Opinion
CIVIL ACTION No: 01-1256 C/W, 01-2831, SECTION: "R"(1).
January 8, 2002
ORDER AND REASONS
Before the Court are defendants' motion to dismiss under Rule 12(b)(1) and 12(b)(2), motion to strike under Rule 12(f), and motion for attorney's fees and costs under Rule 41(d). For the following reasons the motion to dismiss is granted in part and denied in part. The motion to strike and the motion for attorneys fees and costs are denied.
I. Background
This case arises from contracts for the construction and operation of SpeeDee Oil Change and Tune-Up franchises. Plaintiff G.C. K.B. Investments, Inc., a Louisiana corporation, is the entity that deals with the franchisor aspects of SpeeDee operations. plaintiff FTB, a Louisiana limited liability company, is an affiliate of SpeeDee, and it supervises the construction of new franchise locations. In 1998, Gary Copp, the president of SpeeDee, contacted Wayne Tilson, a Georgia-based real estate developer, about establishing SpeeDee franchises in Georgia. In accordance with its expansion plans, SpeeDee, through FTB, acquired land in Roanoke and Vinton, Virginia; Asheville, North Carolina; and Gainesville, Georgia.
During the course of their dealings, Tilson introduced Copp to Phillip Fisk, a co-owner along with Tilson of Spirit Group, LLC, a corporation registered in North Carolina. Tilson and Fisk suggested that Spirit could build the SpeeDee stores planned for the Georgia and North Carolina properties, as well as the proposed stores in South Carolina and Texas. As a result of these discussions, Spirit Group and FTB entered into a contract in which Spirit Group agreed to construct and sell to FTB "turn-key" prototype buildings for the Vinton, Roanoke, and Gainesville locations for about $650,000 per store. The same parties reached a similar agreement for a location Lawrenceville, Georgia, for which FTB paid Spirit Group a $20,000 deposit. FTB also paid an initial loan commitment fee of $3000 to the Franchise Finance Corporation of America ("FFCA") for the Lawrenceville store. The Lawrenceville unit was never built because FTB was unable to obtain required site permits. Plaintiffs allege that they discovered numerous defects in the three stores that Spirit Group constructed in Vinton, Roanoke, and Gainesville.
During the construction of the stores, Tilson and Fisk formed Autowork Services, LLC in order to become franchisees of SpeeDee stores. After G.C. K.B. executed franchise agreements with Autowork and Tilson and Fisk, individually, defendants entered into leases with FTB for the Asheville and Gainesville sites. Under the lease terms, defendants agreed to pay a monthly rental fee and property taxes. Defendants also signed leases for the equipment to be used at the stores. Plaintiffs allege that defendants failed to pay the rental fees under both the property and equipment leases and fell behind on the royalty payments under the franchise agreements. Eventually, defendants abandoned the two stores. Plaintiffs were forced to find new franchisees to replace the defendants.
The property lease and equipment lease contain acceleration clauses. The acceleration in the equipment lease provides:
Lessor shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity, including without limitation any one or more of the following:
. . .
(v)To accelerate and recover from Lessee all rent and other monetary sums due and owing and scheduled to become due and owing under this Equipment Lease both before and after the date of such breach for the entire scheduled term of the Equipment Lease;
Pl.'s Ex. B, at 14, ¶ 21B(v);
The property lease contains a nearly identical provision. See Pl.'s Ex. C., at 13, ¶ 21D(vi).
In the first complaint, filed on April 25, 2001, plaintiffs assert claims for damages against Tilson, Fisk, and Autowork for breaching the franchise agreements. Plaintiffs also assert claims against Spirit Group for failing to honor its warranty obligations under the construction contracts and for failing to provide FTB with an acceptable site plan for the Lawrenceville project. On August 8 and 15, 2001, FTB and G.C. K.B., respectively, each moved to dismiss Spirit Group from the proceedings without prejudice after they determined that the damage estimates for the Vinton, Roanoke, and Gainesville stores did not exceed the jurisdictional amount. Subsequently, plaintiffs discovered additional construction defects and on September 14, 2001, they filed a second complaint reasserting the construction claims against Spirit Group and adding claims for unpaid rent under the equipment and property leases against Tilson, Fisk, and Autowork. All defendants filed this motion to dismiss the case for lack of subject matter jurisdiction, to strike the second complaint as duplicative, and to award fees and costs under Rule 41 because plaintiffs voluntarily dismissed the claims against Spirit Group and then reasserted it. Further, Spirit Group asserts, as an additional grounds for dismissal, that the Court lacks of personal jurisdiction over it.
Tilson, Fisk, and Autowork then filed a motion for summary judgment for lack of subject matter jurisdiction just as to the original complaint. The Court need not address this motion. The case has been consolidated and the two complaints will be considered as one because the claims are nearly identical as against these three defendants, with the exception of the additional request for unpaid rent.
II. Discussion
A. Personal Jurisdiction over Spirit Group
When, as here, a nonresident defendant moves to dismiss for lack of personal jurisdiction, the plaintiff shoulders the burden of establishing jurisdiction over that defendant. See Stuart V. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). Because this Court will rule on the issue without a full evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdiction. See Wilson v. Belin, 20 F.3d 644, 648 (5th Cir. 1994) (citing Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1165 (5th Cir. 1985)). In determining whether plaintiffs have made a prima facie showing of jurisdiction, the Court must accept as true all uncontroverted allegations in plaintiffs' complaint and resolve any factual disputes in their favor. See Latshaw V. Johnson, 167 F.3d 208, 211 (5th Cir. 1999); Wilson, 20 F.3d at 648.
A court has personal jurisdiction over a nonresident defendant if (1) the forum state's long-arm statute confers personal jurisdiction over that defendant; and (2) the forum state's exercise of such jurisdiction complies with the due process clause of the Fourteenth Amendment. See Latshaw, 167 F.3d at 211. Under the Louisiana long-arm statute, jurisdiction is proper if the cause of action arises out of "injury or damage by an offense or quasi offense committed through an act or omission in this state." LA.REV.STAT. § 13:3201(A)(3). In addition, Louisiana's long-arm statute extends jurisdiction to the full limits of due process. Thus, the Court must determine whether the exercise of jurisdiction satisfies the due process clause. See T.JA.REV.STAT. § 13:3201(B); Guidry v. United States Tobacco Co., 188 F.3d 619, 624 (5th Cir. 1999) (citing Petroleum Helicopters, Inc. v. Avco Corp., 513 So.2d 1188, 1192 (La. 1987)).
1. Due Process
The exercise of personal jurisdiction over a nonresident defendant satisfies due process when (1) the defendant has purposefully availed itself of the benefits and protections of the forum state by establishing "minimum contacts" with that state; and (2) exercising personal jurisdiction over the defendant does not offend "traditional notions of fair play and substantial justice." Latshaw, 167 F.3d at 211 (citing International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158 (1945)).
a. Minimum contacts
The minimum contacts prong of the due process analysis may be satisfied if the contacts give rise to specific personal jurisdiction or give rise to general personal jurisdiction. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414, 104 S.Ct. 1868 (1984); Wilson, 20 F.3d at 647.
The Court will not address the issue of general jurisdiction because plaintiffs do not contest Spirit Group's claim that the Court does not have general personal jurisdiction over it.
A court may exercise specific jurisdiction over a nonresident defendant when the claim asserted against the defendant arises out of or relates to his contacts with the forum state. See Helicopteros, 466 U.S. at 414 n. 8, 104 S.Ct. at 1872 n. 8; Wilson, 20 F.3d at 647. To determine whether specific jurisdiction exists, courts must examine whether the defendant purposefully availed himself of the privileges of conducting activities in the forum state, and whether the cause of action arises out of or relates to those activities. See Guidry, 188 F.3d at 625; D.J. Investments, Inc. V. Metzeler Motorcycle Tire Agent Gregg, Inc., 754 F.2d 542, 547-48 (5th Cir. 1985). The defendant's connection with the forum state must be such that he "should reasonably anticipate being haled into court" there. Latshaw, 167 F.3d at 211 (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567 (1980)). A single act by the defendant directed at the forum state can be enough to confer in personam jurisdiction over him, if the cause of action arises out of that act. See Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 419 (5th Cir. 1993). In order to determine whether defendant purposefully availed itself of the privilege of conducting activities within this forum, the Court must consider factors such as the quality, nature and extent of defendant's activities in this forum, and the relationship between the cause of action and the contacts. See D.J. Investments, 754 F.2d at 545 n. 1 (quoting Prejean v. Sonatrach, Inc., 652 F.2d 1260, 1268 (5th Cir. 1981)).
Here, plaintiffs claim that this dispute arose out of contracts negotiated between FTB and Spirit Group. Plaintiffs submit the affidavit of Gary Copp, president of SpeeDee and its affiliates, testifying that he had extensive telephone and written correspondence with Fisk and Tilson, on behalf of Spirit Group, regarding construction contracts for the sites in Vinton, Roanoke, Gainesville, and Lawrenceville. Pl.'s Opp. to Mot. to Dismiss, Ex. A at ¶ 7. As a result of the discussions, Spirit Group drafted contracts outside of Louisiana and sent the contracts to Copp in Louisiana for his approval. Id. at ¶ 8. Copp further testifies that Tilson and Fisk separately made at least one trip to SpeeDee's Louisiana office to discuss the construction projects on behalf of Spirit. Id. at ¶ 10. Additionally, he states that during another meeting in Louisiana additional discussions were held about the completed construction projects and related repair issues. Id. at ¶ 11. Spirit Group maintains that all of the alleged causes of action arose out of activities outside of Louisiana. See Def.'s Reply Mem. at 3.
The Supreme Court has held that the existence of a contract alone is insufficient to confer specific personal jurisdiction.
If the question is whether an individual's contract Swith an out-of-state party alone can automatically establish minimum contacts in the other party's home forum, we believe the answer clearly is that it cannot. . . . [W]e have emphasized the need for a highly realistic approach that recognizes that a contract is ordinarily but an intermediate step serving to tie up prior business negotiations with future consequences, which themselves are the real object of the business transaction. . . . It is these factors — prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing — that must be evaluated in determining whether the defendant purposefully established minimum contacts within the forum.Burger King-Corp. v. Rudzewicz, 471 U.S. 462, 478, 105 S.Ct. 2174, 2185-86 (1985) (internal quotes and citations omitted). Further, the Fifth Circuit has stressed that not only does a contract alone not confer jurisdiction, but also that district courts should "look to the factors of prior negotiations, contemplated future consequences, terms of the contract, and the parties' actual course of dealing to determine whether [defendant] purposely established minimum contacts with the forum." See Spademan, 85 F.3d at 1193.
The facts of this case are similar to those in Spademan where the Fifth Circuit affirmed the district court's dismissal of the case based on lack of personal jurisdiction. In Spademan, plaintiff asserted personal jurisdiction over defendant based on the combination of a contractual relationship, the defendant's mailing payments to the forum state and his engaging in communications in the forum state regarding the execution and performance of a contract. Id. In addition, plaintiff pointed out the defendant made two shipments of bindings to the forum state. Id. The Court rejected the plaintiff's argument, and held that:
The random use of interstate commerce to negotiate and close a particular contract, the isolated shipment of goods to the forum at the instigation of the resident plaintiffs, and the mailing of payments to the forum do not constitute the minimum contacts necessary to constitutionally exercise jurisdiction over Spademan.Id. at 1194.
Further, the Fifth Circuit has found that the place of contractual performance is central in determining whether the making of a contract with the in-state resident is sufficiently purposeful to satisfy minimum contacts. See Dickson Marine Inc. v. Panalpina, Inc., 179 F.3d 331, 337-38 (5th Cir. 1999); Jones v. Petty-Ray Geophysical Geosource, Inc., 954 F.2d 1061, 1068 (5th Cir. 1992) (citation omitted). In Dickson, the plaintiff asserted personal jurisdiction based primarily on a repair contract it had with the out-of-state defendant. 179 F.3d 331, 337 (5th Cir. 1999). The Court placed great weight on the fact that the bulk performance of the contract occurred out of the forum state. Id. at 338. The court there noted that the relationship between the parties had been structured so that once the repairs outside the forum state had taken place, and the plaintiff paid the defendant, all contact between the parties would cease. Id. at 338. The Court found that this type of contractual relationship created only limited contacts between the defendant and the forum state, which did not satisfy the minimum contacts analysis.
These cases support dismissing the case against Spirit Group for lack of personal jurisdiction. The bulk of the negotiations and performance of the contracts at issue occurred outside the forum state. Indeed, the only discussions conducted in Louisiana occurred after the construction contracts were executed. The types of contacts that plaintiffs present in support of jurisdiction are the kind that the Fifth Circuit has held to be insufficient to confer jurisdiction. See Hydrokinetics, Inc. v. Alaska Mechanical, Inc., 700 F.2d 1026, 1029 (5th Cir. 1983) (holding that communications regarding the development or status of a contract was insufficient to confer jurisdiction); see also Plant Mechanical Services, Inc. v. Drivecon Corp., 2001 WL 1002413, *4 (E.D. La. 2001) (finding lack of personal jurisdiction when bulk of negotiations and performance of contracts occurred outside forum state).
Furthermore, plaintiffs' reliance on the Supreme Court's decision in Burger King is ineffectual. In Burger King, the nonresident defendants actively solicited the business of Burger King, in the forum state, Florida, and the parties entered into a twenty-year franchise agreement that was governed by Florida law. See Burger King, 471 U.S. at 465-66, 105 S.Ct. at 2178-79. Plaintiffs' own record establishes that Copp initially sought out Tilson, a nonresident, for help acquiring real estate outside the forum. The parties later discussed Spirit Group's desire to construct the SpeeDee stores after the relationship was already established. Further, although plaintiffs contend that Spirit Group agreed to construct additional stores in the future, there is no indication that the parties agreed to be governed by Louisiana law. Considering the totality of the facts in this case, the Court finds that these limited contacts are not of the quality and nature necessary to support specific jurisdiction over Spirit Group. Further, plaintiffs make no showing that would establish the extensive Louisiana contacts necessary to establish general jurisdiction. Accordingly, the Court grants the motion to dismiss Spirit Group.
B. Subject Matter Jurisdiction over Tilson, Fisk, and Autowork
Defendants Tilson, Fisk, and Autowork contend that plaintiffs fail to allege a sufficient amount in controversy to satisfy 28 U.S.C. § 1332(a). The Court determines the amount in controversy from the complaint, "unless it appears or is some way shown that the amount stated in the complaint is not claimed 'in good faith.'" Horton v. Liberty Mutual Ins., Co., 367 U.S. 348, 353, 81 S.Ct. 1570, 1573 (1961). To find a lack of good faith "[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount." St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 590 (1938). This amounts to "but one test; good faith and legal certainty are equivalents rather than two separate tests." Jones v. Landry, 387 F.2d 102, 104 (5th Cir. 1967). The good faith standard is not concerned with subjective states of mind.
Plaintiffs' alleged damages include unpaid past rent, property taxes, and future unpaid rent for breaches of the property and equipment leases. See Pl.'s Second Cmplt. at ¶ 23. Defendants assert that plaintiffs arguable damages are limited to $57,000 and that they are legally certain to not be able to satisfy the jurisdictional amount because plaintiffs are not entitled to future unpaid rent under the acceleration clauses in the equipment and property leases. See Def.'s Reply Mem. at 7. According to defendants, plaintiffs have relet the property and must formally put the new tenants in default before an acceleration demand can be made upon defendants. See id. Defendants further allege that plaintiffs have not pleaded compliance with the acceleration clauses.
Federal Rule of Civil Procedure 8(a) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." FED.R.CIV.P. 8(a). Accordingly, plaintiffs' complaint need only provide notice of the circumstances giving rise to their claim and set forth enough information to outline the elements of their claim or permit inferences to be drawn that these elements exist. See Beanal v. Freeport-McMoran, Inc., 197 F.3d 161, 164 (5th Cir. 1999). The Court finds that plaintiffs meet the liberal notice pleading requirements under Rule 8(a) by including "future unpaid rent" in their demand for relief. This puts defendants on notice that plaintiffs are seeking the amount of rent due for the remaining time under the leases. See Pl.'s Second Cmplt. at ¶ 23. Finally, it is true that the leases require plaintiffs to offset the money they receive for reletting the premises and the equipment against the amounts defendants owe them after accounting for certain expenses. See Pl.'s Ex. B at 13, ¶ 21B(iv), Pl.'s Ex. C at 13, ¶ 21D(v). The proceeds from such reletting only reduce the total remaining due under defendants' lease. There is no evidence, however, that the rent paid by the current tenants completely offsets the amount defendants assertedly owe to FTB, about two million dollars for each of the two properties. See Pl.'s Ex. E, Affidavit of Mark Dearing. Defendants submit no evidence of the date the property was relet or the or the amount of the rentals under the new leases. Therefore, it is not legally certain that plaintiffs cannot collect at least a portion of the unpaid future rent under the equipment and property leases and meet the jurisdictional amount.
C. Motion to Strike
Defendants move to strike the allegations contained in the second complaint against Tilson, Fisk, and Autowork as redundant under Rule 12(f). Rule 12(f) provides that "the court may order stricken from any pleading . . . any redundant, immaterial, impertinent, or scandalous matter." FED.R.CIV.P. 12(f). A motion to strike under Rule 12(f) "is a drastic remedy to be resorted to only when required for the purposes of justice . . . ." Augustus v. Board of Pub. Instruction of Escambia County, 306 F.2d 862, 868 (5th Cir. 1962) (quoting Brown Williamson Tobacco Corp. v. United States, 201 F.2d 819, 822 (6th Cir. 1953). Accordingly, such a motion should only be granted when "the allegations are prejudicial to the defendant or immaterial to the lawsuit." Johnson v. Harvey, 1998 WL 596745, at *7 (E.D. La. 1998) (quoting Veazie v. Southern Greyhound Lines, 374 F. Supp. 811, 815 (E.D. La. 1994)).
After reviewing the two complaints and the portions of the second complaint that pertain to Tilson, Fisk, and Autowork, the Court denies defendants' Rule 12(f) motion to strike. Defendants do not allege that they were prejudiced by the filing of the second complaint, but merely argue that plaintiffs should have amended the first complaint instead of filing a second one. See Def's Mot. to Dismiss at 11-12. Because the two complaints have been consolidated into one case, the second complaint essentially amends the first complaint by adding the claim for unpaid rent under the property and equipment leases. Accordingly, in the absence of prejudice to defendants, the Court denies defendants' motion to strike.
D. Rule 41 Motion
Spirit Group asserts that it is entitled to attorney's fees and costs under Rule 41(d) for the previously dismissed action. Under Rule 41(d), a court may require a plaintiff to pay the costs of a prior action as a condition for maintaining a subsequent action only if the plaintiff has dismissed the previous action. FED.R.CIV.P. 41(d); see also Duchardt v. Ewing, 571 F.2d 869, 870 (5th Cir. 1978) (per curiam). The decision to stay an action and impose costs under Rule 41(d) is within the broad discretion of the trial court. See Larson v. Senate of the Commonwealth of Pennsylvania, 955 F. Supp. 1549, 1582 (M.D. Pa. 1997) (citing 5 Moore's Federal Practice ¶ 41.16 at 41-185 (2d ed. 1996)), affirmed in part, reversed in part on other grounds, 154 F.3d 82 (3d Cir. 1998), cert. denied, 525 U.S. 1144, 119 S.Ct. 1037. "The purpose of the rule is to prevent the maintenance of vexatious lawsuits and to secure, where such suits are shown to have been brought repetitively, payment of costs of prior instances of such vexatious conduct." United Transp. Union v. Maine Central R.R. Co., 107 F.R.D. 391, 392 (D. Me. 1985). A court may refuse to impose costs on the plaintiff if it appears that there was good reason for the dismissal of the prior action. 9 Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 2375 (2d ed. 1987). Here, plaintiffs voluntarily dismissed Spirit Group from the first lawsuit when they determined that the amount of construction damage to their stores was not sufficient to meet the jurisdictional requirement. Plaintiffs filed the second complaint against Spirit Group after discovering additional damage to the stores that allegedly met the jurisdictional amount. Accordingly, the Court finds that imposing costs under Rule 41(d) is not warranted because plaintiffs had good reason to dismiss the first complaint as against Spirit Group, a lack of subject matter jurisdiction.
III. Conclusion
For the foregoing reasons, Spirit Group's motion to dismiss is GRANTED; Tilson's, Fisk's, and Autowork's motion to dismiss is DENIED; and the motions to strike and for attorney's fees and costs are DENIED.
New Orleans, Louisiana, this 8th day of January, 2002.
SARAH S. VANCE UNITED STATES DISTRICT COURT