Opinion
No. 99-2123-JTM.
November, 2000
MEMORANDUM AND ORDER
This matter comes before the court on defendant Brookstreet Securities Corporation's ("Brookstreet") motion to dismiss for lack of jurisdiction or, alternatively, for failure to state a claim. The motion is fully briefed and ripe for determination. The court has carefully considered the parties' submissions, and for the reasons set forth below grants the defendant's motion.
I. Factual Background
In July of 1997, defendant Chambers, representing himself as an attorney experienced in the legal and financial aspects of various investment programs in the United States, entered discussions with Rizalina Lamson, a director of 2000 International Limited. Complaint, at ¶ 21. Chambers and Lamson discussed several investment programs related to the purchase and resale of bank instruments by foreign and domestic citizens. Id. at ¶ 22. Chambers presented investment plans wherein the program organizers would hold U.S. Treasury bonds in a fiduciary account as security for the return of invested capital. Chambers indicated that the investment program would yield annual returns between 500% and 1000%. Id. at ¶ 26. On or about January 5, 1998, plaintiff entered into a written agreement entitled "Commitment/Agreement to Participate in Capital Investment Program Relating to the Purchase and Sale of Banking Instruments" (the "Agreement"). Id. at ¶ 52. Under the terms of the Agreement, plaintiff wired $1,000,000 to Chamber's trust account at Nations Bank in Wichita, Kansas. Id. at ¶¶ 52, 55.
The trust account was actually registered under the name of the law offices of Edward A. McConwell, who is a registered Kansas attorney. Chambers was a client of Mr. McConwell.
Prior to soliciting funds from plaintiff and other investors, several of the defendants took numerous steps to establish an infrastructure for the investment program. In December of 1997, defendants Mark A. Stroupe, Jonathon Prangley, and Romeo L. Miles contacted Antonio Uccello, a registered representative of defendant Brookstreet, at Brookstreet's branch office in Bradenton, Florida. Id. at ¶¶ 28-37. Specifically, Miles informed Uccello that "he and his partners had entered into treasury contracts through which clients were transferring investment funds in minimum increments of $100,000" and that "unspecified lawyers" had authority to deal on behalf of the "clients." Id. at ¶ 40. On December 5, 1997, Stroupe, acting as a representative of Practical Holdings Limited, met with the president of Brookstreet, Stanley Brooks, to open a Brookstreet brokerage account. Stroupe told Brooks that he and his partners would use the brokerage account for an "aggressive trading program involving the purchase and sale of government securities on margin." Id. at ¶ 42. At about the same time, Prangley, acting as a representative of Mitchell Stewart Industries, Ltd. established a second Brookstreet brokerage account.
On January 12, 1998, Edward A. McConwell, acting at Chambers' request, wired plaintiff's $1,000,000 to Prangley's Mitchell Stewart Industries Brookstreet brokerage account (# OJR426310). Id. at ¶ 65. On January 19, 1998, Prangley instructed Brookstreet to transfer the funds to the Practical Holdings Limited account (# OJR426075). Id. at ¶ 69. Stanley Brooks contacted Prangley to confirm the transfer request and, upon receiving confirmation, Brookstreet processed the transaction. Id. at ¶ 70-71. After the transfer into the Practical Holdings account, plaintiff alleges that Stroupe and others withdrew funds from the account for deposit into personal bank accounts. Due to several large withdrawals from the Practical Holdings account, Brookstreet imposed a $10,000 limit on personal drafts citing the fact that the account was a transaction account as opposed to a checking account. Id. at ¶ 73.
On March 5, 1998, Stroupe purchased U.S. Treasuries with money from the Practical Holdings account. Id. at ¶ 75. In order to comply with the Agreement, Stroupe contacted Ned Weingart, a representative of defendant Equity Planning Securities Corporation, to request a verification letter "confirming with full legal responsibility that EPSC had verified that Brookstreet was holding the United States Treasuries, having face value of $25 Million, in Account Number OJR426075, maintained at Chase Manhattan Bank, New York, New York." Id. at ¶ 80. Before preparing the verification, Weingart contacted Uccello at Brookstreet's Bradenton, Florida office to discuss the letter. At that time, Uccello informed Weingart that the "Stroupe Treasuries were being held in an account at Chase Manhattan Bank in New York." Id. at ¶ 82. On March 10, 1998, Weingart issued the verification to Prangley. Id. at ¶ 83. Prangley forwarded the letter to Chambers who in turn forwarded it to plaintiff. Id. at ¶ 90. Weingart allegedly accepted a $100,000 advance on a real estate venture in return for issuing the verification. Id. at ¶ 80.
On March 12-13, 1998, Stroupe sold the Treasury Bonds. Id. at ¶¶ 85-86. Chambers sent plaintiff a March 25, 1998 letter containing a trade confirmation for the purchase of $25 Million face value in Treasuries and Weingart's letter. Despite these assurances, plaintiff, on August 14, 1998, apprised Chambers of its desire to terminate the arrangement and to organize return of the invested funds, which has yet to occur. Id. at ¶ 100. Based on the above facts, plaintiff brings the following claims against Brookstreet: negligence (Count XXIII), participation in a breach of trust (Count XI), Aiding and Abetting (Count XXII), Civil Conspiracy (Count XII), Violation of Kansas Securities Act (Count XXI), and Unjust Enrichment (Count XXIV). Brookstreet argues that the court lacks personal jurisdiction over it or, alternatively, that plaintiff has failed to state a claim on any of the above counts.
Personal Jurisdiction
The standard that governs a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction is well-established: the plaintiff bears the burden of establishing personal jurisdiction over the defendant. Prior to trial, however, when the court decides a motion to dismiss for lack of jurisdiction on the basis of affidavits and other written materials, the plaintiff need only make a prima facie showing. The court must take the allegations in the complaint as true to the extent that they are uncontroverted by the defendant's affidavits. If the parties present conflicting affidavits, the court resolves all factual disputes in the plaintiff's favor, and the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation by the moving party. Behagen v. Amateur Basketball Ass'n of the United States, 744 F.2d 731, 733 (10th Cir. 1984), cert. denied, 471 U.S. 1010 (1985) (citations omitted); Key Indus., Inc. v. O'Doski, Sellers Clark, Inc., 872 F. Supp. 858, 860-61 (D.Kan. 1994).
In analyzing a motion to dismiss for lack of personal jurisdiction, the court must conduct a two-part inquiry. First, it must determine if the defendant's conduct falls within one of the provisions of the forum state's long arm statute, which in this case is Kan. Stat. Ann. § 60-308(b). Second, the court must determine whether the defendant had sufficient "minimum contacts" with the forum state to satisfy the constitutional due process requirements. Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1357 (10th Cir. 1990); Electronic Realty Assocs., L.P. v. Paramount Pictures Corp., 935 F. Supp. 1172, 1175 (D.Kan. 1996).
As cited by plaintiff, K.S.A. § 60-308(b)(2) provides that Kansas courts have jurisdiction over a person who "commi[ts] a tortious act within this state." The Kansas long arm statute is construed liberally to allow personal jurisdiction to the full extent permitted by due process. Federated Rural Elec. Ins. Corp. v. Kootenai Elec. Coop., 17 F.3d 1302, 1305 (10th Cir. 1994).
Plaintiff also relies on subsections (b)(5) and (b)(7) of the Kansas long-arm statute. However, the court finds it unnecessary to consider the application of those subsections since (b)(2) is applicable in this case and allows the assertion of jurisdiction to the full extent of constitutional permissibility.
The Tenth Circuit has endorsed a three-part test to determine whether a nonresident defendant's contacts with the forum state are strong enough to justify an exercise of personal jurisdiction. See Rambo v. American S. Ins. Co., 839 F.2d 1415, 1419 n. 6 (10th Cir. 1988). First, the defendant must have sufficient contact with the forum state so that the exercise of jurisdiction will not offend traditional notions of fair play and substantial justice. Second, the defendant must have purposefully availed itself of the privileges of conducting activities in the forum state. Finally, the quality and nature of the defendant's contacts must be such that it is reasonable, in the context of our federal system of government, to require the defendant to appear in the forum state. Id.; Marcus Food Co. v. Family Foods of Tallahassee, Inc., 729 F. Supp. 753, 757-58 (D.Kan. 1990).
A defendant can establish contacts with the forum state sufficient to support jurisdiction in one of two ways. Specific jurisdiction exists when a defendant purposely avails himself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws, and the claims against him arise out of those contacts. Kuenzle v. HTM Sport-Und Freizeitgerate AG, 102 F.3d 453, 455 (10th Cir. 1996). General jurisdiction lies even when the claims are unrelated to the defendant's contacts with the forum state. Trierweiler v. Croxton and Trench Holding Corp., 90 F.3d 1523, 1533 (10th Cir. 1996). However, general contacts are sufficient only if they are systematic, substantial, and continuous. Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414 (1984). Plaintiff alleges that Brookstreet's Kansas contacts are sufficient to give rise to both specific and general jurisdiction.
A. General Jurisdiction
Plaintiff argues that the court has jurisdiction over Brookstreet based upon three general contacts: 1) Brookstreet is licensed to sell securities by the Kansas Securities Commission (Plaintiff's Response, Exhibit 13, Deposition of Stanley Brooks, pp. 19-20); 2) Brookstreet has a branch office in Marysville, Kansas which is staffed by Bernard Krug, an authorized representative of Brookstreet (Plaintiff's Response, Exhibit 13, Deposition of Stanley Brooks, pp. 19-20); and 3) Brookstreet operates an Internet website that Kansas consumers can access.
Plaintiff cites no case and the court has found none which supports the proposition that registering to sell securities in Kansas suffices to satisfy the Due Process criteria for an exercise of general jurisdiction. By way of contrast, courts have found that registration to do business in a state is of little consequence in general personal jurisdiction analysis. See, e.g., Consolidated Development Corp. v. Sherritt, Inc., 216 F.3d 1286, 1293 (11th Cir. 2000) ("Courts of appeals that have addressed this issue have rejected the argument that appointing a registered agent is sufficient to establish general personal jurisdiction over a corporation"); Wenche Siemer v. Learjet Acquisition Corp., 966 F.2d 179, 183 (5th Cir. 1992) ("While the last item, being qualified to do business, may on its face appear to be significant, it `is of no special weight' in evaluating general personal jurisdiction); Ratliff v. Cooper Laboratories, Inc., 444 F.2d 745, 748 (4th Cir. 1971) ("We think the application to do business and the appointment of an agent for service to fulfill a state law requirement is of no special weight in the present context"); Sofrar, S.A. v. Graham Engineering Corp., 35 F. Supp.2d 919, 921 (S.D.Fla. 1999) (finding no general jurisdiction under Florida's long-arm statute, even though defendants appointed an agent for service of process and were registered to do business in the state). The Supreme Court's various opinions on the issue of general jurisdiction, "suggest very strongly that the threshold contacts required for general jurisdiction are very substantial, indeed." 4 Wright Miller, Federal Practice and Procedure: Civil 2d § 1067, at 298. Given this substantial threshold, the court agrees with the Fourth, Fifth, and Eleventh Circuits that obtaining a license to do business or sell securities does not subject the licensee to the general jurisdiction of the licensing state. To hold otherwise would allow courts to assert jurisdiction over defendants that potentially have little contact with a state other than being authorized to conduct business therein. Hence, a bright-line rule conferring jurisdiction wherever a corporation might register cannot comport with the "systematic and continuous" standard recognized by the Supreme Court.
Plaintiff also relies on the fact that Brookstreet has an independent representative in Marysville, Kansas. Ralph Krug acts as an independent stockbroker and authorized agent of Brookstreet. When involved in a Brookstreet transaction, Brookstreet does require Krug to follow the procedures outlined in Brookstreet's compliance manual. However, Brookstreet does not own or rent Krug's office property nor any other property in Kansas. Affidavit of Kathleen M. McPherson, at ¶¶ 4-8. Additionally, Brookstreet does not supervise Krug on a day-to-day basis. Id. Plaintiff argues that Ralph Krug is, in actuality, an employee of defendant and that general personal jurisdiction is proper because of Krug's presence in Kansas. Even assuming plaintiff is correct, whether Krug is an authorized agent or an employee is irrelevant. As the Court in International Shoe explained, a nonresident corporate entity creates contacts for personal jurisdiction purposes through its authorized representatives: its employees, directors, officers and agents. International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158 (1945) (a corporation's presence, for personal jurisdiction purposes, is "manifested only by activities carried on in its behalf by those who are authorized to act for it"). The key question is whether Krug's activities on behalf of defendant are sufficiently systematic and continuous to justify an assertion of general personal jurisdiction. The Supreme Court instructs that only when the "continuous corporate operation within a state [is] thought so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities" may a court assert general jurisdiction over a corporate defendant. Id. at 318, 66 S.Ct. at 159. To carry the heavy burden necessary to support general jurisdiction, plaintiff relies solely on the presence of defendant's representative in Kansas. Plaintiff has not established that defendant conducts substantial business through its Kansas representative. Nor has plaintiff provided evidence suggesting that the defendant's Kansas operations constitute a significant portion of the company's revenue. The court finds that the presence of a single independent agent is not sufficient to justify the imposition of general personal jurisdiction over Brookstreet. See e.g., Nichols v. G.D. Searle Co., 991 F.2d 1195, 1198-1200 (4th Cir. 1993) (finding no general jurisdiction over a defendant that employed 13 forum residents as sales representatives and one as district manager, held district meetings in the forum three times per year, held regional and national meetings twice per year, and sold $9 million to $13 million in products); Glater v. Eli Lilly Co., 744 F.2d 213, 216-17 (1st Cir. 1984) (finding no general jurisdiction over defendant who advertised, employed eight sales representatives, and sold products in the forum state); Ratliff v. Cooper Labs., Inc., 444 F.2d 745, 748 (4th Cir. 1971) (finding no general jurisdiction when the defendant did no more than advertise and employ salesmen in the forum state).
Finally, the court finds that Brookstreet's use of its Internet website is not sufficiently systematic and continuous as to warrant the exercise of general personal jurisdiction. Kansas residents who wish to obtain direct access to their online brokerage accounts can access the defendant's website. The website is also a means of communication between customers and the defendant. In short, the defendant's website is an interactive website. See Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1123-24 (W.D.Pa. 1997) (defining "interactivity" as the exchange of information with a host computer and holding that a high degree of interactivity of a commercial nature can establish personal jurisdiction). The likelihood that the court can constitutionally exercise personal jurisdiction is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet. This sliding scale is consistent with well developed personal jurisdiction principles. At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996). At the opposite end are situations where a defendant has simply posted information on an Internet website which is accessible to users in foreign jurisdictions. A passive website that does little more than make information available to interested persons is not grounds for the exercise personal jurisdiction. Bensusan Restaurant Corp. v. King, 937 F. Supp. 295 (S.D.N.Y. 1996). Interactive websites where a user can exchange information with the host computer occupy the middle ground. In these cases, the exercise of jurisdiction is determined by examining the level and commercial nature of the interactivity that occurs through the website. See e.g., Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328 (E.D.Mo. 1996). Under the Zippo Mfg. Co. definition, this case clearly falls in the middle ground.
The interactive nature of defendant Brookstreet's website does not automatically lead to the conclusion that personal jurisdiction is proper. To establish general personal jurisdiction through a website, plaintiff must still show that the interactivity resulted in substantial and systematic contacts with the forum state. See ESAB Group, Inc. v. Centricut, LLC, 34 F. Supp.2d 323 (D.S.C. 1999) (finding that the defendant's web page did not constitute a substantial contact with South Carolina for purposes of establishing general jurisdiction because there was no allegation demonstrating that the defendant had done anything to encourage people in South Carolina to visit the site or that this website was directed at South Carolina more than any other place in the country). Significantly, plaintiff presents no proof that Kansas residents have accessed the website of that defendant targeted Kansas residents in any way. See Molnlycke Health Care AB v. Dumex Medical Surgical Products Ltd., 64 F. Supp.2d 448 (E.D.Pa. 1999). Absent evidence of substantial Internet-based communications with residents of Kansas, the court cannot assert general personal jurisdiction. Given that individuals can access an Internet website from any forum, an exercise of jurisdiction based solely on the utilization of an interactive website would subject many companies and individuals to suit in essentially any court, even ones entirely unpredictable to the potential defendants. There must be evidence to show that the website was systematically and continuously aimed at the forum such that an exercise of jurisdiction would comport with "traditional notions of fair play and substantial justice." Absent such evidence, the court does not have general personal jurisdiction on the basis of defendant's interactive website. For recent cases supporting this holding, see Ecotecture, Inc. v. Wenz, 2000 WL 760961 (D.Me. 2000) (holding that the assertion of jurisdiction based on defendant's interactive website was improper where there was no evidence that the defendant used e-mail to transact business in the forum state or that anyone in Maine had entered into a contract with the defendant to subscribe to the defendant's online journal) Millennium Enterprises, Inc. v. Millennium Music, LP, 33 F. Supp.2d 907 (D.Or. 1999) (concluding that in the absence of evidence that the defendants targeted Oregon for sales or aimed their website intentionally at Oregon there was insufficient grounds to find that the defendant could reasonably anticipate being haled into court in Oregon); Molnlycke Health Care AB v. Dumex Medical Surgical Products Ltd., 64 F. Supp.2d 448 (E.D.Pa. 1999) (noting that while the websites were available in every state, the defendant did not target them toward every state, and that plaintiff had made no showing that the defendant's websites targeted Pennsylvania, or that the websites were "central" to the defendant's business, and concluding that the state could not assert personal jurisdiction over the defendant); Transcraft Corp. v. Doonan Trailer Corp., 1997 WL 733905 (N.D.Ill. 1997) (holding that without evidence of actual and substantial interaction with forum residents, an interactive website cannot support jurisdiction). The court finds that defendant's contacts with the District of Kansas are insufficient to support an exercise of general personal jurisdiction over defendant Brookstreet. Trierweiler, 90 F.3d at 1533.
B. Specific Jurisdiction
Kansas may assert specific jurisdiction over Brookstreet if it "has purposefully directed [its] activities at residents of the forum, and the litigation results from alleged injuries that arise out of or relate to those activities." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985). "[T]here [must] be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Id. at 475 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)). The "purposeful availment" requirement ensures that a defendant will not be haled into a jurisdiction as the result of another party's unilateral acts. Id.; Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1075 (10th Cir. 1995). Having carefully considered plaintiff's arguments, the court finds that Brookstreet's sole specific contact with Kansas is that it received a wire transfer of funds from a Kansas trust account. Complaint, at ¶¶ 38, 65. The uncontroverted evidence reveals that neither Stanley Brooks, the president of Brookstreet, nor Antonio Uccello, Brookstreet's Florida representative, had any knowledge of the geographical source of the transfer. Deposition of Antonio Uccello, at 92; Deposition of Stanley Brooks, at 30-32. Plaintiff argues that because Brookstreet could have discovered the origin of the various transfers, it should be charged with knowledge of the same. However, having knowledge of the transfer's origin does not mandate a finding that Brookstreet purposely availed itself of Kansas laws. Brookstreet did not seek out funds from Kansas residents or otherwise direct its activities toward Kansas. Instead, Brookstreet passively received the Kansas funds without any actual knowledge of the money's origin. The court finds that Brookstreet could not have anticipated being subjected to suit in Kansas simply because Chambers sent one transfer from Kansas, among the many transfers that Brookstreet received from outside this forum.
Additionally, plaintiff's fund transfer was a unilateral activity which cannot result in jurisdiction over Brookstreet. See Hanson v. Denckla, 357 U.S. 235, 253 (1958) ("The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State."). Defendant entered into an agreement with Prangley, Stroupe and others during meetings in Florida. Pursuant to the agreement, the various defendants transferred third party funds into Brookstreet accounts from numerous points of origin, including Kansas. Brookstreet did not purposely avail itself of Kansas law, and Chamber's unilateral act of initiating a wire transfer to defendant cannot subject Brookstreet to suit in Kansas. Id. Based on the foregoing, the court grants defendant Brookstreet's motion to dismiss for lack of jurisdiction, pursuant to Rule 12(b)(2).
Absent personal jurisdiction, the court cannot rule on Brookstreet's alternative motion on the merits, pursuant to Rule 12(b)(6).
IT IS THEREFORE ORDERED this ___ day of November, 2000, that defendant's motion to dismiss for lack of personal jurisdiction (dkt. no. 113) is granted.