Opinion
NO. 3-01-CV-1532-M
March 12, 2002
FINDINGS AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
F. Robert Esty, Jr., Victor Bauer, Jack Miller, James Perez, Jeanine Matone, Daniel Kilcoyne, Shawn P. Kilcoyne, and Daniel Dopko ("distributor defendants") have filed a motion to dismiss the counterclaim of Dippin' Dots, Inc. ("DDI") for lack of personal jurisdiction. For the reasons stated herein, the motion should be granted.
This motion also was filed on behalf of Barry Jay Bass. However, Bass subsequently waived his jurisdictional challenge and entered into a Consent Decree with DDI.
I.
DDI manufactures a cryogenically frozen desert product consisting of small beads or pellets of ice cream that can be poured, spooned, or scooped. (Pif. First Am. Compl. ¶ 8). This product is distributed through a nationwide network of more than 100 retail dealers. In October 1999, DDI offered its then-current dealers an opportunity to franchise their operations. (DDI Am. Countercl. ¶ 5). The distributor defendants were among a small minority of dealers who did not accept the franchise offer. (Id. ¶¶ 5-6). Instead, the distributors approached Thomas Mosey and Nicholas Angus to establish a facility in Deerfield Beach, Florida to manufacture a competing ice cream product called "Frosty Bites." (Id. ¶ 9, 10, 18). The distributor defendants allegedly provided Mosey and Angus with confidential and proprietary information regarding DDI manufacturing, distribution, and storage techniques. (Id. ¶ 8-17). On March 16, 2000, the distributor defendants terminated their contracts with DDI. Just one day later, they began selling Frosty Bites products. (Id. ¶ 22).
This action prompted several lawsuits against Frosty Bites distributors around the country for trade dress infringement and misappropriation of trade secrets. On August 8, 2001, Frosty Bites, Inc., Mosey, and Angus countered with the instant declaratory judgment action. DDI has answered the complaint and filed counterclaims against the distributor defendants for trade dress infringement, misappropriation of trade secrets, unfair competition, injury to business reputation, and breach of contract. The distributor defendants, who are not parties to the underlying declaratory judgment action, now move to dismiss the counterclaims for lack of personal jurisdiction. The motion has been fully briefed by the parties and is ripe for determination.
DDI filed eight different lawsuits against Frosty Bites distributors in Tennessee, Georgia, Florida, and Texas. All those cases have been transferred to the Northern District of Georgia by the Judicial Panel on Multidistrict Litigation for consolidation with In re Dippin' Dots, Inc. Patent Litigation, MDL 1377.
The court has not considered for any purpose the seven declarations submitted by the distributor defendants as part of their reply brief. As DDI correctly notes, a party may not introduce new evidence at the reply stage of a motion proceeding without leave of court. See LR 7.2(e) (appendix may accompany a motion or response); Tovar v. United States, 2000 WL 425170 at *4 n. 8 (N.D. Tex. Apr. 18, 2000), aff'd, 244 F.3d 135 (5th Cir. 2000) (Table).
II.
The assumption of personal jurisdiction in a case "arising under" federal law involves a two-step inquiry. First, absent a controlling federal statute, the defendant must be amenable to service of process under the forum state's long-arm statute. Ham v. La Cienega Music Co., 4 F.3d 413, 415 (5th Cir. 1993). Second, the exercise of jurisdiction must comport with due process. Id. The Texas Supreme Court has determined that the state's long-arm statute reaches as far as the federal constitutional requirements of due process permit. Irving v. Owens-Corning Fiberglass Corp., 864 F.2d 383, 385 (5th Cir.), cert. denied, 110 S.Ct. 83 (1989); see also Kawasaki Steel Corp. v. Middleton, 699 S.W.2d 199, 200 (Tex. 1985). Accordingly, the court need only address the due process element of the inquiry.Due process for jurisdictional purposes consists of two elements. First, the defendant must have sufficient "minimum contacts" with the forum state. International Shoe Co. v. State of Washington, Office of Unemployment Compensation and Placement, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945); Wilson v. Belin, 20 F.3d 644, 647 (5th Cir.), cert. denied, 115 S.Ct. 322 (1994). These "minimum contacts" may be analyzed in terms of specific jurisdiction or general jurisdiction. Helicopteros Nacionales de Colombia S.A. v. Hall, 466 U.S. 408, 414, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404 (1984); Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 418 (5th Cir. 1993). Specific jurisdiction is proper when the contacts with the forum state arise from, or are directly related to, the cause of action. Wilson, 20 F.3d at 647. General jurisdiction focuses on other "continuous and systematic" contacts with the forum. Id.
If a non-resident defendant has sufficient minimum contacts with the forum state, the court must then consider whether the exercise of personal jurisdiction would "offend traditional notions of fair play and substantial justice." Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 114, 107 S.Ct. 1026, 1033, 94 L.Ed.2d 92 (1987); Wilson, 20 F.3d at 647. This inquiry focuses on several factors, including: (1) the burden on the non-resident defendant; (2) the interests of the forum state; (3) the interest of the plaintiff in securing relief; (4) the interest of the judicial system in obtaining the most efficient resolution of controversies; and (5) the shared interests of the several states in furthering fundamental substantive social policies. Asahi Metal, 107 S.Ct. at 1033; Bearry v. Beech Aircraft Corp., 818 F.2d 370, 377 (5th Cir. 1987).
The plaintiff has the burden to establish a prima facie case of personal jurisdiction over a non-resident defendant. Kelvin Services, Inc. v. Lexington State Bank, 46 F.3d 13, 14 (5th Cir. 1995). The court can make this determination without an evidentiary hearing based on the complaint, affidavits, and information obtained during discovery. Colwell Realty Investments, Inc. v. Triple T Inns of Arizona, Inc., 785 F.2d 1330, 1333 (5th Cir. 1986). The jurisdictional allegations set forth in the complaint must be taken as true and any conflicts in the evidence must be resolved in favor of the plaintiff. Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir. 1990).
III.
DDI tacitly concedes that the distributor defendants do not have the type of "continuous and systematic" contacts with Texas necessary to establish general jurisdiction. Rather, it maintains that specific jurisdiction is proper because the distributors have filed two declaratory judgment actions against DDI in this district and actively participated in an MDL proceeding that eventually may be tried in the Northern District of Texas. The court will therefore limit its analysis to this part of the "minimum contacts" test.
A.
A federal court may assume specific jurisdiction over a non-resident defendant who "purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Electrosource, Inc. v. Horizon Battery Technologies, Ltd., 176 F.3d 867, 871 (5th Cir. 1999), quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239-40, 2 L.Ed.2d 12283 (1958). The purposeful availment requirement "ensures that a defendant will not be haled into a jurisdiction solely as a result of `random,' `fortuitous,' or `attenuated' contacts, or of the `unilateral activity of another party or a third person.'" Id. at 871-72, quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528 (1985). The contacts with the forum state must be such that "it is foreseeable that the defendant `should reasonably anticipate being haled into court there.'" Id. at 872, quoting World-Wide Volkswagon Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980). In making this determination, the court may consider: (1) the quality, nature, and extent of defendant's activities in the forum state; (2) the foreseeability of consequences within the forum from activities outside the state; and (3) the relationship between the cause of action and the defendant's contacts. Hydrokinetics, Inc. v. Alaska Mechanical, Inc., 700 F.2d 1026, 1028 (5th Cir. 1983), cert. denied, 104 S.Ct. 2180 (1984), quoting Prejean v. Sonatrach, Inc., 652 F.2d 1260, 1268 (5th Cir. 1981)
B.
DDI argues that the distributor defendants have "purposefully availed" themselves of the benefits and protections of the forum state by actively participating in two other declaratory judgment actions in this district. Frosty Bites of New York, LLC, et al. v. Dippin' Dots, Inc., et al., No. 3-00-CV-1687-P; Frosty Bites Distribution, LLC, et al. v. Dippin' Dots, Inc., et al., No. 3-00-CV-1686-T. However, the distributor defendants are not parties to those actions. Rather, the lawsuits were brought by various Frosty Bites affiliates. F. Robert Esty, Jr., Jeanine Matone, Victor Bauer, Daniel Kilcoyne, and Daniel Dropko are officers of the affiliate corporations and participated in the litigation in that capacity. (DDI Resp., Exhs. 3-7). Under the fiduciary shield doctrine, "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) (footnote omitted); see also House v. 22 Texas Services, Inc., 60 F. Supp.2d 602, 609 (S.D. Tex. 1999). Consequently, the contacts of the Frosty Bites affiliates cannot be imputed to the distributor defendants to create personal jurisdiction.
The two cases cited by DDI do not compel a contrary result. In General Contracting Trading Co. v. Interpole, Inc., 940 F.2d 20 (1st Cir. 1991), the non-resident defendant had previously sued one of the parties in the same court alleging claims arising out of the same transaction. On those facts, the court held that the defendant had waived any jurisdictional defense. Id. at 29. Although the court in Mobil Oil Corp. v. Advanced Environmental Recycling Technologies, Inc., 833 F. Supp. 437 (D. Del. 1993) exercised personal jurisdiction over three corporate officers based primarily on acts committed in their corporate capacities, that decision was based on Delaware law, which does not recognize the fiduciary shield doctrine. Id. at 443.
C.
DDI further contends that the distributor defendants actively participated in a patent and trademark infringement action originally filed in the Northern District of Texas. Dippin' Dots, Inc., et al. v. Mosey, et al., No. 3-96-CV-1959-L. That case was transferred to the Northern District of Georgia by the Judicial Panel on Multidistrict Litigation ("MDL"), but may be remanded for trial in this district after MDL proceedings are concluded. See In re Dippin' Dots, Inc. Patent Litigation, MDL 1337, Trans. Order at 2 (Dec. 12, 2000). According to DDI, "the Dealer Defendants first participated in that matter upon filing a motion to intervene on behalf of their businesses while the action was pending in this Court." (DDI Resp. at 5) (emphasis added). While this may be true, it does not support the exercise of personal jurisdiction over the distributor defendants. The motion to intervene referenced by DDI was filed by nine Frosty Bites affiliates — not the distributor defendants. Dippin' Dots, Inc., et al. v. Mosey, et al., No. 3-96-CV-1959-L, Dkt. #413. The distributors were not joined as parties to the patent litigation until March 19, 2001 — more than three months after the case had been transferred to the Northern District of Georgia. (Id., Exh. 8). As previously stated, the contacts of affiliate corporations cannot be imputed to their officers for jurisdictional purposes.Nor have the distributor defendants waived their jurisdictional challenge by actively participating in the MDL litigation since their joinder in March 2001. Although a defendant may waive or forfeit the right to contest personal jurisdiction by failing to raise the issue seasonably, DDI has failed to prove waiver in this case. (cite case holding that burden of proving waiver is on party asserting personal jurisdiction). It is not altogether clear whether the distributor defendants have yet had occasion to contest personal jurisdiction in the MDL litigation. The second amended complaint joining them as parties contains no allegations regarding their amenability to suit in Texas. Rather, the complaint merely alleges that all defendants "have acquiesced to the jurisdiction of this Court." (DDI Resp., Exh. 8 at ¶ 7) (emphasis added). "This Court" undoubtedly refers to the federal district court in Georgia, not Texas. Even if the distributor defendants somehow waived their right to challenge personal jurisdiction in Georgia, that waiver is not transferable to another forum.
In support of its waiver argument, DDI relies on Hamilton v. Atlas Turner, Inc., 197 F.3d 58 (2d Cir. 1999). The plaintiff in Hamilton filed a wrongful death action against Atlas Turner, Inc., a Canadian corporation, and other defendants in the Southern District of New York after her husband died of an asbestos-related illness. Although Atlas filed an answer challenging personal jurisdiction, it did not move for dismissal on that ground. In November 1994, the MDL Panel transferred the case to the Eastern District of Pennsylvania where it was consolidated with other asbestos lawsuits for pretrial proceedings. The case was transferred back to New York in December 1997. In August 1998, just two months before trial, Atlas filed a motion to dismiss for lack of personal jurisdiction. The district court eventually granted the motion, but not until after the jury returned a $4 million verdict against Atlas. The Second Circuit reversed. The court noted that Atlas had multiple opportunities to move for dismissal on jurisdictional grounds: (1) during the five months prior to the MDL transfer; (2) when the prospect of transfer first arose; (3) during the three years that the case was pending before the Pennsylvania court; and (4) promptly after the case was remanded to the New York court for trial. Instead, Atlas actively participated in the case for more than four years. On these facts, the court concluded that Atlas waived any challenge to personal jurisdiction. Id. at ¶ 1-62.
The instant case presents an entirely different set of facts. Unlike the defendant in Hamilton, the distributor defendants did not have an opportunity to move for dismissal before the patent case was transferred to Georgia. Indeed, they were not joined as parties until after the transfer occurred. Nor is it clear from the MDL Transfer Order that the case will be remanded to the Northern District of Texas for trial. Most significantly, the defendant in Hamilton waived its right to challenge personal jurisdiction based on conduct that occurred in the same lawsuit. Here, DDI argues that the distributor defendants waived their jurisdictional defense as a result of actions taken in a different, albeit arguably related, case. The court simply is unwilling to find a waiver of this valuable right under these circumstances.
The Transfer Order provides, in relevant part:
It may be, on further refinement of the issues and close scrutiny by the transferee judge, that some claims or actions can be remanded to their transferor districts for trial in advance of the other actions in the transferee district. But we are unwilling, on the basis of the record before us, to make such a determination at this time. Should the transferee judge deem remand of any claims or actions appropriate, procedures are available whereby this may be accomplished with a minimum of delay.In re Dippin' Dots, Inc. Patent Litigation, MDL 1377, Trans. Order at 2 (Dec. 14, 2000).
RECOMMENDATION
The distributor defendants' motion to dismiss should be granted. The counterclaims against F. Robert Esty, Jr., Victor Bauer, Jack Miller, James Perez, Jeanine Matone, Daniel Kilcoyne, Shawn P. Kilcoyne, and Daniel Dopko should be dismissed without prejudice for lack of personal jurisdiction.