Summary: Plaintiff, a North Dakota corporation, sued defendant, a Canadian company, for various claims arising from failed business relationship. Defendant moved to dismiss or transfer on the basis of personal jurisdiction. The Court held that defendant’s cultivation of relationship with plaintiff and routing of business through North Dakota constituted minimum contacts required for personal jurisdiction.

Case Name: Border States v. MobleSource

Case Number: A3-01-114

Docket Number: 34

Date Filed: 2/4/02

Nature of Suit: 190

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NORTH DAKOTA

SOUTHEASTERN DIVISION

MEMORANDUM AND ORDER

I.  Introduction

    Before the Court is defendant’s motion to dismiss for lack of personal jurisdiction and to transfer to the Eastern District of California (doc. # 10). Plaintiff resists the motion (doc. # 18). The motion came on for hearing on January 23, 2002, in Fargo, N.D., at 9:30 a.m; plaintiff’s motion for oral argument was thus GRANTED (doc. # 26). Upon consideration of the oral and written arguments, the motion to dismiss and transfer is DENIED.

II. Background

    This lawsuit concerns the failed business relationship between plaintiff Border States Industries (“BSI”) (also called Border states Electric, or “BSE”) and defendant MobleSource Industries (“MSI”). BSE is a large electrical and communications distributor; its headquarters are in Fargo, N.D., and it has approximately 22 offices throughout the country. MSI designs and manufactures electrical substations and stationary power transformer units. It is a Canadian company whose headquarters is located in Woodstock, Ontario.

    According to affidavits submitted by plaintiff, the relationship between the parties began in 1998. (Silbernagel Aff. ¶ 3.) Plaintiff claims the relationship began when Pat Pries, an employee of defendant based in Pennsylvania, contacted Lex Silbernagel, a BSE employee based in Fargo who is responsible for sales and marketing to utilities. (Id. ¶ 1, 3.) Pries apparently convinced Silbernagel that BSE would benefit by becoming a sales agent for MSI. (Id. ¶ 5.) Silbernagel then directed another BSE employee, Dave Palen, who was based in Minnesota, to finalize the arrangement. (Id. ¶ 5.) Palen and Pries negotiated the agreement, which was finalized on June 3, 1998. (Palen Aff. ¶ 4.) The 1998 agreement contemplated that MSI and potential buyers would be in direct contact, with BSE merely assisting with such sales. (Id. ¶ 5.) One such sale was made under this arrangement. (Id.)

    Later in 1998, however, the relationship changed. (Id. ¶ 6.) Specifically, Pries told Palen that MSI had spent a good deal of money on improving its facilities; this had apparently made MSI unable to obtain the bonding required for the kinds of projects it wanted. (Id.) Thus, Pries proposed that BSE would enter into direct contracts with buyers; BSE would then subcontract MSI to perform the contracts. (Id. ¶ 6-7.) BSE ultimately entered into contracts with five cities according to this plan: Roseville, California; Naperville, Illinois; Alexandria, Minnesota; Sioux Falls, South Dakota; and Flandreau, South Dakota. (Id. ¶ 10-11.)

    This litigation - and parallel litigation in California, discussed below - has its source in problems with the Roseville project. For reasons not fully developed and hotly contested by the parties, MSI did not complete the Roseville project. This failure has affected the other projects in varying degrees; MSI has apparently not worked at all on the Alexandria, Sioux Falls, and Naperville projects, and the Flandreau project has apparently been delayed in some fashion. Obviously, this led to a deterioration in the parties’ relationship, which led in turn to the lawsuit before the Court.

    Specifically, BSE advances five claims. Count One alleges that MSI repudiated the Sioux Falls, Alexandria, and Naperville orders by failing to provide reasonable assurances that it could perform the contracts at issue. Count Two alleges various breaches of contracts relating to the Roseville project. Count Three seeks recovery in quantum meruit for work BSE has been required to perform because of MSI’s alleged wrongful conduct. Count Four alleges tortious misrepresentation of material facts during the negotiations between the parties. Finally, Count Five asserts that MSI must indemnify BSE against liquidated damages claims by the various buyer cities. As mentioned above, MSI has brought parallel litigation against BSE in the Northern District of California. That suit, which asserts claims related to and arising from the same facts as BSE’s complaint, was filed a few hours after this suit. BSE has moved to dismiss the California suit, but the parties have stipulated to delaying any action in California until after the Court rules on the instant motion.

    Specifically, MSI’s motion asserts that the Court lacks personal jurisdiction over it, for which reason the Court must transfer this case to California. BSE of course urges the contrary result. The following jurisdictionally relevant facts are undisputed: MSI has no office or manufacturing facility in North Dakota or California, nor does it employ agents in either place; the only visit to North Dakota by an MSI agent occurred in an effort to settle the disputes at issue; MSI and BSE exchanged hundreds of phone calls, faxes, and e-mails between MSI’s headquarters in Canada and BSE’s in North Dakota, through which means the parties negotiated and communicated on business matters. The parties’ analyses of these facts of course differs greatly, but the facts themselves are generally undisputed. The Court will address these facts, and mention any other relevant ones, below.

III. Discussion

    A.  Standards

    This Court has previously summarized the requirements for personal jurisdiction in the federal district of North Dakota. See Drayton Enterprises v. Dunker, No. A3-00-159, slip op. at 5-8 (Memorandum and Order March 30, 2001). Personal jurisdiction exists in the federal district of North Dakota if (1) the North Dakota long-arm statute is satisfied and (2) the exercise of jurisdiction over defendants would not violate the due process clause of the Fourteenth Amendment. Id. North Dakota’s long-arm statute has been interpreted to permit the exercise of personal jurisdiction to the fullest extent permitted by due process. Id. (citing Hebron Brick Co. v. Robinson Brick and Tile Co., 234 N.W.2d 250, 255-56 (N.D. 1975)). Thus, this Court is constrained only by the dictates of due process. Id.

     Due process limits the ability of a state to assert personal jurisdiction over a nonresident defendant. Id. To support the exercise of personal jurisdiction, due process requires that the defendant have "minimum contacts" with the forum state such that exercise of jurisdiction over the defendant does not offend "traditional notions of fair play and substantial justice." Id. In examining "minimum contacts," "there [must] be some act by which the defendant purposefully avails itself of the privilege of conducting activities with the forum State, thus invoking the benefits and protections of its laws." Id. Such contacts must not be random, fortuitous, attenuated, or the result of a third party’s unilateral activity. Id.

    If the Court determines that the defendant purposefully established minimum contacts with the forum state, it must still determine whether the exercise of personal jurisdiction over the defendant comports with "fair play and substantial justice." Id. As set out by the Eighth Circuit, the factors to consider include: "(1) the nature and quality of contacts with the forum state; (2) the quantity of such contacts; (3) the relation of the cause of action to the contacts; (4) the interest of the forum state in providing a forum for its residents; and (5) the convenience of the parties." Guiness Import Co. v. Mark VII Distrib., Inc., et. al., 153 F.3d 607, 614 (8th Cir. 1998). The first three factors are more important than the last two. Id.

     This inquiry is more focused when the issue is specific rather than general jurisdiction. As the Eighth Circuit has explained, “General jurisdiction refers to the power of a state to adjudicate any cause of action and does not depend on the relationship between the cause of action and the contacts.” Burlington Indus., Inc. v. Maples Indus., 97 F.3d 1100, 1103 (8th Cir. 1996). Specific jurisdiction, contrarily, focuses solely on the defendant’s activities in the forum state and “is satisfied if the defendant has purposely directed its activities at forum residents, and the litigation results from injuries arising out of, or relating to, those activities.” Id.

    Finally, "to survive a motion to dismiss for lack of personal jurisdiction, the plaintiff need only make a prima facie showing of personal jurisdiction over the defendant." Digi-Tel Holdings, Inc. v. Proteq Telecommunications, Ltd., 89 F.3d 519, 522 (8th Cir. 1996). In examining this showing, the Court must view evidence in the light most favorable to the plaintiff and resolve all factual conflicts in plaintiff’s favor. Id.

    B.  Analysis

    1.  Minimum contacts

    The first question is whether MSI established minimum contacts with North Dakota by purposefully availing itself of the benefits of North Dakota. See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). At the outset, the Court notes that the parties urge somewhat different views of the nature of the case. MSI quite clearly argues that the contract involving Roseville is at “the center of this dispute.” (Def. Br. in Supp. of Mot. to Dis. p. 4.) BSI contrarily focuses on the overall context of what it describes as “an ill-fated business relationship between the parties,” arguing in fact that the repudiation of the Alexandria, Naperville and Sioux Falls projects are in some ways more important than the Roseville project. (Pl. Resp. p. 1.) This difference in focus is not insignificant: BSI’s jurisdictional theory depends on connecting MSI to North Dakota by emphasizing the many aspects of the overall commercial transactions which did involve North Dakota. As set forth below, the Court accepts BSE’s invitation to examine the relationship more broadly, and it is this broad view that shows the existence of minimum contacts.

    First, the Court notes BSE’s claim, supported by affidavits, that MSI aggressively pursued a business relationship with it. (Silbernagel Aff., Palen Aff.) The Eighth Circuit has several times held that aggressive pursuit of a business relationship into a state is relevant to showing a defendant is subject to a that state’s jurisdiction. See St. Jude Medical, Inc. v. Lifecare Intern., Inc., 250 F.3d 587, 591-92 (8th Cir. 2001); see also Wessels, Arnold & Henderson v. Nat’l Medical Waste, Inc., 65 F.3d 1427, 1431 (8th Cir. 1995). Here, taking the facts in the light most favorable to BSE, Digi-Tel Holdings, 89 F.3d at 522, it appears that MSI pursued a relationship with BSE into North Dakota. It is undisputed that the written contract which resulted was formalized not in North Dakota, but in Minnesota; this fact, however, does not change the fact of pursuit into North Dakota, a fact the Court finds reflects the required minimum contacts. See St. Jude Medical, 250 F.3d at 591-92 (discussing pursuit of business).

    Second, as the affidavits further set forth, the initial contract ultimately developed into one requiring BSE to take a role more active than its original position as sales agent. This change apparently reflected an understanding reached through phone, fax, and e-mail between North Dakota and Canada, another example of relevant pursuit into the state. Id. More importantly, however, the new agreement made North Dakota crucial to MSI’s business. In short, BSE sought and obtained contracts, including preparing and sending bids and obtaining bonding, from North Dakota. (Silbernagel, Palen and Miller Aff.’s.) Crucially, BSE did this in consultation with MSI; indeed, BSE’s ability to perform this function was precisely the reason MSI sought this expanded relationship. (Palen and Silbernagel Aff.’s.)

    In the Court’s view, this conscious routing of business through North Dakota constitutes the required minimum contacts. Essentially, through these actions, MSI reached out and availed itself of the privilege of conducting business in North Dakota. See generally Burger King Corp. v. Rudzwicz, 471 U.S. 462, 475 (1985). MSI’s attempts to characterize the activities in North Dakota as solely those of BSE, pointing out that contacts which are random or attenuated, or the result of unilateral activity of a third party, cannot suffice for jurisdiction. See id. However, as explained above, the Court accepts BSE’s contention that MSI reached out to North Dakota to secure the initial relationship, and that it then sought an alteration of the relationship so that North Dakota would become the medium through which it did business throughout large portions of the United States. (Palen and Silbernagel Aff.’s.) Under these circumstances, the Court concludes the required minimum contacts exist here. Therefore, the Court turns a consideration of whether the exercise of jurisdiction “comports with traditional notions of fair play and substantial justice.” Int’l Shoe Co., 326 U.S. at 316.

    2.  Comportment with fair play and substantial justice

    As explained above, the Eighth Circuit has provided a five-part test for the analysis of this issue. Guiness Import Co., 153 F.3d at 614. The Court will consider these factors in turn.

    a.  Nature and quality of the contacts

    The first factor is the nature and quality of the contacts. Here, the actual contacts at issue consist largely of various communications between North Dakota and MSI’s headquarters in Canada. MSI argues that these cannot serve as a basis for jurisdiction. In so doing, it relies heavily on Ferer v. Aaron Ferer & Sons Co. v. Atlas Scrap Iron & Metal Co., 558 F.2d 450 (8th Cir. 1977), which it asserts requires a rejection of jurisdiction on these facts. BSE, of course, offers a differing interpretation of Ferer. As explained below, the Court finds Ferer distinguishable.

    A brief review of Ferer is in order. Appellant Ferer, a Nebraska corporation, sued four other companies in Nebraska federal court in connection with its effort to reorganize in a Chapter 11 bankruptcy, claiming that it had made preferential transfers to them. Id. at 452-53. Ferer had purchased metal goods from each defendant for resale to third parties. Id. at 452 n.3. These appear to have been routine purchases between parties who did not have any relationship beyond that of buyer and seller. Id. Each defendant filed a motion to dismiss on the grounds that it was not subject to jurisdiction in Nebraska. Id. at 452. The defendant’s contacts with Nebraska consisted of letters and phone calls between Nebraska and their home states; payments drawn on a Nebraska bank and sent from Nebraska; contracts prepared, signed, transmitted and returned to Nebraska; and sales orders prepared by defendants outside Nebraska but mailed to Nebraska. Id. at 452-53. On these facts, the Eighth Circuit affirmed the trial court’s holding that Nebraska lacked jurisdiction. Id. at 456.

    The crucial distinction between Ferer and the case at bar is that the lawsuit before the Court does not involve routine commercial dealings. Ferer essentially stands for the unremarkable and reasonable position that merely doing business in a state by phone, fax, and letter, without anything more, does not subject one to jurisdiction in that state. Id. at 454-55 (emphasizing the lack of connection to Nebraska other than “letters and phone calls in a purely commercial setting”). This general reluctance to pin jurisdiction on simple commercial communications is visible in other cases as well. For example, while telephone calls into a state are relevant to the jurisdictional analysis, they cannot serve as minimum contacts by themselves. See Northwest Airlines, Inc. v. Astraea Aviation Services, Inc., 111 F.3d 1386, 1390-91 (8th Cir. 1997).

    If such routine commercial contacts were all that existed here, the Court would have no trouble concluding it lacked jurisdiction; indeed, the Court has recently transferred a case when it found it lacked jurisdiction. See Drayton, No. A3-00-159 (Memorandum and Order March 30, 2001). However, this is not all that existed here. Rather, as emphasized above, MSI sought not a routine commercial arrangement with BSE; the relationship it sought was much more involved than that. Essentially, MSI sought a relationship which would allow it to do business in the United States, and it chose to establish that relationship in North Dakota. Where Ferer simply purchased metal from Nebraska for resale in another state, MSI turned the state of North Dakota into the hub through which it conducted millions of dollars in American business. Ferer, 558 F.2d at 452 n.3.

    True, this effort occurred through communications into the state, but they were not the routine communications described in Ferer. Further, while the details of course differ from that at bar, and though none of them is binding precedent, other courts have considered communications within the context of a systematic and ongoing business relationship relevant to determining jurisdiction. See generally Heritage House Restaurants, Inc. v. Continental Funding Group, Inc., 906 F.2d 276, 280-81 (7th Cir. 1990); PKWare, Inc. v. Meade, 79 F.Supp.2d 1007, 1012-13 (E.D. Wis. 2000); Prestige Hospitality Group, Inc. v. Flagship Services Corp., 2001 WL 228418, * 4-5 (D. Minn. Feb 27, 2001).

    One such case in particular, Mellon Bank (East) PSFS, Nat’l Assoc. v. Farino, 960 F.2d 1217 (3d Cir. 1992) is worthy of note. The plaintiff, a bank based in Pennsylvania, sued three limited partners of Virginia partnerships in Pennsylvania federal court; defendants were residents of New York and Virginia. Id. at 1219. They had sought financing for their business from plaintiff, originally by contacting its Washington, D.C. branch. Id. After this initial contact, they communicated with plaintiff’s Pennsylvania headquarters, including executing and mailing various financing documents which indicated they were “delivered in Pennsylvania”. Id. at 1220. Defendants argued that on these facts they were not subject to jurisdiction in Pennsylvania, and the trial and circuit courts both rejected their argument. Id.

    In so doing, the Third Circuit found that defendants’ actions in obtaining the loans from and corresponding with Pennsylvania subjected to jurisdiction. Id. Similarly to the case at bar, the court found it irrelevant that the initial contact took place in Washington, D.C., since it quickly moved to Pennsylvania; here, similarly, the original contract’s execution in Minnesota does not defeat North Dakota jurisdiction. Id. Notably as well, the court emphasized that:

For some reason, be it the rate of interest offered by Mellon, the service that the bank provided, the availability of funds, or merely the whim of the investors, the limited partnerships chose to finance their business through Mellon. They clearly had the option to seek financing with a bank or banks in any number of other states. Yet, the defendants chose Mellon in Pennsylvania. While it is true that the initial contact with Mellon was through its branch in Washington, D.C., the parties subsequently negotiated and corresponded with Mellon in Pennsylvania. We conclude that the defendants “purposely directed” their activities toward a Pennsylvania resident and thereby availed themselves of the opportunity to do business there within the meaning of Burger King.

Id. As set forth above, this is essentially the same story the Court finds here: MSI chose to initiate a systematic and continuous business relationship with a North Dakota resident. The communications and contacts at issue created, furthered, and executed that relationship. Compare Ferer, 558 F.2d at 452-53 (describing routine business communications). The Court thus concludes that the quality of these contacts militates in favor of jurisdiction. Guiness Import Co., 153 F.3d at 614.

    b.  Quantity of contacts

    The Court has above held that in the precise context of this case, the various phone and electronic communications between BSE in North Dakota and MSI in Canada “count” for jurisdictional purposes. In light of this holding, it becomes relevant that there were apparently hundreds of such communications. Thus, this factor as well favors finding jurisdiction. Guiness Import Co., 153 F.3d at 614.

    c.  Relation of claim to North Dakota

    The claims here all revolve around the failed commercial relationship between the parties. Specifically, the issue is whether five different contracts were breached, three through repudiation and two through problems with performance. As the Court emphasized above, these contracts were all products of the commercial relationship between the parties, a relationship which was centered on and routed through North Dakota. Thus, the claim is squarely related to North Dakota, and this factor favors a finding of jurisdiction. Guiness Import Co., 153 F.3d at 614.

    d.  Interest of North Dakota

    The last two factors, the interest of the forum and convenience of the parties, are less important than the first three. See Land-O-Nod Co. v. Bassett Furniture Indus., Inc., 708 F.2d 1338, 1340 (8th Cir. 1983). North Dakota clearly has an interest in ensuring its citizens a forum in which to litigate, especially when the state has become the nexus of a business relationship. Thus, this factor favors a finding of jurisdiction.e. Convenience of parties and witnesses

    Finally, the convenience of witnesses and parties, though disputed, does not disfavor North Dakota. MSI, consistent with its focus on the Roseville project, insists that the majority of witnesses and evidence is located in California; indeed, it argues that a great amount of fact and expert witnesses will testify concerning Roseville. BSE of course deemphasizes the asserted primacy of the Roseville project and so urges that the key witnesses are its employees, who are in Fargo, and others in the Midwest; it also points out that air travel from Ontario to Fargo is quicker than to California. The Court’s view is that the case involves a commercial relationship, and the California issues are only some among many to be litigated. Though there may be some advantage to California, there are disadvantages as well, in that the BSE employees are here and individuals from the other projects are in neither place. Thus, the Court concludes that this factor does not change its general view that jurisdiction is appropriate here. Guiness Import Co., 153 F.3d at 614.

    For the above reasons, the motion to dismiss is DENIED.

    IT IS SO ORDERED.

    Dated this ____ day of February, 2002.

______________________________
RODNEY S. WEBB, CHIEF JUDGE
UNITED STATES DISTRICT COURT