. The parties have briefed the issues, and the Court now turns to the merits of their arguments.
This case was transferred from the docket of the Honorable Jorge A. Solis to the docket of the Honorable Jane J. Boyle on July 19, 2004, pursuant to Special Order No. 3-238.
II. ANALYSIS
A. Motion to Dismiss — Personal Jurisdiction
The Court first examines whether FNB is subject to personal jurisdiction in Texas. FNB asserts that it does not have sufficient contacts with Texas to make personal jurisdiction proper. CitiCapital bears the burden of establishing jurisdiction, but need only present prima facie evidence to survive a motion to dismiss. Cent. Freight Lines, Inc. v. APA Transp. Corp., 322 F.3d 376, 380 (5th Cir. 2003). In making its decision, the Court must accept CitiCapital's uncontroverted allegations as true and resolve all fact issues contained in the parties' evidence in CitiCapital's favor. Id.
As a federal district court sitting in diversity, this Court may exercise personal jurisdiction over an out-of-state defendant if (1) the long-arm statute of Texas creates personal jurisdiction over the defendant; and (2) the exercise of personal jurisdiction is consistent with the due process guarantees of the United States Constitution. Revell v. Lidov, 317 F.3d 467, 469 (5th Cir. 2002); see also FED. R. CIV. P. 4(e). Here, Texas's long-arm statute extends personal jurisdiction as far as is permissible by the due process guarantees of the United States Constitution. Aviles v. Kunkle, 978 F.2d 201, 204 (5th Cir. 1992) (per curiam); TEX. CIV. PRAC. REM. CODEANN. § 17.042 (Vernon 1997 Supp. 2004). Therefore, the inquiry in this case is collapsed into the single question of whether exercising jurisdiction over FNB comports with the due process guarantees of the Constitution.
Exercising personal jurisdiction in keeping with due process requires evidence that (1) FNB has purposefully availed itself of the benefits and protections of Texas by establishing "minimum contacts" with Texas; and (2) the exercise of jurisdiction over FNB does not offend "traditional notions of fair play and substantial justice." Revell, 317 F.3d at 470. Jurisdiction may be general or specific, depending on the nature of the minimum contacts. Id. General jurisdiction exists when a defendant's contacts with the forum state are continuous and systematic, although not necessarily related to the lawsuit. Id. On the other hand, specific jurisdiction arises when the defendant's contacts with the forum "arise from, or are directly related to," the causes of action being asserted by the plaintiff. Id. 1. General Jurisdiction
Turning first to CitiCapital's contention that FNB is subject to general jurisdiction in Texas, the Court agrees with FNB that FNB's contacts with Texas are insufficient to support general jurisdiction. FNB produced evidence that (1) it has no offices in Texas; (2) it operates no ATMs in Texas; (3) it has no officers or employees who work or reside in Texas; (4) it does not advertise in Texas; (5) it does not recruit employees in Texas; and (6) it owns no property in Texas. (Cook Aff. ¶ 5)
CitiCapital does not contest this evidence, but relies on the fact that FNB maintains a registered agent for service in Texas and also entered into several secured transactions with Texas residents to support its claim of general jurisdiction. (Pl.'s Br. (doc. 12), p. 4 n. 1) The Court, however, finds this evidence insufficient to establish that FNB had continuous and systematic contacts with Texas such that it could reasonably anticipate being haled into a Texas court in any lawsuit. Fifth Circuit precedent is clear that maintaining a registered agent for service in a state does not, standing alone, create personal jurisdiction. Siemer v. Learjet Acquisition Corp., 966 F.2d 179, 180-81 (5th Cir. 1992); Dominion Gas Ventures, Inc. v. N.L.S., Inc., 889 F. Supp. 265, 268 (N.D. Tex. 1995). Further, FNB put on evidence that only 0.43% of its 51,890 accounts were with Texas citizens. (Cook Aff. ¶ 5(d)) Such de minimus contact is not sufficient to establish general jurisdiction over FNB. See Dominion Gas, 889 F. Supp. at 268 (finding no general jurisdiction over defendant when only 7% of defendant's business was in Texas); see also Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416-19 (1984) (finding no general jurisdiction in Texas when contacts consisted of one visit by CEO, ordering materials from Texas, accepting checks from a Texas bank, and sending individuals to Texas for training). As such, CitiCapital cannot establish that FNB is subject to general jurisdiction in Texas and must rely on specific jurisdiction.
2. Specific Jurisdiction
To establish specific jurisdiction, CitiCapital must demonstrate that (1) FNB purposefully directed its activities at Texas residents and (2) CitiCapital's claims arise out of FNB's purposeful contact with Texas. Cent. Freight Lines, 322 F.3d at 381. The number of contacts FNB had with Texas is not determinative, but only a factor to be considered. Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). The Court should consider the "quality, nature, and extent of the activity in the forum, the foreseeability of consequences within the forum from activities outside it, and the relationship between the cause of action and the contacts." Hydrokinetics, Inc v. Alaska Mech., Inc., 700 F.2d 1026, 1028 (5th Cir. 1983).
With respect to breach of contract actions, such as this case, the fact that a party entered into a contract with a Texas resident will not alone support a finding of personal jurisdiction. Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir. 1999). The Court should take into account the "prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing." Id. The Fifth Circuit has considered personal jurisdiction in several cases where a Texas resident sought to bring a non-resident into court on the basis of a contractual relationship. Although containing no hard and fast rules, the cases do provide some standards with which to compare the facts of this case.
In Southwest Offest, Inc. v. Hudco Publishing Company, the Fifth Circuit found that Hudco, an Alabama resident, who contracted with Southwest, a Texas resident, to print telephone directories was subject to jurisdiction in Texas. 622 F.2d 149 (5th Cir. 1980) (per curiam). In that case, Hudco placed eight orders to Texas over the phone, mailed payment to Texas, and shipped camera-ready copies of the telephone directories to Texas. Id. at 150. The court noted that Hudco's contact with Texas was not a "single and fortuitous" event and that Hudco was not a "passive" customer of a Texas corporation. Id. at 152. Even though no Hudco employees had ever visited Texas and Southwest had solicited the contract in Alabama, the court found jurisdiction appropriate. Id. at 150, 153.
The Fifth Circuit did not find personal jurisdiction, however, in Hydrokinetics, Inc v. Alaska Mechanical, Inc., 700 F.2d 1026 (5th Cir. 1983). In that case, Alaska Mechanical, an Alaskan corporation, contracted with Hydrokinetics, a Texas corporation. Id. at 1027. The contract called for Hydrokinetics to manufacture five mechanical units to be delivered to Washington and later taken to Alaska. Id. The negotiations took place in Alaska and Texas, and two Alaska Mechanical employees inspected the Texas manufacturing plant. Id. The court, however, considered this a single isolated incident and found that Alaska Mechanical had not purposefully availed itself of the privilege of conducting business in Texas. Id. at 1029.
Looking at the facts of the present case, although there was only a single contract between CitiCapital and FNB, the contract called for long-term performance and was in effect approximately seven (7) years. FNB was required to communicate daily with CitiCapital in Texas regarding the deposits made. Thus, FNB's contact with Texas cannot be characterized as single and isolated.
Turning to several cases relied on by FNB, the Court finds that they also suggest that personal jurisdiction is appropriate. In Magna Group, Inc. v. Gordon Floor Covering, Inc., the court stated that 300 faxes a month between a California corporation and a Texas corporation did not necessarily establish minimum contacts with Texas. 1999 WL 1204483, at *4-5 (N.D. Tex. Dec. 16, 1999) (Solis, J.) However, the court found that the California corporation had engaged in a continuous and long-term contractual relationship with the Texas corporation and had allegedly submitted inflated invoices to the Texas corporation. Id. at * 5. The court held that the California corporation could have reasonably foreseen being haled into a Texas court for submitting inflated invoices to the Texas corporation. Id. Similarly, here, CitiCapital and FNB had a continuous longterm contractual relationship. Further, CitiCapital alleges that FNB sent incorrect reports to Texas, causing harm to CitiCapital. Addison Insurance Marketing, Inc. v. Evans, upon which FNB also relies, is distinguishable from the case at bar. 2002 WL 31059806 (N.D. Tex. Sept. 12, 2002) (Fish, J.). In Addison, the court noted that it was significant that Addison's causes of action related only indirectly to Evans's contacts with Texas. Id. at *6 (emphasis added). Here, however, CitiCapital asserts causes of action stemming directly from FNB's contacts with Texas, namely the sending allegedly inaccurate reports to CitiCapital in Texas.
FNB asserts that CitiCapital did not request daily notification of deposits until October 2002 (Snider Aff. ¶ 4), while CitiCapital claims that the daily reports had been sent since 1996 (Loven Aff. ¶ 10). At this stage, the Court must resolve all fact issues in CitiCapital's favor. See Cent. Freight Lines, 322 F.3d at 380.
Taking CitiCapital's allegations as true and given the long-term contractual relationship, daily faxes to Texas, and the alleged sending of inaccurate reports to Texas, FNB could expect to be haled into a Texas court. Therefore, the Court finds sufficient minimum contacts to support personal jurisdiction over FNB.
3. Fair Play and Substantial Justice
FNB also asserts that the exercise of personal jurisdiction does not comport with due process because it violates traditional notions of fair play and substantial justice. FNB specifically asserts that "the interstate judicial system's interest in obtaining the most efficient resolution of controversies" favors dismissal of the case because Texas has no interest in an Arkansas bank. (Def.'s Br. p. 9) FNB fails to take into account, however, Texas's significant interest in redressing injuries caused to its own residents. See Magna Group, 1999 WL, at *6 (noting "certainly" Texas has an interest in redressing injuries caused to Texas residents from foreign corporations, regardless if the injury occurs in person or by fax).
The other factors the Court should consider — the burden on FNB, CitiCapital's interest in obtaining relief, and the shared interest in furthering fundamental substantive social policies — do not weigh heavily in favor of dismissal. See Asahi Metal Indus. Co. v. Super. Ct. of Cal., 480 U.S. 102, 113 (1987) (listing factors to consider). As such, the Court declines to dismiss this case on the grounds that the exercise of jurisdiction violates the traditional notions of fair play and substantial justice. Therefore, the Court DENIES FNB's Motion to Dismiss for lack of personal jurisdiction. B. Motion to Transfer Venue
Because this Court has jurisdiction over FNB, it now turns to the other issues raised in FNB's Motion. FNB asserts that venue is improper in the Northern District of Texas and asks that the case be dismissed or transferred to the Western District of Arkansas. FNB bases its argument on its claim that it does not "reside" in Texas. (Def.'s Br. p. 10) FNB does not dispute, however, that it is deemed to reside in any district in which it is subject to personal jurisdiction pursuant to 28 U.S.C. § 1391(c). ( Id.) As discussed above, the Court has determined that FNB is subject to personal jurisdiction in the Northern District of Texas. Therefore, under § 1391(a)(1), venue is proper in the Northern District of Texas, because FNB is deemed to reside there. Thus, the Court will not dismiss or transfer the case to Arkansas on the basis of improper venue.
FNB alternatively argues that transfer of appropriate pursuant to 28 U.S.C. § 1404(a), which permits the Court to transfer any civil action to any other district where it might have been brought "[f]or the convenience of the parties and witnesses, in the interest of justice. . . ." The purpose of this rule is to "protect litigants, witnesses, and the public against unnecessary inconvenience and expense." Van Dusen v. Barrack, 376 U.S. 612, 616 (1964). A court's decision of whether or not to transfer a case under § 1404(a) is discretionary. Jarvis Christian College v. Exxon Corp., 845 F.2d 523, 528 (5th Cir. 1988).
The Court notes that venue in Arkansas would have been appropriate in this case pursuant to 28 U.S.C. § 1391(a), since FNB resides in Arkansas. See Wolf Designs, Inc. v. Donald McEvoy Ltd., 355 F. Supp. 2d 848, 851 (N.D. Tex. 2005) (holding threshold inquiry in motion to transfer venue is whether proposed transferee district is one in which suit might have been brought).
The Court must consider a number of factors in determining whether a venue transfer is appropriate. While CitiCapital's choice of forum is given substantial deference, it is not conclusive or determinative; however, the Court may not simply shift the burden of inconvenience from FNB to CitiCapital. In re Horseshoe Entm't, 337 F.3d 429, 434 (5th Cir. 2003); Int'l Truck Engine Corp. v. Quintana, 259 F. Supp. 2d 553, 558 (N.D. Tex. 2003); TIG Ins. Co. v. NAFCO Ins. Co., 177 F. Supp. 2d 561, 568 (N.D. Tex. 2001). The Court is also to consider various private and public interests in making its decision. In re Volkswagen AG, 371 F.3d 201, 203 (5th Cir. 2004) (per curiam). The private concerns identified by the courts are: (1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make trial of a case easy, expeditious and inexpensive. Id. The public concerns include: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws or the application of foreign law. Id.
The burden of demonstrating why transfer is appropriate rests with FNB in this case. Von Graffenreid v. Craig, 246 F. Supp. 2d 553, 563 (N.D. Tex. 2003) (stating that movant must demonstrate that balance of convenience and justice weighs heavily in favor of transfer). FNB, however, provides little in the way of evidentiary support for its assertions that this case is more conveniently tried in Arkansas. FNB claims that (1) its employees and witnesses are in Arkansas; (2) any non-employee witnesses with the Post Office will be in Arkansas; and (3) its books and records are in Arkansas. (Def.'s Br. p. 14) CitiCapital's response implies that its witnesses are located in Texas.
Both parties make arguments regarding the location of their counsel; however, the Fifth Circuit has been clear that the location of counsel must not be taken into account in deciding whether to transfer venue. In re Volkswagen, 371 F.3d at 206 (finding that trial court's consideration of location of counsel was reversible error in transfer decision); In re Horseshoe Entm't, 337 F.3d at 434 (finding no support for consideration of location of counsel in transfer decision).
At a minimum, FNB must identify the key witnesses and provide a brief summary of their testimony so the Court can determine their importance to the case and the weight to give any inconvenience that the current forum causes them. See SMI-Owen Steel Co. v. St. Paul Fire Marine Ins. Co., 113 F. Supp. 2d 1101, 1104 (S.D. Tex. 2000). FNB has failed to do so. Based on the evidence before this Court, it appears that a transfer to Arkansas would simply shift the burden of inconvenience from FNB to CitiCapital. Without a demonstration that Arkansas is a more convenient forum, the Court will not disturb CitiCapital's choice of venue. Therefore, the Court DENIES FNB's Motion to Transfer Venue.
C. Motion to Strike
FNB complains that CitiCapital's assertion that FNB is complicit with Southern in a "fraudulent scheme" should be stricken pursuant to Rule 12(f) of the Federal Rules of Civil Procedure. CitiCapital's Complaint states that FNB allowed Southern to "fraudulently divert funds," and that FNB provided assistance and encouragement to Southern's "fraudulent scheme." (Pl.'s Compl. ¶¶ Intro, 18) However, CitiCapital does not bring a cause of action for fraud.
Rule 12(f) allows a court to strike "impertinent" and "scandalous" matter from a pleading. An impertinent pleading is one that is immaterial, while a scandalous pleading is one that casts an excessively adverse light on the character of an individual or party. OKC Corp. v. Williams, 461 F. Supp. 540, 550 (N.D. Tex. 1978). Motions to strike are disfavored, though, and are rarely granted. F.D.I.C. v. Niblo, 821 F. Supp. 441, 449 (N.D. Tex. 1993) (noting that motions to strike are often used as a dilatory tactic). Unless the portion of the pleading at issue bears no possible relation to the controversy or may cause the objecting party prejudice, the motion should be denied. OKC Corp., 461 F. Supp. at 550.
Here, FNB does not object to the factual recitations contained in the Complaint, but instead objects to CitiCapital's characterization of the facts alleged. While a decision on the merits may eventually determine that FNB was not part of a "fraudulent scheme," the Court cannot say that the allegations are so irrelevant or prejudicial that they should be stricken. Therefore, the Court DENIES FNB's Motion to Strike.
D. Motion to Dismiss — Failure to State a Claim
Finally, FNB moves to dismiss four of CitiCapital's claims against it under Rule 12(b)(6) for failure to state a claim. Specifically, FNB moves to dismiss CitiCapital's claims for breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, breach of bailment contract, and negligence.
Before the Court can determine if CitiCapital states a claim against FNB, it must decide whether Texas or Arkansas law will govern this dispute; however, neither party has provided the Court with a discussion of choice of law principles as applied in this case. FNB summarily states that "federal courts generally apply the substantive law of the forum state" to justify its use of Texas law, but also claims that most of the events in this case took place in Arkansas and that the Lockbox Agreement contains an Arkansas choice of law provision. (Def.'s Br. p. 11) CitiCapital defends many of its claims under Arkansas law, yet refuses to concede that Arkansas law applies to this case. (Pl.'s Br. (doc. 11) p. 4 n. 1) Thus, instead of providing the Court with the facts and law necessary to determine the choice of law issue, the parties appear to rely on whichever state's laws give them the best chance for success on each cause of action.
The Court declines to make a choice of law determination on such limited evidence without input and briefing from the parties on the issue. The Court also declines to analyze each cause of action under both Texas and Arkansas law and issue alternative rulings under each state's law. Therefore, the Court DENIES FNB's Motion to Dismiss for failure to state a claim.
III. CONCLUSION
For the foregoing reasons, the Court DENIES FNB's Motion to Strike, Motions to Dismiss, and Alternative Motions to Transfer. An order requesting input from the parties regarding scheduling the remainder of this case will follow.