Opinion
Case No. 2:03-CV00240 PGC.
June 4, 2003.
ORDER DENYING MOTION TO DISMISS UNDER 12(b)(2)
Defendant Clark Foodservice, Inc. ("Clark") removed this complaint from Third District Court in Utah, to federal court, and filed this motion to dismiss for lack of personal jurisdiction. The court has carefully reviewed the pleadings and determines that oral argument would not help resolution of this matter. The court DENIES the motion for the reasons that follow.
Statement of Facts
Plaintiff TCBY (short for The Country's Best Yogurt) is the franchiser of hundreds of TCBY restaurants around the country that sell frozen yogurt and other prepared food items. Defendant Multi Unit Solutions, LLC, ("MUS") is a national food services marketing group that consists of a network of food service distributors located across the United States. In February 2000, TCBY and MUS entered into a Distribution Services Agreement ("Agreement") whereby MUS agreed that its members — including Clark — would serve as TCBY's primary distributors to perform purchasing, warehousing, and distribution services for TCBY franchisees throughout the United States. In the Agreement, MUS acknowledged that TCBY places royalty and advertising surcharges upon all sales of TCBY-branded products to franchisees. MUS agreed to invoice the surcharges on the franchisees and pay those surcharges to TCBY.
Clark is a MUS member distributor who serviced TCBY franchisees in South Bend, Indiana ("Clark South Bend") and Cadillac, Michigan (Clark Cadillac). Because of their status as TCBY's primary distributors in the area, Clark South Bend and Clark Cadillac maintained regular contact with TCBY in Utah, by email and telephone. These communications usually involved sending TCBY summaries of the products made available to the TCBY franchises within Clark's territory. Though Clark did not place orders with TCBY directly, they did communicate with TCBY (sometimes as often as several times a day) about various business matters. Clark did seek help with invoicing, collections, and supplier issues from TCBY.
Finally, Clark sent payments weekly to TCBY Utah, for two years, for TCBY's royalty and advertising surcharges. This litigation is over MUS's and Clark's alleged failures to properly pay over $200,000 in outstanding surcharges.
In January 2003, TCBY filed its complaint against the defendants Multi Unit Solutions, and Clark alleging claims for breach of contract and unjust enrichment related to the missing royalty payments.
Standard of Review
TCBY bears the burden of establishing personal jurisdiction over a nonresident defendant. However, Clark filed this motion for lack of personal jurisdiction based on affidavits and other written materials. Thus, TCBY needs only to make a prima facie showing of personal jurisdiction. At this juncture, the court resolves all factual disputes in favor of the plaintiff when determining whether the plaintiff has made a prima facie showing that establishes jurisdiction.
Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1075 (10th Cir. 1995).
Rambo v. American Southern Ins. Co., 839 F.2d 1415, 1417 (10th Cir. 1988) ( quoting Behagen v. Amateur Basketball Ass'n of U.S.A., 744 F.2d 731, 733 (10th Cir. 1984), cert denied, 471 U.S. 1010 (1985)).
Id.
Specific Personal Jurisdiction
To obtain specific personal jurisdiction over a nonresident defendant in a diversity action, a plaintiff must show that jurisdiction is appropriate under the laws of the forum and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment. Utah's long arm statute provides for jurisdiction over an out-of-state resident based upon a claim arising from any of seven enumerated acts including "a transaction of any business within the state" and "the causing of any injury within the state whether tortious or by breach of warranty." A federal court sitting in diversity may exercise persona jurisdiction over a nonresident defendant so long as there exists "minimum contacts" between the defendant and the forum state. The defendant's contacts with the forum state must be such that maintenance of the suit does not offend "traditional notions of fair play and substantial justice." A defendant's contacts are sufficient if the defendant "purposefully avails itself of the privilege of conducting activities within the forum state." TCBY does not claim Clark is subject to general personal jurisdiction in Utah, but does allege the facts sufficient to establish specific personal jurisdiction over Clark.The evaluation of specific jurisdiction in Utah requires a three-part inquiry: "1) the defendant's acts or contacts must implicate Utah under the Utah long-arm statute; 2) a nexus must exist between plaintiff's claims and the defendant's acts or contacts; and 3) the application of the Utah long-arm statute must satisfy the requirements of federal due process." Utah's long arm statute provides in pertinent part as follows:
Soma Medical Intern. v. Standard Chartered Bank, 196 F.3d 1292, 1297 (10th Cir. 1999).
Any person . . . who in person or through an agent does any of the following enumerated acts, submits himself to the jurisdiction of the courts of this state as to any claim arising out of or related to:
1) the transaction of any business within this state;
2) contracting to supply goods or services to the state;
3) the causing of any injury within this state whether tortious or by breach of warranty; . . .
Utah Code Ann. § 78-27-23.
The legislature has declared that the long-arm statute must be interpreted broadly "so as to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the Fourteenth Amendment of the United Sate Constitution." The Utah Supreme Court frequently makes a due process analysis first, because any set of circumstances that satisfies due process will also satisfy the long-arm statute. Accordingly, the court will proceed to determine whether the exercise of personal jurisdiction over Clark meets federal due process standards.
Utah Code Ann. § 78-27-22.
See SII MegaDiamond, Inc. v. American Superabrasives Corp., 969 P.2d 430, 433 (Utah 1998); See also Far West Capital, 46 F.3d at 1075, See also Soma Medical Intern., 196 F.3d at 1298.
A. Minimum Contacts
The first prong of the due process test looks at whether the defendant has sufficient "minimum contacts" with the forum state. In judging minimum contacts, a court properly focuses on the relationship among the defendant, the forum, and the litigation. Minimum contacts must have a basis in some act by which the defendant purposefully availed itself of the privilege of conducting activities in the forum state, thus invoking the benefits and privileges of its laws. Clark has challenged jurisdiction with respect to both the breach of contract and the unjust enrichment claims made against it.
See OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir. 1998).
See Hanson, 357 U.S. at 253.
In determining personal jurisdiction in a breach of contract case, the court must look to the entire relationship between the parties. Thus, to determine whether there has been purposeful availment by Clark here, the court must look to "prior negotiations and contemplated future consequences," along with terms of the contract and the parties actual course of dealing to determine whether the defendant purposefully established minimum contacts with the forum. When evaluating contract claims for personal jurisdiction, the court looks to where the contract was negotiated, created, performed and breached. Unquestionably, TCBY's mere presence in Utah does not provide a basis for personal jurisdiction over Clark.
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478-79 (1985) quoting International Shoe, 326 U.S. at 319.
Id. see also Rainbow Travel Service, Inc. v. Hilton Hotels Corp., 896 F.2d 1233, 1237 (10th Cir. 1990) applying Burger King.
See Far West, 46 F.2d at 1078.
Id.
The contract, originally negotiated between TCBY and MUS, was signed in February 2000. In February 2000, however, MUS and Clark also had a relationship, Clark expressed no reservations about continuing to perform its obligations under the agreement between MUS and TCBY in either February of 2000 or the two subsequent years. The Agreement specifically outlined the obligations of MUS's distributors, which included Clark. Clark acknowledges it had obligations under the Agreement. Clark routinely provided order guides and payments to TCBY in Utah from February 2000 forward. Though not present at the negotiations, Clark's course of conduct certainly expressed an acceptance of its terms.
Clark argues that the Utah Court of Appeals decision in Kamdar Company v. Laray Company, Inc., requires the court grant the motion to dismiss. If anything, that case suggests the opposite conclusion. In Kamdar, the defendants argued because they were not present at the site of an initial agreement, they did not purposefully avail themselves of the benefits of conducting business in Utah. The Court of Appeals acknowledged that, while the initial agreement was made outside of Utah, the understanding was that performance under the contract would be in Utah. The court further noted that the defendants could have chosen to form a new contract, yet year after year they continued to perform under the existing agreement. The court held that this business relationship — which included sending payments to Utah — was sufficient conduct by the defendants to "avail themselves of the privilege of conducting business in Utah."
815 P.2d 245 (Ut. Ct. App. 1991).
See 815 P.2d at 248.
Id.
Id.
Here the facts are similar. Despite not being present at the signing of the Agreement, Clark continued to distribute TCBY products under the Agreement for two years without objecting to the location of TCBY in Utah or suggesting a new agreement. Furthermore, Clark continued to send the royalty payments to TCBY in Utah. These actions demonstrate Clark's "availment" of the privilege of conduct business in Utah, which is sufficient grounds for specific personal jurisdiction.
Further support for this conclusion comes from the terms of the Agreement, which repeatedly (over ten pages) spell out the obligations of the MUS distributors, including Clark. Clark does not deny that it was aware of those obligations and that it reaped financial benefits from the Agreement as well. Clark acknowledges that, "As part of the agreement between TCBY and MUS, TCBY required Clark to submit order guides on a monthly basis." Clark also acknowledges that performance under the agreement required frequent contact with Utah. Though Clark attempts to minimize the monthly order guides by distinguishing them from actual orders, this argument falls wide of the mark. The order guides, like the payment of royalties, were the "performance" agreed to by Clark under the Agreement and involved two years of contact with Utah.
Clark Foodservice, Inc.'s Reply, p. 4, and Declaration of Kay Bryant No. 2.
Clark argues that the repeated emails and phone calls between Clark and TCBY do not establish personal jurisdiction. While phone calls and letters themselves are not necessarily sufficient to establish minimum contacts, they are certainly facts that the court can consider. In this case, they further demonstrate that Clark believed itself bound by Agreement and often sought aid from TCBY in the routine course of business.
See Soma Medical Intern., 196 F.3d at 1299, citing Far West Capital, 46 F.3d at 1077, cf. Harnischfeger Engineers, Inc. v. Uniflo Conveyor, Inc., 883 F. Supp. 608, 615 (D. Utah 1995).
Finally, the breach of the contract was the alleged failure of Clark to send the correct amounts of royalty payments to TCBY in Utah. Clark argues that mere "causing of financial injury to a Utah business has been "flatly rejected by the Utah courts as a basis for exercising specific personal jurisdiction." This is, no doubt, true. However, Clark's connections with Utah are more than the mere causing of financial injury. Clark's performance of the contract required systematic and repeated communications with Utah, including the repeated payments of royalty checks to Utah, over a period of two years.
Patriot Systems, Inc., v. C-Cubed Corporation, 21 F. Supp.2d 1318, 1321 (D. Utah 1998) ( citing Harnischfeger Engineers, Inc., 883 F. Supp. at 613).
For all these reasons, the two companies had a well-established relationship, which sufficiently meets the minimum contact requirements.
B. Fairness Considerations
The second prong of the due process test requires the court to evaluate whether asserting jurisdiction over a non-resident defendant would be fair. The Supreme Court has held that "where a defendant who purposefully has directed his activities at forum residents seeks to defeat jurisdiction, [it] must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Here this court has found that Clark directed activities — specifically communications and payments — at TCBY, in Utah. As a result, it must demonstrate "compelling" reasons against jurisdiction. Relevant factors in determining reasonableness include: 1) the burden on the defendant; 2) the forum state's interest in adjudicating the dispute; 3) the plaintiff's interest in obtaining the most efficient resolution of controversies; and 4) the shared interest of the several states in further fundamental substantive social polices. Consideration of each of these four factors suggests that it would plainly be fair to require Clark to respond to this suit in Utah.
See e.g., Burger King, 471 U.S. at 477.
Harnischfeger, Engineers, Inc., 883 F. Supp. at 615-16, citing DeMoss v. City Market, Inc., 762 F. Supp. 913, 919-20 (Utah 1991).
First, although Clark will bear some burden in litigating this matter in Utah, it will not be significant. Many of the witnesses to the Agreement are employees of TCBY, currently in Utah, and the expense of providing those witnesses will be borne by TCBY.
Second, Utah has a strong interest in obtaining convenient relief for a citizen that has potentially lost more than $200,000 to a non-resident defendant. Clark, who has derived an economic advantage from Utah due to its affiliation with TCBY, cannot now fairly disclaim any connection with the state when a dispute over those dealings arises.
See Rainbow Travel Service, Inc., 896 F.2d at 1237-38.
Third, many of the records needed for trial will be located in Utah. It appears Utah is the most convenient forum to litigate this matter.
Fourth, Clark provides no argument that a substantive social policy in either Michigan or Indiana will be harmed by a federal court in Utah hearing a breach of contract and unjustified enrichment case.
Having carefully considered the factors that might arguably point outside of Utah, the court nonetheless concludes that the many other factors pointing to Utah predominate. Therefore, the exercise of personal jurisdiction over Clark is reasonable.
C. "Nexus" Requirements
While the court has found jurisdiction proper under the due process clause, the "nexus" element under the Utah long-arm statute merits brief separate discussion. Clark contends that the mere payments into Utah do not establish sufficient nexus with the state of Utah. However, Clark ignores the fact that the payments into Utah were, in fact, part of its obligations under the Agreement. Indeed its alleged failure to make those payments provides the very basis for this suit. It also ignores the fact that Clark made those payments to Utah for a period of two years without complaint. As set forth above, this dispute centers around a contract that was created, performed, and breached in Utah. Under Utah law the nexus requirement for personal jurisdiction has been satisfied.
Harnischfeger Engineers, Inc., 883 F. Supp. at 616.
For all of these reasons, personal jurisdiction over Clark is proper.
CONCLUSION
Clark's motion to dismiss (#3-1) is denied. Clark is directed to file an answer within the period of time prescribed by the rules and then the parties should move promptly to the pre-trial scheduling conference.
SO ORDERED.