Lyons Mfg. Co., Inc. v. Gross, Civ. A. No. CV681-28.

• Decision Date: 06 August 1981
• Docket Number: Civ. A. No. CV681-28.
• Citation: 519 F. Supp. 812
• Parties: LYONS MANUFACTURING CO., INC. and Wilbur Gross, Plaintiffs, v. Sidney GROSS, Defendant.
• Court: U.S. District Court — Southern District of Georgia

519 F. Supp. 812

LYONS MANUFACTURING CO., INC. and Wilbur Gross, Plaintiffs, v. Sidney GROSS, Defendant.

Civ. A. No. CV681-28.

United States District Court, S. D. Georgia, Swainsboro Division.

August 6, 1981.

COPYRIGHT MATERIAL OMITTED

W. Ward Newton, Lyons, Ga., for plaintiffs.

Susan A. Cahoon, Kilpatrick & Cody, Atlanta, Ga., for defendant.

ORDER

BOWEN, District Judge.

In this action, originally brought in Toombs County Superior Court, plaintiffs, in a three-count complaint, allege that defendant breached an employment agreement and shareholders agreement between plaintiffs and defendant and that said breach rendered a guaranty, executed by plaintiff Gross, null and unenforceable. Plaintiffs seek damages and declaratory relief. Defendant moved to dismiss the action for want of personal jurisdiction and thereafter petitioned for removal to this Court. In resolving the issues raised by the motion to dismiss, the Court may consider pertinent affidavits and exhibits on file. See Edwards v. Associated Press, 512 F.2d 258, 262 n.8 (5th Cir. 1975). A review of these materials reveals the following facts.

Lyons is a Georgia corporation which, since its formation, has been located in Toombs County, Georgia. At one time, prior to March 31, 1970, defendant Sidney Gross was the majority stockholder in Lyons as well as an officer of the corporation. As the result of a heart attack in 1966, however, defendant significantly reduced his business activities and, between 1966 and March 31, 1970, made only one or two trips to Georgia to monitor the business operations of Lyons. During this period, defendant's brother, plaintiff Wilbur Gross, began to assume primary responsibility for actively monitoring the affairs of Lyons.

On March 31, 1970, defendant and plaintiff Gross entered into a shareholders agreement whereby defendant transferred his stock ownership in Lyons to his brother in exchange for, inter alia, an employment contract with the company. The parties signed the employment contract on the same date. Both agreements were negotiated and executed in the State of New York and both brothers were residents of New York at the time of the transaction. The shareholders agreement directed that New York law would govern the construction of the contract. At no time did defendant enter the State of Georgia in connection with the negotiation or execution of these agreements.

The employment agreement provided in part that defendant was to serve as sales manager and general consultant for Lyons in the City of New York. As compensation, defendant was to receive a weekly salary in the amount of $300.00 and an expense payment in the amount of $90.00 per month. The agreement also provided that defendant would receive "10% of any bonus paid to the officers and department heads of the corporation" and that, in the event Lyons sold or disposed of substantially all its assets, defendant would receive a certain payment. It appears that defendant had never been requested to perform any services under the employment agreement until October, 1980. At that time, plaintiff Gross (now president and majority stockholder in Lyons) asked defendant to attempt to sell some shirts in New York City.

In addition to the employment contract as consideration for the transfer of stock by defendant, the shareholders agreement placed several restrictions on the operations of Lyons and afforded defendant a continuing opportunity to monitor the affairs of the corporation. For example, the agreement delimited stockholder control over stock, and corporation control over assets, and further provided that defendant shall be furnished with the corporation's annual statement and shall have access to the books of the corporation. These provisions were to terminate upon the conclusion of defendant's employment contract with Lyons.

Approximately two years after these agreements were entered into, plaintiff Gross executed a guaranty on January 14, 1972, in which he (1) guaranteed the full performance of the employment contract with defendant and (2) guaranteed the payment of premiums on a life insurance policy with himself as the insured and defendant as irrevocable beneficiary. The guaranty was executed in the City and State of New York.

At the present time defendant is 66 years-old and is semi-retired; he is employed on an occasional basis as a salesman for a corporation located in New York City. None of defendant's work with this corporation requires that he travel into the State of Georgia or maintain business contacts in the state. Defendant has never been a resident of the State of Georgia and, since March 31, 1970, has only made one trip to Georgia for the purpose of attending his nephew's graduation. During that single visit, defendant did not visit the facilities of Lyons nor engage in any business for Lyons.

It is undisputed that defendant is a "nonresident" for jurisdictional purposes. See Ga.Code Ann. § 24-117 (1981). Thus, in deciding the personal jurisdiction issue raised by defendant in this diversity case, reference must be had to the Georgia long-arm statute and to the state appellate decisions interpreting the statute. See Gold Kist, Inc. v. Baskin-Robbins Ice Cream, 623 F.2d 375, 377 (5th Cir. 1980); Attwell v. LaSalle National Bank, 607 F.2d 1157 (5th Cir. 1979). The Georgia long-arm statute provides:

A court of this State may exercise personal jurisdiction over any nonresident, or his executor or administrator, as to a cause of action arising from any of the acts, omissions, ownership, use or possession enumerated in this section, in the same manner as if he were a resident of the State, if in person or through an agent, he:

(a) Transacts any business within this State; or

(b) Commits a tortious act or omission within this State, except as to a cause of action for defamation of character arising from the act; or

(c) Commits a tortious injury in this State caused by an act or omission outside this State, if the tortfeasor 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 State; or

(d) Owns, uses or possesses any real property situated within this State.

Ga.Code Ann. § 24-113.1 (1971). Georgia appellate courts construing this statute are mindful "that the Long Arm Statute contemplates that jurisdiction shall be exercised over nonresident parties to the maximum extent permitted by procedural due process." Coe & Payne Co. v. Wood-Mosaic Corp., 230 Ga. 58, 60, 195 S.E.2d 399 (1974).

Defendant argues that the exercise of extraterritorial in personam jurisdiction in this action, if any, must be found under subsection (a), and that, upon examination of the pertinent facts, it is apparent that defendant has not "transacted any business" within the State of Georgia. Construing subsection (a), the Georgia Supreme Court set forth a three-part test for determining whether a nonresident defendant has transacted any business within the state:

Under section 24-113.1(a) jurisdiction over a nonresident exists on the basis of transaction business in this state if the nonresident has purposefully done some act or consummated some transaction in this state, if the cause of action arises from or is connected with such act or transaction, and if the exercise of jurisdiction by the courts of this state does not offend traditional fairness and substantial justice.

Davis Metals, Inc. v. Allen, 230 Ga. 623, 625, 198 S.E.2d 285 (1973). Thus, the pertinent inquiry in this case is whether defendant has purposefully done some act or consummated some transaction in the State of Georgia which in some way is connected with plaintiff's present cause of action.

The facts, as earlier recited, show that defendant has never resided in the State of Georgia and that, at the time the employment agreement and shareholders agreement were executed, both defendant and plaintiff Gross were residents of New York. The contracts were negotiated and executed in New York, and the shareholders agreement directed that New York law would apply in matters of contract construction. Defendant never performed any services under the employment contract in Georgia nor entered Georgia in connection with either agreement. Indeed, by the terms of the employment agreement, defendant's services were to be performed in New York. Since March 31, 1970, defendant has entered the State of Georgia on only one occasion and that was for a matter completely unrelated to the Lyons business.

On these facts, the Court finds that the requirements of section 24-113.1(a), as prescribed by the Davis Metals court, are not met. Of course, if the contracts had been negotiated in Georgia, see Delta Equities v. Larwin Mortgage Investors, 133 Ga.App. 382, 211 S.E.2d 9 (1974), or had been executed in Georgia with both parties physically present, see Davis Metals, 230 Ga. at 625, 198 S.E.2d 285, then as indicated by Georgia appellate decisions, jurisdiction over the nonresident defendant would be proper. Additionally, the Court would have acquired personal jurisdiction over defendant if he had performed some service under the employment contract in Georgia. See id. Cf. Storey v. Seffelaar & Looyen, Inc., 142 Ga.App. 873, 237 S.E.2d 236 (1977); Unistrut Georgia, Inc. v. Faulkner Plastics, Inc., 135 Ga.App. 305, 217 S.E.2d 611 (1975).

Clearly, however, no such jurisdiction-generating event occurred in the forum state. The State of New York was the situs of the contract negotiation and execution, and defendant's performance under the employment contract was to occur in New York. Moreover, the shareholder's agreement, an integral part of the transaction between the parties, provided that "this contract shall be construed pursuant to the Laws of the State of New York." Cf. Davis Metals, 230 Ga. at 625, 198 S.E.2d 285 (finding in personam jurisdiction over nonresident defendant, because, in...