Opinion
Civil Action No. 01-40061-NMG.
December 10, 2004
MEMORANDUM AND ORDER
This case arises out of an alleged breach of a non-disclosure agreement entered into by the plaintiff, CW Fabricators, Inc. ("CW") and defendant, Metal Trades, Inc. ("MTI"). CW was, at the time of the incidents alleged in the complaint, engaged in the business of manufacturing gas turbine inlet and exhaust silencing systems to be used in power generation facilities. MTI is in the business of metal fabrication.
The parties entered into a contract whereby MTI conducted certain fabrication work for CW including the manufacture of component parts for gas turbine inlet and exhaust systems. In connection with that contract, the parties entered into a non-disclosure agreement on August 18, 1994 which is the subject of this action ("the Non-Disclosure Agreement").
Under the terms of the Non-Disclosure Agreement, CW agreed to provide MTI with certain confidential and proprietary business information and trade secrets to assist in the fabrication of the component parts. In exchange, MTI agreed to hold such information secret and to refrain from participating in the business of designing, manufacturing, producing or marketing the gas turbine components for any company other than CW for a period of five years after completion of the last gas turbine component built for CW.
CW alleges that MTI has been engaged in the manufacture of gas turbine components for other companies since October 5, 2000. On March 16, 2001, plaintiff filed suit in Worcester Superior Court alleging breach of contract, misappropriation of trade secrets and confidential information, violation of M.G.L. c. 93A and seeking a declaratory judgment that the Non-Discloaure Agreement is enforceable and was breached by MTI. On April 11, 2001, the action was removed to this Court pursuant to 28 U.S.C. § 1441 based on diversity jurisdiction as described in 28 U.S.C. § 1332.
Pending before the Court is MTI's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction.
I. Legal Standard
When challenged by the defendant, the plaintiff bears the burden of proving the existence of personal jurisdiction.Foster-Miller, Inc. v. Babcock Wilcox Canada, 46 F.3d 138, 145 (1st Cir. 1995). In considering the defendants' motion, this Court employs the prima facie standard under which the Court considers whether the plaintiffs have proffered evidence that, "if credited, is enough to support findings of all facts essential to personal jurisdiction." Boit v. Gar-Tec Products, Inc., 967 F.2d 671, 675 (1st Cir. 1992). When determining whether a prima facie showing has been made, this Court does not act as a factfinder, but instead "accepts properly supported proffers of evidence by a plaintiff as true." Id. at 675. Therefore,
while allegations of fact in an uncontroverted affidavit must be accepted as true for the purposes of a Rule 12 motion, the plaintiff . . . bears the burden of establishing sufficient facts on which to predicate jurisdiction over the defendant.Stanton v. AM General Corp., 50 Mass. App. Ct. 116, 117 (2000) (citations and internal quotations omitted).
Because questions of personal jurisdiction involve detailed examination of the particular circumstances of each case, facts of jurisdictional significance must be set forth at some length.Nowak v. Tak How Inv. Ltd., 899 F. Supp. 25, 27 (D. Mass. 1995) (hereinafter "Nowak I"), aff'd, 94 F.3d 708 (1st Cir. 1996).
II. Factual Background
MTI is a corporation formed and existing under the laws of the State of South Carolina with its principal place of business in Hollywood, South Carolina. MTI is a closely held corporation with nine stockholders, all of whom are residents of South Carolina. No stockholder owns property or has transacted business in the Commonwealth of Massachusetts.
MTI maintains no offices in Massachusetts and has no employees, telephone listing, bank account or agent for service of process in Massachusetts. It is not authorized to conduct business as a foreign corporation, owns no property and is not required to pay taxes here. MTI does not advertise in Massachusetts.
CW is a Massachusetts corporation with its principle place of business in Gardner, Massachusetts.
In 1993, Bob Savini, MTI's Vice President ("Savini"), informed R.B. Corbin, MTI's President ("Corbin"), that he had made contact with Stanley Youtt, the Executive Vice President of CW ("Youtt"), by telephone. From late 1993 through the early part of 1994, Youtt made several trips to MTI's offices to discuss the possibility of retaining MTI as a supplier of metal fabrication products for CW. Youtt advised Corbin that if MTI could hire the required work force and upgrade its facilities, CW would send MTI orders for $3 million to $5 million annually.
MTI prepared a quote in South Carolina for fabricating certain components. For several months thereafter, Savini, in South Carolina, discussed by telephone the relationship with Youtt, in Massachusetts. On April 7, 1994, the parties entered into a non-disclosure agreement unrelated to the agreement at issue in this action. That first agreement was accepted and signed by MTI at its facility in South Carolina.
In August, 1994, Savini and Corbin traveled to Gardner, Massachusetts to view CW's operations and production of the exhaust silencing system. Corbin maintains that, at the time of that trip, he was not sure whether he wanted to take on a project as large as that required by an agreement with CW. He and Savini stayed in Massachusetts for less than one day and never returned. Nevertheless, in reliance on what Corbin observed in Gardner, he decided that it would be in his company's best interest to transact business with CW.
Following his decision, Corbin received the proposed Non-Disclosure Agreement on August 18, 1994. It was faxed to Corbin at his office in South Carolina bearing Youtt's signature. Corbin signed the Agreement and faxed it back to CW in Massachusetts.
All of the work required of MTI for CW was performed at MTI's facility in South Carolina. During the course of their relationship of more than six years, CW sent MTI at least 60 purchase orders from Massachusetts to MTI's facility in South Carolina. MTI performed the work required under the purchase orders and shipped the components by truck F.O.B. MTI's facility in South Carolina. Upon loading the components at MTI, CW assumed full and complete custody and control over them. MTI sent 149 invoices to CW in Massachusetts between November, 1994 and September, 2000. The total amount paid to MTI for its work exceeded $9 Million.
Throughout the course of the business relationship between the parties, James Chisholm, a Buyer for CW ("Chisholm"), spent about one third of his time in South Carolina at MTI's facility to assist MTI in the production of the gas turbine exhaust system components. MTI had never produced such components before contracting with CW. While Chisholm was at CW's facility in Massachusetts, he received telephone calls and faxes from MTI on a daily or weekly basis. In addition, Youtt continued to have telephone contact with Savini between 1994 and 2000.
The last gas turbine component that MTI built for CW was completed on or about October 5, 2000. CW claims that MTI has been engaged in the manufacture of turbine gas exhaust components for companies other than CW since that date using CW's confidential and proprietary information. CW brought the instant lawsuit for breach of the Non-Disclosure Agreement, violation of M.G.L. c. 93A and misappropriation or trade secrets and confidential information.
III. Analysis
CW maintains that it has specific personal jurisdiction over MTI. To determine whether a federal district court has jurisdiction over a nonresident defendant in a diversity suit, the court must look to the law of the forum state. Hahn v.Vermont Law School, 698 F.2d 48, 49 (1st Cir. 1983). Under Massachusetts law, jurisdiction over a nonresident defendant is appropriate if it is both authorized by statute and consistent with the due process requirements of the United States Constitution. Good Hope Indus., Inc. v. Ryder Scott, Co., 378 Mass. 1, 5-6 (1979); Nowak v. Tak How Inv., Ltd., 94 F.3d 708, 712 (1st Cir. 1996) (hereinafter "Nowak II").
CW claims that its contacts with MTI should be characterized as systematic and continuous so as to confer general personal jurisdiction over MTI but concedes that it is not asserting such general jurisdiction at present.
A. The Massachusetts Long-Arm Statute
The plaintiff argues that section 3(a) of the Massachusetts Long-Arm Statute, M.G.L. c. 223A, confers jurisdiction over the defendant in this case. That statute provides, in relevant part, that a Massachusetts Court may exercise personal jurisdiction:
over a person, who acts directly or by an agent, as to a cause of action in law or equity arising from the person's
(a) transacting any business in this commonwealth.
M.G.L. c. 223A, §§ 3(a) and (d).
In the effort to "effectuate . . . [the Commonwealth's] legitimate desire to protect its citizens," the statute is to be construed broadly. See Noonan v. The Winston Company, 135 F.3d 85, 92 (1st Cir. 1998). However, the limitations on personal jurisdiction imposed by the Massachusetts Long-Arm Statute exceed the due process requirements of the United States Constitution in that the former requires that the plaintiff must demonstrate that the defendant has a tangible connection to the forum through commercial or other appreciable contacts with the Commonwealth.Nowak II, 94 F.3d at 712.
In order for jurisdiction to exist pursuant to § 3(a), the facts must satisfy two requirements: (1) the defendant must have transacted business in Massachusetts and (2) the plaintiff's claim must have arisen from the defendant's transaction of such business. Tatro v. Manor Care, Inc., 416 Mass. 763, 767 (1994). In other words, the plaintiff has the burden of demonstrating that his cause of action arises out of defendant's business transactions in Massachusetts. Massachusetts Raleigh Rug Co. v. R.A. Civitello Co., 23 Mass.App.Ct. 1025, 1026 (1987).
The language "transacting any business" is to be construed broadly, Bond Leather Co., Inc. v. Q.T. Shoe Mfg. Co., Inc., 764 F.2d 928, 931 (1st Cir. 1985) (finding personal jurisdiction existed where out-of-state defendant mailed four letters to and received one telephone call from Massachusetts plaintiff). The business transacted "need not have taken place within the physical bounds of the commonwealth." Id. at 932; Good Hope Industries, Inc., et al. v. Ryder Scott Co., 378 Mass. 1, 6-7 (1979); Energy Capital and Services, LP, II v. Hill Refrigeration, Inc., et. al., 989 F. Supp. 353, 355 (D. Mass. 1997); Buctouche Fish Market, LTD., et al. v. City Sea Foods, Inc., et al., 735 F. Supp. 441, 442 (D. Mass. 1990). The defendant's physical presence in the forum state is not required as a basis for jurisdiction. Bond Leather Co., Inc., 764 F.2d at 933; Good Hope Industries, Inc., et al. v. Ryder Scott Co., 378 Mass. 1, 10-11 (1979).
The Court "must look at all of the communications and transactions between the parties, before, during and after the consummation of the contract, to determine the degree and types of contacts the defendant has with the forum." Ganis Corporation of California v. Jackson, 822 F.2d 194, 197-98 (1st Cir. 1987). Although the single visit by Savini and Corbin to Massachusetts would not be sufficient to confer jurisdiction over MTI, the defendant's contacts with Massachusetts extended far beyond that initial contact. Throughout the parties' six-year business relationship, the defendant maintained continuous contact with the plaintiff in Massachusetts. MTI initiated telephone calls and sent faxes to the plaintiff in Massachusetts on a weekly, if not daily, basis. MTI sent 149 invoices to CW in Massachusetts for goods valued at nearly $10 million.
The defendant contends that there is no connection between CW's claims and MTI's transaction of business in Massachusetts because the Non-Disclosure Agreement was signed by MTI in South Carolina and the actions of which the plaintiff complains (i.e. misappropriating CW's proprietary information) occurred outside of Massachusetts. MTI's interpretation of the Long-Arm Statute is, however, unduly narrow.
The Non-Disclosure Agreement prohibited MTI from utilizing CW's proprietary and confidential information to manufacture or produce components for other entities for five years following completion of the last gas turbine component built for CW. The basis of the plaintiff's claims is that, after obtaining proprietary and confidential information relating to the manufacture of gas turbine components by virtue of its extensive and frequent transactions with a Massachusetts corporation, MTI used that information to produce components for other corporations thereby breaching its Non-Disclosure Agreement with CW and misappropriating trade secrets.
The Non-Disclosure Agreement governed an important aspect of MTI's transaction of business in Massachusetts and CW's claims depend largely upon the information MTI obtained from CW in Massachusetts during the parties' long-term business relationship. The claims therefore "arise out of" MTI's transaction of business in Massachusetts. See Buctouche, 735 F. Supp. at 442 (jurisdiction found under Chapter 223A § 3(a) because business transacted was instrumental to the formation of the contact).
B. The Due Process Analysis
The due process clause of the United States Constitution requires certain "minimum contacts" between a nonresident defendant and the forum state such that the exercise of personal jurisdiction over that defendant accords with "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
The existence of specific personal jurisdiction depends upon the plaintiff's ability to demonstrate that the exercise of jurisdiction pursuant to the Massachusetts Long-Arm Statute comports with the strictures of the United States Constitution.Foster-Miller, Inc., 46 F.3d at 144. That showing implicates three distinct components: relatedness, purposeful availment (sometimes called "minimum contacts") and reasonableness. Id.
1. Relatedness
Relatively speaking, the relatedness inquiry is a "flexible, relaxed standard". Pritzker v. Yari, 42 F.3d 53, 60-61(1st Cir. 1994). Because of this pliancy, a plaintiff may satisfy the relatedness inquiry although the defendant's actions outside of the forum caused the plaintiff's harm in the forum. Boston Scientific Corp. v. Bonzel, 132 F. Supp. 2d 45, 51 (D. Mass. 2001).
Although the relatedness requirement is "the least developed prong of the due process inquiry," Ticketmaster-New York, Inc. v. Alioto, 26 F.3d 201, 206 (1st Cir. 1994), the First Circuit Court of Appeals has observed that it serves the important function of directing a court's attention to the nexus between a plaintiff's claim and the defendant's contacts with the forum.Pleasant St. I, 960 F.2d at 1089. At this stage of the analysis, it is important to bear in mind the nature of the plaintiff's claim and to consider whether the plaintiff's cause of action can "conceivably be said to have arisen directly from, or been caused proximately by," the defendant's contacts with the forum. Id.
In the instant case, the plaintiff's claims are related to the defendant's in-forum activities. The defendant was able to utilize the plaintiff's alleged trade secrets and proprietary information (if it did) because of its six years of business transactions with the plaintiff in the forum state. The defendant made countless telephone calls and facsimile transmissions to CW in Massachusetts (and received responses thereto) by which at least some of the information forming the basis of the plaintiff's complaint was shared.
2. Purposeful Availment
The analysis of the second element of the constitutional prong of specific personal jurisdiction involves a determination of whether MTI's contacts with the forum state represent a "purposeful availment" by MTI of the privilege of conducting business in Massachusetts. Ticketmaster, 26 F.3d at 207. The purposeful availment inquiry prevents courts from premising jurisdiction on contacts with the forum state that are "random, isolated, and fortuitous". Nowak II, 94 F.3d at 716.
The cornerstones of the "purposeful availment" requirement are voluntariness and foreseeability. Id. (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475(1985)). The voluntariness prong ensures that the defendant's contacts with the forum state are "not based on the unilateral actions of another party or a third person". Id. (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)). The foreseeability prong requires that "the defendant's contacts with the forum state be such that he should reasonably anticipate being haled into court there." Id. (citing World-Wide Volkswagen Corp. v.Woodson, 444 U.S. 286, 297 (1980)).
A nonresident defendant may not avoid minimum contacts with the forum state by "remaining physically outside the forum . . . rather courts must look beyond . . . formalistic measures and evaluate the nature of the contacts." Pritzker, 42 F.3d at 62;Good Hope Industries, 378 Mass. at 10. Although MTI maintains no office, employees, agents or sales force in Massachusetts, it availed itself of the benefits of doing business in the forum state by maintaining an ongoing direct business relationship with CW in Massachusetts. Faced with the closure of the Charleston, South Carolina Navy Shipyard from which MTI derived approximately 95% of its revenue, the defendant made an affirmative decision to conduct business with CW, an out-of-state corporation, to preserve its income and avoid laying off loyal, long-time employees. During the six-year period in question, MTI, without the aid of independent agents or distributors, maintained a significant business relationship with a Massachusetts corporation from which it derived a substantial amount of income. MTI availed itself of the benefits of conducting business in Massachusetts. Its contacts were deliberate as opposed to fortuitous and it was, consequently, on notice that it may be haled into court in the Commonwealth.
3. Reasonableness
The third and final stage of the personal jurisdiction analysis affords an opportunity for reasonableness to illuminate that review. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980). The Supreme Court has identified five such considerations termed by the First Circuit as "the gestalt factors": (i) the defendant's burden of appearing, (ii) the forum state's interest in adjudicating the dispute, (iii) the plaintiff's interest in obtaining convenient and effective relief, (iv) the judicial system's interest in obtaining the most effective resolution of the controversy, and (v) the common interests of all sovereigns in promoting substantive social policies. Pleasant St. I, 960 F.2d at 1088 (citing Burger King Corp., 471 U.S. at 477).
i. The Defendant's Burden of Appearance
MTI contends that because Corbin and Savini run its day-to-day business, the MTI facility would have to be shut down for the duration of the trial if they were required to travel to Massachusetts. That contention appears to be disingenuous. MTI's website declares that it has 250 employees who are highly trained and dedicated to provide the highest quality service. It is difficult to understand how the absence of Messrs. Corbin and Savini would require an extended closure of the facility. Moreover, this Court has found that such a burden "falls well short of assuming constitutional significance such that the exercise of jurisdiction contravenes the Due Process Clause."Brookfield Machine, Inc. v. Calbrit Design, 929 F. Supp. 491, 500 (D. Mass. 1996) (where six of eight employees are required to travel from California to Massachusetts the burden does not render jurisdiction unreasonable).
ii. The Forum State's Adjudicatory Interest
The second gestalt factor implicates the interests of Massachusetts. The Commonwealth has a legitimate interest in providing a forum for a suit involving a plaintiff corporation headquartered here. Good Hope Industries, 378 Mass. at 12. That factor, therefore, weighs in favor of jurisdiction in this forum.
iii. Remaining Gestalt Factors
The final three gestalt factors concern the interests of the plaintiff in securing a convenient forum, the forum state's interest in adjudicating the dispute and the interests of both South Carolina and Massachusetts in promoting their substantive social policies. Pleasant St. I, 960 F.2d at 1088. According deference to the plaintiff's choice of forum, it would be more convenient for CW to litigate its claim in Massachusetts. Nowak II, 94 F.3d at 718. The interest of the judicial system in the effective administration of justice is not adversely impacted here because litigation in either forum will not create piecemeal litigation or otherwise result in the inefficient resolution of the case. See id. at 718.
The shared interest of South Carolina in adjudicating disputes concerning local corporations within its borders is co-extensive with the substantive interest of Massachusetts in ensuring that valid contracts are not breached. Because a Massachusetts corporation has allegedly been damaged through a breach of a contract to protect trade secrets and confidential and proprietary business information, Massachusetts has a significant interest in adjudicating the instant dispute.
iv. Conclusion
The gestalt factors considered in toto tip slightly in favor of the plaintiff, CW. CW has successfully carried it burden at the first two stages of the jurisdictional analysis. Proceeding to the third stage, although in some cases, "unreasonableness can trump a minimally sufficient showing of relatedness and purposefulness," see Ticketmaster, 26 F.3d at 210, CW's demonstration of relatedness and purposeful availment is strong and convincing. The exercise of personal jurisdiction over MTI will comport with Due Process.
ORDER
For the reasons set forth in the Memorandum above, the motion of the defendant, Metal Trades, Inc., to dismiss for lack of personal jurisdiction (Docket No. 2) is DENIED.So ordered.