ASSOCIATED BUSINESS TELEPHONE SYSTEMS v. Danihels

• Decision Date: 20 August 1993
• Docket Number: Civ. A. No. 92-3943.
• Parties: ASSOCIATED BUSINESS TELEPHONE SYSTEMS CORPORATION, Plaintiff, v. Leo J. DANIHELS, Defendant.
• Court: U.S. District Court — District of New Jersey

829 F. Supp. 707

ASSOCIATED BUSINESS TELEPHONE SYSTEMS CORPORATION, Plaintiff, v. Leo J. DANIHELS, Defendant.

Civ. A. No. 92-3943.

United States District Court, D. New Jersey.

August 20, 1993.

Stuart A. Wilkins, Berlin, NJ, for plaintiff.

Guy Michael, Brown & Michael, P.C., Atlantic City, NJ, for defendant.

OPINION

GERRY, Chief Judge.

This is a diversity action between plaintiff, Associated Business Telephone Systems Corporation ("ABTS"), whose principal place of business is in New Jersey, and defendant, Leo J. Danihels, who is domiciled in Nevada. The parties are presently before the court upon motion of defendant to dismiss the complaint for lack of subject matter jurisdiction and for lack of personal jurisdiction. In the alternative, defendant seeks transfer of this action to Nevada pursuant to the doctrine of forum non conveniens.

BACKGROUND

ABTS is a telephone systems service corporation incorporated and having its principal place of business in New Jersey. In 1990, ABTS entered into a telephone servicing contract ("the Contract") with the Ramada Las Vegas Inn ("the Inn") situated in Las Vegas, Nevada, and the Inn's owner, Jesse Wright. The contract was for a term of twelve years and required, among other things, that ABTS install a telephone system at the Inn, that the Inn collect and remit to ABTS the monthly charges arising from guest usage of the system, that those funds be held in trust for ABTS, and that the Inn insure the system. The contract also contained a liquidated damages provision and stated that New Jersey law would govern its interpretation and enforcement.

The Inn experienced financial difficulties and defendant, a secured creditor of Wright and the Inn, was appointed Interim Receiver of the Inn on January 14, 1992. In addition to the usual powers granted to receivers, defendant was specifically vested with the power to manage the Inn, to collect rents and profits, to pay expenses, and to maintain and preserve the Inn pending foreclosure proceedings. Shortly thereafter, ABTS notified defendant that the Inn was approximately $14,000 in arrears for payments due under the Contract and that the telephone system was therefore scheduled for disconnection unless defendant remitted the outstanding debt.

Defendant sent ABTS $4,042.57, and ABTS agreed not to have the system shut down. Plaintiff alleges that defendant promised that he would be bound by and make all payments due under the Contract during the period of receivership. Plaintiff also maintains that defendant stated that he could not as receiver assume the Contract, but, if defendant was successful in taking over the property as second mortgage holder after foreclosure, he would assume the contract at that time. Defendant purchased insurance and began making the monthly payments.

ABTS further alleges that sometime later during the receivership, ABTS again sought to terminate the Contract because the original arrearage was still outstanding, because defendant had yet to assume the Contract, and because the foreclosure was taking much longer than defendant had initially predicted. ABTS maintains defendant responded by assuring ABTS that he was definitely going to take over the Inn following foreclosure. Based upon such representations, ABTS states that it continued to perform under the Contract and upgraded the system at a cost of $15,000 to $20,000.

Defendant subsequently failed to pay the invoices for the months of June and August 1992, which amounted to $8,638.66. These latter invoices were not paid because of a dispute between the parties over whether the defendant's original $4,042.57 payment was a good faith deposit to keep the phones operable or should have been credited to the monthly invoices as they came due. On August 4, 1992, the Inn was sold at a trustee sale and acquired by someone other than defendant. After the sale, defendant sent ABTS two payments totalling $4,596.09, representing the difference between the monies defendant believed should have been credited to his account and the remaining balance of the June/August invoices.

ABTS instituted this action alleging breach of contract, conversion of the unremitted funds, and fraud. Defendant moves to dismiss contending that ABTS cannot meet the requisite jurisdictional amount in controversy and for lack of personal jurisdiction.

DISCUSSION

I. Amount in Controversy

This court has jurisdiction over diversity actions only if they involve more than $50,000 in controversy. 28 U.S.C. § 1332. Although the complaint alleges more than $50,000 in damages, defendant argues that in fact the amount in controversy is much less.

The amount claimed in the complaint is controlling unless, upon the face of the pleadings or proofs submitted, it "appears to a legal certainty that the claim is really for less." St. Paul Mercury Indem. Co. v. Red Cab. Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 589-90, 82 L.Ed. 845 (1938); Smithers v. Smith, 204 U.S. 632, 642, 27 S.Ct. 297, 299, 51 L.Ed. 656 (1907). The existence of a perfect defense that might reduce the recovery below the requisite amount does not defeat jurisdiction. Id. Once challenged, however, it is the plaintiffs burden to show that it does not appear to a legal certainty that the claim does not satisfy the jurisdictional amount. Gibbs v. Buck, 307 U.S. 66, 59 S.Ct. 725, 83 L.Ed. 1111 (1939); Nelson v. Keefer, 451 F.2d 289 (3d Cir.1971).

To demonstrate that the amount it alleged in the complaint is made in good faith and not legally certain to be for less, ABTS relies on the liquidated damages clause in the Contract, which calls for damages in excess of $500,000; the amount it would be entitled to on its conversion claim, which could include punitive damages under Nevada Revised Statute § 42.005 (1991); and reliance damages of fifteen to twenty thousand dollars on its fraud claim, under which ABTS also seeks punitive damages.

Defendant argues that he was not bound by the Contract because he agreed only to make payments in accordance with the pre-existing contract, not to be bound by any other terms. Alternatively, he contends that if he was bound by the entire Contract, he did not breach the Contract because he remitted all that was owed to plaintiff. Either way, he maintains that he cannot be liable under the Contract's liquidated damages clause. Defendant also contends that he cannot be liable for punitive damages because all of his actions were done in good faith.

Defendant's arguments are premature. That defendant may have a valid defense to the contract claim does not demonstrate that the claim was made in bad faith. Moreover, though it is not clear that a $500,000 liquidated damages provision will be enforceable on a contract involving approximately $4,000 a month over an eight month period, the liquidated damages clause is sufficient to satisfy the plaintiffs burden on this motion. We cannot say that it is legally certain that the clause is unenforceable. Finally, the fact that punitive damages may be available on the remaining claims similarly precludes us from finding it legally certain that plaintiffs damages will not exceed $50,000. Like defendant's former arguments, his contention that he did not have the requisite mental state to justify punitive damages is premature. These issues are more properly determined on motion for summary judgment or at trial. We hold, therefore, that ABTS has met its burden to invoke this court's subject matter jurisdiction.

II. Personal Jurisdiction

Defendant also challenges this court's exercise of personal jurisdiction. A court acquires personal jurisdiction over an out-of-state defendant where that defendant is properly served, and exercise of jurisdiction does not otherwise offend the constitution. Federal Rule of Civil Procedure 4(e) requires us to examine the New Jersey Long Arm statute to assess the scope of service over an out-of-state defendant. That statute, N.J.Rule 4:4-4(c)(1), grants jurisdiction to the same extent as allowed by the United States Constitution. Avdel Corp. v. Mecure, 58 N.J. 264, 277 A.2d 207, 209 (1971). The only constitutional limit placed upon a federal court's exercise of personal jurisdiction is the Due Process Clause, which requires that a defendant have sufficient minimum contacts with the forum state such that maintenance of the suit there does not offend "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945).

The contacts between a defendant and the forum must demonstrate that the defendant "has purposefully availed itself of the benefits and protection of that state," and that a defendant "should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 297, 100 S.Ct. 559, 563, 567, 62 L.Ed.2d 490 (1980); see also Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958) (defendant must "purposefully avail" itself of privilege of acting within the forum). Accordingly, a "defendant will not be haled into a jurisdiction solely as a result of `random,' `fortuitous,' or `attenuated' contacts, or based upon the `unilateral activity of another person.'" Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528 (1985) (citations omitted). Those who deliberately "`reach out'" and "`create continuing relationships and obligations with citizens of another state,'" however, will be subject to that state's regulations and sanctions for consequences arising from those relationships. Id. at 473, 105 S.Ct. at 2182 (quoting Travelers Health Ass'n v. Virginia, 339 U.S. 643, 647, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950)). Nevertheless, "fair play and substantial justice" may preclude jurisdiction even where the defendant has "purposefully engaged in forum activities." Id. at 477-78, 105 S.Ct. at 2184-85. The court must engage in a fact specific...