Opinion
Case No. C2 00-1142
March 2, 2001
OPINION AND ORDER
On August 21, 2000, plaintiff K. Petroleum, Inc. ("Petroleum") tiled a complaint against defendants Southern Gas Co. of Delaware, Inc. ("Southern Gas"), MAS Energy, Inc. ("MAS") Majeed S. Nami ("Nami"), and Nami Resources, Inc. ("Nami Resources") (collectively "Defendants") in the Franklin County Court of Common Pleas. Defendants MAS, Nat, and Nami Resources filed a notice of removal with this Court on October 2, 2000. On October 10, 2000, defendants MAS, Nami, and Nami Resources moved to dismiss the complaint against them based on failure of service of process, and Southern Gas, MAS, and Nami Resources moved for dismissal based on lack of personal jurisdiction. In the alternative, Defendants moved that (1) the instant case be stayed pending the outcome of similar litigation between the parties already underway in the United States District Court for the Eastern District of Kentucky, London Division; (2) that venue of this case be transferred to the Kentucky court; or (3) that the instant case be dismissed because venue is not proper in this Court. Petroleum filed a memorandum in opposition to Defendants' motion on November 3, 2000, and Defendants filed a reply brief on November 17, 2000. The motion is now ripe for decision. For the following reasons, the Defendants' motion will be granted in part and denied in part, and this case will be transferred to the Eastern District of Kentucky.
I.
The following statement of facts is derived from the complaint and various materials filed in connection with the Defendants' motion. As noted below, the Court is required to view the facts in the light most favorable to the plaintiff, and must draw all reasonable inferences in the plaintiff's favor.
Petroleum is an Ohio Corporation largely, if not solely, owned by Jamshid Khorrami ("Khorrami"), an Ohio resident. Although its principal offices are located in Columbus, Ohio, Petroleum owns, leases, and operates various gas wells in Kentucky. On August 26, 1996, Southern Gas sold and assigned the ownership and rights to certain gas wells, equipment, and mineral leases in Clay County Kentucky to Petroleum, and Petroleum became the operator of these wells on September 1, 1996. Nami, Khorrami's brother-in-law, was a minority shareholder in Petroleum and at one time operated the Clay County, Kentucky wells for Petroleum.
At some point, dissension arose between Nami and Khorrami regarding Nami's performance at Petroleum. Petroleum claims that Nami demonstated problems with "dishonesty, theft, morality and embezzlement." Complaint at ¶ 7. In June 1998, Nami's entire interest in Petroleum was purchased for $2 million, and his employment at Petroleum was terminated at that time.
Unfortunately, however, this termination may have served only to fuel the acrimonious relationship between Nami and Khorrami and the companies which each respectively owned or controlled. According to Petroleum, Nami then engaged "in a systematic pattern of harassment, theft, vandalism, and intrigue" calculated to undermine its success. Complaint at ¶ 8. Nami apparently formed the companies MAS, NRI (not a defendant in this action) and Nami Resources, all Kentucky corporations, to compete with Petroleum in Kentucky. Petroleum alleges that such competition rose to the level of illegal interference with the business relationships it enjoyed with its customers, suppliers, and employees. Petroleum claims that Nami hired many of its employees and caused them to "vandalize, steal and destroy plaintiff's property" during and after the period of their employment. Complaint at ¶ 10. Petroleum also asserts that Nami, either individually or in corporate form, purchased companies with which it held contracts conveying it the right to enjoy and operate certain gas wells and equipment and then made fraudulent claims against Petroleum to interfere with its right to own and operate these wells. Consequently, in the complaint filed in this case, Petroleum has sued the defendants for conversion or destruction of property, tortious interference with contractual relations, civil conspiracy, and violations of Ohio's RICO statutes.
The instant case does not constitute the sole legal action involving these parties. Nami Resources filed a lawsuit in the United States District Court for the Eastern District of Kentucky on August 11, 2000 (the "Kentucky Litigation") raising claims against Khorrami and Petroleum relating to the Southern Gas leases. Nami Resources claims that it acquired the ownership interest on the Clay County property involved in the instant case on or about August 13, 1999 and is the successor-in-interest to Southern Gas's rights to payment for natural gas extracted by Petroleum from that property. Nat Resources alleges that Petroleum has extracted natural gas from the property without tendering the required compensation, in breach of the Southern Gas contract, and raises a corresponding claim for conversion. Nat Resources further alleges that Petroleum, acting as operator of Nami Resources' oil and gas properties in Clay County, either breached its contractual commitments to serve as a reasonable and prudent operator or was negligent in the manner in which it managed those properties, resulting in substantial losses. Finally, Nami Resources claims that Khorrami and Petroleum knew of business relationships and contractual arrangements they enjoyed with third parties and that they tortiously interfered with these agreements, to the detriment of its expectation interest in those agreements and its opportunity to gain further business of a similar nature in Kentucky. Nat Resources seeks more than $1,700,000 in damages, as well as injunctive relief removing Petroleum as operator of the properties at issue and prohibiting the defendants from interfering with Nami Resources' operations in the future. In the alternative, Nat Resources demands an accounting of the Kentucky Defendants' gas sales and operations at the sites at issue, as well as a declaratory judgment determining each party's rights under the Southern Gas agreement and related transactional documents.
The Kentucky Defendants filed a motion on September 8, 2000 in the Kentucky district court requesting that it dismiss the action for the plaintiff's failure to join Southern Gas as an indispensable party defendant to that action or, alternatively, if Southern Gas were joined, that complete diversity of the parties would be destroyed and, as a result, the court would lack jurisdiction. They also requested the court dismiss the action as to Khorrami for lack of personal jurisdiction. Finally, the Kentucky Defendants insisted that the proper venue for the Kentucky action would be the United States District Court for the Southern District of Ohio, where this case was tiled, for the convenience of the parties and witnesses involved in the action. The United States District Court for the Eastern District of Kentucky, by order dated December 1, 2000, denied the Kentucky Defendants' request to dismiss as to Khorrami or to transfer venue of that case to this Court. Furthermore, the Kentucky court granted Southern Gas's motion to intervene in the Kentucky litigation as a party plaintiff, thereby mooting the remaining two contentions of the Kentucky Defendants.
There is no dispute that, with the possible exception of Nami himself, none of the defendants in this case reside in Ohio. Further, there is no dispute that all of the wells involved in this case are located in Kentucky. The related issues of personal jurisdiction and venue will be decided with these facts in mind.
II.
Defendants MAS, Nami, and Nami Resources move that they be dismissed from this case for lack of personal jurisdiction on the grounds that Petroleum failed to serve them with process as required by Fed.R.Civ.P. 4. Although this Court determines that these defendants were not adequately served, for reasons discussed further below, their motion to dismiss on that ground will be denied without prejudice.
Fed.R.Civ. p. 4(m) provides that each defendant must be served with the summons and complaint within the 120 day period after the complaint is filed. Fed.R.Civ.P. 4(m). Failure to serve a defendant properly within this Lime period requires dismissal as to that defendant because due process concerns require service of process before a court may obtain personal jurisdiction over any defendant. Amen v. City of Dearborn, 532 F.2d 554, 557 (6th Cir. 1976); Fed R. Civ. p. 4(m). If the plaintiff, however, can demonstrate good cause for the failure to serve that defendant, a court may extend the time for service for "an appropriate period." Fed.R.Civ.P. 4(m). The plaintiff bears the burden of demonstrating both diligence in perfecting proper service of process and that service was made. Byrd v. Stone, 94 F.3d 217, 219 (6th Cir. 1996)
Defendant Nami, by affidavit filed with the Court on October 13, 2000, declares he has never been served with process, and that "to the best of [his] knowledge, information, and belief," neither has MAS or Nami Resources. Nami Aff. at ¶ 6. Petroleum's entire response to this affidavit is an unsworn statement in its memorandum that "[a]lthough [defendants] have avoided certified mail service of-process under Ohio law, they have been served by first-class U.S. mail, and such service is effective under Local Rule 4.2." Petroleum's Memo. in Opp. at 5.
This case was originally filed in the Franklin County Court of Common Pleas. Summonses were issued, and the clerk of that court sent certified mailings to all defendants. Southern Gas, which is not contesting service of process, accepted the certified mailing on September 5, 2000. The mailings to the other defendants were returned marked "unclaimed." It is not possible to ascertain whether any further effort at service was made in the state court before the case was removed.
Local Rule of Court 4.2 authorizes regular mail service to be made in conformity with Ohio law, but only when very specific procedures have been followed. After attempting service of process by certified mail through the clerk's office and receiving an endorsement showing failure of delivery, the attorney or serving party is required to file with the clerk a written request for ordinary mail service accompanied by the summons and complaint contained in a prepaid envelope with either the defendant's address listed on the complaint or an alternative address listed in written instructions directed to the clerk. S.D. Ohio Civ. R. 4.2(b), (c). The attorney or serving party must also prepare a certificate of mailing for the clerk's use "which shall be signed by the Clerk or a Deputy Clerk and filed at the time of mailing." S.D. Ohio Civ. R. 4.2(c). Finally, "[t]he attorney of record or the serving party shall be responsible for determining if service of process has been made under the provisions of rule 4 of the Ohio rules of civil procedure and this Rule." S.D. Ohio Civ. R. 4.2(d).
The fact that service of process has been made is usually documented by the filing of a return of service. Fed.R.Civ.P. (1). Petroleum has not filed a return of service. Counsel's unsworn assertion that these defendants "have been served by first-class U.S. Mail" is not evidence either that Local Rule 4.2 was followed or that any type of service was made on any Defendant other than Southern Gas.
Accordingly, this Court lacks personal jurisdiction over defendants MAS, Nami, and Nami Resources because there is nothing in the record to indicate they have been served. For reasons explained below, however, the Court does not believe that it is necessary to dismiss the claims against those defendants on that basis, since the transfer to Kentucky and possible consolidation with the case pending there would cure any defects in service.
III.
Defendant Southern Gas, a Delaware corporation with its principal place of business in Kentucky, moves that it be dismissed from this case for lack of personal jurisdiction. Petroleum insists that personal jurisdiction over Southern Gas is appropriate under both the terms of the August 26, 1996 contract between the two parties and Southern Gas's business contacts with the state of Ohio. The Court agrees that it lacks personal jurisdiction over Southern Gas.
Due process considerations under the Fourteenth Amendment place restrictions on the ability of courts to exercise personal jurisdiction over nonresident defendants. Pennoyer v. Neff, 95 U.S. 714 (1878);Helicoteros Nacionales De Columbia, S.A., 466 U.S. 408, 413 (1984). To determine whether personal jurisdiction exists over the defendant, this Court must apply the law of the forum state, subject to the limits of the Due Process Clause of the Fourteenth Amendment. Reynolds v. International Amateur Athletic Federation, 23 F.3d 1110, 1115 (6th Cir. 1994); Compuserve, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996). Accordingly, the defendant must be amenable to suit under Ohio's long-arm statute, O.R.C. § 2307.382, and the exercise of this statute to obtain jurisdiction over the defendant must not offend his constitutional due process rights. Compuserve, 89 F.3d at 1262; In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 224 (6th Cir. 1972). However, because the Ohio long-arm statute's reach has been construed to extend to the constitutional limits of the Due Process Clause, the inquiries merge, and this Court must only determine whether the assertion of personal jurisdiction over the defendant violates constitutional due process. See American Greetings Corp. v. Cohn, 839 F.2d 1164, 1167 (6th Cir. 1988); Nationwide Mutual Insurance Corp. v. Tryg Int'l Ins. Co., Ltd., 91 F.3d 790, 793 (6th Cir. 1996).
In reviewing Southern Gas's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(2), this Court must, in the absence of an evidentiary hearing, consider the pleadings and affidavits in a light most favorable to the plaintiff, and may not consider any "controverting assertions" of the movant, such as an affidavit denying some or all jurisdictional facts.Theunissen v. Matthews, 935 F.2d 1454, 1458-1459 (6th Cir. 1991);Compuserve, 89 F.3d at 1262. Dismissal is proper only if the specific facts plaintiff alleges fail to state a prima facie case for jurisdiction. Theunissen, 935 F.2d at 1459; Compuserve, 89 F.3d at 1262.
Jurisdiction over a defendant may either exist generally, where his "continuous and systematic" conduct within the forum state renders him amenable to suit in any action there, or specifically, in cases in which the subject matter of the lawsuit arises out of or is related to the defendant's contacts with the forum. Nationwide, 91 F.3d at 793. In either case, the underlying concern is whether, given the facts of the particular case, the nonresident defendant has sufficient contacts with the forum state such that exercising jurisdiction over him would comport with "traditional notions of fair play and substantial justice."International Shoe Co., 326 U.S. at 316; Compuserve, 89 F.3d at 1263. Such a standard is satisfied "if the defendant 'purposely avails itself of the privilege of conducting activities within the forum State,' Hanson v. Denckla, 357 U.S. 235, 253 (1958), such that it 'should reasonably anticipate being haled into court there.' World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)." Nationwide, 91 F.3d at 793.
Petroleum insists that general jurisdiction exists over Southern Gas because it signed a contract in Ohio with an Ohio corporation which includes a forum selection clause establishing the jurisdiction of Ohio courts to settle any disputes arising under the contract. The applicable section provides:
Section 10.10. Governing Law. This Agreement and the transactions contemplated hereby shall be construed in accordance with, and governed by, the laws of the State of Ohio; and Seller [Southern Gas] and Buyer [Petroleum] consent to venue and jurisdiction in the Franklin County, Ohio, Court of Common Pleas and in the United States District Court for the Southern District of Ohio in any action commenced reisting to this agreement or the transactions contemplated hereby.
Plaintiff's Memo. in Opp., Exhibit 1, p. 21.
It is well settled that merely entering into a contract with a party will not establish minimum contacts with a particular forum. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985); Compuserve, 89 F.3d at 1257. Rather, the contract must, when other facts are considered, give rise to the "minimum contacts" necessary to satisfy due process concerns. Although forum selection clauses, once disfavored, are nowprima facie valid and enforceable by federal courts, See Bremen v. Zapata Off-Shore Company, 407 U.S. 1, 10 (1972), and may provide jurisdiction to a court which may not, under traditional analyses, be able to effectuate service of process over the defendant, See national Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 414 (1964), such analysis presumes that the dispute in question is related to the matter to which the defendant consented to be sued under the clause.
All claims advanced by Petroleum in the instant case are either tort claims or statutory violations of Ohio's RICO statute. The complaint does not assert any claims based upon violations of the parties' contract. Southern Gas's consent to be sued in Ohio for claims arising under the contract does not confer jurisdiction to Ohio courts to resolve non-contractual disputes between it and Petroleum.
Any claim of general jurisdiction, therefore, must be premised on the fact that Southern Gas's overall presence in the state of Ohio justifies this Court's exercise of jurisdiction over it. Circumstances establishing such a presence, however, simply do not exist. Although the contract may have been signed in Ohio, none of the performance was to occur in the state of Ohio. petroleum does not allege that Southern Gas has any contact with Ohio other than having entered into the contract. Far from being an action by the defendant "purposely directed toward the forum state," Asahi Metal Industry Co., Ltd. v. California, 480 11.5. 102, 112 (1987), the fact that petroleum is an Ohio resident is only a fortuitous and unilateral activity of the plaintiff insufficient to establish minimum contacts with the forum state. See Helicopteros, 466 U.S. at 417; Reynolds, 23 F.3d at 1118-1119. To hold Southern Gas accountable for its actions performed entirely outside the state of Ohio based solely on the fact that Petroleum is an Ohio resident, even if the actions relate in some way to the contract between it and petroleum, clearly violates the notions of "fair play" the Constitution demands.
Because this Court enjoys no general jurisdiction over Southern Gas, any jurisdiction over it in the instant action must be premised on the existence of special jurisdiction. See Nationwide at 794. Unlike general jurisdiction, which is premised on the defendant's overall contact with a forum, specific jurisdiction may arise as a result of a defendant's single act directed toward the forum state. McGee v. Int'l Life Ins. CO., 355 U.S. 220, 222 (1957); Nationwide, 91 F.3d at 794. However, "the nature and the quality of the act, as well as the circumstances surrounding its commission, must be examined to determine whether personal jurisdiction exists" in a particular case. Nationwide, 91 F.3d at 794 (citing International Shoe, 326 U.S. at 318). The Sixth Circuit, inSouthern Machine Co. v. Mohasco Industries. Inc., 401 F.2d 374 (6th Cir. 1968), devised a three-part test to determine whether a particular forum enjoys such jurisdiction:
First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendants activities there. Finally, the acts of the defendant or consequences caused by the defendant must have substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.Payne v. Motorists' Mutual Ins. Co., 4 F.3d 452, 455 (6th Cir. 1993) (quoting Southern Machine Co., 401 F.2d at 381); See Nationwide, 91 F.3d at 794.
The "purposeful availment" requirement of the Southern Machine test is satisfied if the defendant's contacts with the forum state "proximately result from actions by the defendant himself that create a 'substantial connection' with the forum state . . . such that he should "reasonably anticipate being haled into court there.'" Compuserve, 89 F.3d at 1263 (quoting Burger King, 471 U.S. at 474-475). Althouqh this does not require that a defendant be physically present in the state, Southern Machine, 401 F.26 at 382, it does require that, if a contract is to serve as the basis for jurisdiction, that the "prior negotiations and contemplated future consequences . . . and the parties' actual course of dealing . . . must be evaluated in determining whether the defendant purposefully established minimum contacts with the forum." Burger King, 471 U.S. at 479. Here, although Southern Gas entered into a contract in Ohio with an Ohio corporation, absolutely no performance in Ohio was contemplated by the parties. The alleged actions giving rise to petroleum's instant claims did not occur in Ohio. Petroleum has identified no actions which Southern Gas directed toward the state of Ohio, other than the assertion that the tort in question affected an Ohio resident. Such an assertion, without more, will not serve to establish sufficient connections with Ohio permitting this Court to exercise personal jurisdiction over Southern Gas. See, e.g., Nationwide, 91 F.3d at 795-796.
Assuming, arguendo, that Southern Gas's few contacts with Ohio satisfied the first of the three elements, Petroleum has not established that any of its causes of action arose from Southern Gas's activities in Ohio. Plaintiff levies tort claims, a conspiracy claim, and a RICO claim against Southern Gas for behavior that involved property in Clay County, Kentucky, and which allege interference with or conversion of income, property, and business relationships in Kentucky. It is difficult to see how any of these claims "arose" in Ohio when all of the actions for which Southern Gas is being sued took place in Kentucky. Therefore, the second prong of the Southern Machine test has not been satisfied.
The Court expresses similar reservations about the ability of Petroleum to satisfy the third element of the Southern Machine test. However, because of the requirement that all three elements of that test must be independently satisfied, examination of the facts and circumstances surrounding the third element is unnecessary here. Therefore, the Court concludes that defendant Southern Gas does not enjoy sufficient contacts with Ohio to permit the exercise of either general or specific jurisdiction by this Court to satisfy the constitutional requirements.
IV.
This Court notes that the parties involved in the instant case are also engaged in similar litigation currently proceeding in the United States District Court for the Eastern District of Kentucky. As is apparent from the briefings submitted by all parties, the basis for the Kentucky lawsuit is similar, if not identical, to the instant action. Furthermore, by order dated December 1, 2000, the Kentucky district court considered and refused petroleum's request to transfer that case to this Court and granted Southern Gas's request to intervene as a plaintiff.
One hallmark of the federal court system in resolving civil disputes is a consistent attempt to "secure the just, speedy, and inexpensive determination of every action." Fed.R.Civ.P. 1. To achieve this goal. Congress has provided the courts with a wide range of remedial powers by which a court may insure that civil cases proceed to completion despite fundamental shortcomings in the actions and decisions of the parties. One such grant is the power of a district court to transfer an action to another district court even though jurisdiction is lacking or venue is improper in the court in which the action was filed. See 28 U.S.C. § 1406 1631. The United States District Court for the Eastern District of Kentucky has already determined that all of these parties are subject to its jurisdiction and venue, and the Defendants concede that jurisdiction and venue are proper there. Accordingly, rather than dismiss or stay proceedings in the instant case, this Court will transfer it to the United States District Court for the Eastern District of Kentucky, London Division for such resolution as that court deems appropriate, which may include consolidation with the case pending there. Those Defendants who have not been properly served may renew their objections to service if consolidation does not occur.
V.
For the foregoing reasons, Defendants' combined motion (file doc. #2) is GRANTED in part and DENIED in part. This case is TRANSFERRED to the United States District Court for the Eastern District of Kentucky, London Division.