Summary
transferring Maryland plaintiff's action and noting "victory subject to being set aside for lack of jurisdiction would be of little value"
Summary of this case from BSN Med. Inc. v. American Med. Prods. LLCOpinion
Civil Action No. CCB-04-1690.
November 9, 2004
MEMORANDUM
Now pending before the court are the defendants' motions to dismiss upon the grounds that this court lacks personal jurisdiction over them, or, in the alternative, to order a transfer of this action to the United States District Court for the District of Nevada in accordance with 28 U.S.C. § 1404(a).
First Advisory, LLC ("First Advisory") originally filed its complaint for breach of contract and for declaratory judgment in the Circuit Court for Baltimore County, Maryland against defendants American Water Star, Inc. ("AMWS") and Thomas Krucker. First Advisory is a Maryland limited liability company, AMWS is a Nevada corporation, and Thomas Krucker is a resident of Nevada. The case was removable because this court has original jurisdiction under 28 U.S.C. § 1332(a), based on the complete diversity of the parties and an amount in controversy over $75,000. See 28 U.S.C. 1441(a).
Because the complaint was filed prior to AMWS being listed on the American Stock Exchange, First Advisory requested declaratory judgment. As of on or about June 18, 2004, the stock of AMWS has been traded on the American Stock Exchange. For this reason, First Advisory's declaratory judgment claim is converted to a breach of contract claim.
The issues in these motions have been fully briefed and no hearing is necessary. See Local Rule 105.6. For the reasons stated below, the motions to dismiss will be denied, but the case will be transferred to the United States District Court for the District of Nevada.
BACKGROUND
First Advisory is a public relations and marketing firm, specializing in the promotion of publicly traded corporations whose stock trades on the Over the Counter ("OTC") bulletin board. First Advisory's office is located at the home of its President and sole owner, James A. Hibbert in Phoenix, Baltimore County, Maryland. (Pl.'s Opp'n Mem, Hibbert Aff. at ¶ 2.) AMWS is a holding company of entities and brands engaged in the beverage industry. Its principal place of business is Nevada and its President and Chief Executive Officer, Roger Mohlman, is a Nevada resident. Thomas Krucker, a former officer and director of AMWS and currently an officer of Desert West Marketing, Inc., a Nevada corporation, serves as a consultant to AMWS with respect to public relations and marketing. He is a resident of Las Vegas, Nevada.
Troy Lowman of MJ Holdings, Inc., another Maryland corporation, telephoned Krucker in Nevada with proposals for public relations and marketing plans for AMWS that Lowman and Hibbert devised. (Def. Krucker's Reply to Pl.'s Opp'n Mem., Lowman Aff. at ¶ 4-7; Pl's Complaint ¶ 10.) Krucker set up a meeting between Lowman, AMWS's president Mohlman, and Hibbert that took place on September 13, 2003 in New York City. At that meeting, Mohlman directed them to contact Krucker about the details and terms of the work they would perform for AMWS. On or about September 17, 2003, Hibbert spent three days in Las Vegas with Krucker and had meetings at AMWS with Krucker and Mohlman. (Pl.'s Opp'n Mem., Hibbert Aff. at ¶ 13.) Krucker orally authorized a first phase of public relations work for AMWS which First Advisory began soon thereafter.
On October 14, 2003, First Advisory promoted AMWS at the "Money Fest" investor convention in San Francisco. While there, Hibbert, Lowman, and Krucker discussed the form of payments that would be used for the first phase of work. Krucker also agreed in San Francisco to pay Hibbert and Lowman an additional 200,000 shares each, in exchange for work that would collectively result in the purchase of at least 2,000,000 shares of AMWS stock. Krucker promised they would be paid a bonus of 700,000 restricted shares if AMWS became listed on the American Stock Exchange. Upon his return to Maryland, Hibbert received compensation in the form of 150,000 shares of restricted common stock of AMWS, 50,000 free trading AMWS shares, and 10,000 free trading AMWS shares paid as reimbursement for assorted expenses. For the second phase of promotional work, Hibbert suggested that he and Lowman publicize AMWS through an investor newsletter and mass mailings. Lowman disagreed and subsequently stopped working for AMWS. Krucker liked Hibbert's idea and pledged to give First Advisory all the money that had been promised to Hibbert and Lowman in the event that more than 2,000,000 shares were sold. He also guaranteed Hibbert that First Advisory would get the entire bonus if AMWS became listed on the American Stock Exchange.
Other than the four-day trip to San Francisco for the "Money Fest" convention and another four-day trip to Orlando, Florida, First Advisory's work for AMWS was done in Maryland. Most of the work consisted of Hibbert engaging in phone calls and emails with brokers and investors and sending mailings to them to generate interest in AMWS. For example, on September 25, 2003, the first call Hibbert made on behalf of AMWS was to three Maryland stockbrokers. Krucker took part in that call and several others.
Hibbert promoted AMWS through the remainder of 2003 and January and February 2004. Not only did his efforts yield a steeply higher stock price, but more than 12,000,000 shares traded between the start of his work in September 2003 and February 2004. Despite repeated requests, First Advisory was not paid the 400,000 promised shares for the second phase of public relations work. In addition, since on or about June 18, 2004, the stock of AMWS has been listed on the American Stock Exchange under the symbol "AMW." Hibbert was not paid the bonus of 700,000 shares that was promised to him in the event AMWS was listed on the American Stock Exchange.
ANALYSIS
Generally, when a defendant challenges a court's personal jurisdiction under Rule 12(b)(2) of the Federal Rules of Civil Procedure, the plaintiff bears the burden of proving, by a preponderance of the evidence, grounds for jurisdiction. See Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396-7 (4th Cir. 2003). However, if the court does not hold an evidentiary hearing, as in this case, the plaintiff is only required to make a prima facie showing of personal jurisdiction. See id. at 396; Estate of Bank v. Swiss Valley Farms Co., 286 F.Supp.2d 514, 516 (D.Md. 2003). The court must resolve all factual disputes and make reasonable inferences in favor of the plaintiff. See Carefirst, 334 F.3d at 396.
The court may assert either specific or general personal jurisdiction over a non-resident defendant. Specific jurisdiction exists where the claim is related to or arises out of the defendant's contacts with the state. See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414 (1984). General jurisdiction exists when the defendant's contact with the forum state is "continuous and systematic." Id. at 414-5 (quoting Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 438 (1952). First Advisory asserts that specific personal jurisdiction applies because its breach of contract claim arises out of defendants' contacts with Maryland.
The court must perform a two-step inquiry to determine whether it may exercise specific personal jurisdiction over a defendant. First, the court must determine if jurisdiction is authorized under the long-arm statute of the forum state. See Carefirst, 334 F.3d at 396-7; Christian Sci. Bd. of Dirs. of First Church of Christ, Scientist v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001). Second, the court must decide whether personal jurisdiction comports with Fourteenth Amendment due process requirements. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980). The Maryland Court of Appeals has held that Maryland's long-arm statute is co-extensive with the scope of jurisdiction permitted by the Fourteenth Amendment due process clause, and the statutory and constitutional inquiries therefore merge in this case. See Carefirst, 334 F.3d at 396-7. However, the Maryland longarm statute restricts specific jurisdiction to cases where the cause of action "aris[es] from any act enumerated" in the statute itself. Md. Code Ann., Cts. Jud. Proc. § 6-103(b)(1). Thus, a plaintiff must "identify a specific Maryland statutory provision authorizing jurisdiction."Ottenheimer Publishers, Inc. v. Playmore, Inc., 158 F.Supp.2d 649, 652 (D.Md. 2001). First Advisory relies on a provision of Maryland's long-arm statute which confers personal jurisdiction over a corporation that "transacts any business or performs any character of work or service" in the state "directly or by an agent." Md. Code Ann., Cts. Jud. Proc. § 6-103(b)(1).
To determine whether the exercise of specific jurisdiction comports with due process here, the court must consider: (1) the extent to which AMWS and Krucker purposefully availed themselves of the privilege of conducting activities in Maryland; (2) whether First Advisory's claims arise out of AMWS's and Krucker's Maryland-related activities; and (3) whether the exercise of personal jurisdiction would be constitutionally reasonable. See Johansson Corp. v. Bowness Construction Co., 304 F.Supp.2d 701, 704 (D.Md. 2004). Specific jurisdiction comports with due process if the defendants could have "reasonably anticipate[d] being haled into court" in Maryland, the forum state. World-Wide Volkswagen Corp., 444 U.S. at 297. The Fourth Circuit requires the defendants' contacts with the forum state to be "so substantial that they amount to a surrogate for presence and thus render the exercise of sovereignty just, notwithstanding the lack of physical presence in the state." ESAB Group, Inc. v. Centricut, Inc., 126 F.3d 617, 623 (4th Cir. 1997).
A contract between an out-of-state party and an in-state party is not "automatically" sufficient to establish minimum contacts in the forum state. Burger King v. Rudzewicz, 471 U.S. 462, 478 (1985). The court must look at the surrounding facts "such as prior negotiations, the terms of the contract, the parties' actual course of dealing, and contemplated future consequences, in order to determine `whether the defendant purposefully established minimum contacts within the forum.'" Johansson Corp., 304 F.Supp.2d at 705 (quoting Burger King, 471 U.S. at 479). Courts have considered "where the parties contemplated that the work would be performed, where negotiations were conducted, and where payment was made." Mun. Mortgage Equity v. Southfork Apartments Ltd. P'ship, 93 F.Supp.2d 622, 626 (D.Md. 2000) (internal quotation omitted). One of the most important factors is "whether the defendant initiated the business relationship in some way." Id. at 626-7 (quoting Nueva Eng'g Inc. v. Accurate Electronics, Inc., 628 F.Supp. 953, 955 (D. Md. 1986).
First Advisory cannot establish prima facie that the defendants purposefully established minimum contacts within the forum such that it would be constitutionally reasonable to exercise jurisdiction over them. First, neither AMWS nor Krucker established a physical presence in Maryland. They never opened an office, sent an agent or employee to do business, or performed services in Maryland. (Def. AMWS's Mem., Mohlman Aff. at ¶ 4-5; Def. Krucker's Mem, Krucker Aff. at ¶ 4, 12, 14, 15.) They also do not have any ongoing or systematic business activities in Maryland. Second, First Advisory initiated the business relationship with AMWS and Krucker. Hibbert, together with his colleague, Lowman, drew up marketing and promoting proposals for AMWS and contacted Krucker. Third, all "prior negotiations" between the parties were conducted in Nevada or California or by phone or mail. (Pl.'s Mem., Hibbert Aff. at ¶ 15). As this court noted in Johansson, phone or mail communications from outside the state into Maryland ordinarily do not "provide sufficient minimum contacts for the exercise of personal jurisdiction." See 304 F. Supp.2d at 706.
First Advisory argues in its opposition memorandum that Krucker acted as an agent for AMWS and thus, the court has personal jurisdiction over both defendants. The defendants disagree, pointing out that the complaint more correctly alleges a consultant relationship. This issue need not be resolved, however, because even if First Advisory proves the agency relationship, it does not establish a prima facie showing that Krucker himself had "minimum contacts" with Maryland.
First Advisory suggests that the business relationship was initiated by the first conference call that Hibbert and Krucker placed together to brokers. The relevant factor is that First Advisory initiated the contact with Krucker.
The contemplated performance location in this case provides the strongest connection to Maryland. First Advisory insists that because it is based in Maryland, the parties expected the work to be done here. The defendants argue that the agreement required and that Hibbert performed work in California and Florida. Because the work was performed in several locations, and the convention trips apparently were an important aspect of First Advisory's work, the fact that First Advisory could be expected to do some of its work out of an office in Maryland is insufficient on its own to justify the exercise of specific jurisdiction over AMWS and Krucker. Similarly, that Hibbert received payment upon his return to Maryland is not enough to establish minimum contacts between the defendants and Maryland. In summary, considering all the defendants' contacts with Maryland they do not establish a substantial connection such that Krucker and AMWS could reasonably expect to be "haled into court" in this state.
If a plaintiff files suit in the wrong venue, the district court "shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." 28 U.S.C. § 1406(a). In this case, it is in the interest of justice to transfer this case to the United States District Court for the District of Nevada so that the plaintiff need not re-file in that district. AMWS and Krucker agree they are subject to personal jurisdiction in Nevada, where their principal place of business is located. Finally, in a case where the constitutional question of jurisdiction is close, discretion counsels in favor of a transfer of venue for the reasons explained in Coleman Associates, Ltd. v. Colonial Metals, 887 F. Supp. 116, 120 (D.Md. 1995). While the court is sympathetic to the plaintiff's claim of economic disparity, a victory subject to being set aside for lack of jurisdiction would be of little value.
A separate order follows.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby Ordered that:1. the defendants' motion to dismiss or transfer venue (Docket No. 7) shall be GRANTED;
3. this case shall be TRANSFERRED to the United States District Court for the District of Nevada, located in Las Vegas, Nevada;
2. copies of this Order and the accompanying Memorandum shall be SENT to counsel of record; and
4. the clerk of the court shall CLOSE this case.