Opinion
File No. 1:04-CV-338.
March 30, 2005
OPINION
This diversity action for breach of contract, unjust enrichment and declaratory judgment is before the Court on Defendant's motion to dismiss. For the reasons that follow the motion will be granted.
I.
Plaintiff Nanhai Jiantai Woodwork Co. ("Jiantai" or "JTWW") is a Chinese corporation with its principal place of business in the Peoples Republic of China.
Defendant Front Steel Importers, Inc., d/b/a Sentinel Furniture Industries ("SFI"), is a California corporation with its principal place of business in Palm Springs, California.
Plaintiff Hekman Furniture Co. ("Hekman"), a wholly owned subsidiary of Howard Miller Clock Company, is a Michigan corporation with its principal place of business in Grand Rapids, Michigan.
Defendant SFI operated as a distributor in the United States for furniture manufactured by Plaintiff Jiantai. SFI and Jiantai terminated their business relationship in the spring of 2004.
On May 20, 2004, Plaintiffs commenced this action against SFI. Counts I and II are claims by Jiantai against SFI for breach of contract and unjust enrichment. Count III seeks a declaratory judgment in favor of Jiantai and Hekman declaring (1) that Jiantai's termination of its business relationship with SFI is in all respects legal and operative; (2) that Jiantai has not breached any contract in effect between Jiantai and SFI, and (3) that neither Jiantai nor Hekman has tortiously interfered with SFI's business relations with Jiantai or Hekman.
Defendant has filed a motion to dismiss pursuant to Rules 12(b)(1), (2), (3), and (5), alleging lack of subject matter jurisdiction, lack of personal jurisdiction, improper venue, and insufficiency of service of process.
II.
The Court begins its consideration of the motion with the declaratory judgment claim by Plaintiff Hekman. Defendant SFI contends it is entitled to dismissal of Hekman's request for a declaratory judgment because Hekman has failed to demonstrate any amount in controversy and because there is no actual controversy under which Hekman can bring a cause of action for a declaratory judgment.
The Declaratory Judgment Act provides that in "a case of actual controversy within its jurisdiction" a federal court "may" give a declaratory judgment. 28 U.S.C. § 2201. The limitation in the Act to "cases of actual controversy," means that the Act is operative only in respect to "controversies" in the constitutional sense. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-40 (1937) (referencing U.S. Const. art. III, § 2).
A "controversy" in this sense must be one that is appropriate for judicial determination. . . . The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests. It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.Kardules v. City of Columbus, 95 F.3d 1335, 1356-57 (6th Cir. 1996) (quoting Aetna Life 300 U.S. at 240-41 (citations omitted)). "Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941).
Hekman's request for a declaratory judgment is based upon allegations that SFI sent a letter to Jiantai demanding immediate payment, and, in the event of non-payment, threatening to file a suit against Jiantai to enjoin Jiantai from dealing with SFI customers and advising that if Jiantai sought payment directly from SFI's customers it would constitute intentional interference with economic relations. (Compl. ¶¶ 28-30). Hekman has alleged that Howard Miller, Chairman and CEO of Hekman, was copied on this letter, and that Mr. Miller also received a letter from Mr. Good of SFI threatening to seek an injunction against Hekman if Hekman deals directly with Jiantai. (Compl. ¶¶ 31-32). Based on these communications, Hekman seeks a declaration that "neither Jiantai nor Hekman has tortiously interfered with SFI's business relations with Jiantai or Hekman." (Compl. at p. 5).
The controversy between Hekman and SFI is not appropriate for judicial determination because it is not ripe. All Plaintiffs have alleged is that SFI has threatened to file suit if Jiantai does not pay SFI a certain amount of money and if Jiantai continues to do business with SFI customers. The threat of suit is contingent upon the occurrence of future events, the non-occurrence of any one of which would render the relief requested unnecessary. Because the controversy is as yet hypothetical it is not sufficiently definite and concrete or appropriate for judicial determination.
Even if the controversy between Hekman and SFI could be deemed an "actual controversy," the Court would not be required to exercise its jurisdiction over the dispute. The power granted in the Declaratory Judgment Act is permissive, not mandatory. Grand Trunk Western R. Co. v. Consolidated Rail Corp., 746 F.2d 323, 325 (6th Cir. 1984). "Where a federal court has jurisdiction to hear a declaratory judgment claim, the power to do so is discretionary, and the court may refuse to hear such a claim on equitable grounds." Foundation for Interior Design Educ. Research v. Savannah College of Art Design, 244 F.3d 521, 526 (6th Cir. 2001).
In determining whether it is appropriate to exercise its jurisdiction to render a declaratory judgment, courts generally consider the following five factors:
(1) whether the judgment would settle the controversy; (2) whether the declaratory judgment action would serve a useful purpose in clarifying the legal relations at issue; (3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race for res judicata"; (4) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction; and (5) whether there is an alternative remedy that is better or more effective.Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000) (citing Omaha Property Casualty Ins. Co. v. Johnson, 923 F.2d 446, 447-48 (6th Cir. 1991)).
It appears to this Court that the declaratory remedy is being used merely to obtain a procedural advantage. As noted above, the dispute between SFI and Hekman is largely hypothetical. The heart of this action is the dispute between Jiantai and SFI. That dispute has no ties to Michigan. The addition of the declaratory judgment action merely enables the Plaintiffs to force the Defendant to litigate this California dispute in an inconvenient forum. The Court will not participate in this ploy. See Foundation for Interior Design, 244 F.3d at 527 (holding that a party's use of a declaratory judgment claim merely to achieve a procedural advantage is a legitimate concern). For all these reasons, the Court declines to exercise jurisdiction over Hekman's declaratory judgment claim. Hekman will accordingly be dismissed as a plaintiff from this action.
III.
Upon dismissal of Hekman, this Court is left with an action by a Chinese corporation against a California corporation. The Court must consider whether this is the proper venue for such an action. A civil action where jurisdiction is founded only on diversity of citizenship may be brought only in
(1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought.28 U.S.C. § 1391(a). For purposes of venue a corporation is "deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced." 28 U.S.C. § 1391(c). Accordingly, venue is proper in this district only if SFI is subject to personal jurisdiction in this district.
A federal court's exercise of personal jurisdiction in a diversity of citizenship case must be (1) authorized by the law of the state in which it sits, and (2) in accordance with the Due Process Clause of the Fourteenth Amendment. Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 888 (6th Cir. 2002) (citing Reynolds v. Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1115 (6th Cir. 1994)). Michigan's "long-arm" statute extends "limited" jurisdiction over nonresident corporations pursuant to Mich. Comp. Laws § 600.715, and "general" jurisdiction pursuant to Mich. Comp. Laws § 600.711. "Limited jurisdiction extends only to claims arising from the defendant's activities that were either within Michigan or had an in-state effect." Neogen, 282 F.3d at 888. These activities may include "[t]he transaction of any business within the state," or [e]ntering into a contract for services to be performed or for materials to be furnished in the state by the defendant." M.C.L. § 600.715(1) (5). The Michigan long arm statute extends general personal jurisdiction over a nonresident corporation where the corporation carries on "a continuous and systematic part of its general business within the state." M.C.L. § 600.711(3).
Plaintiff Jiantai has the burden of establishing this Court's personal jurisdiction over Defendant SFI. Neogen, 282 F.3d at 887. However, because this Court is not conducting an evidentiary hearing on the issue of personal jurisdiction, Plaintiff need only make a prima facie showing of jurisdiction. Id.
SFI is a California corporation that had its principal place of business in Palm Springs, California, until it closed its office in April 2004. (Good Decl. ¶ 2). SFI was not registered to do business in Michigan, never had an office in Michigan, and did not employ any sales representatives in Michigan. (Good Decl. ¶ 3).
Jiantai has presented evidence that Mr. Good of SFI came to Michigan to solicit Hekman's business, that he traveled to Michigan approximately twice a year to meet with Hekman executives, that he communicated with Hekman by mail and by telephone on a regular basis, and that SFI's business with Hekman in Michigan represents 20-25% of SFI's total revenue in any given year. (Miller Decl. ¶¶ 5-7).
Jiantai's breach of contract and unjust enrichment claims against SFI relate to unpaid invoices for goods that SFI purchased from Jiantai. These claims are unrelated to any activities by SFI in Michigan. In its declaratory judgment claim Jiantai requests a declaration that Jiantai's termination of its business relationship with SFI was legal and operative, that Jiantai has not breached any contract with SFI, and that it has not tortiously interfered with SFI's business relations with Hekman. Although the issue of interference with contractual relations bears on SFI and Jiantai's relationships with a Michigan firm, this issue is secondary to the issue of whether Jiantai properly terminated its business relationship with SFI. The preliminary issue of Jiantai's termination of its relationship with SFI arose in California and/or China, not in Michigan. The indirect impact that this preliminary determination will have on an interference of contract dispute in Michigan is not sufficient to show that the declaratory judgment claim "arises out of" SFI's transaction of business or its contract to furnish materials in Michigan as required for limited personal jurisdiction.
In contrast to limited personal jurisdiction, general jurisdiction exists when "a defendant's contacts with the forum state are of such a continuous and systematic nature that the state may exercise personal jurisdiction over the defendant even if the action is unrelated to the defendant's contacts with the state." Bird v. Parsons 289 F.3d 865, 873 (6th Cir. 2002) (quoting Third Natl. Bank in Nashville v. WEDGE Group, Inc., 882 F.2d 1087, 1089 (6th Cir. 1989)). "A foreign corporation must actually be present within the forum state on a regular basis, either personally or through an independent agent, in order to be subjected to general personal jurisdiction." Kircos v. Lola Cars Ltd., 97 Mich. App. 379, 386, 296 N.W.2d 32, 35 (1980).
In Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984), the Supreme Court considered whether due process permitted the Texas courts to exercise general personal jurisdiction over the nonresident defendant, Helicol. Id. at 416. Helicol did have some contacts with Texas, including "sending its chief executive officer to Houston for a contract-negotiating session; accepting into its New York bank account checks drawn on a Houston bank; purchasing helicopters, equipment, and training services from Bell Helicopter [located in Texas] for substantial sums; and sending personnel to Bell's facilities in Fort Worth for training." Id. However, Helicol lacked a place of business in Texas and had never been licensed to do business in Texas. The Court concluded that Helicol's contacts with Texas were insufficient to support the exercise of general jurisdiction. Id.
The Sixth Circuit found no general personal jurisdiction over Dotster in Bird v. Parson where there were no allegations that Dotster had an office in Ohio, that Dotster was licensed to do business in Ohio, that Dotster had an Ohio bank account, that Dotster directed its business operations from Ohio, or that any Dotster defendants ever visited Ohio. 289 F.3d at 873-74. The Sixth Circuit held that the allegation that 4,666 Ohio residents registered internet domain names with Dotster failed to establish that Dotster had a "continuous and systematic" presence in Ohio because the registrations were similar to the purchases that were held insufficient to establish general jurisdiction in Helicopteros. Id. at 874.
In Kircos v. Goodyear Tire Rubber Co., 70 Mich. App. 612, 247 N.W.2d 316 (1976), the court held that Michigan courts could assert general personal jurisdiction over a defendant who solicited sales in Michigan, maintained a dealer in Michigan, realized an average of 2.78% of its total revenue from Michigan customers, and had dozens of sales in Michigan to customers who were among the large industries in Michigan. Id. at 614.
Whether the fact that SFI conducts a large portion of its business with a single customer in Michigan and makes twice a year visits to Michigan is sufficient to permit the Court to exercise general jurisdiction over SFI is not clear. This Court is very skeptical as to whether or not SFI's contacts with a single customer constitute sufficient minimum contacts between the nonresident defendant and Michigan such that the exercise of personal jurisdiction over Defendant would comport with due process and not offend "traditional notions of fair play and substantial justice." See Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). It is not necessary, however, to resolve this question because even if Jiantai has succeeded in making a prima facie showing that this Court can exercise personal jurisdiction over SFI, this Court is convinced that Michigan is not the proper venue for this action.
If venue is improper, the district court may either dismiss the case, or, if it is in the interest of justice, transfer the case to another district where the case might have been brought. 28 U.S.C. § 1406(a). Even if venue is proper, a district court may nevertheless transfer it to any other district where it might have been brought for the convenience of parties and witnesses and in the interest of justice. 28 U.S.C. § 1404(a). A district court may order a transfer of venue sua sponte. "Change of venue pursuant to 28 U.S.C. § 1404(a) does not require a motion; a district court may transfer a case sua sponte." Carver v. Knox County, Tenn., 887 F.2d 1287, 1291 (6th Cir. 1989). See also Muldoon v. Tropitone Furniture Co., 1 F.3d 964, 966-67 (9th Cir. 1993) (describing sua sponte transfer pursuant to section 1404(a)); Mills v. Beech Aircraft Corporation, Inc., 886 F.2d 758, 761 (5th Cir. 1989) (stating that a court may transfer case to another district sua sponte under § 1404(a)). Cf. Janis v. Ashcroft, 348 F.3d 491, 493 (6th Cir. 2003) (holding that court could not sua sponte dismiss prisoner's complaint filed in wrong venue, but referencing 28 U.S.C. § 1404(a) which allows district courts to transfer a case to a district court where venue is proper).
Because this case is between a Chinese corporation and a California corporation, because the claims arise out of their contacts in California and China, and because the claims have no substantial connection to the State of Michigan, this Court concludes that transferring this case to the district where SFI had its principal place of business in California fulfills the interests of justice and would be more convenient for the parties and witnesses. Accordingly, this action will be transferred to the United States District Court for the Central District of California.
IV.
Finally, there remains the issue of whether Defendant SFI has been properly served. As of July 2004, the information on file with the California Secretary of State indicated that the registered agent for Defendant SFI was Robert E. Good with an address of 777 E. Tahquitz Way Ste. 200, Palm Springs, CA 92262. SFI has presented evidence that it closed its offices at 777 E. Tahquitz Way on or about April 1, 2004. (Good Decl. ¶ 2). Plaintiffs' return of service states that service was made on May 27, 2004, on the "authorized agent Robert E. Good by leaving documents with Tracy Pollard the person in charge and able to accept on behalf of." On the date of service, Tracy Pollard was employed by Ocean Properties Development Corp. as a receptionist for the second floor executive office suites located at 777 East Tahquitz Canyon Way, Palm Springs, California. (Pollard Decl. ¶ 2). She was not employed by SFI. (Pollard Decl. ¶ 3). Although she told the process server that SFI no longer had an office there, he nevertheless handed her the summons and complaint. (Pollard Decl. ¶ 4).
SFI has moved to dismiss this action or quash service due to insufficient service of process. Plaintiffs have responded that service was made by leaving the summons and complaint with an individual at the address on file with the Secretary of State and that Defendant SFI has received actual notice of the complaint. Plaintiffs have not, however, demonstrated that Pollard was authorized to accept service of process on behalf of the corporation or that the service of process otherwise complied with FED. R. CIV. P. 4(h) or the law of California. See CAL CIV. PROC. CODE § 416.10(a).
When a plaintiff does not perfect service of process within 120 days after filing the complaint the court may dismiss the action without prejudice; however, "if the plaintiff shows good cause for the failure, the court shall extend the time for service for an appropriate period." FED. R. CIV. P. 4(m). Because it appears that the defects in service were due in part to SFI's failure to maintain accurate records on file with the California Secretary of State, the court will quash service of process and grant Jiantai an additional sixty days from the date of this order to effect proper service on SFI.
An order and partial dismissal consistent with this opinion will be entered.