Opinion
EP-99-CA-400-DB.
March, 2000.
MEMORANDUM OPINION AND ORDER
On this day, the Court considered the following motions filed in the above-captioned cause: (1) Defendant S. Paul Passafiume, Jr.'s ("Passafiume") Motion to Dismiss for Lack of Personal Jurisdiction, filed on December 21, 1999. Plaintiff filed a Response in Opposition to Passafiume's Motion on January 11, 2000; (2) Defendant Bryan Shaffer's ("Shaffer") Motion to Dismiss for Lack of Personal Jurisdiction, filed on December 21, 1999. Plaintiff filed a Response in Opposition to Shaffer's Motion on January 11, 2000; and (3) Plaintiff Christopher T. Sadd's Motion for Remand, filed on January 5, 2000. Defendant PS II, Incorporated ("PS II") filed a Response to Plaintiff's Motion to Remand on January 18, 2000. On February 7, 2000, Plaintiff filed a Reply Brief. In turn, PS II filed a Sur-Reply on March 1, 2000.
After due consideration, the Court is of the opinion that Plaintiff's Motion for Remand should be denied and that both Motions to Dismiss for lack of personal jurisdiction should be granted, for the reasons set forth below.
BACKGROUND
Plaintiff filed this breach of contract and wrongful termination suit in the 327th Judicial District Court of El Paso County, Texas, on November 12, 1999, seeking various forms of relief regarding certain contracts entered into between Plaintiff, Passafiume, Shaffer and others not named in this lawsuit. Defendants removed the action to this Court on December 7, 1999, asserting diversity among the parties as the basis for removal jurisdiction.
PS II is a corporation organized under the laws of Kentucky, owned by a handful of shareholders including, among others, Plaintiff, Passafiume and Shaffer. In 1996, PS II entered into a franchise development agreement with Papa John's International, Inc., a pizza restaurant franchiser. PS II agreed to develop ten restaurant locations in El Paso and southeastern New Mexico. At the time Plaintiff filed this suit, PS II had seven such restaurant locations, six in El Paso and one in Las Cruces, New Mexico. PS II also has plans in place to open additional restaurants in New Mexico and has taken steps to that end. The restaurants employ approximately two-hundred individuals, of which approximately eighty-five percent work in Texas.
Prior to the commencement of this lawsuit, Plaintiff was President and Secretary of PS II, as well as "principal operator" of PS II's restaurants. In that capacity, Plaintiff was in charge of the restaurants' day-to-day operations. Plaintiff maintained some corporate paperwork at his home in El Paso, as PS II does not maintain a corporate office in Texas or New Mexico.
PS II has its corporate headquarters in Louisville, Kentucky. There, PS II maintains corporate bank, payroll and investment accounts. Corporate depositary accounts PS II maintains in both Texas and New Mexico channel funds to Kentucky, where the corporation's accounting takes place. The Kentucky headquarters arranges financing, insurance coverage and equipment purchases and leases. Through its Kentucky headquarters, PS II pays rents, bills for utilities and other services necessary for the operations, and applicable taxes. The Kentucky headquarters establishes company-wide guidelines, hires and fires all salaried management personnel, facilitates the handling of workers' compensation claims, sets wage scales, and processes payroll for all operations. Much of the corporation's advertising is arranged for and coordinated through the Kentucky headquarters.
Passafiume resides in Kentucky and is President, Chief Executive Officer, Secretary and sole Director of PS II. Passafiume is also the President and sole Director of PS Management, Inc. ("PSM"), another Kentucky corporation not named as a Defendant. Shaffer resides in West Virginia and is Vice-President of Operations ("VPO") for PSM. At the time Plaintiff filed this lawsuit, PS II had no corporate officers in either New Mexico or Texas. Board of directors' meetings and shareholders' meetings are held in Kentucky.
According to their separate affidavits, Passafiume and Shaffer each has traveled to Texas on several occasions to discharge duties associated with the business of PS II and/or PSM. Pursuant to a management agreement between PSM and PS II, Shaffer provides management, marketing, accounting, training and administrative services to PS II as PSM's VPO. Shaffer, who lived and worked in El Paso from 1989 until 1991, avers that all of his contact with Texas since 1991 has been in execution of his PSM duties. Passafiume, similarly, avers that he has been to Texas approximately nine times for no more than two or three days, each contact in execution of his duties as an officer of PS II and/or PSM.
DISCUSSION
The Court here examines two separate aspects of jurisdiction; subject-matter and personal jurisdiction, in that order. In general, the party seeking to invoke federal jurisdiction bears the burden to demonstrate its existence. See St. Paul Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir. 1998). Also generally, a court examines the jurisdictional facts as they stood at the inception of the case and/or the time of removal. See generally 14B CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE PROCEDURE, § 3723 (3d ed. 1998).
As an initial matter, the Parties disagree as to whether the Court should entertain the individual Defendants' Motions to Dismiss first or Plaintiff's Motion for Remand. Defendants contend that the Court must examine personal jurisdiction issues before subject-matter jurisdiction as a matter of fairness and judicial economy. In turn, Plaintiff contends, without argument, that the Court should consider his motion for remand first.
Recently, the Supreme Court in Ruhrgas AG v. Marathon Oil Co., — U.S., — 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999), reversed the Fifth Circuit's en banc holding that a district court must examine subject-matter jurisdiction before addressing personal jurisdiction issues. See id. at, — 119 S.Ct. at 1569; see also Marathon Oil Co. v. A.G. Ruhgas, 182 F.3d 291, 294 (5th Cir. 1999) (on remand). Rather, the Supreme Court reasoned, personal and subject-matter jurisdiction issues bear equally compelling reasons for being decided prior to the other and "a court that dismisses on non-merits grounds such as personal jurisdiction, before finding subject-matter jurisdiction, makes no assumption of law-declaring power that violates the separation of powers." Id. at 1570 (brackets, ellipses and quotation marks removed) (quoting In re Papandreou, 139 F.3d 247, 255 (D.D.C. 1998)). Thus, in the end the Ruhrgas AG Court held that "[w]here . . . a district court has before it a straightforward personal jurisdiction issue presenting no complex question of state law, and the alleged defect in subject matter jurisdiction raises a difficult and novel question," that court may address the personal jurisdiction issue prior to the subject-matter jurisdiction issue. Id. at 1572.
Here, the Court finds no particularly difficult jurisdictional issues, either subject-matter or personal. Accordingly, the Court need not decide one motion before the other and, thus, considers both jurisdictional issues simultaneously.
A. Motion for Remand
The general requirements for removal jurisdiction based on diversity are well-established. "[A]ny civil action brought in a State court of which the district courts have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the place where such action is pending." 28 U.S.C. § 1441(a). Diversity jurisdiction under 28 U.S.C. § 1332 requires that the action be between citizens of different states and that the amount in controversy exceed $75,000. See 28 U.S.C. § 1332.
Here, Plaintiff contends that PS II has failed to demonstrate that the Parties are diverse. Specifically, Plaintiff maintains that PS II, although a Kentucky corporation, also is a citizen of Texas for diversity purposes because PS II's "principal place of business" is in Texas. The Court disagrees.
Under 28 U.S.C. § 1332(c)(1), "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." A corporation may have only one principal place of business for diversity purposes. See J.A. Olson Co. v. City of Winona, 818 F.2d 401, 406 (5th Cir. 1987). The Fifth Circuit employs a "total activity" test to determine a corporation's principal place of business, looking at a corporation's "nerve center" and its "center of activity." See Nauru Phosphate Royalties v. Drago Daic Interests, 138 F.3d 160, 164 (5th Cir. 1998) (citing Olson, 818 F.2d at 411-12). In Olson, the court framed the appropriate inquiry as follows:
[N]either the "nerve center" nor the "place of activity" test inflexibly dictates the corporation's principal place of business. Rather the tests simply stand for general rules regarding the determination of a particular corporation's principal place of business: the principal place of business of a far-flung corporation will generally be its nerve center; the principal place of business of a corporation with significant administrative authority and activity in one state and lesser executive offices but principal operations in another state is generally the district of the former; and the principal place of business of a corporation with its corporate headquarters in one state and its single activity in another will generally be in the state of its operations. These rules, however, are applied on a case-by-case analysis, weighing the particular facts. The two tests are therefore not mutually exclusive but rather complementary.818 F.2d at 409 (citations omitted).
Plaintiff contends that, because the majority of PS II's activity takes place in Texas, Texas should be considered PS II's principal place of business. The Court need not determine whether New Mexico or Texas, to the exclusion of the other, is the "activity center." Determining that Texas is the "activity center" is but one step in the analysis and would not therefore mean that Texas is also the principal place of business. Rather, "[i]n each case, [the Court] must fully examine the corporation's operations and its nerve center in the context of the organization of that business" in order to determine its principal place of business. Id. at 411.
Here, PS II has some presence in three different states — Kentucky, Texas and New Mexico. Thus, PS II's "place of activity," is not easily defined. PS II maintains multiple restaurants, seven in Texas and one in New Mexico. PS II also has in place active plans to open new restaurants in New Mexico, which also constitutes "activity" even though two such planned restaurants are not open for "business." Thus, the premise in Olson that "the principal place of business of a corporation with its corporate headquarters in one state and its single activity in another will generally be in the state of its operations," id. (emphasis added), either does not apply here or does so only with great strain because PS II's operations are multi-state.
PS II's overall business is the development and operation of franchise restaurants in Texas and New Mexico. Although a clear majority of PS II's operations take place in Texas, the New Mexico activity is not insignificant. PS II has one restaurant in New Mexico and has taken steps toward establishing two additional restaurants there. At the time Plaintiff filed this lawsuit, no PS II officers were located outside Kentucky.
Plaintiff contends that he was President and Secretary of PS II up to and including the time he filed this suit. However, PS II aptly points out that one basis of Plaintiff's lawsuit is that PS II fired him (see, for example, Plaintiff's Fifth Cause of Action for breach of contract and wrongful termination). Although Plaintiff also states in his Original Petition that he is President and Principal Operator (in the present tense), the Court finds that it is more likely that PS II no longer employed Plaintiff at the time he commenced this cause.
Moreover, the decision-making which takes place in Texas is minimal as compared to that which takes place in Kentucky. The Kentucky office manages finances; arranges for insurance; pays applicable taxes; establishes operational policy for all PS II restaurants; hires and fires key employees; negotiates and enters into contracts with other businesses (such as leases for its new restaurants). PS II employees are paid based on wage scales determined in Kentucky and given paychecks drawn on payroll accounts located in Kentucky. Money generated through sales, although deposited into depository accounts in Texas and New Mexico, is delivered quickly to headquarters in Kentucky. PS II maintains no corporate office space in Texas and maintains all of its essential corporate records in Kentucky. Simply put, nearly every aspects of running PS II's business short of actually making the pizza takes place in Kentucky.
In contrast, PS II's restaurants in Texas and New Mexico apply operational policies established by PS II in Kentucky. Individual restaurant managers have little independent discretion aside from, for example, placing supply orders directly with the Papa John's franchise. Hence, PS II more closely resembles a "far-flung" corporation, having operations in multiple states, than one with operations in only one state. Accordingly, the Court finds that PS II's principal place of business is Kentucky and, as such, PS II is a citizen of Kentucky for diversity purposes.
Finally, Plaintiff contends that a clause in a stock restriction agreement he entered into with the individual defendants — that the parties to the contract would submit certain disputes to binding arbitration in Texas — constitutes waiver by PS II of its right to remove this cause. The Court disagrees. Although waiver by contract of one's right to remove is an established principle, see, e.g., McDermott Int'l, Inc., v. Lloyds Underwriters of London, 944 F.2d 1199, 1204-05 (5th Cir. 1991), the Court finds that the contractual arbitration provision Plaintiff claims binds PS II simply is too narrow and attenuated to constitute a "waiver" of the right to remove.
The arbitration provision relates to valuation of PS II stock under a stock restriction agreement. Under certain circumstances too complex to address here, three independent appraisers valuate the stock. In the event both parties disagree with the valuation, then the matter is submitted to binding arbitration in Texas.
In sum, the Court finds that diversity exists between the Parties because PS II and Passafiume are citizens of Kentucky, Shaffer is a citizen of West Virginia and Plaintiff is a citizen of Texas. Plaintiff's only basis for remand being PS II's citizenship, the Court finds that all other jurisdictional requisites are met and, thus, the Court has removal jurisdiction. Accordingly, the Court is of the opinion that Plaintiff's Motion for Remand should be denied.
B. Motions to Dismiss for Lack of Personal Jurisdiction
Passafiume and Shaffer separately contend that they are not subject to personal jurisdiction in this Court or in any court in Texas and seek dismissal on that basis.
In general, a plaintiff opposing a motion to dismiss for lack of personal jurisdiction bears the burden to establish jurisdiction. See Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir. 1990). However, where a court rules without holding an evidentiary hearing, the court must accept as true all uncontroverted allegations in the complaint and resolve all factual conflicts presented by the parties' affidavits in the plaintiff's favor. See id. Thus, absent a hearing, the plaintiff need only establish a prima facie case for personal jurisdiction. See id.
Here, Plaintiff does little to meet his prima facie burden. He presents no evidence or argument. Rather, Plaintiff asks the Court to consider remanding this cause to the state court before ruling on the instant Motions or, alternatively, allow Plaintiff to conduct jurisdictional discovery. Notwithstanding Plaintiff's minimalist approach, the Court will conduct its own jurisdictional analysis.
A federal district court sitting in diversity in Texas may exercise personal jurisdiction over non-resident defendants to the full extent authorized by Texas' long arm statute, which authorizes a reach consistent with the limits of federal due process. See Ham v. La Cienega Music Co., 4 F.3d 413, 415 (5th Cir. 1993) (citing Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990) (interpreting the Texas long-arm statute, Tex. Civ. Prac. Rem. Code §§ 17.041-045)).
The due process inquiry is well-established. "Due process requires that (1) the defendant have established `minimum contacts' with the forum state; and (2) the exercise of personal jurisdiction does not offend `traditional notions of fair play and substantial justice.'" Id. "Minimum contacts" connotes purposeful availment to the benefits and protections of the forum state, and "can be subdivided into contacts that give rise to `specific' personal jurisdiction and those that give rise to `general' personal jurisdiction." Marathon Oil, 182 F.3d at 295 (citing Gundle Lining Constr. Corp. v. Adams County Asphalt, Inc., 85 F.3d 201 (5th Cir. 1996). Specific jurisdiction requires some direct relationship — a nexus — between the purposeful contacts and the litigation. See id. (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984)). General jurisdiction, on the other hand, relates to contacts, even if unrelated to the cause of action, which "are continuous, systematic, and substantial." Id. (citing Helicopteros, 466 at 415, 104 S.Ct. 1868; Wilson v. Belin, 20 F.3d 644 (5th Cir. 1994)).
Here, both Passafiume and Shaffer contend that their limited contact with Texas is protected by the "fiduciary-shield doctrine." The Court agrees. "[T]he fiduciary-shield doctrine . . . holds that an individual's transaction of business within the state solely as a corporate officer does not create personal jurisdiction over that individual though the state has in personam jurisdiction over the corporation." Stuart v. Spademan, 772 F.2d 1185, 1197 (5th Cir. 1985); see also Saktides v. Cooper, 742 F. Supp. 382, 385-86 (W.D.Tex. 1990) (applying doctrine as element of due process analysis). Unless the agent is shown to be the corporation's "alter ego" and, thus, the corporate entity can be disregarded, the fiduciary-shield doctrine prevents jurisdiction over an individual based solely upon jurisdiction over the individual's employer-corporation. See id. at 1197. To pierce the corporate veil for jurisdictional purposes, a court need only find that the individual completely dominated the corporation. See id. at 1198; see also Carson v. Maersk, Ltd. 61 F. Supp.2d 607, 611 n. 2 (S.D.Tex. 1999) ("In the Fifth Circuit, the alter ego test for purposes of attributing contacts for personal jurisdiction is less stringent than that for attributing liability."); but see House v. 22 Tex. Servs., Inc., 60 F. Supp.2d 602, 609 (S.D.Tex. 1999) (looking to law of state of incorporation as to whether to disregard corporate form on personal jurisdictional inquiry).
Here, Passafiume avers that his only contact with Texas is as an officer and agent of PS II. Similarly, Shaffer avers that since he moved from El Paso in 1991, his only contact with Texas was as an agent of PSM. There is no contrary evidence in Plaintiff's Original Petition, which states that Passafiume and Shaffer regularly conduct business in El Paso and that Shaffer (at the time the Petition was filed) was present in El Paso for business reasons. Furthermore, neither Passafiume nor Shaffer completely dominates PS II in a manner which persuades the Court to ignore the corporate form. First, according to Plaintiff, at least four other individuals are shareholders in PS II, including Plaintiff, who owns a significant percentage of PS II's shares. Although Passafiume apparently handles most of PS II's corporate operations from headquarters in Kentucky, he does so directly as a result of his position with the corporation — President and CEO. Shaffer, moreover, is merely a shareholder of PS II and does not work for PS II. Hence, the Court is of the opinion that the fiduciary shield doctrine should apply to exclude any contacts Passafiume and Shaffer may have had with Texas as a corporate officer or agent and not as an individual.
Without these "corporate contacts," Passafiume and Shaffer have done little to purposefully avail themselves to jurisdiction in Texas. Although a single act in the forum state can be sufficient to confer specific jurisdiction, entering into a contract in Texas, without more, is insufficient. See Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir. 1999) (citing Ham, 4 F.3d at 415-16; Dalton v. R W Marine, Inc., 897 F.2d 1359, 1361 (5th Cir. 1990); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478-79, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)). Considering the nature and quality of Passafiume's contacts with Texas, there is no sufficient nexus between this litigation and Passafiume and Shaffer in their individual capacities. Accordingly the Court finds that it lacks specific jurisdiction over Passafiume and Shaffer.
Although in a typical "breach of contract case, to determine whether a party purposefully availed [him]self of a forum, a court must evaluate `prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing,'" Latshaw, 167 F.3d at 211 (ellipses removed), the Court need not engage in this detailed analysis simply because Plaintiff presents no evidence of the Parties' course of dealings, either by affidavit or in his Original Petition.
Likewise, neither Passafiume nor Shaffer has systematic and continuous contacts in their individual capacities from which it can be said that they purposefully availed themselves of the privileges of conducting activities within Texas so as to invoke the benefits and protections of its laws. Passafiume avers that he has not been to Texas for personal reasons in the past five years and that he owns no land in Texas. Although Shaffer lived in Texas for several years, Shaffer avers that he has never owned any property in Texas and, since he moved from Texas in 1991, he has made no personal trips to Texas. Plaintiff offers no evidence or allegation to the contrary. Hence, the Court finds that Passafiume and Shaffer are not generally subject to jurisdiction in Texas either.
In sum, the Court is of the opinion that Plaintiff has failed to establish a prima facie case of personal jurisdiction over these individual defendants, Passafiume and Shaffer, and that they must be dismissed from this cause for want of personal jurisdiction.
Accordingly, IT IS HEREBY ORDERED that Plaintiff Christopher T. Sadd's Motion for Remand is DENIED.
IT IS FURTHER ORDERED that Defendant S. Paul Passafiume, Jr.'s Motion to Dismiss for Lack of Personal Jurisdiction is GRANTED.
IT IS FURTHER ORDERED that Defendant Bryan Shaffer's Motion to Dismiss for Lack of Personal Jurisdiction is GRANTED.
IT IS FURTHER ORDERED that each of Plaintiff's Claims against Defendant S. Paul Passafiume, Jr. is DISMISSED.
IT IS FINALLY ORDERED that each of Plaintiff's Claims against Defendant Bryan Shaffer is DISMISSED.