Phoenix Process Equipment Co. v. Capital Equipment & Trading Corporation et al

MOTION to Dismiss for Lack of Jurisdiction , Insufficient Service of Proess, Forum Non Conveniens, and Failure to State a Claim

W.D. Ky.September 19, 2016

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY AT LOUISVILLE Electronically Filed PHOENIX PROCESS EQUIPMENT CO. PLAINTIFF v. CAPITAL EQUIPMENT & TRADING CORPORATION, ET AL. DEFENDANTS ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO. 3:16-CV-00024-JHM-DW DEFENDANTS ALEXANDER CHUDNOVETS’ AND CORALINA ENGINEERING, LLC’S SEPARATE MOTIONS TO DISMISS Defendants Alexander Chudnovets (“Chudnovets”) and Coralina Engineering, LLC (“Coralina”), by counsel, hereby separately move the Court, pursuant to Federal Rules of Civil Procedure 12(b)(2), (5), and (6) and the common law doctrine of forum non conveniens, to dismiss the claims asserted against them by Plaintiff Phoenix Process Equipment Co. (“Phoenix”). Phoenix cannot establish that the Court has personal jurisdiction over either Chudnovets or Coralina. Chudnovets is a non-resident alien of the United States and citizen of the Russian Federation who resides in Moscow. He is the sole member and chief executive officer of Coralina-a Russian limited liability company. Coralina limits its business to Russia and other countries in Eastern Europe and Asia, and it has no contacts with Kentucky. Chudnovets’s only Kentucky contacts are two brief visits to the state six and seven years ago, both unrelated to this dispute which arose in late 2015. Neither Chudnovets nor Coralina has any contractual relationship with Phoenix, and Phoenix’s allegations refer to two Distributor Agreements Case 3:16-cv-00024-JHM-DW Document 47 Filed 09/19/16 Page 1 of 4 PageID #: 607 2 between Phoenix and: (1) a now-dissolved Delaware corporation, Defendant Capital Equipment & Technology Corporation in 2009 and (2) Defendant Capital Equipment & Trading Corporation (“CE&T Corp.”), a Texas corporation in good standing. Controlling law further precludes the attribution of CE&T Corp.’s Kentucky contacts to Coralina under an alter-ego theory. Phoenix’s attempts to subject Chudnovets and Coralina to personal jurisdiction are unauthorized by Kentucky’s long-arm statute and offend federal due process. In addition, Phoenix failed to properly serve Chudnovets and Coralina under the applicable Hague Service Convention requirements for service of process on foreign persons and entities. Phoenix attempted to serve Chudnovets by mailing the lawsuit papers to two addresses in Houston, Texas, neither of which he has ever owned. He last visited the first address as a guest more than six years ago, and he has never even been to the second address. Phoenix attempted to serve Coralina by simply having the Kentucky Secretary of State send the lawsuit papers to Coralina’s Moscow offices by regular mail. This service is wholly inadequate as a matter of law. The doctrine of forum non conveniens further counsels in favor of dismissing Phoenix’s claims against Defendants Coralina and Chudnovets. Phoenix has sued a Russian citizen and Russian entity on claims arising from a purported distributorship for specified territories in Russia, Ukraine, and other countries in Eastern Europe. The principal witnesses and evidence will be located in Russia. Finally, in the unlikely event the Court finds that it has jurisdiction over Defendants Coralina and/or Chudnovets, that service upon Defendants Coralina and/or Chudnovets was proper, and that forum non conveniens does not apply here, Phoenix’s claims against Coralina and Chudnovets for violation of the Kentucky Uniform Trade Secrets Act (“KUTSA”), Case 3:16-cv-00024-JHM-DW Document 47 Filed 09/19/16 Page 2 of 4 PageID #: 608 3 KRS 365.880 et seq.; unfair competition and “passing off;” fraud and fraud in the inducement; and conspiracy must be dismissed for failure to state a claim upon which relief can be granted. Phoenix pleaded no legally cognizable trade secret. Nor has it pleaded fraud with particularity. Phoenix’s tort claims also are preempted by the KUTSA. Plaintiff’s claim for civil conspiracy fails for lack of an independent, underlying tort. A combined memorandum in support of these separate motions is attached hereto. Respectfully submitted, /s/ Byron E. Leet________________________ Byron E. Leet bleet@wyattfirm.com Sean G. Williamson swilliamson@wyattfirm.com WYATT, TARRANT & COMBS, LLP 500 West Jefferson Street, Suite 2800 Louisville, KY 40202-2898 502.589.5235 Mark C. Guthrie (Pro Hac Vice) mguthrie@winstead.com WINSTEAD PC 1100 JPMorgan Chase Tower 600 Travis Street Houston, TX 77002 713.650.2730 Counsel for Defendants Capital Equipment & Trading Corporation, Coralina Engineering, LLC, and Alexander Chudnovets Case 3:16-cv-00024-JHM-DW Document 47 Filed 09/19/16 Page 3 of 4 PageID #: 609 4 CERTIFICATE OF SERVICE I hereby certify that on September 19, 2016, I electronically filed the foregoing with the Clerk of the Court by using the CM/ECF system, which will send a notice of electronic filing to the following: Scott P. Zoppoth spz@zoplaw.com THE ZOPPOTH LAW FIRM 635 West Main Street, Suite 400 Louisville, KY 40202 505.568.8884 Counsel for Plaintiff /s/ Byron E. Leet Byron E. Leet Counsel for Defendants Capital Equipment & Trading Corporation, Coralina Engineering, LLC, and Alexander Chudnovets 61543330.1 Case 3:16-cv-00024-JHM-DW Document 47 Filed 09/19/16 Page 4 of 4 PageID #: 610 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY AT LOUISVILLE Electronically Filed PHOENIX PROCESS EQUIPMENT CO. PLAINTIFF v. CAPITAL EQUIPMENT & TRADING CORPORATION, ET AL. DEFENDANTS ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO. 3:16-CV-00024-JHM-DW COMBINED MEMORANDUM IN SUPPORT OF THE SEPARATE MOTIONS TO DISMISS FILED BY DEFENDANTS ALEXANDER CHUDNOVETS AND CORALINA ENGINEERING, LLC Defendants Alexander Chudnovets (“Chudnovets”) and Coralina Engineering, LLC, (“Coralina”) by counsel, submit the following combined memorandum in support of their separate motions to dismiss the claims asserted by Plaintiff Phoenix Process Equipment Co. (“Phoenix”) in its First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(2), (5), and (6) and the common law doctrine of forum non conveniens. FACTUAL BACKGROUND Parties and Claims. Phoenix brought this action against a group of foreign and out-of- state business persons and entities asserting breach of contract and various unfair competition claims arising from alleged exclusive distributor agreements covering territories in Russia, Ukraine, and other countries in Eastern Europe. Phoenix designs and manufactures machinery and equipment for recycling water and other material in washing coal, and it is headquartered in Louisville, Kentucky. [First Am. Compl., DN 40, ¶ 10.] The business-entity Defendants include Capital Equipment & Trading Corporation (“CE&T Corp.”), a Texas corporation headquartered Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 1 of 42 PageID #: 611 2 in Houston, Texas; Coralina, a Russian limited liability company headquartered in Moscow, Russia; a now-dissolved and nonexistent Delaware corporation known as Capital Equipment & Technology Corporation (“Technology”); and another Russian entity, Electrogorsk Metal Factory d/b/a Elemet (“Elemet”), which has not appeared in this action. 1 [Chudnovets Aff. ¶ 22, attached hereto as Exhibit 1.] 2 Despite specifically identifying each business-entity Defendant in listing the parties, Phoenix refers to all of the business-entity Defendants, with the exception of Elemet, as simply “CETCO” in the remainder of the First Amended Complaint. Phoenix has adopted this misleading device in an attempt to give credence to its unfounded and conclusory allegations of an alter-ego relationship between CE&T Corp. and Coralina-its only hope for subjecting Coralina to personal jurisdiction in Kentucky. [See First Am. Compl. ¶¶ 5, 18-19, 25-26.] In addition to those business entities, Phoenix named one individual as a Defendant, Mr. Alexander Chudnovets, a non-resident alien of the United States and citizen of the Russian Federation who resides in Moscow. [Ex. 1 ¶ 2.] Phoenix sued Chudnovets individually in this lawsuit based on his involvement with CE&T Corp. and Coralina, despite Chudnovets being a Russian citizen who has set foot in Kentucky on only two occasions, both unrelated to Phoenix’s claims. 1 Phoenix also identified Capital Equipment & Trading Company as a Defendant, but this is nothing more than the former official corporate name of CE&T Corp. [Ex. 1 ¶ 22.] 2 Coralina and Chudnovets submit the Affidavit of Alexander Chudnovets attached as Exhibit 1 in support of this combined memorandum and accompanying motions to dismiss. The copy of Alexander Chudnovets’ Affidavit attached hereto is unsigned and does not included Exhibit 1-B, the 2006 Distributor Agreement. The difficulties of finalizing, properly notarizing, and obtaining the apostille and other materials for this affidavit from Russia prevented their simultaneous submission with this brief. Chudnovets and Coralina will supplement with a signed copy of the affidavit and a copy of Exhibit 1-B within two to three days of this filing. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 2 of 42 PageID #: 612 3 This dispute arose in late 2015 when Phoenix accused Defendants of conspiring to violate an alleged Distributor Agreement entered into on July 6, 2012, between Phoenix and the Texas Corporation CE&T Corp. 3 [First Am. Compl., DN 40, ¶¶ 21-22; see Drake Emails, DN 15-10.] According to Phoenix, the purported 2012 Distributor Agreement created an exclusive distributorship under which CE&T Corp. would market and sell Phoenix’s products in a territory encompassing Russia, Ukraine, and other countries in Eastern Europe. [Id. ¶¶ 11, 13.] Phoenix incorrectly characterizes the purported 2012 Distributor Agreement between Phoenix and CE&T Corp. as a “renewal” of a 2009 Distributor Agreement Phoenix entered into with an altogether different entity-Technology, which was dissolved as a Delaware corporation in October 2011. [Id. ¶¶ 13.] Phoenix further alleges that CE&T Corp., together with the Russian entities named as Defendants, subsequently reverse engineered Phoenix’s machines and equipment thereby pirating Phoenix’s proprietary and confidential designs, information, and trade secrets. [Id. ¶ 21.] Despite these general allegations, Plaintiff wholly fails in the First Amended Complaint to identify or describe what those confidential designs, information, and trade secrets might be. Even so, Phoenix claims that Elemet has manufactured machinery and equipment nearly identical to Phoenix’s products. [Id.] And Phoenix alleges that Coralina-with which Phoenix has never had any contractual relationship-marketed and sold some of the Elemet products in question. [Id. ¶ 22.] CE&T Corp., Coralina, and Chudnovets emphatically deny any allegation that they misappropriated or pirated Phoenix’s proprietary and confidential designs, information, or trade secrets; reverse engineered Phoenix machines and equipment; or otherwise were wrongfully involved in the sale of equipment. [Ex. 1 ¶ 29.] Contrary to Phoenix’s allegations, 3 A copy of the purported 2012 Distributor Agreement, which Phoenix claims to have entered into with CE&T Corp., is attached as hereto as Exhibit 1-E. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 3 of 42 PageID #: 613 4 CE&T Corp., Coralina, and Chudnovets hold no ownership of, affiliation with, or control over Elemet. [Id. ¶ 36.] Nor did Technology hold any such ownership, affiliation, or control before its dissolution. [Id.] None of those Defendants founded or participated in the creation of Elemet as Phoenix alleges. [Id.] Based on those allegations, however, the First Amended Complaint purports to assert claims for breach of contract, unfair competition and “passing off,” violations of the Kentucky Uniform Trade Secrets Act (“KUTSA”), KRS 365.880 et seq., fraud and fraud in the inducement, and conspiracy. Phoenix’s Past Relationship with Now-Dissolved Technology. Technology, the Delaware corporation formally dissolved in 2011, previously served as Phoenix’s distributor for a specified territory, including Russia, Ukraine, and other countries in Eastern Europe. [Ex. 1 ¶ 10.] This distributorship between Phoenix and Technology was conducted according to written Distributor Agreements dated in 2003, 2006, and 2009. 4 [Id.] Under the terms of those agreements, Technology’s duties were to be and were performed in the specified territories in Eastern Europe, and it was contemplated that Technology’s sole compensation under the agreements would derive from Technology’s resale of Phoenix equipment to third parties in those territories. [Id.] The sales particulars, including the description of goods, performance guaranty, payment, delivery, and other commercial terms applicable to each sale of Phoenix equipment to Technology, were governed by additional, separate agreements for each such sale transaction. [Id.] The First Amended Complaint does not raise claims about the specific purchases of Phoenix equipment under the Distributor Agreements. 4 True and correct copies of the 2003 Distributor Agreement and 2009 Distributor Agreement between Phoenix and Technology, respectively, are attached hereto as Exhibit 1-A and Exhibit 1-C. A true and correct copy of the 2006 Distributor Agreement will be provided as Exhibit 1-B in supplementation to follow shortly after the filing of this combined memorandum. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 4 of 42 PageID #: 614 5 The negotiations of the 2003 and 2006 Distributor Agreements were handled principally by former employees of Technology’s Coal Department who were based in Russia at the relevant times. [Id.] Those negotiations generally occurred while Phoenix representatives were in Russia visiting Technology representatives and attending coal mining trade shows, followed by mail and later email correspondence between Phoenix in Kentucky and Technology in Russia. [Id.] The 2009 Distributor Agreement between Phoenix and Technology was essentially a renewal of the 2006 and 2003 Distributor Agreements between those same two parties. [Id.] Chudnovets’ Lack of Kentucky Contacts. In an effort to bolster its claim that the Court may assert personal jurisdiction over Alexander Chudnovets, Plaintiff added in the First Amended Complaint allegations about the 2009 Distributor Agreement between Phoenix and now-dissolved Technology, because Alexander Chudnovets signed the 2009 Agreement as the CEO of Technology. As demonstrated below, this Court does not have personal jurisdiction over Alexander Chudnovets. Alexander Chudnovets is a non-resident alien of the United States and citizen of the Russian Federation. [Id. ¶ 2.] He currently maintains his primary residence in Moscow, Russia. [Id. ¶ 2.] Chudnovets has never lived in Kentucky and does not own any real property in Kentucky. [Id. ¶¶ 3-4.] Neither Chudnovets nor any business with which he is associated employs any Kentucky residents or maintains offices or agents in Kentucky. [Id. ¶ 5- 7.] Chudnovets owns no interest in any business in Kentucky, and he does not personally transact business here. [Id. ¶ 8.] Nor does Chudnovets personally solicit or advertise for business in Kentucky. [Id. ¶ 9.] In fact, Chudnovets has visited Kentucky on only two brief occasions before the 2011 dissolution of Technology, neither of which was for the principal purpose of meeting or doing business with Phoenix. [Id. ¶¶ 11-14.] The only time he met with Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 5 of 42 PageID #: 615 6 any representatives of Phoenix it was as a representative of now-dissolved Technology at Phoenix’s invitation and not at his initiative. [Id. ¶ 12.] Chudnovets’ 2009 Visit to Kentucky as a Technology Representative. First, in late April 2009, Chudnovets attended a two-and-one-half day coal industry exposition in Lexington, Kentucky, as part of a Russian delegation and in his capacity as a representative of Technology. [Ex. 1 ¶ 12.] He formerly served as Technology’s chief executive officer before its dissolution in October 2011. [Id. ¶ 22.] Attending this coal exposition was the primary purpose of Chudnovets’ 2009 visit to Kentucky. [Id. ¶ 12] He did not come to Kentucky on behalf of Technology or otherwise to meet with Phoenix representatives, discuss the renewal of the 2006 Distributor Agreement, or negotiate the 2009 Distributor Agreement between Phoenix and Technology. [Id.] A Russia-based employee of Coralina, Mr. Vadim Novak, also attended this exposition. [Id.] During the exposition, Mr. Allen Drake of Phoenix invited Novak and Chudnovets for a tour of Phoenix’s office in Louisville, followed by lunch and a tour of Phoenix’s assembly facility in Indiana. [Id.] This invitation built upon earlier emails Allen Drake had sent to Novak and Mr. Ken Wyzykowski of Technology (who by the time of the exposition had left the company) discussing the possibility of meeting for lunch or dinner during the exposition if they would be attending. [Id.] The trip to Phoenix’s locations occurred in early May 2009, several days after the conclusion of the coal exposition. [Id.] Before lunch, Chudnovets spent approximately ten (10) minutes in a conference room at Phoenix’s Louisville office with Mr. Gary Drake, President of Phoenix, and others. [Id.] In this brief social meeting, Chudnovets had no substantive discussions about business with Gary Drake or any other Phoenix representative. [Id.] Instead, Chudnovets and Gary Drake greeted one another and talked about horses and the Kentucky Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 6 of 42 PageID #: 616 7 Derby. [Id.] Gary Drake specifically talked about the circumstances of Mine That Bird’s entry into the Kentucky Derby, in addition to his interest in horses and ownership of a horse. [Id.] After this short time in the conference room, Chudnovets went for a social lunch with Allen Drake and other Phoenix representatives, which lasted approximately two (2) hours, followed by a tour of Phoenix’s small assembly facility in Indiana for around thirty (30) minutes. [Id.] Gary Drake did not attend this lunch or the subsequent tour of the Indiana facility. [Id.] Chudnovets did not discuss substantive business with Gary Drake or other Phoenix representatives during his 2009 visit to Kentucky and Indiana. [Id.] Chudnovets did not discuss, propose, or negotiate with any Phoenix representatives the renewal of the 2006 Distributor Agreement between Phoenix and Technology or the terms of a 2009 Distributor Agreement between Phoenix and Technology. [Id.] Nor did Chudnovets discuss with Gary Drake or any other Phoenix representatives the potential manufacture of belt filter presses in Russia. [Id.] Moreover, Chudnovets did not ask Novak to have such discussions with Phoenix during this visit, and he is unaware of Novak in fact having such discussions with Phoenix during this visit. [Id.] Chudnovets had no discussions with and made no representations to any Phoenix representatives regarding business agreements or business transactions between Phoenix and Technology, CE&T Corp., or Coralina. [Id.] He also did not discuss or conduct any personal business with Phoenix or any of its representatives during this visit. [Id.] On or about May 12, 2009, a signed copy of the 2009 Distributor Agreement proposed by Phoenix was delivered to Chudnovets’ Moscow office via overnight mail from Phoenix. [Id. ¶ 13.] Chudnovets was away on other business at the time of the delivery. [Id.] On May 22, 2009, Chudnovets signed the 2009 Distributor Agreement on behalf of Technology in his capacity as Technology’s chief executive officer. [Id.] Other than signing the 2009 Distributor Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 7 of 42 PageID #: 617 8 Agreement in Moscow as a representative of Technology, Chudnovets had no discussions with Phoenix about the agreement and did not participate personally with Phoenix in negotiating the agreement. [Id.] Chudnovets’ Unrelated 2010 Visit to Kentucky. Chudnovets visited Kentucky for the second time in 2010 as a representative of Coralina. [Ex. 1 ¶ 14.] He attended an international coal and mining industry congress in Lexington, Kentucky, again as part of a Russian delegation. [Id.] Chudnovets had no contact with Phoenix or its representatives during this 2010 visit. [Id.] And Phoenix’s First Amended Complaint contains no allegations connecting its claims in any way to this 2010 visit. Chudnovets has not returned to Kentucky since that time. [Id.] Technology’s 2011 Dissolution. In October 2011, Technology dissolved as a corporation organized under the laws of Delaware. 5 [Ex. 1 ¶ 22.] Chudnovets previously owned ninety percent (90%) of Technology, and Mr. Michael Akimov, another Russian citizen, owned ten percent (10%). [Id.] No one now owns any interest in the dissolved entity Technology. [Id.] Chudnovets also had served as a director and chief executive officer of Technology. [Id.] Those titles, like his ownership interest, evaporated upon Technology’s dissolution. [Id.] Technology is not the same company as CE&T Corp. and/or Coralina. [Id.] The first two entities were separate corporations in separate U.S. states. Technology is dissolved and CE&T Corp. exists and is in good standing. And Coralina is an entity organized and existing under Russian law. Technology did not cause and had nothing to do with the formation or organization of either CE&T Corp. or Coralina. [Id.] Neither CE&T Corp. nor Coralina was formed as a result of any merger or combination with one another or with Technology. As 5 A true and correct copy of Technology’s Certificate of Dissolution is attached hereto as Exhibit 1-D. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 8 of 42 PageID #: 618 9 discussed below, “CETCO” is a brand or trade name and not the formal name of a business entity that is a Defendant here. Therefore, Technology is not a predecessor company of either CE&T Corp. or Coralina or any entity named “CETCO” as conclusory alleged by Plaintiff in the First Amended Complaint. [Id.] “CETCO” Brand or Trade Name. Prior to its dissolution in October 2011, but not afterward, Technology used the brand or trade name “CETCO.” [Ex. 1 ¶ 22.] While CE&T Corp. and Coralina now use “CETCO” as a brand or trade name from time to time, there does not appear to be any entity registered with a formal name of “CETCO” or “CETCO Coralina.” [Id.] Moreover, Chudnovets is unaware of any entity so named and holds no ownership interest in, affiliation with, or position as an officer or director with any entity so named. [Id.] Purported 2012 Distributor Agreement With CE&T Corp. Chudnovets had no involvement in executing the purported 2012 Distributor Agreement between Phoenix and CE&T Corp, which expressly and exclusively names Phoenix and CE&T Corp. (and not Technology, Coralina, or “CETCO”) as parties to the contract, and he did not authorize its signing. [Ex. 1 ¶ 35.] Chudnovets’ signature does not appear on the document. [Id.] This purported 2012 Distributor Agreement cannot be a renewal of the 2009 Distributor Agreement between Phoenix and Technology-as Phoenix now claims-because Technology was dissolved in October 2011. [Id.] Technology is neither a party under the terms of the 2012 Distributor Agreement nor did it even exist in 2012. [Id.] Chudnovets had no knowledge of the purported 2012 Distributor Agreement until October 2015. [Id.] Around that time, Chudnovets exchanged emails from his office in Russia with a Phoenix representative in an attempt to resolve any misunderstanding over the purported 2012 Distributor Agreement. [Id.] Other than those emails, Phoenix did not normally or regularly address communications to Chudnovets regarding Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 9 of 42 PageID #: 619 10 any Distributor Agreement, and he did not normally or regularly communicate with Phoenix about them. [Id.] Coralina’s Lack of Kentucky Contacts. Coralina is a limited liability company organized under the laws of the Russian Federation with no member being a citizen of the United States. [Ex. 1 ¶ 2.] Coralina’s sole member, Alexander Chudnovets, is a non-resident alien of the United States and citizen of the Russian Federation who maintains his primary residence in Moscow. [Id.] The business activities of Coralina are limited to Russia and other countries in Eastern Europe and Asia. [Id. ¶ 15.] Coralina does not conduct business in Kentucky, nor does it conduct business in the United States. [Id.] Coralina owns no real property in Kentucky and maintains no offices in Kentucky. [Id. ¶¶ 16, 18.] The employees and agents of Coralina include no Kentucky residents or anyone otherwise located in Kentucky. [Id. ¶¶ 17, 19.] Coralina does not solicit or advertise for business in Kentucky. [Id. ¶ 21.] Coralina does not transact business in Kentucky or control any other entity transacting business in Kentucky. [Id. ¶ 20.] Coralina’s Separateness and Independence as a Legal Entity. To support its alter-ego theory, Phoenix attempts to confuse and blur the identities of the several business-entity Defendants by its repeated references to each of Technology, CE&T Corp and Coralina as “CETCO.” Coralina is a separate and independent legal entity from all of the other business- entity Defendants, including without limitation Defendants CE&T Corp, a Texas corporation, Capital Equipment and Trading Company, the former name of CE&T Corp and Technology, the Delaware corporation that dissolved in October 2011. [Ex. 1 ¶ 22.] Coralina is neither the parent nor a subsidiary of CE&T Corp. [Id. ¶ 25.] And neither CE&T Corp. nor Coralina caused the organization or incorporation of the other. [Id.] Chudnovets owns one-hundred percent (100%) of Coralina, which again is a Russian limited liability company, and he owns no shares Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 10 of 42 PageID #: 620 11 in CE&T Corp. [Id. ¶ 22.] Coralina is a going concern in good standing under the laws of the Russian Federation. [Id.] CE&T Corp. is a Texas corporation formed in 2009 with its principal place of business in Houston, Texas. [Id.] Conan Invest and Finance (BVI) (“Conan Invest”) owns ninety percent (90%) of CE&T Corp., and Michael Akimov owns the remaining ten percent (10%). [Id.] CE&T Corp. is a going concern in good standing under the laws of Texas. [Id.] Coralina and CE&T Corp. are not controlled by identical boards of directors or officers. [Id. ¶ 26.] Chudnovets is the sole member and chief executive officer of Coralina. [Id.] CE&T Corp. is managed by a president who is not affiliated with Coralina and by a separate board of directors of which Chudnovets is but one member. [Id.] The president of CE&T Corp., Ms. Maria Roberson, resides and has offices in Houston, Texas, where she oversees CE&T Corp.’s day-to-day operations. [Id.] Neither Coralina nor CE&T Corp. sets policies for the other entity. [Id.] The entities can and do engage in business and transactions without the involvement of the other. [Id.] Coralina and CE&T Corp. maintain independent registrations in the countries in which they operate. [Id. ¶ 27.] Coralina and CE&T Corp. do not share the same offices. [Id. ¶ 31.] Coralina has offices in the Russian cities of Moscow and St. Petersburg. [Id.] Coralina does not keep and never has kept an office in the United States. [Id.] CE&T Corp.’s offices and principal place of business are located in Houston, Texas. [Id.] Coralina and CE&T Corp. have separate telephone and fax lines. [Id.] They also maintain separate websites, although Coralina’s website does give recognition to its work with CE&T Corp. as well as the “CETCO” brand. [Id. ¶ 32.] But Coralina is not the alter ego company of and does not “transact extensive business under the name of its alter ego company, CETCO” as Phoenix alleges. [Id.] “CETCO” is not a company; Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 11 of 42 PageID #: 621 12 it is a brand or trade name. [Id. ¶ 22.] To the knowledge of Coralina and its sole member, Chudnovets, there is no such entity as “CETCO.” [Id.] Coralina and CE&T Corp. maintain separate employees, and those employees are paid directly by their respective employer, whether that is Coralina or CE&T Corp. [Id. ¶ 28.] Novak is an employee of Coralina-despite Phoenix’s attempt to attribute his employment to CE&T Corp. [Id.] Novak is not an employee of CE&T Corp. or a shared employee of the two entities, nor has he ever been. [Id.] Novak serves as the head of Coralina’s Coal Department, and he previously served as a Project Manager for Coralina. [Id.] If Novak had contact with Phoenix regarding CE&T Corp., such contact would have been made in his capacity as a Coralina employee furthering the business relationship between Coralina and CE&T Corp in which Coralina has identified a foreign end user’s specifications and requirements for CE&T Corp.’s vendors or facilitated the purchase and resale of products for CE&T Corp.’s vendors. [Id.] Coralina and CE&T Corp. observe the proper corporate formalities. [Id. ¶ 33.] Coralina and CE&T Corp. each has its own books, financial records, bank accounts, and assets. [Id.] Each entity files and pays its own taxes. [Id.] Coralina does not participate in the maintenance of any CE&T Corp. books, financial records, bank accounts, assets, or vice versa. [Id.] Coralina and CE&T Corp. use different independent, outside accountants. [Id.] Neither Coralina nor CE&T Corp. finances the operations or pays the expenses of the other. [Id. ¶ 34.] The two entities do not treat their respective property and assets as interchangeable. [Id.] Both Coralina and CE&T Corp. are adequately capitalized to fulfill any liabilities that arise in the normal course of business. [Id.] Coralina and CE&T Corp. Engage in Different Businesses. In fact, and significantly, the businesses of Coralina and CE&T Corp. are different, and they have separate and distinct Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 12 of 42 PageID #: 622 13 business purposes. [Id. ¶ 23.] Unlike CE&T Corp., Coralina performs and has performed large- scale project contracting, feasibility studies, research and development, and design work in the coal and mining industries of Russia and other countries in Eastern Europe and Asia. [Id.] CE&T Corp. and its personnel do not have the capabilities or the licenses, registrations, or certifications necessary to perform such work. [Id.] CE&T Corp. mainly deals in the purchase and resale of equipment for mining and other industries and does not perform engineering, construction, or other services for the coal and mining industries in Russia or elsewhere. [Id.] Here, CE&T Corp. purchased equipment from Phoenix for resale primarily in Russia and other countries in Eastern Europe-though it denies doing so pursuant to any contract for an exclusive distributorship. [Id.] From time to time, Coralina assists CE&T Corp. with the identification of a Russian or Eastern European end user’s equipment specifications and requirements and the communication of those specification and requirements to CE&T Corp.’s vendors. [Id. ¶ 24.] In some cases, Coralina purchases equipment from CE&T Corp. for resale on a DDP (delivery duty paid) Incoterms basis to customers in Russia and other countries in the Commonwealth of Independent States (“CIS”). [Id.] As part of that relationship, Coralina has facilitated CE&T Corp.’s purchases and resales of products manufactured by Phoenix. [Id.] Coralina itself, however, does not have and never has had any contractual relationship with Phoenix. [Id.] Phoenix has never requested a contract or agreement with Coralina, sold any equipment to Coralina, or paid Coralina any money for anything. [Id.] Coralina is not a party to the purported 2012 Distributor Agreement, which was allegedly entered into by Phoenix and CE&T Corp. [Id.] Coralina has never been a party to any distributor agreement with Phoenix, including the prior Distributor Agreements in 2003, 2006, and 2009 between Phoenix and now- Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 13 of 42 PageID #: 623 14 dissolved Technology. [Id.] Phoenix representatives have been well aware of Coralina for years. [Id.] They have traveled to Russia and elsewhere several times to visit Coralina and, before its dissolution, Technology and to attend trade shows. [Id.] Insufficient Service of Process. Phoenix attempted to serve Chudnovets by sending the lawsuit papers to a residential address at 2042 Brentwood Drive, Houston, Texas, via U.S. Certified Mail, Return Receipt Requested. [Ex. 1 ¶ 37.] The residence at that address was formerly owned by Maria Roberson, the president of CE&T Corp. [Id.] That address does not belong to and never has belonged to Chudnovets. [Id.] Chudnovets last visited the Brentwood Drive address as a guest more than six years ago. [Id.] Based on a mail forwarding request Roberson filed with the U.S. Postal Service, the lawsuit papers were forwarded to her new residence address in a high rise condominium building at 2727 Kirby Drive, Houston, Texas. [Id.] This Kirby Drive address also does not belong to Chudnovets, nor has he ever been there. [Id.] An employee of the high-rise complex apparently signed for receipt of the lawsuit papers. [Id.] Chudnovets never authorized either the building employee or Roberson to accept service of lawsuits on his behalf. [Id.] Phoenix attempted to serve the lawsuit papers on Coralina by having the Kentucky Secretary of State send them by regular mail to Coralina’s Moscow offices. [Id. ¶ 38.] The package did not appear to have been addressed by the court clerk and required no signed receipt upon delivery. [Id.] STANDARD “Without personal jurisdiction ‘the court is powerless to proceed to an adjudication.’” Days Inns Worldwide, Inc. v. Patel, 445 F.3d 899, 903-04 (6th Cir. 2006) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584, 119 S. Ct. 1563, 143 L. Ed. 2d 760 (1999)). As the Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 14 of 42 PageID #: 624 15 party requesting the exercise of personal jurisdiction, the plaintiff bears the burden of showing that such jurisdiction exists. CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1261-62 (6th Cir. 1996). “Personal jurisdiction must be analyzed and established over each defendant independently.” Days Inns, 445 F.3d at 904. When confronted with a properly supported motion, “the plaintiff may not stand on his pleadings but must, by affidavit or otherwise, set forth specific facts showing that the court has jurisdiction.” Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). In considering a motion to dismiss for lack of personal jurisdiction, the court has “three procedural alternatives: it may decide the motion upon the affidavits alone; it may permit discovery in aid of deciding the motion; or it may conduct an evidentiary hearing to resolve any apparent factual questions.” Id. The court’s choice among those alternatives affects the burden of proof the plaintiff must bear to avoid dismissal. Id. “Ordinarily, the plaintiff must prove jurisdiction by a preponderance of the evidence.” Dean v. Motel 6 Operating L.P., 134 F.3d 1269, 1272 (6th Cir. 1998). Where the court rules on the motion without an evidentiary hearing, however, “the plaintiff need only make a ‘prima facie’ case that the court has personal jurisdiction.” Conn v. Zakharov, 667 F.3d 705, 711 (6th Cir. 2012). In that procedural posture, the court views the pleadings and affidavits in the light most favorable to the plaintiff, but it “may consider the defendant’s undisputed factual assertions.” Id. ARGUMENT I. PHOENIX CANNOT ESTABLISH PERSONAL JURISDICTION OVER EITHER CHUDNOVETS OR CORALINA. Phoenix cannot carry its burden of establishing that either Chudnovets or Coralina is subject to personal jurisdiction in Kentucky. A federal district court sitting in diversity must engage in a “two-step inquiry” to determine the existence of personal jurisdiction over an out-of- Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 15 of 42 PageID #: 625 16 state defendant: “(1) whether the law of the state in which the district court sits authorizes jurisdiction, and (2) whether the exercise of jurisdiction comports with the Due Process Clause.” Brunner v. Hampson, 441 F.3d 457, 463 (6th Cir. 2006). Neither Kentucky’s long-arm statute nor federal due process will condone the exercise of personal jurisdiction here. A. Kentucky’s long-arm statute does not authorize personal jurisdiction over either Chudnovets or Coralina. Kentucky’s long-arm statute, KRS 454.210, does not permit Phoenix’s proposed exercise of personal jurisdiction over Chudnovets or Coralina. Though previously interpreted to extend to the limits of federal due process, the Kentucky Supreme Court has clarified that “non-resident defendants whose activities fall outside the criteria of KRS 454.210 may not be subjected to long-arm jurisdiction.” Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 56-57 (Ky. 2011). The initial question is whether the non-resident defendant’s conduct or activities fit within one of the nine enumerated subsections of KRS 454.210(2)(a). Id. at 56. Thereafter, “[t]he plaintiff must also show that his claim is one that arises from the conduct or activities described in the subsection.” Id. at 55 (emphasis added). Kentucky’s long-arm statute cannot reach an out-of-state defendant without satisfaction of those two requirements, “regardless of whether federal due process might otherwise allow the assertion of in personam jurisdiction.” Id. at 56. Only two subsections of the long-arm statute-KRS 454.210(2)(a)(1) and (4)-could arguably apply to Chudnovets, but even those provisions cannot be so stretched as to overcome his dearth of contact to make the exercise of personal jurisdiction proper under either subsection. Since Coralina has no contacts with Kentucky, it is impossible for Phoenix to make a case that Coralina’s actions fit within any subsection of the long-arm statute. But, for the sake of Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 16 of 42 PageID #: 626 17 argument, application of the long-arm statute will be analyzed for Chudnovets and Coralina simultaneously. The pertinent portions of the long-arm statute read as follows: A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a claim arising from the person’s: 1. Transacting any business in this Commonwealth; . . . 4. Causing tortious injury in this Commonwealth by an act or omission outside this Commonwealth if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this Commonwealth, provided that the tortious injury occurring in this Commonwealth arises out of the doing or soliciting of business or a persistent course of conduct or derivation of substantial revenue within the Commonwealth . . . . KRS 454.210(2)(a) (emphasis added). First, Chudnovets and Coralina cannot be subjected to personal jurisdiction under KRS 454.210(2)(a)(1) for “[t]ransacting any business in this Commonwealth.” Neither Coralina nor Chudnovets personally transact business in Kentucky, and they do not own an interest in or control any other entity transacting business in Kentucky. [Ex. 1 ¶ 8, 20.] Coralina is a limited liability company organized under the laws of the Russian Federation. [Id. ¶ 2.] As Coralina’s sole member and chief executive officer, Chudnovets is a non-resident alien of the United States and Russian citizen, residing in Moscow. [Id.] He has never lived in Kentucky. [Id. ¶ 3.] Chudnovets and Coralina own no real property in Kentucky and maintain no offices in Kentucky. [Id. ¶¶ 4, 6, 16, 18.] Chudnovets and Coralina do not employ any Kentucky residents and have no agents in Kentucky. [Id. ¶¶ 5, 7, 17, 19.] They also do not solicit or advertise for business in Kentucky. [Id. ¶¶ 9, 21.] Neither Coralina nor Chudnovets individually has ever had any contractual relationship with Phoenix, including being a party to any distributor agreement. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 17 of 42 PageID #: 627 18 [Id. ¶ 10, 24.] Phoenix has never requested to enter into any contract with Coralina or Chudnovets in his individual capacity. [Id.] Coralina limits its business activities to Russia and other countries in Eastern Europe and Asia. [Id. ¶ 15.] Chudnovets has visited Kentucky on only two brief occasions. [Id. ¶ 11.] Chudnovets’ first visit to Kentucky occurred in 2009 for a coal exposition after which he spent a few hours socializing with Phoenix representatives and touring Phoenix locations. [Id. ¶ 12.] He did not discuss any business or transactions with Phoenix representatives at that time, including the 2009 Distributor Agreement between Phoenix and Technology. [Id.] During his second and last Kentucky visit in 2010, Chudnovets attended an international coal and mining industry congress in Lexington and had no contact with Phoenix representatives. [Id. ¶ 14.] The only time he met with Phoenix representatives in Kentucky, five-and-one-half years before this lawsuit was filed, he did so at their invitation. Chudnovets has only the most tenuous of connections to Kentucky, and Coralina wholly lacks any Kentucky contacts. None of Chudnovets’ contacts relate to the claims in this case. The contacts of Chudnovets and Coralina plainly are insufficient to justify long-arm jurisdiction for transacting business in Kentucky. Second, the same lack of connections to Kentucky also precludes personal jurisdiction under KRS 454.210(2)(a)(4) for “[c]ausing tortious injury in this Commonwealth by an act or omission outside this Commonwealth.” A prerequisite to applying this subsection is that the non-resident defendant must regularly do or solicit business, engage in any other persistent course of conduct, or derive substantial revenue from goods used or consumed or services rendered in Kentucky. Id. Chudnovets and Coralina cannot be placed in those categories. It cannot be reasonably said that Chudnovets regularly does business or engages in a persistent course of conduct in Kentucky when his only contacts are two brief visits for the primary Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 18 of 42 PageID #: 628 19 purposes of visiting trade expositions, the most recent of which occurred six years ago. [Ex. 1 ¶¶ 2-14.] Coralina does no business and engages in no course of conduct in Kentucky- certainly not any regular business or persistent course of conduct. [Id. ¶¶ 15-21.] Again, Coralina has never had a contract with or even purchased a piece of equipment from Phoenix. Neither Coralina nor Chudnovets personally solicit or advertise for business in Kentucky. [Id. ¶¶ 9, 21.] Finally, Chudnovets and Coralina derive no revenue from goods used or consumed or services rendered in Kentucky. [Id. ¶¶ 8, 15, 20.] Coralina limits its business activities to Russia and other countries in Eastern Europe and Asia. [Id. ¶ 15.] The instances in which Coralina facilitated the purchase and resale of products manufactured by Phoenix as part of a business arrangement with CE&T Corp. are no exceptions. [Id. ¶ 24.] Coralina carried out all such services in Russia or other CIS countries. [Id. ¶¶ 15, 23-24.] Chudnovets and Coralina have not sold goods or rendered services in Kentucky. [Id. ¶¶ 8, 15, 20.] Furthermore, Phoenix’s claims do not arise from Chudnovets’ and Coralina’s tenous connections to the forum. See KRS 454.210(2)(a). There can be “no reasonable and direct nexus” between Phoenix’s claims and Coralina’s Kentucky contacts-when no such contacts are present. Caesars, 336 S.W.3d at 59. Coralina is a foreign entity that limits its business activities to foreign lands. [Ex. 1 ¶¶ 15, 20.] Kentucky’s long-arm statute does not reach foreign defendants with no relationship whatsoever to the forum. Phoenix’s claims also do not arise from Chudnovets’ visit to Kentucky in 2009 simply because Phoenix references the 2009 Distributor Agreement with Technology in its allegations. Chudnovets briefly visited Phoenix’s locations in Kentucky and Indiana as a social call-no business discussions and no negotiations of the 2009 Distributor Agreement occurred. [Id. ¶ 12.] But, even if such discussions or negotiations took place, the 2009 Distributor Agreement is Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 19 of 42 PageID #: 629 20 irrelevant to the present claims. This dispute arose in late 2015 when Phoenix asserted violations of the 2012 Distributor Agreement between Phoenix and CE&T Corp. [See First Am. Compl., DN 40, ¶¶ 21-22; Drake Emails, DN 15-10.] Phoenix and Technology were the only parties to the 2009 Distributor Agreement. [Ex. 1 ¶ 10; Ex. 1-C.] Technology was dissolved in October 2011 and no longer exists. [Ex. 1 ¶ 10; Ex. 1-D.] In addition, the 2009 Distributor Agreement expired by its own terms on April 30, 2012. [Ex. 1-C] Any obligations under the 2009 Distributor Agreement, which were only owed by Technology in the first place, ceased long before Phoenix’s claims arose in late 2015. In truth, Phoenix has no claims against Technology on the 2009 Distributor Agreement as a matter of law because it filed these claims more than three (3) years after Technology’s October 2011 dissolution under Delaware law, and such claims are barred. Technology no longer exists. 8 Del. Code § 278. A dissolved corporation “ceases to exist and is not amenable to suit after the expiration of § 278’s three year period.” In re Krafft-Murphy Co., 82 A.3d 696, 705 (Del. 2013) (citing In re Citadel Indus., Inc., 423 A.2d 500, 504, 507 (Del. Ch. 1980)). Technology’s wind-up period expired in October 2014. Absent long-arm jurisdiction under KRS 454.210, Phoenix cannot establish a prima facie showing of personal jurisdiction over Chudnovets or Coralina under the long-arm statute. B. Federal due process forbids the exercise of personal jurisdiction over both Chudnovets and Coralina. Phoenix’s proposed exercise of personal jurisdiction over Chudnovets and Coralina also would violate the protections of the Due Process Clause of the United States Constitution. At the most basic level, an exercise of personal jurisdiction comports with federal due process when the out-of-state defendant possesses “‘certain minimum contacts with [the forum] such that maintenance of the suit does not offend traditional notions of fair play and substantial justice.’” Air Prods. & Controls, Inc. v. Safetech Int’l, Inc., 503 F.3d 544, 549 (6th Cir. 2007) (quoting Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 20 of 42 PageID #: 630 21 Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 (1945)). Personal jurisdiction can exist over an out-of-state defendant in two forms, either of which satisfies federal due process: “(1) general personal jurisdiction, where the suit does not arise from the defendant’s contacts with the forum state; and (2) specific jurisdiction, where the suit does arise from the defendant’s contacts with the forum state.” Conn, 667 F.3d at 712-13. Here, Chudnovets and Coralina lack sufficient forum contacts to be subjected to suit in Kentucky under either general or specific jurisdiction. 1. General jurisdiction does not exist over Chudnovets or Coralina. Chudnovets and Coralina lack the extensive contacts with Kentucky necessary to invoke general jurisdiction. There is no firmly defined test for the application of general jurisdiction. Conn, 667 F.3d at 713. General jurisdiction, however, will not exist unless the out-of-state defendant’s contacts with the forum justify allowing suit to be maintained on causes of action arising from wholly unrelated activities. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 942, 131 S. Ct. 2846, 180 L. Ed. 2d 796 (2011). Those contacts must be “so ‘continuous and systematic’ as to render [the defendant] essentially at home in the forum.” Id. at 919 (quoting Int’l Shoe, 326 U.S. at 317) (emphasis added). Coralina is a limited liability company organized under the laws of the Russian Federation and operating exclusively in Russia and other countries in Eastern Europe and Asia. [Ex. 1 ¶¶ 2, 15.] As a limited liability company, Coralina has the same Russian citizenship as its sole member and chief executive officer, Chudnovets. See Delay v. Rosenthal Collins Grp., LLC, 585 F.3d 1003, 1005 (6th Cir. 2009). His lack of contacts with Kentucky has been detailed above. [Ex. 1 ¶¶ 2-14.] Clearly, general personal jurisdiction cannot be used to involuntarily draw Chudnovets and Coralina to this distant forum. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 21 of 42 PageID #: 631 22 2. Specific jurisdiction does not exist over Chudnovets or Coralina. Chudnovets and Coralina lack the minimum Kentucky contacts for the exercise of specific jurisdiction. A finding of specific jurisdiction requires the satisfaction of three elements: 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 defendant’s activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable. Conn, 667 F.3d at 713 (quoting Bird v. Parsons, 289 F.3d 865, 874 (6th Cir. 2002)). Those elements do not support the exercise of specific personal jurisdiction over Chudnovets, a person who has visited the state on two unrelated occasions, or over Coralina, an entity with no forum contacts. Purposeful Availment. First, Chudnovets and Coralina have not purposefully availed themselves of this forum. “The ‘purposeful availment’ requirement is satisfied when 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 . . . .’” CompuServe, 89 F.3d at 1263 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985)) (emphasis added). The out-of-state defendant’s contacts and connections with the forum must be such that he “‘should reasonably anticipate being haled into court there.’” Id. (quoting Burger King, 471 U.S. at 474). Chudnovets’ miniscule personal forum contacts and Coralina’s complete lack of such contacts do not amount to purposeful availment of the privileges and obligations of operating in Kentucky. [Ex. 1 ¶¶ 2-21.] Though Chudnovets, for his part, has personally visited Kentucky on two occasions, his actions did not create a substantial connection to this state arising to the level of purposeful availment. [Id. ¶¶ 12-14.] Those brief trips in 2009 and 2010 did not put Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 22 of 42 PageID #: 632 23 Chudnovets on notice that he should anticipate being recalled to Kentucky six or seven years later to answer for unrelated claims. Chudnovets accepted a social invitation and briefly toured Phoenix’s locations during his 2009 visit. [Id. ¶ 12.] But he did not conduct any substantive business discussions or transactions at the time. [Id.] Chudnovets certainly did not discuss or negotiate the 2009 Distributor Agreement between Phoenix and the now-dissolved Technology [Id.] and these visits predated by two and three years the alleged 2012 Distributor Agreement between Phoenix and CE&T Corp. Nor did he conduct any personal business with any Phoenix representatives present. [Id.] Chudnovets had no contact whatsoever with Phoenix representatives during his 2010 visit to Kentucky. [Id. ¶ 14.] Moreover, Chudnovets did not purposefully avail himself of the privileges and corresponding obligations of this forum when he sent email to a Phoenix representative in late 2015 to clarify any misunderstanding over the purported 2012 Distributor Agreement. [Id. ¶ 35.] Purposeful availment in Kentucky is not shown by after-the-fact email sent from Russia in an attempt to resolve a dispute over an alleged distributorship in Eastern Europe. If the opposite were true, a non-resident defendant accused of fraud or other deceptive conduct could never rebut the allegations without the possibility of subjecting himself to personal jurisdiction in the accuser’s home forum. Claims Do Not Arise from Contacts. Second, Phoenix’s claims do not arise from any Kentucky contacts of Chudnovets and Coralina. A claim arises from a defendant’s contacts when those contacts with the forum state “are related to the operative facts of the controversy.” CompuServe, 89 F.3d at 1267. Coralina lacks any contacts with Kentucky, and Phoenix’s claims of course cannot arise from nonexistent forum contacts. For Chudnovets, on the other hand, Phoenix has singled out his 2009 visit to Kentucky as a possible basis for personal jurisdiction. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 23 of 42 PageID #: 633 24 In hopes of manufacturing a connection between Phoenix’s claims and the unrelated contacts of Chudnovets and Coralina, the First Amended Complaint recites numerous allegations concerning the expired 2009 Distributor Agreement between Phoenix and now-dissolved Technology. The 2009 Distributor Agreement bears no relationship to Phoenix’s present claims and cannot provide a basis for personal jurisdiction. The text and signatures show that Phoenix entered into the 2009 Distributor Agreement with Technology. [Ex. 1-C.] Neither Coralina, its alleged alter ego, CE&T Corp., nor Chudnovets individually was a party to that contract. Technology was a Delaware Corporation that dissolved in October 2011. [Ex 1 ¶ 10; Ex. 1-D.] Delaware law extends a corporation’s life for three years beyond the date of dissolution for the limited purpose of winding up its affairs, including participating in litigation. 8 Del. Code § 278. A dissolved corporation “ceases to exist and is not amenable to suit after the expiration of § 278’s three year period.” Krafft-Murphy, 82 A.3d at 705 (citing Citadel Indus., 423 A.2d at 504, 507). Technology’s wind-up period expired in October 2014. Thus, Phoenix cannot maintain a claim under the 2009 Distributor Agreement because the only other party to that contract is no longer amenable to suit. Additionally, the 2009 Distributor Agreement terminated by its own terms on April 30, 2012-more than three years before this dispute arose in late 2015. [Ex. 1-D, § 11.] Phoenix cannot rely on the 2009 Distributor Agreement to establish personal jurisdiction over Coralina and Chudnovets because that contract is entirely irrelevant to the present claims. Tellingly, the 2009 Distributor Agreement to which Phoenix now attributes such importance was not even worthy of mention in the original Complaint [DN 1-2] before jurisdiction was initially challenged. Reasonableness. Third, it is manifestly unreasonable to exercise personal jurisdiction over an alien defendant, such as Chudnovets, who has visited Kentucky on two unrelated Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 24 of 42 PageID #: 634 25 occasions, or Coralina, which conducts no business in Kentucky or the United States. The following factors are considered in assessing the reasonableness of an exercise of personal jurisdiction: (1) the burden on the defendant; (2) the plaintiff’s interest in obtaining relief; (3) the judiciary’s interest in obtaining the most efficient resolution; and (4) the shared interest of the states in furthering substantive social policies. Theunissen, 935 F.2d at 1461. Moreover, “[t]he unique burdens placed upon one who must defend oneself in a foreign legal system should have significant weight in assessing the reasonableness of stretching the long arm of personal jurisdiction over national borders.” Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 114-115, 107 S. Ct. 1026, 94 L. Ed. 2d 92 (1987). In particular, the burdens faced by non- resident alien defendants, like Chudnovets, receive “special weight.” Theunissen, 935 F.2d at 1460. As recently recognized by the Sixth Circuit in Beydoun v. Wataniya Rests. Holding, Q.S.C., 768 F.3d 499, 502 (6th Cir. 2014), “‘[g]reat care and reserve should be exercised when extending our notions of personal jurisdiction into the international field.’” Id. (quoting Asahi, 480 U.S. at 115). Given the near absence of any contact with Kentucky, the burden on Chudnovets and Coralina to defend themselves in a foreign legal system overrides all other interests and renders the proposed exercise of personal jurisdiction unreasonable. Furthermore, judicial efficiency is not served by litigating these claims in Kentucky. Phoenix’s location is the only link to Kentucky in this case. The alleged facts underlying the breach of contract, competition, and fraud claims, to the extent they are attributed to Chudnovets and Coralina, occurred entirely in Russia or other countries in Eastern Europe. Insofar as Chudnovets and Coralina are concerned, most if not substantially all of the relevant documents and witnesses would need to be gathered and deposed in Russia and transported to Kentucky from Russia for trial. Accordingly, the Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 25 of 42 PageID #: 635 26 assertion of personal jurisdiction over Chudnovets and Coralina would be unreasonable. Each element of the specific-personal-jurisdiction analysis counsels against forcing Chudnovets and Coralina to litigate in Kentucky. In addition to its failure under Kentucky’s long-arm statute, Phoenix’s proposed exercise of personal jurisdiction over Chudnovets and Coralina violates federal due process under the standards for both general and specific jurisdiction. C. Coralina and CE&T Corp. are not alter egos. To the extent they exist, any jurisdictional contacts of CE&T Corp. with Kentucky cannot be imputed to Coralina because no alter-ego relationship exists under the rigorous standard established by controlling law. The inconsistency of Phoenix’s own allegations demonstrates the strained, artificial nature of the alter-ego claim lodged against CE&T Corp. and Coralina. As discussed above, “CETCO” is not a named defendant or even a separate legal entity. Rather, it is a brand or trade name. Yet Phoenix alleges that “Coralina and CETCO have continuously held themselves out to be actually one and the same company.” [First Am. Compl., DN 40, ¶ 19 (emphasis added).] Phoenix further asserts that, “[t]hroughout CETCO’s relationship with Phoenix, CETCO represented itself and Coralina as one company.” [Id. ¶ 26 (emphasis added).] Phoenix’s allegations then take an interesting turn by claiming fraud based on “the failure to disclose the fact that CETCO and Coralina are ‘alter ego’ companies.” [Id. ¶ 50 (emphasis added).] Beyond their legal insufficiency, Phoenix’s concocted alter-ego allegations are not even consistent. The Sixth Circuit has recognized an alter-ego theory of personal jurisdiction under which a non-resident corporation is amenable to suit in the forum state if it exerts so much control over an another entity with contacts to the forum that the two do not exist as separate entities but are one and the same for purposes of jurisdiction. Estate of Thomson ex rel. Estate of Rakestraw v. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 26 of 42 PageID #: 636 27 Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008). Where this basis of personal jurisdiction is applied, it usually is applied to exercise jurisdiction over a parent corporation where there is jurisdiction over a subsidiary corporation. Id. (“Normally, courts apply the alter- ego theory of personal jurisdiction to parent-subsidiary relationships.” (emphasis added)). Here, Coralina is neither the parent nor a subsidiary of CE&T Corp. [Ex. 1 ¶ 25.] Chudnovets is the sole member of Coralina, and Coralina owns no share in CE&T Corp. [Id. ¶ 22.] Conan Invest owns ninety percent (90%) of CE&T Corp., while Michael Akimov, another Russian citizen, owns the remaining ten percent (10%). [Id.] The absence of a parent-subsidiary relationship between Coralina and CE&T Corp. should be sufficient to defeat Phoenix’s alter- ego allegations for jurisdictional purposes. Nevertheless, assuming arguendo that the alter-ego theory extends beyond the parent- subsidiary context, a federal court in a diversity suit must look to the same alter-ego or veil- piercing law as would be applied by a state court in the state in which it sits. Estate of Thomson, 545 F.3d at 362. Applying the law of the forum state necessarily incorporates the forum’s substantive choice-of-law rules. 6 EiA Props., LLC v. Fenwick Equestrian, LLC, No. 5:14-CV- 328-REW, 2015 WL 5698540, at *3-4 (E.D. Ky. Sept. 28, 2015) (citing Corrigan v. U.S. Steel Corp., 478 F.3d 718, 723 (6th Cir. 2007)). Because an allegation of alter ego or veil piercing 6 At times, federal courts sitting in Kentucky have failed to apply Kentucky’s substantive choice- of-law rules to the issue of piercing the corporate veil. See Pro Tanks Leasing v. Midwest Propane & Refined Fuels, LLC, 988 F. Supp. 2d 772, 782 (W.D. Ky. 2013); First Constr., LLC v. Gravelroad Entertainment, LLC, No. 6:07-155-DCR, 2008 WL 2038878, at *3 n.1 (E.D. Ky. May 12, 2008). On other occasions, however, those same courts have applied Kentucky’s choice-of-law rule looking to the state of incorporation or at least recognized the choice-of-law issue. See JPMorgan Chase, N.A. v. Golden Ignot, LLP, No. 3:14CV-00493-JHM, 2015 WL 94145, at *2-3 (W.D. Ky. Jan. 7, 2015) (McKinley, C.J.); EiA Props., 2015 WL 5698540, at *3- 4. Applying Kentucky’s substantive choice-of-law rules in diversity actions ensures uniformity and discourages forum shopping between state and federal courts in furtherance of the goals of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 27 of 42 PageID #: 637 28 implicates the rights, duties, and obligations of a business entity, Kentucky courts apply the law of the state of incorporation or organization to this issue. Id.; see Howell Contractors, Inc. v. Berling, 383 S.W.3d 465, 467-68 (Ky. App. 2012) (applying Ohio law to a veil-piercing claim against a limited liability company organized under Ohio law). Phoenix must disregard the corporate form of CE&T Corp. if it wishes to impute that entity’s alleged Kentucky contacts to Coralina under an alter-ego theory. 7 CE&T Corp. is a Texas corporation, and therefore, Texas law governs in determining whether CE&T Corp. is the alter ego of Coralina for purposes of jurisdiction. [Ex. 1 ¶ 22.] Texas law distinguishes between jurisdictional and substantive veil piercing, each requiring different elements of proof. 8 Knight Corp. v. Knight, 367 S.W.3d 715, 730 (Tex. App.- Hous. [14th Dist.] 2012) (citing PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 174 (Tex. 2007)). “To pierce the corporate veil for jurisdictional purposes, a plaintiff must prove that one company ‘controls the internal business operations and affairs’ of the other to such an extent that ‘the two entities cease to be separate so that the corporate fiction should be disregarded to prevent fraud or injustice.’” All Star Enter., Inc. v. Buchanan, 298 S.W.3d 404, 422 (Tex. App.-Hous. [14th Dist.] 2009) (citing BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 799 (Tex. 2002)). “Texas law presumes that two separate corporations are distinct entities.” PHC-Minden, 235 S.W.3d at 173. One corporation will not be regarded as the alter 7 Capital Equipment & Trading Company is simply a previous corporate name of CE&T Corp., and Technology was dissolved in October 2011 before the July 6, 2012 Distributor Agreement or the other actions allegedly giving rise to Phoenix’s claims. [Ex. 1 ¶ 22.] 8 The facts underlying Coralina’s business with CE&T Corp. also would not present an alter-ego relationship under the Kentucky-law factors recited in Inter-Tel Technologies, Inc. v. Linn Station Props., LLC, 360 S.W.3d 152, 163-64 (Ky. 2012). But, given the limited circumstances under which Texas law authorizes disregarding the corporate form, a conflict of laws certainly exists. The application of Texas law here is vital to fulfilling the parties’ expectations. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 28 of 42 PageID #: 638 29 ego of another “‘merely because of stock ownership, a duplication of some or all of the directors or officers, or an exercise of the control that stock ownership gives to stockholders.’” Id. at 175 (quoting Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 573 (Tex. 1975)). The degree of control must be “greater than that normally associated with common ownership and directorship.” BMC Software, 83 S.W.3d at 799. There must be a “‘plus’ factor” beyond “‘mere presence within the bosom of the corporate family.’” PHC-Minden, 235 S.W.3d at 176 (quoting Dickson Marine, Inc. v. Panalpina, Inc., 179 F.3d 331, 338 (5th Cir. 1999)). Generally, if corporate formalities are observed, the corporate form will be respected for jurisdictional purposes, even if “the parent corporation dominates the subsidiary and exerts its control both commercially and financially in substantially the same way as it does over those selling branches or departments of its business.” Knight, 367 S.W.3d at 730 (citing Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 335, 45 S.Ct. 250, 69 L. Ed. 634 (1925)); see PHC-Minden, 235 S.W.3d at 172; All Star, 298 S.W.3d at 422. Under Texas law, Coralina would not be found the alter ego of CE&T Corp. for purposes of exercising jurisdiction over Coralina on an alter-ego theory. Coralina and CE&T Corp. are separate and independent legal entities. [Ex. 1 ¶ 22.] No parent-subsidiary relationship or common ownership exists between the two entities. [Id. ¶ 22, 25.] Chudnovets-the sole member of Coralina-owns no shares in CE&T Corp. [Id. ¶ 22.] Moreover, neither entity caused the incorporation or organization of the other. [Id. ¶ 25.] Coralina is a going concern in good standing under the laws of the Russian Federation, and CE&T Corp. is a going concern in good standing under the laws of Texas. [Id. ¶ 22.] Coralina and CE&T Corp. do not have identical boards of directors or officers. [Id. ¶ 26.] Chudnovets manages Coralina as its sole member and chief executive officer. [Id.] CE&T Corp. is managed by a president, Maria Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 29 of 42 PageID #: 639 30 Roberson, who is not affiliated with Coralina and by a separate board of directors of which Chudnovets is but one member. [Id.] Maria Roberson, a resident of Texas, oversees the day-to- day operations of CE&T Corp. [Id.] Coralina and CE&T Corp. do not set policies for each other. [Id.] The two entities can and do engage in business and transactions without the involvement of the other. [Id.] The businesses of Coralina and CE&T Corp. are different as detailed above. [Id. ¶¶ 23- 24.] Though Coralina and CE&T Corp. both at times use the “CETCO” brand or trade name, [id. ¶ 22], “[w]hether two related entities share a common name . . . does not affect whether each has sufficient contacts with the forum for jurisdictional purposes.” PHC-Minden, 235 S.W.3d at 175; see All Star, 298 S.W.3d at 423 (“[T]he use of letterhead containing parts of the entities’ names that are common to both companies is no evidence that the two entities fail to observe corporate formalities.” (citing BMC Software, 83 S.W.3d at 800)). Most importantly, Coralina and CE&T Corp. observe the proper corporate formalities. [Id. ¶ 33.] Coralina and CE&T Corp. each has its own books, financial records, bank accounts, and assets. [Id.] They each file and pay their own taxes. [Id.] Coralina does not participate in the maintenance of any CE&T Corp. books, financial records, bank accounts, and assets or vice versa. [Id.] The two entities use different independent, outside accountants. [Id.] Neither Coralina nor CE&T Corp. finances the operations or pays the expenses of the other. [Id. ¶ 34.] The entities do not treat their respective property and assets as interchangeable. [Id.] Finally, both entities are adequately capitalized to fulfill any liabilities that arise in the normal course of business. [Id.] Setting aside the fact that Plaintiff’s First Amended Complaint only asserts conclusory allegations of alter ego and does not plead any real jurisdictional fact to attempt to establish alter ego, based on the facts above, Phoenix cannot establish the extensive degree of Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 30 of 42 PageID #: 640 31 control required under Texas law to attribute CE&T Corp.’s Kentucky contacts to Coralina. Even some mere “‘blurring of distinction’” between two entities will not suffice. All Star, 298 S.W.3d at 422 (quoting Stuart v. Spademan, 772 F.2d 1185, 1198 (5th Cir. 1985)). Therefore, Phoenix’s attempt to manufacture personal jurisdiction over Coralina under an alter-ego theory fails, and the claims against Coralina must be dismissed. In summary, there is no basis under Kentucky’s long-arm statute, KRS 454.210, or under principles of federal due process to subject Chudnovets, a Russian citizen, and Coralina, a Russian company that does no business in Kentucky, to in personam jurisdiction and this case should be dismissed as to them for want of jurisdiction. II. PHOENIX FAILED TO EFFECT SERVICE OF PROCESS ON CHUDNOVETS AND CORALINA. Alternatively, Phoenix’s claims against Chudnovets and Coralina must be dismissed under Rule 12(b)(5) based on its failure to effect service of process. A Rule 12(b)(5) motion “challenges the mode of serving the summons and complaint.” Moore v. Lowe’s Cos., No. 1: 13- CV-00005-JHM-HBB, 2013 WL 1907488, at *1 (W.D. Ky. May 7, 2013). Service of process is an essential prerequisite to the exercise of in personam jurisdiction over a defendant. Sawyer v. Lexington-Fayette Urban Cnty. Gov’t, 18 F. App’x 285, 287 (6th Cir. 2001). Phoenix bears the burden of proving that service of process was properly made. Id. Actual knowledge of a lawsuit is not a substitute or cure for defective service of process. Friedman v. Estate of Presser, 929 F.2d 1151, 1155-56 (6th Cir. 1991). When serving an individual or business entity not within any judicial district of the United States, service must be effected in a foreign country according to “any internationally agreed means of service that is reasonably calculated to give notice” if such means exists. Fed. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 31 of 42 PageID #: 641 32 R. Civ. P. 4(f)(1), (h)(2). 9 Rule 4(f)(1) offers the Hague Service Convention, Nov. 15, 1965, 20 U.S.T. 361, as one example of acceptable internationally agreed means. Both the United States and the Russian Federation are signatories of the Hague Service Convention, 10 which generally requires the serving party to send papers through the foreign country’s designated Central Authority. The Hague Service Convention “appl[ies] in all cases, in civil or commercial matters, where there is occasion to transmit a judicial or extrajudicial document for service abroad,” art. 1, 20 U.S.T. 361, and like a federal statute, it “pre-empts inconsistent methods of service prescribed by state law in all cases to which it applies,” Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 699, 108 S. Ct. 2104, 100 L. Ed. 2d 722 (1988). Here, there is no means of effectively serving process on Chudnovets or Coralina in the United States. Rather than abide by the applicable procedures of the Hague Service Convention, Phoenix tried to serve Chudnovets by incorrectly sending the lawsuit papers to an address in Houston, Texas. [Ex. 1 ¶ 37.] It is undisputed that Chudnovets is a non-resident alien of the United States and Russian citizen who resides in Moscow. [Id. ¶ 2.] Nevertheless, Phoenix sent the lawsuit papers to a residential address at 2042 Brentwood Drive, Houston, Texas, which was formerly owned by Maria Roberson, the president of CE&T Corp. [Id. ¶ 37.] The Brentwood Drive address never belonged to Chudnovets, and he has not visited that address for more than six years. [Id.] Based on a mail forwarding request filed by Roberson, the lawsuit papers were 9 Rule 4(h)(2) redirects a party attempting to serve a business entity outside of the United States to the methods of service contained in Rule 4(f), excluding personal delivery under Rule 4(f)(2)(C)(i). 10 The current signatories of the Hague Service Convention can be found on the website of the Hague Conference. Hague Conference, Status Table, Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (last updated July 20, 2016), https://www.hcch.net/en/instruments/conventions/status-table/?cid=17. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 32 of 42 PageID #: 642 33 forwarded to her new residence in a high-rise condominium building at 2727 Kirby Drive, Houston, Texas. [Id.] This Kirby Drive address also does not belong to Chudnovets, and he has never even been there. [Id.] An employee of the high-rise complex apparently signed for receipt of the lawsuit papers. [Id.] Chudnovets never authorized the building employee or Roberson to accept service on his behalf. 11 [Id.] Phoenix never tried to serve Chudnovets in his home country of Russia. Phoenix likewise failed to comply with the Hague Service Convention’s guidelines in serving Coralina. Phoenix attempted to serve the lawsuit papers on Coralina by having the Kentucky Secretary of State send them by regular mail to Coralina’s Moscow offices. [Id. ¶ 38.] The package did not appear to have been addressed by the court clerk or require a signed receipt upon delivery. [Id.] The mere use of regular mail-without even a return receipt-certainly cannot effect service on Coralina outside of the United States. 12 Phoenix’s attempts to serve Chudnovets at a Houston address and to serve Coralina by regular U.S. mail in Russia are insufficient as a matter of law, requiring dismissal of Phoenix’s claims for improper service. 11 As an aside, Phoenix’s attempt to serve Chudvnovets also failed to comply with Rule 4(e), which concerns only service on an individual within a judicial district of the United States. Since Chudnovets’ resides in Moscow, Phoenix did not deliver the lawsuit papers to a resident of suitable age and discretion at Chudnovets’ usual place of abode. See Fed. R. Civ. P. 4(e)(2). Nor did Phoenix leave the lawsuit papers with Chudnovets’ authorized agent for service of process. See id. The lawsuit papers were entrusted to a unknown building employee at a different location-and country-from where Chudnovets resides. 12 Phoenix even failed to comply with any of Rule 4(f)’s alternative methods of service, which would only be available if the Hague Service Convention did not exist. By using the Kentucky Secretary of State, it appears that Phoenix made no effort to determine the method of service prescribed under Russian law for an action in that country’s courts of general jurisdiction or to serve process in accordance with a letter rogatory or letter of request. See Fed. R. Civ. P. 4(f)(2)(A)-(B). Nor does it appear that Phoenix used a form of mail that the clerk addressed and sent to Coralina that required a signed receipt. See Fed. R. Civ. P. 4(f)(2)(C)(ii). Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 33 of 42 PageID #: 643 34 III. PHOENIX’S CLAIMS AGAINST CHUDNOVETS AND CORALINA SHOULD BE DISMISSED ON GROUNDS OF FORUM NON CONVENIENS. The doctrine of forum non conveniens counsels in favor of dismissing the Phoenix’s claims against Chudnovets and Coralina. “[T]he common law doctrine of forum non conveniens reflects a court’s assessment of a ‘range of considerations, most notably the convenience to the parties and the practical difficulties that can attend the adjudication of a dispute in a certain locality.’” Estate of Thomson, 545 F.3d at 363-64 (quoting Quakenbush v. Allstate Ins. Co., 517 U.S. 706, 723, 116 S. Ct. 1712, 135 L. Ed. 2d 1 (1996)). “Forum non conveniens is a flexible doctrine” under which the district court receives “substantial deference.” Wong v. PartyGaming, Ltd., 589 F.3d 821, 830 (6th Cir. 2009). The Russian Federation is an adequate alternative forum for Phoenix’s claims against Chudnovets and Coralina. This first step in the forum-non-conveniens analysis is satisfied if Chudnovets and Coralina are amenable to process in the foreign jurisdiction. Id. There can be no doubt that Chudnovets and Coralina may be properly served in Russia. Coralina is a limited liability company organized under Russian law with offices located in Moscow and St. Petersburg. [Ex. 1 ¶¶ 2, 31.] And Chudnovets-Coralina’s sole member and chief executive officer-is a Russian citizen who resides in Moscow. [Id. ¶ 2.] Any objection to potentially less favorable law in Russia does not render the forum inadequate unless it would provide no remedy at all. Wong, 589 F.3d at 830-31. Next, the relevant private and public factors weigh in favor of dismissing Phoenix’s claims against Chudnovets and Coralina. Id. The public factors include court congestion, local interest in the matter, interest in having the trial at home with the law that governs, avoidance of conflict of law problems or application of foreign law, and unfairness in burdening local citizens with jury duty. Id. at 832. Requiring Plaintiff to pursue its claims against Chudnovets and Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 34 of 42 PageID #: 644 35 Coralina in Russia would decrease congestion in the already overburdened federal court system. Local citizens would also be relieved of the obligation to participate as jurors for a matter in which the pertinent events took place in foreign lands. Much of the evidence will be in the Russian language, and the claims against the Russian Defendants may well be governed by Russian law. Phoenix chose to market and sell products in Russia and Eastern Europe and has now sued, in addition to its alleged agent in Russia, other Russian entities and a Russian individual with which and whom it has no contractual relationship based on alleged activities that likewise occurred in Russia and Eastern Europe. Phoenix’s own conduct and allegations support requiring these claims to be ligated in Russia. The private factors-including ease of access to evidence, ability to obtain witness attendance, and practical problems such as ease, expeditiousness, and expense-likewise favor claims against Chudnovets and Coralina being brought in Russia. Id. at 833. The vast majority of evidence related to Chudnovets and Coralina will need to be gathered and transported from Russia to Kentucky. The same holds true for most, if not all, of those Defendants’ trial witnesses, including Chudnovets himself. Participating in a Kentucky lawsuit from Russia is highly impractical. A foreign defendant-drawn into the suit involuntarily-must contend with great expense, an unfamiliar legal system, and language barriers with local counsel. Just as Phoenix chose to do business in Russia, Phoenix chose to sue Chudnovets and Coralina, and thus any burdens it might face in another legal system should be considered less compelling. Admittedly, a U.S. plaintiff’s choice of a home forum is entitled to heightened deference. Estate of Thomson, 545 F.3d at 365. But this choice-of-forum consideration is not dispositive. Wong, 589 F.3d at 833. The burden on Chudnovets and Coralina is disproportionately oppressive or vexatious compared to Phoenix’s convenience. See Estate of Thomson, 545 F.3d Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 35 of 42 PageID #: 645 36 at 365. Any deference to Phoenix’s chosen forum is overcome by the inconvenience of obtaining evidence, much of which will be in the Russian language, and witnesses from Russia; the burdens on Chudnovets and Coralina in navigating a foreign legal system; and Phoenix’s decision to market and sell its products in Russia. The location of Phoenix’s headquarters is the only connection between this forum and the claims against Coralina and Chudnovets. Those claims should be dismissed on grounds of forum non conveniens and litigated in Russia where the relevant facts actually arose. IV. PHOENIX FAILED TO STATE CLAIMS FOR VIOLATIONS OF THE KUTSA, UNFAIR COMPETITION AND “PASSING OFF,” FRAUD, AND CONSPIRACY. Phoenix has failed to state viable claims against Coralina and Chudnovets for violations of the KUTSA, KRS 365.880 et seq., unfair competition and “passing off,” fraud and fraud in the inducement, and conspiracy. To survive a Rule 12(b)(6) motion to dismiss, Plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). The factual allegations must “raise a right to relief above the speculative level.” Id. at 555. Though all well-pleaded factual allegations must be accepted as true and construed in the light most favorable to Phoenix, the Court need not accept as true legal conclusions or unwarranted factual inferences. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009). KUTSA Misappropriation. First, Phoenix alleges causes of action for trade secret misappropriation under the KUTSA without pleading a legally cognizable trade secret. A KUTSA claim requires Phoenix to show both misappropriation and that the information misappropriated qualifies as a trade secret. Auto Channel, Inc. v. Speedvision Network, LLC, 144 F. Supp. 2d 784, 794 (W.D. Ky. 2001). A trade secret is information that “‘(1) has independent economic value, (2) is not readily ascertainable by proper means, and (3) was the subject of Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 36 of 42 PageID #: 646 37 reasonable efforts to maintain its secrecy.’” BDT Prods., Inc. v. Lexmark Int’l, Inc., 274 F. Supp. 2d 880, 890 (E.D. Ky. 2003) (citation omitted); see KRS 365.880(4). Here, Phoenix merely alleges that “Defendants, and possibly other co-conspirators, have reverse engineered Phoenix’s machines and equipment by pirating Phoenix’s proprietary and confidential designs, information and trade secrets.” [First Am. Compl., DN 40, ¶ 21.] Phoenix makes no effort to specify the type or nature of these purported “trade secrets.” The allegations fail to indicate how Phoenix derives independent economic value from the information’s alleged secrecy and also fails to set forth Phoenix’s reasonable efforts to maintain that alleged secrecy. To the contrary, Phoenix’s own allegations about “reverse engineering” admit that its alleged “trade secrets” are not secret, and therefore not trade secrets at all. In Luvata Electrofin, Inc. v. Metal Processing International, L.P., the court concluded that the plaintiff sufficiently pleaded that its alleged trade secrets were not readily ascertainable by proper means where it stated that they “cannot be reverse engineered.” No. 3:11-CV-00398, 2012 WL 3961226, at *8 (W.D. Ky. Sept. 10, 2012). Inversely, because Phoenix alleges that its “trade secrets” were capable of being reverse engineered, those “trade secrets” were readily ascertainable by proper means-and thus were not trade secrets in the first place. According to Phoenix’s allegations, any customer or competitor could have obtained its “trade secrets” by simply purchasing its products and taking them apart. Reverse engineering, without anything more, is not a theft of trade secrets. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476, 94 S. Ct. 1879, 40 L. Ed. 2d 315 (1974) (“A trade secret law . . . does not offer protection against discovery . . . by so- called reverse engineering.”); Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., 805 F.3d 701, 704 (6th Cir. 2015) (“Third party discovery through ‘proper means,’ including through observation of the item or acquiring and reverse engineering a product, destroys a trade secret.”). Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 37 of 42 PageID #: 647 38 For those reasons, Phoenix cannot pursue KUTSA claims against Chudnovets and Coralina as a matter of law. Unfair Competition and “Passing Off.” Second, Phoenix’s claims for unfair competition and “passing off” are preempted by the KUTSA and thus cannot proceed. The KUTSA “replaces all conflicting civil state law regarding misappropriation of trade secrets except for those relating to contractual remedies.” 13 Auto Channel, 144 F. Supp. 2d at 788 (citing KRS 365.892). Phoenix claims that Chudnovets and Coralina committed the tort of unfair competition and “passing off” through “unauthorized use and misappropriation of Phoenix’s trade secrets and confidential information and designs.” [First Am. Compl., DN 40, ¶ 38 (emphasis added).] Phoenix’s unfair competition and “passing off” claims plainly rest on a theory of alleged trade secret misappropriation, and therefore, they are precisely the type of claims the KUTSA preempts. Cmty. Ties of Am., Inc. v. NDT Care Servs., LLC, No. 3:12-CV- 00429-CRS, 2015 WL 520960, at *19 (W.D. Ky. Feb. 9, 2015); Auto Channel, 144 F. Supp. 2d at 790. Fraud. Third, Phoenix’s fraud and fraud in the inducement claims are preempted by the KUTSA and moreover, are not pleaded with particularity. Phoenix asserts fraud in part based on the alleged “misrepresentations” and “failure[s] to disclose” that “CETCO and Coralina have assisted Elemet and participated in the conspiracy to reverse engineer and manufacture ‘knock- off’ Phoenix products and then market and sell the same in CETCO’s exclusive sale territory” and that “Coralina directly markets and sells Elemet’s products in CETCO’s ‘exclusive territory.’” [First Am. Compl., DN 40, ¶ 50.] Those allegedly fraudulent misrepresentations or 13 The KUTSA preempts all non-contractual claims related to trade secret misappropriation even where, as here, the plaintiff fails to demonstrate that the information at issue qualifies as a trade secret. Auto Channel, 144 F. Supp. 2d at 789. Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 38 of 42 PageID #: 648 39 omissions simply reiterate Phoenix’s trade secret misappropriation theory in yet another form and are preempted by the KUTSA. See Auto Channel, 144 F. Supp. 2d at 793. The KUTSA defines “misappropriation” to mean the acquisition, disclosure, or use of a trade secret by “improper means” or “under circumstances giving rise to a duty to maintain its secrecy or limit its use.” KRS 365.880(2). The KUTSA further defines “improper means” to include “misrepresentation.” KRS 365.880(1). Phoenix also failed to plead the foregoing fraudulent misrepresentations or omissions with the requisite particularity, as well as its remaining basis for fraud (i.e., that “CETCO and Coralina are ‘alter ego’ companies which share the same owners, management and employees”). [First Am. Compl., DN 40, ¶ 50.] To plead fraud with particularity under Rule 9(b), Plaintiff must (1) specify the allegedly fraudulent statements, (2) identify the speaker, (3) plead when and where the statements were made, and (4) explain what made the statements fraudulent. Republic Bank & Trust Co. v. Bear Stearns & Co., Inc., 683 F.3d 239, 247 (6th Cir. 2012). Those particularity requirements apply equally to claims of affirmative misrepresentation and fraud by omission. See id. at 255-56. Phoenix’s fraud allegations are deficient in nearly all respects. It is not clear to whom Phoenix is referring when it refers to “CETCO.” Though Phoenix points to Chudnovets, Vadim Novak, and “other representatives,” it makes no attempt to identify who made each specific statement or omission. [See First Am. Compl., DN 40, ¶ 50.] The fraud claims, moreover, contain no indication of when and where each alleged misrepresentation or omission was made, nor do they explain why those misrepresentations or omissions constituted fraud. [See id. ¶¶ 49- 51.] Phoenix hardly stated a general allegation of Chudnovets’ and Coralina’s mental states Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 39 of 42 PageID #: 649 40 [id.], much less facts which if accepted as true make the state-of-mind allegations plausible. See Republic Bank, 683 F.3d at 247. Conspiracy. Finally, Phoenix lacks any underlying tort claims on which to base a civil conspiracy. 14 “‘In Kentucky, civil conspiracy is not a free-standing claim; rather it merely provides a theory under which a plaintiff may recover from multiple defendants for an underlying tort.’” Watts v. Lyon Cnty. Ambulance Serv., 23 F. Supp. 3d 792, 811 (W.D. Ky. 2014) (quoting Christian Cnty. Clerk ex rel. Kem v. Mortg. Elec. Registration Sys., Inc., 515 F. App’x 451, 458-59 (6th Cir. 2013)). Each of Phoenix’s tort claims against Coralina and Chudnovets-unfair competition and “passing off” and fraud-fail to state a claim as a matter of law. Therefore, without any underlying tort claims, Phoenix’s alleged civil conspiracy involving Chudnovets and Coralina cannot survive. See Watts, 23 F. Supp. 3d at 811. To the extent Phoenix claims a conspiracy to misappropriate confidential information or trade secrets-which is the foundation of all of Phoenix’s tort claims-this conspiracy is preempted by the KUTSA. Greif v. MacDonald, No. 3:06CV-312-H, 2007 WL 679040, at *3 (W.D. Ky. Mar. 1, 2007); see Stolle Mach. Co. v. RAM Precision Indus., 605 F. App’x 473, 485-86 (6th Cir. 2015). As detailed herein, Phoenix has failed to state a claim upon which relief can be granted under any of the foregoing theories. CONCLUSION For the reasons stated above, Chudnovets and Coralina respectfully request that the Court enter an order dismissing Phoenix’s claims against Coralina and Chudnovets. 14 A simple breach of contract cannot form the basis of a civil conspiracy. See All Erection & Crane Rental Corp. v. Acordia Northwest, Inc., 162 F. App’x 554, 560 (6th Cir. 2006). Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 40 of 42 PageID #: 650 41 Respectfully submitted, /s/ Byron E. Leet Byron E. Leet bleet@wyattfirm.com Sean G. Williamson swilliamson@wyattfirm.com WYATT, TARRANT & COMBS, LLP 500 West Jefferson Street, Suite 2800 Louisville, KY 40202-2898 502.589.5235 Mark C. Guthrie (Pro Hac Vice) mguthrie@winstead.com WINSTEAD PC 1100 JPMorgan Chase Tower 600 Travis Street Houston, TX 77002 713.650.2730 Counsel for Defendants Capital Equipment & Trading Corporation, Coralina Engineering, LLC, and Alexander Chudnovets Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 41 of 42 PageID #: 651 42 CERTIFICATE OF SERVICE I hereby certify that on September 19, 2016, I electronically filed the foregoing with the Clerk of the Court by using the CM/ECF system, which will send a notice of electronic filing to the following: Scott P. Zoppoth spz@zoplaw.com THE ZOPPOTH LAW FIRM 635 West Main Street, Suite 400 Louisville, KY 40202 505.568.8884 Counsel for Plaintiff /s/ Byron E. Leet Byron E. Leet Counsel for Defendants Capital Equipment & Trading Corporation, Coralina Engineering, LLC, and Alexander Chudnovets 61543367.1 Case 3:16-cv-00024-JHM-DW Document 47-1 Filed 09/19/16 Page 42 of 42 PageID #: 652 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 1 of 13 PageID #: 653 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 2 of 13 PageID #: 654 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 3 of 13 PageID #: 655 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 4 of 13 PageID #: 656 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 5 of 13 PageID #: 657 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 6 of 13 PageID #: 658 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 7 of 13 PageID #: 659 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 8 of 13 PageID #: 660 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 9 of 13 PageID #: 661 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 10 of 13 PageID #: 662 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 11 of 13 PageID #: 663 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 12 of 13 PageID #: 664 Case 3:16-cv-00024-JHM-DW Document 47-2 Filed 09/19/16 Page 13 of 13 PageID #: 665 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 1 of 9 PageID #: 666 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 2 of 9 PageID #: 667 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 3 of 9 PageID #: 668 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 4 of 9 PageID #: 669 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 5 of 9 PageID #: 670 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 6 of 9 PageID #: 671 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 7 of 9 PageID #: 672 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 8 of 9 PageID #: 673 Case 3:16-cv-00024-JHM-DW Document 47-3 Filed 09/19/16 Page 9 of 9 PageID #: 674 Case 3:16-cv-00024-JHM-DW Document 47-4 Filed 09/19/16 Page 1 of 1 PageID #: 675 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 1 of 9 PageID #: 676 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 2 of 9 PageID #: 677 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 3 of 9 PageID #: 678 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 4 of 9 PageID #: 679 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 5 of 9 PageID #: 680 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 6 of 9 PageID #: 681 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 7 of 9 PageID #: 682 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 8 of 9 PageID #: 683 Case 3:16-cv-00024-JHM-DW Document 47-5 Filed 09/19/16 Page 9 of 9 PageID #: 684 Case 3:16-cv-00024-JHM-DW Document 47-6 Filed 09/19/16 Page 1 of 3 PageID #: 685 Case 3:16-cv-00024-JHM-DW Document 47-6 Filed 09/19/16 Page 2 of 3 PageID #: 686 Case 3:16-cv-00024-JHM-DW Document 47-6 Filed 09/19/16 Page 3 of 3 PageID #: 687 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 1 of 9 PageID #: 688 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 2 of 9 PageID #: 689 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 3 of 9 PageID #: 690 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 4 of 9 PageID #: 691 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 5 of 9 PageID #: 692 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 6 of 9 PageID #: 693 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 7 of 9 PageID #: 694 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 8 of 9 PageID #: 695 Case 3:16-cv-00024-JHM-DW Document 47-7 Filed 09/19/16 Page 9 of 9 PageID #: 696 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY AT LOUISVILLE Electronically Filed PHOENIX PROCESS EQUIPMENT CO. PLAINTIFF v. CAPITAL EQUIPMENT & TRADING CORPORATION, ET AL. DEFENDANTS ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO. 3:16-CV-00024-JHM-DW PROPOSED ORDER This matter is before the Court on the separate motions to dismiss of Defendants Alexander Chudnovets and Coralina Engineering, LLC (“Coralina”). Mr. Chudnovets and Coralina each have sought dismissal of Plaintiff Phoenix Process Equipment Co.’s (“Phoenix”) claims pursuant to Federal Rules of Civil Procedure 12(b)(2), (5), and (6) and the common law doctrine of forum non conveniens. Being otherwise sufficiently advised, IT IS HEREBY ORDERED that Defendant Alexander Chudnovets’ motion to dismiss is GRANTED, and Phoenix’s claims against him are DISMISSED with prejudice. IT IS FURTHER ORDERED that Defendant Coralina Engineering, LLC’s motion to dismiss is GRANTED, and Phoenix’s claims against it are DISMISSED with prejudice. IT IS SO ORDERED. 61543343.1 Case 3:16-cv-00024-JHM-DW Document 47-8 Filed 09/19/16 Page 1 of 1 PageID #: 697