631 F.2d 436 (6th Cir. 1980), 79-3016, Welsh v. Gibbs

Docket Nº:79-3016.
Citation:631 F.2d 436
Party Name:210 U.S.P.Q. 874 John WELSH and Flo-Start, Inc., Plaintiffs-Appellants, v. James W. GIBBS, Defendant-Appellee.
Case Date:October 02, 1980
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 436

631 F.2d 436 (6th Cir. 1980)

210 U.S.P.Q. 874

John WELSH and Flo-Start, Inc., Plaintiffs-Appellants,

v.

James W. GIBBS, Defendant-Appellee.

No. 79-3016.

United States Court of Appeals, Sixth Circuit

October 2, 1980

Argued Aug. 11, 1980.

John M. Glenn, Buckingham, Doolittle & Burroughs Co., L. P. A., Steven E. Sigalow, Mark Frasure, Akron, Ohio, for plaintiffs-appellants.

A. Russell Smith, Laybourne, Smith & Miller, Akron, Ohio, for defendant-appellee.

Page 437

Before LIVELY and ENGEL, Circuit Judges, and BALLANTINE, [*] District judge.

LIVELY, Circuit Judge.

In this diversity case the district court determined that it lacked personal jurisdiction over the defendant and dismissed the complaint. We reverse and remand for further proceedings.

I.

The plaintiffs are an individual citizen and resident of Ohio and an Ohio corporation. The defendant is a citizen and resident of Florida. On October 31, 1974 plaintiff Welsh and defendant Gibbs executed a written contract whereby Gibbs sold to Welsh "a novel switch or electric control unit," which James Gibbs and his brother 1 had invented. Included in the sale were all patent rights, trade secrets and "know-how" pertaining to the invention. The complaint in the district court sought damages for misrepresentations and breach of contract. Personal jurisdiction over the defendant was asserted under the Ohio long arm statute. 2

At the time of execution of the contract the invention though patented, had not been perfected. The agreement provided that Gibbs would cooperate with Welsh in developing the invention, and specifically that he would work, free of charge, for ten days in "Akron, Ohio or elsewhere" perfecting a working model and preparing a production model. In the contract Welsh agreed to form an Ohio corporation which was to be devoted solely to production and marketing of the invention, including the sale of franchises and establishment of distributorships. The plaintiff Flo-Start, Inc. is that Ohio corporation. Gibbs agreed to answer questions asked by representatives of Welsh and Flo-Start, Inc. "which may advance their technical understanding of said switch invention and its operation and enable them to perfect a production model thereof." In addition to the patented invention, the sale included other inventions and discoveries claimed to have been made by Gibbs which were related to the basic invention. The defendant agreed to cooperate with the plaintiff in obtaining patents and developing these claimed inventions. The contract also provided that in the event of disagreement it would be construed according to the law of Ohio.

The agreement of October 31, 1974 was executed by both parties in Florida. The contacts and negotiations between the parties which preceded the signing of the agreement were described by the district court as follows:

The first contact between the parties was in early 1974 when the defendant Gibbs called plaintiff Welsh about an electrical control unit he had developed to control electrically operated carts, trucks, and other vehicles. Plaintiff Welsh made a trip to Florida to discuss the invention with the defendant. Later in 1974 the defendant again called the plaintiff who made another trip to Florida to discuss possible purchase of the invention. According to the affidavit filed by plaintiff Welsh, it was at this second meeting in mid-August 1974 that material representations were made by the defendant which were subsequently discovered to be false. The alleged misrepresentations are the basis of the present suit. (The defendant's affidavit describes a third meeting in Florida between plaintiff's agents, plaintiff's attorney and patent attorney, and defendant, his attorney and patent attorney.)

Page 438

The next contact between the parties was in early September when defendant brought a proto-type of the invention to plaintiff Welsh in Ohio. After signing a non-disclosure agreement in Akron, the defendant returned to Florida with the model. Plaintiff and defendant next met in Florida for negotiations extending over several days. Finally, plaintiff Welsh and his agents returned to Florida and signed the contract of sale.

The district court also noted that the plaintiffs selected a Florida engineering firm to assist in developing the invention and that Gibbs worked with that firm for 60 days rather than going to Akron for ten days work as required by the contract.

II.

The district court found that the defendant initiated the contract negotiations with Welsh in Ohio and entered into a contract which contemplated the formation of an Ohio corporation. These facts led to the further finding that "defendant purposely availed himself of business contacts and opportunities in the State of Ohio, and defendant...

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