Opinion
Case No. 1:04-cv-0159-DFH-WTL.
March 22, 2005
ENTRY ON DEFENDANTS' MOTION TO DISMISS OR TRANSFER
Plaintiff Distance Learning Systems Indiana, Inc. ("DLSI"), filed its complaint against defendants AD Nursing Institute, Inc. ("AD"), Montgomery Healthcare Institute, Inc. ("Montgomery"), and Yemi Oladimeji on January 21, 2004 in the Superior Court for Johnson County, Indiana. During the state court's hearing on a motion for preliminary injunction, defendants removed the case to this court based on diversity jurisdiction. Pending before this court now is the defendants' motion to dismiss or transfer. Defendants contend that this court lacks personal jurisdiction over them, that venue is improper, and that the case should in any event be transferred to the District of Maryland. Plaintiff responds that defendants consented to jurisdiction and venue in this district, and have otherwise waived their objections. As explained below, the court finds that defendants have not consented to jurisdiction and venue here, and that this action should be transferred to the District of Maryland. The court denies without prejudice the plaintiff's pending motion to compel and for sanctions, and its motion for an expedited ruling on that motion.
Factual Background
DLSI is an Indiana corporation with its principal place of business in this district. It provides course materials that assist individuals enrolled in various educational and test preparation courses. In November 2002, DLSI entered into a written "Memorandum of Understanding" with defendant AD, a Maryland nursing school operated by defendant Dr. Yemi Oladimeji. Under the Memorandum of Understanding, AD would teach or tutor students desiring to take certain nursing examinations in the Washington, D.C., area, using DLSI course and curriculum materials. In addition to the Memorandum of Understanding, there is a separate "Copyright and Restricted Use Agreement." That document is dated January 24, 2003. It bears the signature of the President of DLSI and the purported signature of Dr. Oladimeji as President and CEO of AD. At the end of the final page of this agreement is a separate paragraph setting forth a personal guarantee which is also followed by a signature which is purportedly of Dr. Oladimeji.
The arrangement has come to an unhappy end. In a letter dated January 8, 2004, Dr. Oladimeji wrote to DLSI that he wanted to terminate the contract between the parties because DLSI had continued its "practice of either sending books late, or not at all, to students over the last year." The letter made other complaints, including a statement that AD's tuition receipts were down because of "current students telling new ones not to enroll, because they will not receive their books."
The next day, attorneys for DLSI wrote to Dr. Oladimeji indicating that DLSI interpreted his January 8th letter as an anticipatory breach of the contract between DLSI and AD. In its January 9th letter, DLSI made various demands of Dr. Oladimeji, AD, and Montgomery, which the letter claimed was the new name under which Dr. Oladimeji and AD were operating. The letter also accused Dr. Oladimeji and others associated with AD of telling students that delays actually caused by AD and its financial woes were the result of inaction on the part of DLSI. DLSI threatened to sue if the defendants did not agree to return all course materials, to quit disparaging DLSI, and to cease and desist from having any connection with its "Distance Learning Program."
Only two days following that letter, attorneys for AD and Montgomery wrote to the attorneys for DLSI, pointing the finger of blame at DLSI for all the problems and misfortune associated with the Distance Learning Program. The letter stated that Dr. Oladimeji had made no defamatory statements with regard to DLSI, disagreed with DLSI's account of events, but agreed to return all materials and to have nothing further to do with DLSI. Two weeks later, DLSI filed this lawsuit alleging breach of contract, tortious interference with a business relationship, and defamation. DLSI also sought injunctive relief to prevent the defendants from conducting classes using DLSI's materials or teaching classes for "its students."
After DLSI's principal testified in a state court preliminary injunction hearing that the amount in controversy exceeded $75,000, during the next recess, defendants removed the action to this court. Though this court set a date for another preliminary injunction hearing, the parties were able to reach an unspecified and temporary agreement. DLSI withdrew its request for preliminary injunction prior to any hearing. A case management plan was agreed to and submitted by attorneys for both sides and a trial date was assigned. In March 2004 the defendants answered and filed a counterclaim. In May 2004, they filed the pending motion to dismiss or transfer, which has been fully briefed. Then, in early July 2004, counsel for defendants moved to withdraw and the court granted that motion. Defendants have yet to retain new counsel, and they have missed some deadlines, which has prompted plaintiff to move to compel and for sanctions.
The Applicable Legal Standards
A motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2) places the burden on the plaintiff to demonstrate that jurisdiction is proper. Central States, Southeast and Southwest Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir. 2000). The extent of plaintiff's burden depends on the manner in which the motion to dismiss is supported. If the court holds an evidentiary hearing, the plaintiff must establish personal jurisdiction by a preponderance of the evidence. Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). However, a motion to dismiss supported only by affidavits or other written material, like DLSI's motion, requires the plaintiff to establish only a prima facie case of personal jurisdiction. Id. In such a case, when the court evaluates whether a plaintiff has met its burden, the plaintiff "is entitled to the resolution in its favor of all disputes concerning relevant facts presented in the record." Nelson by Carson v. Park Industries, Inc., 717 F.2d 1120, 1123 (7th Cir. 1983).
The court need not decide issues of personal jurisdiction, however, if venue issues call for dismissal or transfer. See Leroy v. Great Western United Corp., 443 U.S. 173, 180-81 (1979) (courts may consider venue before personal jurisdiction if there are sound reasons for doing so; ordering dismissal based on venue without deciding personal jurisdiction question). A court may transfer a case on venue grounds even if it does not have personal jurisdiction over all defendants. Cote v. Wadel, 796 F.2d 981, 985 (7th Cir. 1986); Allied Van Lines, Inc. v. Aaron Transfer and Storage, Inc., 200 F. Supp. 2d 941, 945 n. 3 (N.D. Ill. 2002).
Personal Jurisdiction — Consent and Waiver
The defendants have moved for dismissal of this action based upon a lack of personal jurisdiction over any of the defendants. Defendants maintain that none of them has had continuous and systematic contacts with Indiana needed to exercise general personal jurisdiction, and that none had the minimum contacts needed to exercise specific jurisdiction with respect to the particular dispute at hand. Plaintiff makes no serious argument with respect to general personal jurisdiction. Plaintiff argues instead that there are sufficient minimum contacts to support specific jurisdiction and that defendants waived any objections to personal jurisdiction.When subject matter jurisdiction is based on diversity, as it is here, this court has personal jurisdiction over a nonresident defendant only if a state court would have such jurisdiction. Hyatt Intern. Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002). Indiana's long-arm statute is embodied in Indiana Trial Rule 4.4(A). As amended in 2003, Rule 4.4(A) provides for jurisdiction over defendants on any basis not inconsistent with the state or federal constitutions. Consequently, what was temporarily a two-step inquiry requiring an analysis of both state statutory authority and the prerequisites of federal due process has now become once again a single inquiry into the limits of due process. The familiar case of Burger King Corp v. Rudzewicz, 471 U.S. 462 (1985), serves as the benchmark for determining if the assertion of specific personal jurisdiction is appropriate over an out-of-state defendant who has not consented to suit in the state, especially in an interstate commercial contract case.
The court first addresses, however, DLSI's assertion that the defendants consented to suit in Indiana. The Copyright and Restricted Use Agreement states that it "is a supplement to the contract currently in existence between the parties and does not replace or alter any other agreement between AD and DLSI." It does not specifically refer to the contract it supplements, nor does it refer to the Memorandum of Understanding between AD and DLSI. Only in the Copyright and Restricted Use Agreement is there a forum selection provision stating that Indiana law will apply and that all disputes will be litigated in courts located in Johnson County, Indiana. Based on this provision and on what it claims was undue delay in asserting the personal jurisdiction defense, DLSI claims the defendants have waived any objections to personal jurisdiction in this court.
The defendants have submitted the affidavit of Dr. Oladimeji who swears that the signatures appearing on the Copyright and Restricted Use Agreement and corresponding personal guarantee are not his. He states that the signatures appear to be made with a stamp and that he did not authorize anyone to affix his signatures on those documents. Plaintiff DLSI responds by arguing that the signatures do not appear to be from a stamp and that even if they were affixed with a stamp, then the stamp must have been in the possession of an agent with apparent authority so that the defendants should be bound by them.
DSLI has failed to come forward with any evidence that disputes Dr. Oladijemi's sworn affidavit. While plaintiff may believe that the signatures were authorized and were not affixed by a stamp, this belief is not supported by evidence. Even if the signature is not a stamp, that fact alone does not meet the evidence through affidavit offered by defendants that Dr. Oladimeji did not sign or authorize the document to be signed on his behalf. If the document was stamped with the signature of Dr. Oladimeji, DLSI offers only speculation that it must have been stamped by one of his agents. While plaintiff's burden in establishing personal jurisdiction in these circumstances is not heavy, speculation and argument do not rebut a sworn affidavit. The disputed Copyright and Restricted Use Agreement does not show consent to jurisdiction and venue in Indiana. No record evidence disputes the evidence that Dr. Oladimeji did not sign the agreement.
DLSI also argues that defendants waived personal jurisdiction because they waited too long to seek dismissal. DSLI cites in support Roberts v. Owens-Corning Fiberglass Corp., 101 F. Supp. 2d. 1076 (S.D. Ind. 1999). Defendants answered, asserted a counterclaim, and agreed to a case management plan before they moved for dismissal. They also negotiated a resolution with respect to plaintiff's request for preliminary injunction. However, the defendants asserted the defense of lack of personal jurisdiction in the answer filed in March 2004, and they filed the motion to dismiss only two months later. By including the defense in their answer, defendants avoided waiver under Rule 12(h)(1) of the Federal rules of Civil procedure. Also, the events here differ significantly from those in Roberts, where Judge McKinney found waiver after the defendant had: (1) demanded a jury trial; (2) agreed to a case management plan; (3) filed preliminary and final witness lists; (4) sought time to respond to discovery; (5) moved for summary judgment; and (6) opposed a counter motion for partial summary judgment, all before filing a motion to dismiss. Id. at 1081. In addition, the counterclaim filed by defendants in this case was compulsory, not permissive. Courts have generally found that the assertion of a compulsory counterclaim is not a basis for finding waiver. See, e.g., In re Arbitration between InterCarbon Bermuda, Ltd. and Caltex Trading and Transportation Corp., 146 F.R.D. 64, 69-70 (S.D.N.Y. 1993).
Accordingly, plaintiff DLSI has failed to establish personal jurisdiction based on consent or waiver. The court finds that there are sound prudential reasons not to decide whether any or all of the three defendants had sufficient contacts with Indiana to support personal jurisdiction here. Such jurisdiction is close to the constitutional edge, at least for one or two defendants, while it is abundantly clear that this case should be transferred to the District of Maryland for the convenience of the parties and the courts and in the interests of justice, pursuant to 28 U.S.C. § 1404(a).
Venue — Dismissal or Transfer
In the alternative to a dismissal based upon lack of personal jurisdiction, the defendants argue that the court should dismiss for improper venue or transfer the case to the District of Maryland. When a case is removed to federal court, venue is governed by 28 U.S.C. § 1441 rather than § 1391(a). The Court of Appeals for the Second Circuit has explained:
The law on post-removal venue challenges involves two related questions with opposite answers, lending some confusion to the issue. The first question is whether a party may challenge the propriety of venue in the particular federal court to which a case has been removed. The answer is that the removal statute provides that venue is proper in "the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a) (1994). Moreover, the removal statute, and not the ordinary federal venue statute, 28 U.S.C.A. § 1391 (West Supp. 1997), governs venue in removed cases. Polizzi [ v. Cowles Magazines, Inc., 345 U.S. 663, 665-66 (1953)]. Thus, a party may challenge removal as itself improper, or as having been made to the wrong district court if the case was removed to a district court other than that "embracing" the state court in which the action was brought, but one may not challenge venue in the district court as of right, according to that district court's venue rules, as if the case had originally been brought there. See id. A party may nonetheless request a discretionary transfer to a more convenient district court forum under the transfer provision. 28 U.S.C. § 1404(b) (1994).PT United Can Co. Ltd. v. Crown Cork Seal Co., Inc., 138 F.3d 65, 72 (2nd Cir. 1998); accord, Allied Van Lines, Inc. v. Aaron Transfer and Storage, Inc., 200 F. Supp. 2d 941, 945 (N.D. Ill. 2002) (transferring removed case under § 1404).
Venue is proper under 28 U.S.C. § 1441 because the Johnson Superior Court is within this district. However, a transfer of venue under 28 U.S.C. § 1404(a) is clearly warranted. Under these circumstances, the court decides venue without deciding the outer boundaries of personal jurisdiction. See Leroy v. Great Western United Corp., 443 U.S. 173, 180-81 (1979); Allied Van Lines, 200 F. Supp. 2d at 945 n. 1.
The allegations of the complaint show that the core of this case will require the testimony of the students and teachers who participated in the blended learning program. Critical questions on the merits of claims and defenses will include how materials were ordered, what students were told, how long it took to receive materials, and what teaching materials were used and copied.
A court considers each of the factors enumerated in 28 U.S.C. § 1404: convenience of parties, witnesses and the interests of justice in light of the facts of a particular case when contemplating the use of its discretion to transfer. Coffey v. Van Dorn Iron Works, 796 F.2d 217, 219 n. 3 (7th Cir. 1986). While procedural rules and discovery tools make the competing convenience of opposing parties in litigation a lesser concern here, the need to have non-party witnesses available for trial so that it is not conducted primarily by reading deposition transcripts weighs heavily in favor of employing a transfer pursuant to 28 U.S.C. § 1404. E.g., Worldwide Financial LLP v. Kopko, 2004 WL 771219, *3 (S.D. Ind. Mar 18, 2004) (ordering transfer); Kendall U.S.A., Inc. v. Central Printing Co., 666 F. Supp. 1264, 1268 (N.D. Ind. 1987) (same). To the extent that Dr. Oladimeji or Montgomery are necessary parties to the complete resolution of this dispute, the interests of justice would suggest that venue is more appropriate in Maryland where personal jurisdiction could not be questioned. Consequently, the court finds it appropriate to transfer this matter pursuant to 28 U.S.C. § 1404(a) to the United States District Court for the District of Maryland, Greenbelt Division, for all further proceedings. Plaintiff's motion to compel and for sanctions and its motion for an expedited ruling are denied without prejudice to possible renewal in the District of Maryland, depending of course on events in that forum.
So ordered.