Cycles, Ltd. v. W.J. Digby, Inc., s. 88-4726

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation889 F.2d 612
Docket Number89-4227,Nos. 88-4726,s. 88-4726
PartiesCYCLES, LTD., et al., Plaintiffs-Appellees, v. W.J. DIGBY, INC., et al., Defendants-Appellants. CYCLES, LIMITED, Dale Yeager, Vida Donez Yeager, Dale Yeager, Jr. and Sheila Yeager Hendrix, Plaintiffs-Appellees, v. W.J. DIGBY, INC., 1776 Corporation, James F. Digby, Donald Digby and George Snyder, Defendants-Appellants.
Decision Date06 December 1989

Barry H. Powell, Charles R. Davis, Jackson, Miss., Thomas, Price, Alston, Jones & Davis, for Donald Digby.

Robert S. Murphree, Jackson, Miss., Charles J. Kimball, Denver, Colo., for W.J. & James Digby & George Snyder.

David A. Barfield, Michael S. Allred, Satterfield & Allred, Jackson, Miss., for plaintiffs-appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before CLARK, Chief Judge, GEE and SMITH, Circuit Judges.

CLARK, Chief Judge:

Defendants W.J. Digby, Inc., 1776 Corporation, Jim Digby, Donald Digby and George Snyder in this consolidated appeal challenge the judgment of the district court awarding damages (No. 88-4726) and a postjudgment order awarding attorney fees (No. 89-4227) to plaintiffs Cycles, Ltd., Dale Yeager, Sr., Dale Yeager, Jr., Vida Donez Yeager and Shiela Yeager Hendrix. Because the defendants were not lawfully amenable to process under Mississippi's long-arm statute, we vacate both the judgment awarding damages and the order awarding attorney fees and remand the cause to the district court with directions to dismiss for want of jurisdiction.

I
A. The Parties

This dispute arises from a sale-of-business transaction gone awry between seller Cycles, Limited (Cycles) and buyer W.J. Digby, Inc. (WJD). Plaintiff Cycles, a trucking firm engaged in interstate hauling, was a Mississippi corporation with its principal place of business from 1974 to mid-1979 in West Memphis, Arkansas. From mid-1979 onward the principal place of business was Rankin County, Mississippi. The Yeagers and Hendrix (collectively "Yeagers"), owners of all the Cycles stock, were Arkansas residents before 1979. They moved their residence to Mississippi in mid-1979, a year after the two sale agreements, described below, were executed.

In September 1978, after the execution of the sale agreements and before their termination in April 1980, involuntary bankruptcy proceedings were brought against Cycles and the individual plaintiffs in the Eastern District of Arkansas. Cycles was eventually adjudicated a bankrupt by that court, and an Arkansas trustee now represents its interests.

Defendant WJD, also in interstate trucking, is a Nevada corporation with its principal place of business in Denver, Colorado. The Digbys owned all of WJD's stock. WJD is not, nor has it ever been, qualified to do business in Mississippi. It has no employees or assets there. It has, however, received a Mississippi Public Service Commission permit to haul goods in interstate commerce through the state. Except for the authorized routes listed in the ICC operating authorities WJD was to purchase from Cycles as part of the sale agreements, the record contains no evidence of the frequency with which WJD hauled goods through Mississippi.

Defendant Donald Digby is a vice president of WJD and a Colorado resident; Jim Digby, president of WJD, is a Colorado resident. Defendant Snyder is a Colorado resident and employee of WJD. Defendant 1776 Corporation (1776), is a Nevada corporation with its principal place of business in Denver, Colorado. 1776's stock is also owned in large part by the Digbys.

B. The Negotiations and Agreements

The Yeagers in 1978 sought to sell Cycles. Donald Digby heard of their desire and approached the Yeagers on behalf of WJD. Digby conducted negotiations with the Yeagers by mail and by telephone calls passing between Colorado and West Memphis, Arkansas. Donald and Jim Digby then conducted in-person negotiations with the Yeagers in West Memphis and Memphis, Tennessee in June 1978. At the conclusion of these negotiations, the parties executed two related sale agreements. The two corporations, Cycles and WJD, signed an ICC operating authorities and equipment lease-purchase agreement (lease-purchase agreement). A noncompetition and consultation agreement was entered into between WJD and the Yeagers (noncompetition agreement).

The lease-purchase agreement provided, subject to ICC approval, that WJD would buy the ICC authorities for $50,000, payable in ten annual installments of $5,000. Until approval was obtained, the authorities were to be leased for $1 per month. Two of the authorities allow the holder to haul specified goods from specified cities to "points in the United States (except Alaska and Hawaii)." The remaining authorities, while not prohibiting travel through Mississippi, do not authorize shipment of goods to points in the state.

In addition to purchasing the operating authorities, WJD was to buy all of Cycles equipment, 98 tractors and trailers, for $200,000 above the amount Cycles owed to equipment lessors and lienors. Pending ICC action, WJD agreed to rent the equipment for an amount equal to the monthly payments Cycles owed on each piece of equipment. Also during the interim, WJD was to use and maintain Cycles' equipment and return it if the ICC denied approval or granted it with conditions unacceptable to WJD. The agreement additionally provided that WJD would use best efforts to obtain a $200,000 loan for Cycles; WJD itself later made the loan. WJD also agreed to lease Cycles' West Memphis warehouse facility, the term to begin upon WJD's taking possession of Cycles' equipment. Finally, WJD could terminate both agreements in the event the ICC denied approval or unacceptably conditioned it.

The noncompetition agreement provided that WJD would pay the Yeagers $600,000 in fees over 10 years in exchange for their promises not to compete with WJD and to provide consultation services as needed. WJD planned to claim the fees were for consultation services, rather than a capital expenditure.

The parties also agreed that the contracts were to be construed under Colorado law and that all parties consented to Colorado jurisdiction.

After turning over Cycles' equipment and West Memphis facility to WJD, the Yeagers ceased operations in West Memphis, Arkansas and moved to Rankin County, Mississippi in mid-1979.

In April 1980 the ICC upheld an administrative law judge's decision granting approval to the transaction on condition that WJD capitalize, rather than expense as salary, the fees to be paid to the Yeagers pursuant to the noncompetition agreement. WJD found this condition to be unacceptable and thereafter terminated the agreements.

C. Dispute and Litigation

Between June 1978 and April 1980 WJD possessed or controlled Cycles' equipment. During this time WJD allowed leases to terminate and equipment to be repossessed by Cycles' lessors and lienors. When WJD notified Cycles that it had elected to terminate the agreement, it informed Cycles that it would return none of the equipment. Several tractors and trailers had been returned to lessors with whom Cycles had ongoing lease contracts. Others were repossessed by lienholders and then repurchased by WJD or 1776. WJD made only two payments on the noncompetition agreement.

Cycles brought this action against WJD in August 1980, requesting return of the equipment, damages and an accounting. Proceedings were stayed pending the outcome of the Arkansas bankruptcy proceedings against Cycles. The stay was lifted in 1984, whereupon Cycles filed an amended complaint alleging breach of contract and conversion of the equipment. Defendants filed repeated motions to dismiss for lack of personal jurisdiction. The district court denied relief on all these motions without opinion, hearing or findings. After a bench trial, the court rendered judgment for Cycles and against all of the defendants, jointly and severally, in the amount of $3,777,642.58 in compensatory damages and $100,000 in punitive damages. The court later awarded plaintiffs $170,781.36 in attorney fees.

II

All defendants assert on appeal that the district court lacked personal jurisdiction to adjudicate the suit. They claim that both Mississippi's long-arm statute, Miss.Code Ann. Sec. 13-3-57, and the due process clause of the fourteenth amendment to the federal Constitution prohibit the court from exercising jurisdiction.

The defendants also assert that the district court: (1) misconstrued Colorado and Mississippi law in finding there was a conversion; (2) erred in its calculation of damages; (3) erred by awarding punitive damages; (4) erred in finding the individual defendants liable; and (5) erred by awarding attorney fees.

III

A defendant is amenable to personal jurisdiction in a diversity case to the extent permitted in a state court in the state in which the federal court sits. DeMelo v. Toche Marine, Inc., 711 F.2d 1260, 1264 (5th Cir.1983). The state court or federal court sitting in diversity may assert jurisdiction if: (1) the state's long-arm statute applies, as interpreted by the state's courts; and (2) if due process is satisfied under the fourteenth amendment to the United States Constitution. Id. at 1265. We consider first the reach in this case of Mississippi's long-arm statute because "the constitutional issue should not be considered if service was defective under the Mississippi statute." Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1167 (5th Cir.1985).

Mississippi's long-arm statute states in relevant part:

Any nonresident person, firm, general or limited partnership, or any foreign or other corporation not qualified under the constitution and laws of this state as to doing business herein, who shall make a contract with a resident of this state to be performed in whole or in part by any party in this state, or who shall commit a tort in whole or in part in this state against a resident or...

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