Bank v. Merritt

• Decision Date: 05 January 2011
• Docket Number: Civ. No. 10–134–SLR.
• Citation: 759 F.Supp.2d 505
• Parties: 1ST SOURCE BANK, Plaintiff,v.Brian H. MERRITT, Townsend H. Porter, Jr., and Townsend H. Porter Revocable Trust, Defendants.
• Court: U.S. District Court — District of Delaware

759 F.Supp.2d 505

1ST SOURCE BANK, Plaintiff,

v.Brian H. MERRITT, Townsend H. Porter, Jr., and Townsend H. Porter Revocable Trust, Defendants.

Civ. No. 10–134–SLR.

United States District Court, D. Delaware.

Jan. 5, 2011.

Brian M. Rostocki, Esquire and Kathleen A. Murphy, Esquire of Reed Smith LLP, Wilmington, DE, Of Counsel: Joseph J. Tuso, Esquire of Reed Smith LLP, Philadelphia, PA, for Plaintiff.Jennifer Gimler Brady, Esquire and John A. Sensing, Esquire of Potter Anderson & Corroon LLP, Wilmington, DE, for Defendants Townsend H. Porter, Jr. and Townsend H. Porter Revocable Trust.Richard H. Cross, Jr., Esquire and Ryan M. Ernst, Esquire of Cross & Simon, LLC, Wilmington, DE, Of Counsel: John R. Gillespie, Esquire of John R. Gillespie, P.A., Lighthouse Point, FL, for Defendant Brian H. Merritt.

MEMORANDUM OPINION

SUE L. ROBINSON, District Judge.I. INTRODUCTION

On December 22, 2009, plaintiff 1st Source Bank (“FSB”) filed this action in the Superior Court of the State of Delaware against defendants Brian H. Merritt (“Merritt”), Townsend H. Porter, Jr. (“Porter”) and Townsend H. Porter Revocable Trust (the “Porter Trust”) (collectively, “defendants”) for breach of contract, alleging that defendants failed to make payments to FSB as required under the terms of certain guarantees of payment. (D.I. 1, Ex. 1) Defendants removed the action to this court on February 18, 2010. (D.I. 1) Before the court are defendants' motions to dismiss for lack of personal jurisdiction or, in the alternative, to transfer pursuant to 28 U.S.C. § 1404(a). (D.I. 4; D.I. 16)

II. BACKGROUND

Plaintiff FSB is an Indiana bank with its primary place of business in Indiana. (D.I. 1, Ex. 1 at ¶ 1) Defendant Porter is a natural person and a citizen of Florida. ( Id. at ¶ 3) Defendant Porter Trust is a revocable trust formed under Minnesota law and located in Florida. ( Id. at ¶ 4; D.I. 5 at 5) Defendant Merritt is a natural person and a citizen of Florida. (D.I. 1, Ex. 1 at ¶ 2)

Merritt and Porter founded Sea Gate Enterprise X, LLC (“Sea Gate”), a Delaware limited liability company with its principal place of business in Delaware, on July 20, 2007. (D.I. 10, Ex. 2 at ¶ 1.3) Sea Gate's stated business purpose is “to own, operate, purchase, sell, encumber, and charter one or more airplanes and/or jets, and to conduct any and all businesses and activities related thereto or useful in connection therewith.” ( Id. at ¶ 2.1) On August 20, 2007, FSB and Sea Gate entered into a loan and security agreement (the “Loan Agreement”) pursuant to which FSB loaned $6,555,000.00 to Sea Gate for the purpose of purchasing an aircraft. (D.I. 1, Ex. 1 at ¶¶ 6–7) Under the terms of the Loan Agreement, Sea Gate was required to make a series of principal and interest payments, followed by a balloon payment equal to the then-unpaid principal and interest. ( Id. at ¶ 8) Sea Gate also granted FSB a purchase money security interest in the aircraft. ( Id. at ¶ 10)

On August 14, 2007, defendants each executed individual guarantees of payment, which contain a permissive Indiana forum selection clause, to guarantee “the full and prompt payment and performance when due of all Obligations due and to become due to [FSB]” under the Loan Agreement. ( Id. at ¶ 12; D.I. 5 at 5) The guarantees provide that FSB “shall have immediate recourse against [the guarantors] and shall not be obligated to take any steps or otherwise attempt to enforce the obligations under the guarantees by other available means prior to pursuing recourse against and obtaining payment from [the guarantors] ...” (D.I. 1, Ex. 1 at ¶ 14) Due to a material adverse change in its business condition, Sea Gate defaulted on the Loan Agreement by failing to make timely payments. ( Id. at ¶¶ 16–17) FSB accelerated the maturity of the Loan Agreement in response to the event of default, giving notice of the acceleration to Sea Gate and defendants on July 2, 2009 and demanding payment of the obligations under the Loan Agreement. ( Id. at ¶¶ 18–20) FSB filed the instant action on December 22, 2009 to enforce its rights under the guarantees. ( Id.)

III. STANDARD OF REVIEW

Rule 12(b)(2) directs the court to dismiss a case when the court lacks personal jurisdiction over a defendant. Fed.R.Civ.P. 12(b)(2), When reviewing a motion to dismiss pursuant to Rule 12(b)(2), a court must accept as true all allegations of jurisdictional fact made by the plaintiff and resolve all factual disputes in the plaintiff's favor. Traynor v. Liu, 495 F.Supp.2d 444, 448 (D.Del.2007). Once a jurisdictional defense has been raised, the plaintiff bears the burden of establishing, with reasonable particularity, that sufficient minimum contacts have occurred between the defendant and the forum to support jurisdiction. See Provident Nat'l Bank v. California Fed. Sav. & Loan Ass'n, 819 F.2d 434, 437 (3d Cir.1987). To meet this burden, the plaintiff must produce “sworn affidavits or other competent evidence,” because a Rule 12(b)(2) motion “requires resolution of factual issues outside the pleadings.” Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61, 67 n. 9 (3d Cir.1984).

IV. DISCUSSIONA. Personal Jurisdiction

To establish personal jurisdiction, the plaintiff must show, by a preponderance of the evidence, that (1) “there is a statutory basis for jurisdiction under the forum state's long arm statute” and (2) “the exercise of jurisdiction comports with the defendant's right to due process.” L'Athene, Inc. v. EarthSpring LLC, 570 F.Supp.2d 588, 590 (D.Del.2008) (citing Time Share Vacation Club, 735 F.2d at 66; Reach & Assocs. P.C. v. Dencer, 269 F.Supp.2d 497, 502 (D.Del.2003)). The parties do not dispute the fact that jurisdiction over the defendants exists under the Delaware long arm statute. Because defendants are within the reach of the long arm statute, the court must next analyze whether the exercise of personal jurisdiction comports with due process.

The exercise of personal jurisdiction comports with due process when “the defendant's conduct is such that it should ‘reasonably anticipate being haled into court there.’ ” L'Athene, 570 F.Supp.2d at 591 (quoting World–Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980)). Personal jurisdiction over a nonresident defendant is proper when either specific or general jurisdiction exists. See Dollar Sav. Bank v. First Sec. Bank of Utah, N.A., 746 F.2d 208, 211 (3d Cir.1984). “Specific jurisdiction exists when the defendant has ‘purposefully directed his activities at residents of the forum and the litigation results from alleged injuries that arise out of or related to those activities.’ ” BP Chems. Ltd. v. Fibre Corp., 229 F.3d 254, 259 (3d Cir.2000) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)). General jurisdiction exists when the defendant's contacts with the forum are “continuous and systematic,” whether or not the contacts relate to the litigation. See id. (quoting Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 416, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984)). FSB does not claim that the court has general jurisdiction. Therefore, the only remaining issue is whether the court may exercise specific jurisdiction over defendants.

By way of their motions to dismiss,¹ defendants contend that exercising specific jurisdiction over them would not comport with due process because their alleged breach of the guarantees did not arise from defendants' activities in Delaware. (D.I. 5 at 5) In support of their argument, defendants cite Summit Investors II, LP. v. Sechrist Indus., Inc., Civ. A. No. 19400, 2002 WL 31260989 (Del.Ch. Sept. 20, 2002), which holds that the defendants' ownership of parts of a Delaware corporation and role as co-obligors of the corporation were insufficient to meet the minimum contact standard. ( Id.) Defendants further contend that litigating the case in Delaware would pose no undue hardship to FSB, but would be burdensome to defendants, and a dismissal of the action would not prejudice FSB's interest in obtaining relief elsewhere. ( Id. at 8)

In response, FSB contends that the due process requirements are satisfied because defendants Merritt and Porter created, wholly own, and are the sole managing members of Sea Gate, which obtained financing from FSB subject to defendants' execution of the guarantees. (D.I. 9 at 9–11) In support of its argument, FSB cites Republic Envtl. Sys., Inc. v. RESI Acquisition (Delaware) Corp., Civ. A. No. 99C–02–194–WTQ, 1999 WL 464521 (Del.Super. May 28, 1999), which holds that a defendant's guarantee of the obligations of a Delaware corporation wholly owned by the defendant creates specific jurisdiction for actions arising under the guaranty. ( Id. at 11) In contrast, FSB notes that the nonresident defendants in Summit Investors were only part owners of the Delaware corporation who did not sign the agreement as part of the corporation's formation. ( Id. at 12) FSB contends that the facts of the instant case are more closely analogous to Republic and, furthermore, Merritt's motion should be denied as untimely. ( Id. at 13; D.I. 17 at 1)

The court concludes that the facts of this case are more closely analogous to the situation set forth in Republic because defendants Porter and Merritt availed themselves of Delaware law by guaranteeing the financial obligations of a Delaware corporation wholly owned by them. See Republic, 1999 WL 464521, at *4. Unlike the facts of Summit Investors, Porter and Merritt are the sole owners of Sea Gate who entered into the guarantees as part of Sea Gate's formation. Specifically, Porter and Merritt executed the guarantees less than a month after the formation of Sea Gate and several days before the execution of the Loan Agreement for the purpose of buying an aircraft in accordance with Sea Gate's stated business purpose. In contrast, the Put and Call Agreement at issue in Summit Investors was signed...