Opinion
Civil No. 3:18-CV-2235
08-20-2019
SPOTTS BROTHERS, INC., Plaintiff, v. SERAPHIM USA MFG., INC., RYAN ERWIN, Defendants.
(Judge Mariani)
( ) REPORT AND RECOMMENDATION
I. Statement of Facts and the Case
The concept of personal jurisdiction is one that is defined by rule and statute but also has a constitutional dimension. As a matter of constitutional due process, in order for personal jurisdiction to exist over a non-resident party in a litigation forum, two requirements typically must be met: first, the non-resident defendant must have some minimum contacts with the forum jurisdiction, a requirement which is satisfied if the defendant purposefully directed its activities towards a forum jurisdiction resident. If this threshold requirement is met, the second question that must be answered is "whether the assertion of personal jurisdiction would comport with 'fair play and substantial justice.' International Shoe Co. v. Washington, 326 U.S., at 320, 66 S.Ct., at 160." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct. 2174, 2184, 85 L. Ed. 2d 528 (1985).
In this breach of contract litigation, we are now called upon to consider a motion to dismiss for lack of personal jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(2) filed by the defendants, Seraphim USA Manufacturing, Inc. ("Seraphim") and Ryan Erwin. (Doc. 9.) The plaintiff, Spotts Brothers, Inc. ("Spotts") brought this suit against the defendants alleging breach of contract, fraud, and fraudulent inducement. The plaintiff also contends that Erwin should be held personally liable for the breach of contract and fraud based on a piercing the corporate veil theory. Spotts alleges that the defendants failed to timely deliver solar panels in accordance with a contract that Spotts entered into with Seraphim.
Specifically, the plaintiff's complaint alleges that Spotts is a Pennsylvania company, and the defendants Seraphim and Erwin are residents of Texas. (Doc. 1, ¶¶1-3.) According to the complaint, Spotts had a contract with the Commonwealth of Pennsylvania to construct a solar energy generation facility, and in order to construct the facility, Spotts needed to purchase solar panels. (Doc. 1, ¶¶ 8-9.) Spotts purchased a number of solar panels from Seraphim, at a mutually negotiated price and warranty, but not all of the panels were delivered in time for Spotts to construct the facility for the Commonwealth. (Id., ¶¶ 10-13.) The parties had initially agreed upon a 30% down payment by Spotts to Seraphim for these solar panels, which the plaintiff timely made on July 2, 2018. (Id., ¶¶ 14-15.) However, in late September 2018, these payment arrangements were changed, allegedly at Seraphim's request. Specifically, on September 21, 2018, Seraphim requested an advance payment of the remaining invoice balance, $93,119.00. Before the defendants requested final payment and invoiced the plaintiff a final invoice, the defendants told the plaintiff in writing that shipment of the order would be the following week. (Id., ¶ 19.) On September 25, 2018, Spotts wired the requested remaining payment, $93,119.00, from Pennsylvania to Seraphim with the expectation that all of the ordered solar panels would be delivered the following week. (Id., ¶ 20.) However, as time progressed, Seraphim was unable to produce and deliver the solar panels called for under the purchase order. (Id., ¶ 21.)
Instead, upon receipt of the payment, Seraphim shipped only twenty-two percent (22%) of the order on October 2, 2018, in time for an event the Commonwealth was having at the project site. (Id., ¶ 27.) The plaintiff alleges that Seraphim led the plaintiff to believe that the remainder of the order would come within one week of the first shipment. (Id., ¶ 28.) However, on October 14, 2018, the defendants admitted in a letter from Erwin that the panels had not been produced and that it would not return the funds that were wired by the plaintiff. (Id., ¶ 29.) The plaintiff alleges that it has demanded the return of the funds that it paid and cancellation of the balance of the order, but the defendants have refused. (Id., ¶ 30.) It is also alleged that the funds wired on September 25, 2018 were used by the defendants on other projects and for investment, instead of for the production of the plaintiff's solar panels. (Id., ¶ 23.) Further, Spotts asserts that Erwin, by and through Seraphim's sales personnel and other employees, engaged in fraudulent actions and communications with the plaintiff in order to deceive Spotts into believing that once payment was made, the panels would be delivered in a timely manner. (Id., ¶ 24.)
On November 19, 2018, Spotts filed this action. In its complaint, Spotts brings breach of contract, fraud, and fraudulent inducement claims against Seraphim. Spotts also alleges that Erwin, who is described as the President of Seraphim, should be held personally liable under a corporate veil-piercing theory. (Doc. 1.) The defendants now move to dismiss the complaint, alleging a lack of personal jurisdiction over the defendants pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. (Doc. 9.) Specifically, the defendants argue that a Pennsylvania court does not have jurisdiction over Seraphim and Erwin, who reside in Texas, as the plaintiff has not shown that the defendants have sufficient minimum contacts with this jurisdiction that would give rise to personal jurisdiction in Pennsylvania.
The defendants support their motion to dismiss with two affidavits, which describe the limited nature of the defendants' contacts with Pennsylvania, a declaration from Mr. Erwin, and a second declaration from a corporate representative for Seraphim, Steve Ostrenga. As to Seraphim, this affidavit reveals that Seraphim is a Texas company that does not own real property in Pennsylvania; does not maintain any office in Pennsylvania; does not employ any Pennsylvania residents; and has never attended marketing functions in Pennsylvania. (Doc. 9-3.) Seraphim's total sales in Pennsylvania from 2016 through 2018 consisted of three sales which were less than 3% of the company's total sales. (Id.) While Seraphim's affidavit makes these general allegations regarding the company's overall contacts to Pennsylvania, in terms of this specific set of transactions with Spotts which form the basis of this lawsuit, the affidavit did not dispute the chronology of events set forth in the complaint, and did not contest the allegations that Seraphim entered into this agreement in July of 2018 and negotiated accelerated payments under the agreement in late September 2018, based upon a promise to timely perform in October. Seraphim also did not contest the allegation that it failed to produce all of the solar panels ordered by Spotts in October, within weeks of receiving the accelerated contract payment based upon its alleged promise to perform. Instead, Seraphim simply asserted that no representative of Seraphim traveled to Pennsylvania to conduct these negotiations, which were done by telephone and email, and no representative of Seraphim ever physically traveled to Pennsylvania following the issuance of the purchase order for these goods. (Id.)
As for Defendant Erwin, this defense affidavit speaks both to Erwin's general ties to Pennsylvania and discusses his lack of involvement in this particular transaction, setting forth even more minimal ties to Pennsylvania than those outlined by the corporate defendant Seraphim. According to Erwin's affidavit, he has never traveled to Pennsylvania; owns no property or businesses in Pennsylvania; pays no taxes in Pennsylvania; and has no bank accounts in Pennsylvania. (Doc. 9-4.) Erwin also specifically denies the allegation that he was the President of Seraphim at the time of these events, stating that he simply served in non-salary capacity as a member of the company's board of directors along with three other individuals. (Id.) Erwin further alleges that he was not involved in the negotiation of the contract between Seraphim and Spotts; played no role in the creation of the invoice for this sale; never visited the Spotts facilities in Pennsylvania; and had no communication with Spotts other than signing an October 14, 2018 letter that was sent by Seraphim to Spotts as its business relationship with Spotts collapsed. (Id.)
This motion to dismiss is fully briefed by the parties and is, therefore, ripe for resolution. For its part, Spotts has briefed the motion in a somewhat spare fashion and has provided no affidavits or evidence contradicting or contesting the factual matters alleged by Erwin and Seraphim. Therefore, those factual matters alleged by the defendants are uncontradicted on this record by any competent evidence.
Upon consideration, for the reasons set forth below, while we regard this as a close case, we recommend that the motion to dismiss be granted with respect to Erwin but denied with respect to Seraphim.
II. Discussion
A. Motion to Dismiss for Lack of Personal Jurisdiction- Standard of Review
In their motion to dismiss, the defendants first seek to dismiss this complaint pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure on the grounds that this court lacks personal jurisdiction over them. This court has recently defined the standard of review that applies to Rule 12(b)(2) motions which seek to dismiss cases based upon the court's lack of personal jurisdiction over defendants, stating that:
Motions to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), like those for failure to state a claim under Rule 12(b)(6), require the court to accept as true the allegations of the pleadings and all reasonable inferences therefrom. Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir. 2002). However, unlike Rule 12(b)(6), Rule 12(b)(2) does not limit the scope of the court's review to the face of the pleadings. See id.; Carteret Sav. Bank, F.A. v. Shushan, 954 F.2d 141, 142 & n. 1 (3d Cir. 1992). Consideration of affidavits submitted by the parties is appropriate and, typically, necessary. Patterson by Patterson v. FBI, 893 F.2d 595, 603-04 (3d Cir. 1990). Although plaintiffs bear the ultimate burden of proving personal jurisdiction by a preponderance of the evidence, such a showing is unnecessary at the preliminary stages of litigation. Mellon Bank (E.) PSFS, Nat'l Ass'n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992). Rather, plaintiffs must merely allege sufficient facts to establish a prima facie case of jurisdiction over the person. Id. Once these allegations are contradicted by an opposing affidavit, however, plaintiffs must present similar evidence in support of personal jurisdiction. Carteret Sav. Bank, 954 F.2d at 142 & n. 1, 146; Patterson, 893 F.2d at 603-04. "[A]t no point may a plaintiff rely on the bare pleadings alone in order to withstand a defendant's Rule 12(b)(2) motion to dismiss for lack of in personam jurisdiction.... Once the motion is made, plaintiff must respond with actual proofs, not mere allegations." Patterson, 893 F.2d
at 604. When plaintiff responds with affidavits or other evidence in support of its position, however, the court is bound to accept these representations and defer final determination as to the merits of the allegations until a pretrial hearing or the time of trial. Carteret Sav. Bank, 954 F.2d at 142 n. 1 (stating that the "plaintiff need only plead [a] prima facie case to survive the initial [Rule 12(b)(2) ] motion, but must eventually establish jurisdiction by a preponderance of the evidence") (citing Behagen v. Amateur Basketball Ass'n, 744 F.2d 731, 733 (10th Cir. 1984)).In re Chocolate Confectionary Antitrust Litig., 602 F. Supp. 2d 538, 556-57 (M.D. Pa. 2009).
The concept of personal jurisdiction, in turn, "represents a restriction on judicial power ... as a matter of individual liberty," and is relevant to whether a court may permissibly exercise judicial authority over a defendant and make judicial decisions affecting that defendant. Ruhrgas v. Marathon Oil Co., 526 U.S. 574, 584 (1999) (quoting Ins. Corp. of Ireland v. Comagnie dex Bauxites de Guinee, 456 U.S. 694, 702 (1982)). As another court in the Middle District of Pennsylvania explained, "the fundamental issue is not the court's ability to adjudicate the dispute but the court's ability to issue decisions affecting a given person's rights, [and therefore] a defendant may either invoke jurisdictional limitations or waive them." Rantnetwork, Inc. v. Underwood, Civ. A. No. 4:11-CV-1283, 2012 WL 1021326, at *7 (M.D. Pa. Mar. 26, 2012); see also Fed. R. Civ. P. 12(b)(2) and (h). As such, a defendant bears the burden of asserting that the court lacks personal jurisdiction. Ruhrgas, 526 U.S. at 584; see also Rantnetwork, 2012 WL 1021326, at *7.
The scope of personal jurisdiction is first set by rule and statute. Thus, Rule 4(e) of the Federal Rules of Civil Procedure "authorizes personal jurisdiction over non-resident defendants to the extent permissible under the law of the state where the district court sits." Pennzoil Prods. Co. v. Colelli & Assocs., Inc., 149 F.3d 197, 200 (3d Cir. 1998) (quoting Mellon Bank, 960 F.2d at 1221). Pennsylvania's long-arm statute is set forth at 42 Pa. Cons. Stat. Ann. §§ 5301-5322, and authorizes Pennsylvania courts to exercise personal jurisdiction over nonresident defendants to the extent permitted by the Due Process Clause of the Fourteenth Amendment. Id.
The Due Process Clause of the Fourteenth Amendment, in turn, permits a court to exercise personal jurisdiction over a nonresident defendant only if the defendant has sufficient "minimum contacts" with the state in which the court sits "such that maintenance of the suit does not offend traditional notions of fair play and substantial justice." International Shoe Co. v. State of Washington, 326 U.S. 310, 316 (1945) (quotation omitted). The Supreme Court has explained the importance of the minimum contacts standard in our constitutional system:
The concept of minimum contacts, in turn, can be seen to perform two related, but distinguishable functions. It protects the defendant against the burdens of litigating in a distant and inconvenient forum. And it acts to ensure that the States through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system.World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291-92 (1980).
The requirement that a defendant have minimum contacts with a state before that state's courts may exercise personal jurisdiction ensures that parties can reasonably anticipate where they may be summoned into court, and affords potential defendants the opportunity to adjust their conduct accordingly. Id. at 297. For this reason, it is the potential defendant that must take affirmative steps to create the necessary contacts with the forum, as "minimum contacts" can be formed only by "some act by which the defendant purposely avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)).
Federal courts recognize two types of personal jurisdiction. The first of these types is specific jurisdiction, which applies where the cause of action arises due to the defendant's contact with the forum. In general, specific jurisdiction permits a court to adjudicate the rights of a nonresident person whose activities were purposefully directed toward the forum state, and are related to the subject matter of the lawsuit. Federal courts also recognize a form of general personal jurisdiction which allows a court to adjudicate a dispute even when the nonresident person's connections to the forum are unrelated to the pending action, provided the nonresident has "systematic and continuous contacts" with the forum. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8, 415 n.9 (1984); Marten v. Godwin, 499 F.3d 290, 296 (3d Cir. 2007); Telcordia Tech Inc. v. Telkom S.A., 458 F.3d 172, 177 (3d Cir. 2006). In all inquiries regarding the existence of personal jurisdiction, the "central concern" is the particular set of facts that define "the relationship among the defendant, the forum, and the litigation." Shaffer v. Heitner, 433 U.S. 186, 204 (1977).
In this case, it appears that the plaintiff is asserting specific personal jurisdiction over these defendants. The United States Court of Appeals for the Third Circuit Court has explained that three factors determine whether a court may exercise specific jurisdiction over a defendant: (1) whether the defendant purposefully directed his activities toward the forum; (2) whether the litigation relates to at least one of those activities; and (3) if the first two requirements are met, the court may consider whether the exercise of jurisdiction otherwise comports with fair play and substantial justice. D'Jamoos ex rel. Estate of Weingeroff v. Pilatus Aircraft Ltd., 566 F.3d 94, 102 (3d Cir. 2009) (citing Burger King, 471 U.S. at 476); see also Hanson v. Denckla, 357 U.S. 235, 253 (1958) (citing Int'l Shoe, 326 U.S. at 319) (noting that it is "essential" that a defendant "purposefully avail[ ] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws."). Thus, the first two parts of the test "determine whether a defendant has the requisite minimum contacts with the forum." D'Jamoos, 566 F.3d at 103. This test does not require the defendant's physical entrance into the forum. Burger King, 471 U.S. at 476; Grand Entm't Grp., Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 482 (3d Cir. 1993). Instead, when a defendant has deliberately engaged in significant activities or created "'continuing obligations' between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there." Burger King, 471 U.S. at 474, 475-76 (citations omitted) (quoting World-Wide Volkswagen Corp., 444 U.S. at 295 (citing Travelers Health Ass'n v. Virginia, 339 U.S. 643, 648 (1950)). At this point, litigation against the nonresident defendant becomes foreseeable, and "it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well." Id.
Lastly, we are to consider whether the exercise of jurisdiction otherwise "comport[s] with 'fair play and substantial justice.' " Burger King, 471 U.S. at 476 (alteration in original) (quoting Int'l Shoe, 326 U.S. at 320). As noted above, the presence of minimum contacts with the forum causes jurisdiction to become presumptively constitutional, and the defendant challenging a court's exercise of personal jurisdiction over him "must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Id. at 477. In other words, once a plaintiff has established that a defendant has sufficient minimum contacts with the forum state, jurisdiction will be unreasonable only in "rare cases" where the defendants meets its "heavy" burden of demonstrating "an absence of fairness or lack of substantial justice." Pennzoil, 149 F.3d at 207; Grand Entm't Grp., 988 F.2d at 483. See also Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 114 (1987) ("When minimum contacts have been established, often the interests of the plaintiff and the forum in the exercise of jurisdiction will justify even the serious burdens placed on the alien defendant.").
It is against these legal benchmarks that we now assess the defendants' motion to dismiss.
B. The Defendants' Motion to Dismiss Should be Granted in Part and Denied in Part.
(1)This Court Lacks Personal Jurisdiction over the Defendant Erwin But May Exercise Personal Jurisdiction Over Seraphim.
Spotts argues that this court has jurisdiction over the defendants both under Pennsylvania' long-arm statute and under the United States Constitution. The plaintiff claims that the defendants, by contracting with Spotts, purposely availed themselves of the benefits and laws of Pennsylvania in order to realize a pecuniary benefit. Thus, it appears that the plaintiff is principally arguing that this court has specific jurisdiction over both of the defendants by virtue of Seraphim's contract with Spotts. However, while Seraphim may be subject to jurisdiction under the long-arm statute on this basis, we conclude that statutory and due process concerns preclude the exercise of personal jurisdiction over Erwin, and thus, we will recommend that the defendants' motion to dismiss be granted with respect to Erwin but denied with respect to Seraphim.
(a)Jurisdiction Under Pennsylvania's Long-Arm Statute
Pennsylvania's long-arm statute is codified at 42 Pa. Cons. Stat. § 5322. This statute allows for jurisdiction over nonresidents "to the fullest extent allowed under the Constitution of the United States," § 5322(b), and sets forth specific acts that will allow a Pennsylvania court to exercise jurisdiction over a non-resident, so long as constitutional due process concerns are satisfied. § 5322(a). Here, the plaintiff argues that the defendants fit within section 5322(a)(1)(i) and (a)(1)(iii), which state in relevant part:
(a) General rule.--A tribunal of this Commonwealth may exercise personal jurisdiction over a person (or the personal representative of a deceased individual who would be subject to jurisdiction under this subsection if not deceased) who acts directly or by an agent, as to a cause of action or other matter arising from such person:
(1) Transacting any business in this Commonwealth. Without excluding other acts which may constitute transacting business in this Commonwealth, any of the following shall constitute transacting business for the purpose of this paragraph:
42 Pa. Cons. Stat. § 5322(a)(1)(i), (a)(1)(iii). However, even if we determine that the defendants fit within the reach of the long-arm statute, we must also determine whether the exercise of jurisdiction is appropriate under the United Stated Constitution.(i) The doing by any person in this Commonwealth of a series of similar acts for the purpose of thereby realizing pecuniary benefit or otherwise accomplishing an object.
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(iii) The shipping of merchandise directly or indirectly into or through this Commonwealth.
Here, Seraphim fits within the long-arm statute. Specifically, Seraphim acted "for the purpose of thereby realizing pecuniary benefit or otherwise accomplishing an object," § 5322(a)(1)(i), when it entered into the contract with Spotts to sell it solar panels. Seraphim also shipped merchandise directly or indirectly through the Commonwealth, § 5322(a)(1)(iii), although we note that Seraphim's shipments to Pennsylvania constitute less than three percent (3%) of its sales volume made during that time. (Doc 9-1, Ex. B, ¶ 12.) Therefore, a plain reading of the Pennsylvania long-arm statute would reach Seraphim's dealings with Spotts.
However, the same cannot be said for Erwin's connections to this forum and the plaintiff has failed to establish that Erwin is subject to jurisdiction under the long-arm statute. On this score, the plaintiff contends that Erwin fits within subsection (a)(1)(i), based on its allegations that Erwin directed payment for the solar panels knowing that the panels would not be shipped. The difficulty with this assertion is that Erwin has filed an affidavit specifically denying any involvement in these aspects of this transaction, and Spotts has neither contradicted this assertion with competent evidence, nor sought leave to conduct targeted discovery to establish that what Erwin has stated in his affidavit is incorrect. Thus, Erwin's affidavit is uncontradicted and that affidavit states that Erwin has never traveled to Pennsylvania; owns no property or businesses in Pennsylvania; pays no taxes in Pennsylvania; and has no bank accounts in Pennsylvania. (Doc. 9-4.) Erwin also specifically denies the allegation that he was the President of Seraphim at the time of these events, stating that he simply served in non-salary capacity as a member of the company's board of directors along with three other individuals. (Id.) Erwin further alleges that he was not involved in the negotiation of the contract between Seraphim and Spotts; played no role in the creation of the invoice for this sale; never visited the Spotts facilities in Pennsylvania; and had no communication with Spotts other than signing an October 14, 2018 letter that was sent by Seraphim to Spotts as its business relationship with Spotts collapsed. (Id.)
It is well-settled that a plaintiff may not simply "rely on the bare pleadings alone in order to withstand a defendant's Rule 12(b)(2) motion," but rather must establish jurisdiction "through sworn affidavits or other competent evidence." Patterson by Patterson v. FBI, 893 F.2d 595, 603-04 (3d Cir. 1990) (quoting Time Share Vacation Club v. Atlantic Resorts Ltd., 735 F.2d 61, 67 n.9 (3d Cir. 1984)). In re Chocolate Confectionary Antitrust Litig., 602 F. Supp. 2d 538, 556-57 (M.D. Pa. 2009). Here, Erwin has represented without contradiction that he played no role in the events which led up to this alleged breach of contract and has no on-going ties to this jurisdiction. Given that the defendants have provided affidavits that indicate that Erwin had no part in the Spotts contract other than sending the October letter informing Spotts that further delivery of the solar panels would not occur following the alleged breach of this contract, Spotts has not met its burden to show that this court has jurisdiction over Erwin under Pennsylvania's long-arm statute.
Moreover, given this paucity of pleading and proof by Spotts, and its failure to in any way contradict Erwin's declaration that he was uninvolved in this contract prior to October 14, 2018, the plaintiff may not establish personal jurisdiction over Erwin by alleging that the court should pierce the corporate veil and hold Erwin personally accountable for Seraphim's contract breach. Plaintiffs frequently invite courts to base individual personal jurisdiction in a corporate contractual setting upon piercing the corporate veil. Yet, such invitations, while frequently made, are rarely embraced by the courts. See e.g., United Elec., Radio & Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1091 (1st Cir. 1992);Linus Holding Corp. v. Mark Line Indus., LLC, 376 F. Supp. 3d 417, 425 (D.N.J. 2019); In re Lyondell Chem. Co., 543 B.R. 127, 141 (Bankr. S.D.N.Y. 2016).
Exercising personal jurisdiction based upon piercing the corporate veil is disfavored because piercing the corporate veil is a disfavored practice which demands a specific and exacting showing. "[T]here is a strong presumption in Pennsylvania against piercing the corporate veil." Lumax Indus., Inc. v. Aultman, 543 Pa. 38, 41, 669 A.2d 893, 895 (1995).Thus, "in order for the courts to justify piercing the corporate veil, it must be determined that the corporate fiction is being used by the corporation itself to defeat public convenience, justify wrong either to third parties dealing with the corporation, or internally between shareholders' (derivative suits), perpetrate fraud or other similar reprehensible conduct." Sams v. Redevelopment Auth. of City of New Kensington, 431 Pa. 240, 244-45, 244 A.2d 779, 781 (1968). In practice, courts will consider piercing the corporate veil only when the evidence reveals "undercapitalization, failure to adhere to corporate formalities, substantial intermingling of corporate and personal affairs and use of the corporate form to perpetuate a fraud." Advanced Tel. Sys., Inc. v. Com-Net Prof'l Mobile Radio, LLC, 2004 PA Super 100, ¶ 42, 846 A.2d 1264, 1278 (2004). Notably, under this exacting standard garden-variety allegations of breach of contract have often been deemed insufficient to justify piercing the corporate veil. See e.g., Lumax Indus., Inc. v. Aultman, 543 Pa. 38, 41, 669 A.2d 893, 895 (1995).; First Realvest, Inc. v. Avery Builders, Inc., 410 Pa. Super. 572, 576, 600 A.2d 601, 603 (1991).
In this case, Spotts' primary claim against Seraphim is a breach of contract claim. While Spotts' complaint also alleges that Seraphim fraudulently induced the plaintiff to advance full payment for these solar panels before they were delivered, and then failed to timely deliver the panels or refund the moneys advanced, Spotts does not allege how use of the corporate form perpetrated this particular fraud. Furthermore, Spotts has not adequately pleaded or proven any of the other factors typically relied upon to justify piercing the corporate veil—undercapitalization, failure to adhere to corporate formalities, or substantial intermingling of corporate and personal affairs. Moreover, to the extent that Spotts has alleged either breach of contract by Seraphim or a fraudulent inducement to advance payment to Seraphim prior to delivery of the ordered solar panels, Erwin has specifically denied any involvement in these dealings between Spotts and Seraphim, and that denial is entirely unrebutted by any competent evidence. Given that a plaintiff may not simply "rely on the bare pleadings alone in order to withstand a defendant's Rule 12(b)(2) motion," but rather must establish jurisdiction "through sworn affidavits or other competent evidence," Patterson by Patterson v. FBI, 893 F.2d 595, 603-04 (3d Cir. 1990), the failure to rebut Erwin's uncontested sworn statements that he was not involved these aspects of this transaction makes reliance upon the doctrine of piercing the corporate veil to satisfy the requisites of personal jurisdiction inappropriate here.
b. Jurisdiction Under the United States Constitution
In any event, we conclude that this court lacks jurisdiction over Erwin under the United States Constitution. As for Seraphim, while we regard this as an extremely close case, we conclude that there are sufficient minimum contacts between this corporate defendant and this forum jurisdiction to allow the court to assert personal jurisdiction over Seraphim.
As we have noted, the plaintiff is asserting specific jurisdiction over the defendants by virtue of Seraphim's contract with Spotts and alleged representations made by Seraphim regarding that contract. Although "[a] contract may provide a basis for the exercise of personal jurisdiction that meets due process standards, . . . a contract alone does not 'automatically establish sufficient minimum contacts in the other party's home forum . . . .'" Grand Entertainment Group, Ltd., v. Star Media Sales, Inc., 988 F.2d 476, 482 (3d Cir. 1993) (quoting Burger King, 471 U.S. at 478)). Rather, in determining whether the defendants have the necessary minimum contacts, we must "consider the totality of the circumstances, including the location and character of the contract negotiations, the terms of the contract, and the parties' actual course of dealing." Remick v. Manfredy, 238 F.3d 248, 256 (3d Cir. 2001). In this regard, with the advent of modern communication technologies a contracting party's physical presence in the forum state has diminished legal significance. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct. 2174, 2184, 85 L. Ed. 2d 528 (1985). Rather, "[i]n contract cases, courts should inquire whether the defendant's contacts with the forum were instrumental in either the formation of the contract or its breach." Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 150 (3d Cir. 2001). Moreover, in undertaking this task "the court is mindful that 'questions of personal jurisdiction do not lend themselves to categorical determinations.' Mellon Bank (East) PSFS, Nat. Ass'n v. Farino, 960 F.2d 1217, 1224-25 (3d Cir.1992)." It's Intoxicating, Inc. v. Maritim Hotelgesellschaft mbH, No. 11-CV-2379, 2013 WL 3973975, at *9 (M.D. Pa. July 31, 2013). Rather, each case must be evaluated in its own factual context.
We also note that Spotts' somewhat spare approach to the litigation of this motion does not assist us in this task. For example, Spotts asserts in its brief that "it is clear that Seraphim markets and advertises its products in the Commonwealth of Pennsylvania. It is clear that Seraphim ships its products to the Commonwealth of Pennsylvania. Seraphim has sent sales personnel to the Commonwealth of Pennsylvania." (Doc. 10, at 3) However, Spotts provides no evidentiary support for these propositions which have been rebutted, at least in part, by the defendants.
More is needed here to defeat a claim of lack of personal jurisdiction. As this court has observed in the past:
Although plaintiffs bear the ultimate burden of proving personal jurisdiction by a preponderance of the evidence, such a showing is unnecessary at the preliminary stages of litigation. Mellon Bank (E.) PSFS, Nat'l Ass'n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992). Rather, plaintiffs must merely allege sufficient facts to establish a prima facie case of jurisdiction over the person. Id. Once these allegations are contradicted by an opposing affidavit, however, plaintiffs must present similar evidence in support of personal jurisdiction. Carteret Sav. Bank, 954 F.2d at 142 & n. 1, 146; Patterson, 893 F.2d at 603-04. "[A]t no point may a plaintiff rely on the bare pleadings alone in order to withstand a defendant's Rule 12(b)(2) motion to dismiss for lack of in personam jurisdiction.... Once the motion is made, plaintiff must
respond with actual proofs, not mere allegations." Patterson, 893 F.2d at 604.In re Chocolate Confectionary Antitrust Litig., 602 F. Supp. 2d 538, 556-57 (M.D. Pa. 2009).
Judged by these standards, Spotts has failed to demonstrate that personal jurisdiction rests over Erwin since, with respect to Erwin individually, the defendant's unrebutted affidavit states that he has never travelled to Pennsylvania, does not own any property in Pennsylvania, did not speak with anyone at Spotts as part of contract negotiations, and was not personally involved in the execution of the contract. (Doc. 9-4, at 1-2). Moreover, he states that he was not personally involved in any aspect of the contract prior to October 14, 2018, when he prepared a letter as a member of the board of directors and that letter was sent to Spotts. (Id., at 2.) On these meager facts, we simply cannot say that Erwin individually purposefully directed his activities at Spotts in this forum.
In contrast, with regard to the corporate defendant, Seraphim, while we regard this as a close case, we believe that there are sufficient contacts between Seraphim and Pennsylvania that the "assertion of personal jurisdiction would comport with 'fair play and substantial justice.' International Shoe Co. v. Washington, 326 U.S., at 320, 66 S.Ct., at 160." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct. 2174, 2184, 85 L. Ed. 2d 528 (1985). In particular, we note that Seraphim had a small economic presence in Pennsylvania aside from this contract, having engaged in 3 transactions in this state that constituted approximately 3% of its revenues since 2016. See Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1572 (Fed. Cir. 1994) (3% of annual sales in forum held sufficient for personal jurisdiction). While Seraphim's affidavit in support of its motion to dismiss emphasizes its lack of physical presence in Pennsylvania, this factor, although relevant, is not determinative of whether personal jurisdiction lies here since:
[I]t is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor's efforts are "purposefully directed" toward residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there.Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct. 2174, 2184, 85 L. Ed. 2d 528 (1985). Instead, when making this purposeful direction determination "[i]n contract cases, courts should inquire whether the defendant's contacts with the forum were instrumental in either the formation of the contract or its breach." Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 150 (3d Cir. 2001) (emphasis added).
In this case, when we consider Seraphim's transactions with Spotts, we note that the defense affidavit does not dispute in chronology of events set forth in the complaint. Thus, we accept that Seraphim and Spotts engaged in negotiations to provide solar panels to Spotts in Pennsylvania as part of a contract that Spotts had entered into to perform work for the Commonwealth of Pennsylvania. We also accept that these transactions spanned at least three months, since Seraphim entered into this agreement in July of 2018 but the alleged breach did not take place until October 2018. For purposes of determining personal jurisdiction, it is also uncontested that Seraphim negotiated accelerated payments under the agreement in late September 2018, based upon a promise to timely perform in October. Thus, Seraphim induced Spotts to transfer more than $93,000 from Pennsylvania to the defendant based upon a promise to timely deliver goods. Seraphim then shipped some, but not all of the ordered goods to Spotts in Pennsylvania. Yet, while Seraphim made a partial shipment of goods to Spotts In Pennsylvania on October 2, 2018, it is alleged that Seraphim breached this agreement to provide all of these goods in October 2018. This alleged breach, in turn, took place within weeks of negotiating and receiving the accelerated contract payment based upon Seraphim's alleged promise made to Spotts in Pennsylvania to fully perform this contract by delivering all of the solar panels ordered by Spotts to Pennsylvania in a timely manner. On these facts, we find that Seraphim's contacts with Spotts in Pennsylvania played a substantial role in the negotiation, modification, and breach of this agreement, a process that spanned at least three months. Accordingly, the exercise of personal jurisdiction over Seraphim in Pennsylvania comports with the requirements of due process, and the motion to dismiss Seraphim for lack of jurisdiction should be denied.
(2) Seraphim is Not Entitled to Forum Non Conveniens Dismissal
Finally, Seraphim also argues that this case should be dismissed on forum non conveniens grounds. The doctrine of forum non conveniens recognizes that in extraordinary cases dismissal or transfer of a lawsuit where jurisdiction is proper may be appropriate if the jurisdiction, while legally appropriate, works an undue hardship. As the court of appeals has observed:
"The principle of forum non conveniens is simply that a court may resist imposition upon its jurisdiction even when jurisdiction is authorized by the letter of a general venue statute." Id. at 507, 67 S.Ct. 839. A court may exercise this power when litigating the case in the chosen forum would either oppress a defendant "out of all proportion to plaintiff's convenience" or cause the court "administrative and legal problems." Piper Aircraft Co., 454 U.S. at 241, 102 S.Ct. 252 (internal quotation marks omitted).Trotter v. 7R Holdings LLC, 873 F.3d 435, 439 (3d Cir. 2017).
"The forum non conveniens determination is committed to the sound discretion of the trial court. It may be reversed only when there has been a clear abuse of discretion; where the court has considered all relevant public and private interest factors, and where its balancing of these factors is reasonable, its decision deserves substantial deference." Piper Aircraft Co. v. Reyno, 454 U.S. 235, 257, 102 S. Ct. 252, 266, 70 L. Ed. 2d 419 (1981). Application of the forum non conveniens doctrine to a particular case involves a weighing of public and private interest factors. With respect to these private interests: "[i]mportant considerations are the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive. There may also be questions as to the enforcibility of a judgment if one is obtained." Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S. Ct. 839, 843, 91 L. Ed. 1055 (1947). Further:
Factors of public interest also have place in applying the doctrine. Administrative difficulties follow for courts when litigation is piled up in congested centers instead of being handled at its origin. Jury duty is a burden that ought not to be imposed upon the people of a community which has no relation to the litigation. In cases which touch the affairs of many persons, there is reason for holding the trial in their view and reach rather than in remote parts of the country where they can learn of it by report only. There is a local interest in having localized controversies decided at home. There is an appropriateness, too, in having the trial of a diversity case in a forum that is at home with the state law that must govern the case, rather than having a court in some other forum untangle problems in conflict of laws, and in law foreign to itselfGulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09, 67 S. Ct. 839, 843, 91 L. Ed. 1055 (1947). Trotter v. 7R Holdings LLC, 873 F.3d 435, 439 (3d Cir. 2017).
In this case, we find that the balancing of these public and private interests does not "oppress a defendant 'out of all proportion to plaintiff's convenience' or cause the court 'administrative and legal problems.' Piper Aircraft Co., 454 U.S. at 241, 102 S.Ct. 252 (internal quotation marks omitted)." Trotter v. 7R Holdings LLC, 873 F.3d 435, 439 (3d Cir. 2017). This case is a straightforward breach of contract and fraudulent inducement action between a Pennsylvania company and a Texas supplier for that company. This litigation presents no difficult choice of law issues, and the relative balance of inconvenience to the witnesses is not so undue that it compels dismissal of this action. Further, each party should be able to marshal its proof in Pennsylvania for any trial without excessive hardship. Moreover, a judgment obtained in this action would be easily enforceable. Therefore, the trial of this action presents no unusual administrative burden for the court, and there is a public interest in resolving this contract dispute involving a Pennsylvania business which allegedly was injured due to the defendant's breach in Pennsylvania where that breach allegedly took place.
Given this assessment of the public and private interests, we submit that the proper exercise of the court's discretion would be to decline Seraphim's invitation to dismiss this complaint on forum non conveniens grounds.
III. Recommendation
Accordingly, for the foregoing reasons, it is RECOMMENDED that the defendants' motion to dismiss (Doc. 9) be GRANTED, in part, and DENIED, in part, in that Defendant Erwin should be DISMISSED from this action but the motion to dismiss should be DENIED with respect to Defendant Seraphim.
The parties are further placed on notice that pursuant to Local Rule 72.3:
Any party may object to a magistrate judge's proposed findings,
recommendations or report addressing a motion or matter described in 28 U.S.C. § 636 (b)(1)(B) or making a recommendation for the disposition of a prisoner case or a habeas corpus petition within fourteen (14) days after being served with a copy thereof. Such party shall file with the clerk of court, and serve on the magistrate judge and all parties, written objections which shall specifically identify the portions of the proposed findings, recommendations or report to which objection is made and the basis for such objections. The briefing requirements set forth in Local Rule 72.2 shall apply. A judge shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge. The judge, however, need conduct a new hearing only in his or her discretion or where required by law, and may consider the record developed before the magistrate judge, making his or her own determination on the basis of that record. The judge may also receive further evidence, recall witnesses or recommit the matter to the magistrate judge with instructions.
Submitted this 20th day of August 2019.
S/ Martin C . Carlson
Martin C. Carlson
United States Magistrate Judge