Aeroflex Wichita, Inc. v. Filardo

• Decision Date: 27 April 2012
• Docket Number: No. 103,672.,103,672.
• Citation: 294 Kan. 258,275 P.3d 869
• Parties: AEROFLEX WICHITA, INC., Appellant, v. Kenneth W. FILARDO and Chris Allen, Defendants, and Tel–Instrument Electronics Corp., Appellee.
• Court: Kansas Supreme Court

294 Kan. 258

275 P.3d 869

AEROFLEX WICHITA, INC., Appellant,

v. Kenneth W. FILARDO and Chris Allen, Defendants,andTel–Instrument Electronics Corp., Appellee.

No. 103,672.

Supreme Court of Kansas.

April 27, 2012.

James D. Oliver, of Foulston Siefkin LLP, of Overland Park, argued the cause, and Jay F. Fowler and Timothy B. Mustaine, of the same firm, of Wichita, were on the briefs for appellant Aeroflex Wichita, Inc.

F. James Robinson, Jr., of Hite, Fanning, & Honeyman, L.L.P., of Wichita, argued the cause, and Scott M. Hill, of the same firm, was with him on the brief for appellee Tel–Instrument Electronics Corp.

The opinion of the court was delivered by LUCKERT, J.:

After allowing discovery on the issue of whether Kansas courts could exercise personal jurisdiction over some of the defendants in this case, the district court granted defendant Tel–Instrument Electronics Corp.'s (TIC) motion to dismiss for lack of personal jurisdiction. On interlocutory appeal from that decision, the parties dispute the correct standard for judging a motion to dismiss for lack of personal jurisdiction filed under K.S.A. 2011 Supp. 60–212(b)(2) when that motion is decided after discovery and after submission of supporting affidavits, documents, and deposition excerpts but without an evidentiary hearing. We hold that plaintiff Aeroflex Wichita, Inc. (Aeroflex), as the party with the ultimate burden of establishing jurisdiction and as the party responding to a motion to dismiss presented to the district court without an evidentiary hearing, need only establish a prima facie basis for jurisdiction. In determining if that prima facie burden has been met, a district court should view factual disputes in the light most favorable to the nonmoving party, and an appellate court applies the same standard de novo.

Applying that standard, we determine that the district court erred by weighing the evidence rather than granting all favorable inferences to Aeroflex. Aeroflex presented a prima facie case of jurisdiction based on a conspiracy between TIC and its codefendants, over whom the court has jurisdiction. This prima facie showing provides a basis to conclude (1) there was an agreement to steal trade secrets and other proprietary information from Aeroflex and (2) there were acts performed in Kansas by the coconspirators in furtherance of the conspiracy. Consequently, we reverse the district court's ruling on the motion to dismiss and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

This lawsuit arose out of a multimillion-dollar contract awarded in 2009 to TIC by the United States Army. The contract related to a high-technology radar-transponder test system. Both TIC and Aeroflex participated in a competitive bid contest that led to the 2009 contract. Before the 2009 contract, the system had been manufactured for the Army by Aeroflex.

As early as 2002, it was known the Army was planning to solicit bids for an upgrade to the system that Aeroflex had been manufacturing. By at least that point in time, Aeroflex began working on an upgrade. From 2005 to 2006, the Army issued three sole-source proposals for Aeroflex to provide the upgraded system. The first proposal was cancelled, and the second was negotiated but never awarded. After the third request for proposal, TIC protested the decision to issue a sole-source contract, asserting it had the capability to perform the upgrade. The Army reviewed TIC's protest and ultimately opened the contract award process to competition.

Soon after the Army's decision, TIC hired two Aeroflex employees. First, TIC hired Chris Allen as its Director of Marketing.

According to Aeroflex, Allen had "intimate knowledge" of the pricing structure for the system. He was also aware of and had been involved in the design process as well as the preparation of Aeroflex's previous proposals to the Army. Second, just a few months after hiring Allen, TIC hired Kenneth Filardo as its Director of Engineering. Filardo had been the chief design authority for Aeroflex's work on the upgrade. According to Aeroflex, Filardo had been "intimately involved in each facet of the design, development and manufacture of the ... test sets and their upgrades" and had played a "key role" in the development of Aeroflex's proposals to the Army.

Allen and Filardo had each signed an Aeroflex "Employee Patent, Copyright, and Non–Disclosure Agreement." Upon their resignations from Aeroflex, Aeroflex sent letters to each of them and reminded them of the agreement.

Approximately 1 year later, the Army solicited proposals for the upgrade kits. After 6 months of review and negotiation, the Army awarded the contract to TIC. Aeroflex filed a protest of the contract award, alleging in part that TIC had stolen its trade secrets. The protest led to an investigation and report by the Army to the Government Accountability Office (GAO) rejecting Aeroflex's claim.

Aeroflex then filed this lawsuit. In a verified petition, Aeroflex alleged Filardo and Allen breached their nondisclosure agreements with Aeroflex. As to TIC, Aeroflex alleged TIC could not have economically developed or manufactured an upgrade without using Aeroflex's trade secrets and confidential and proprietary information. Aeroflex alleged claims of misappropriation of Aeroflex's trade secrets, tortious interference with Aeroflex's business relationships, and civil conspiracy against all three defendants.

In asserting a basis for a Kansas court to exercise personal jurisdiction over the defendants, the verified petition alleged Filardo is, and at all times material to the lawsuit has been, a Kansas resident. Aeroflex acknowledged that Allen had been an Arizona resident since 2003, but it alleged his many contacts with Kansas through his employment with Aeroflex were sufficient for the court to have personal jurisdiction over him. The petition also stated: "Filardo, Allen, and TIC ... intentionally targeted Aeroflex Wichita, whose headquarters and facilities they knew to be located in Kansas, and knew that these actions, if successful in their aims, would cause economic injury in Kansas to Aeroflex Wichita."

After being served with the petition, TIC specially appeared and challenged personal jurisdiction by filing under K.S.A. 2011 Supp. 60–212(b)(2) the motion to dismiss that is the subject of this appeal.

Before ruling on the motion, the district court permitted limited discovery, ordering that Aeroflex "may take depositions on the jurisdictional issue of defendant Kenneth Filardo, of defendant [TIC], under K.S.A. 60–230(b)(5), and a corporate representative ... regarding business activities of [TIC], in Kansas." Later, after limited discovery confirmed that Filardo had been working for TIC from his Kansas residence approximately 1 week per month, the district court allowed additional discovery relating to Filardo's time sheets.

At the completion of discovery, Aeroflex responded to the motion to dismiss by arguing the district court had jurisdiction under the Kansas long-arm statute, specifically K.S.A. 2011 Supp. 60–308(b)(1)(A), (B), and (E), in that TIC transacted business in Kansas, committed a tortious act in Kansas, and entered into a contract with a Kansas resident to be performed at least in part in Kansas. Affidavits and documents were attached to the written arguments. In addition, Aeroflex sought permission to file an amended petition. The district court allowed the filing of the amended petition but granted TIC's motion to dismiss.

In ruling on the motion to dismiss, the district court considered TIC's contacts with Kansas, finding:

"15. TIC is a publicly traded company that has only two Kansas shareholders accounting for less than 1% of its outstanding shares. It has and maintains no facilities, offices, leases, property, accounts, licenses, operations or employees in Kansas....

"16. TIC has never focused sales efforts toward Kansas customers, targeted advertisements or bulk e-mail in Kansas, or advertised in Kansas. No employees travel to Kansas to conduct business. It generates virtually no revenue from Kansas (.12% in 2007 and .33% in 2008) and it is not subject to Kansas taxation."

The district court also found that Allen performed no work for TIC in Kansas. Filardo on the other hand did perform work on TIC's proposal from his Kansas residence, although "the exact amount can't be determined."

The district court then drew the legal conclusion that Aeroflex failed to make a prima facie showing of personal jurisdiction over TIC. In reaching this conclusion the court determined the alleged causes of action did not arise out of any business transactions in Kansas, Aeroflex "failed to make a prima facie showing that the causes of action arose from the commission of a tortious act in Kansas," and that TIC did not enter into a contract with a Kansas resident "for some or the entire contract to be performed in Kansas." With regard to the alleged misappropriation of trade secrets as it relates to jurisdiction, the court also found Aeroflex did not show that Filardo committed an act in Kansas in furtherance of the conspiracy or that TIC purposefully availed itself of the privilege of conducting activities in Kansas. Finally, the district court found Aeroflex failed to show that the exercise of jurisdiction would be reasonable under due process requirements.

Although the district court granted TIC's motion to dismiss for lack of jurisdiction, Filardo and Allen remain as defendants. Filardo, a Kansas resident, did not raise a challenge to personal jurisdiction. And although Allen, an Arizona resident, did challenge personal jurisdiction, the district court found personal jurisdiction existed because Allen was sued for actions arising under an employment contract entered into with a Kansas resident (Aeroflex) and at least partially performed in Kansas.

Aeroflex appeals the district court's dismissal of the case against TIC. The case against Filardo and Allen was subsequently stayed by the...