Equifax Services, Inc. v. Hitz

• Decision Date: 04 June 1990
• Docket Number: No. 89-3069,89-3069
• Citation: 905 F.2d 1355
• Parties: 1990-1 Trade Cases 69,054 EQUIFAX SERVICES, INC., d/b/a Equifax Commercial Specialists f/k/a White & White Inspection and Audit Service, Inc., Plaintiff-Appellee, v. Steven A. HITZ, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1355

905 F.2d 1355

1990-1 Trade Cases 69,054

EQUIFAX SERVICES, INC., d/b/a Equifax Commercial Specialists

f/k/a White & White Inspection and Audit Service, Inc., Plaintiff-Appellee, v. Steven A. HITZ, Defendant-Appellant.

No. 89-3069.

United States Court of Appeals, Tenth Circuit.

June 4, 1990.

Robert Vogel (Kris Arnold on the brief) of Evans & Mullinix, Kansas City, Kan., for defendant-appellant.

W. Robert King of Morris & Larson, Overland Park, Kan., for plaintiff-appellee.

Before LOGAN, BARRETT, and EBEL, Circuit Judges.

LOGAN, Circuit Judge.

In this diversity action, defendant Steven A. Hitz appeals under 28 U.S.C. Sec. 1292(a) from a preliminary injunction issued in favor of plaintiff Equifax Services, Inc. (Equifax), prohibiting Hitz from violating covenants not to compete with his former employer, White & White Inspection and Audit Service, Inc. (White & White), plaintiff's predecessor. Defendant also challenges the district court's exercise of personal jurisdiction over him, the amount of the bond the court required plaintiff to post, and the denial of defendant's motion to transfer venue. We affirm.

White & White was a Missouri corporation, with its principal offices in Kansas, which provided survey and audit services for insurance companies. Defendant was employed by White & White as a branch manager in southern California over the course of several years. In 1988, purchasers of the stock of White & White merged the corporation with Equifax, a Georgia corporation. Equifax conducts the former business of White & White through Equifax Commercial Specialists, an unincorporated division with its principal offices in Kansas. Stating that he objected to the merger, defendant resigned to become the president and a director of Golden Coast Investigative Services, a competing enterprise organized shortly before defendant's resignation. Defendant's wife owns ninety-five percent of Golden Coast.

Equifax brought suit in a Kansas state court for damages and injunctive relief, alleging that defendant was violating covenants in his employment contract with White & White prohibiting him from competing in California, either alone or in concert with other former White & White personnel, for a period of two years after his departure, and prohibiting him from using confidential information obtained as a White & White employee. Defendant removed the case to the United States District Court for the District of Kansas, where the district court, after a hearing, granted Equifax a preliminary injunction that prohibited defendant from violating the restrictive covenants in his employment contract, required Equifax to post only a $10,000 bond, and denied defendant's motion for a transfer of venue to the Central District of California. Defendant challenges each of these actions on appeal, as well as the district court's exercise of personal jurisdiction over him.

I

After the hearing on the preliminary injunction, the district court made findings of fact from which it concluded that it had personal jurisdiction over defendant. The material facts are not in dispute, therefore, we review the district court's conclusion de novo. See Rambo v. American Southern Ins. Co., 839 F.2d 1415, 1417 (10th Cir.1988).

A

In a diversity case such as this one, the district court's exercise of personal jurisdiction must comport with the standards of both the forum state's long-arm statute and the United States Constitution. Id. at 1416; see Fed.R.Civ.P. 4(e). Here, these inquiries are essentially the same, because "[t]he Kansas long arm statute [Kan.Stat.Ann. Sec. 60-308(b) ] is liberally construed to assert personal jurisdiction over nonresident defendants to the full extent permitted by the due process clause of the Fourteenth Amendment to the U.S. Constitution." Volt Delta Resources, Inc. v. Devine, 241 Kan. 775, 740 P.2d 1089, 1092 (1987).

For purposes of personal jurisdiction, "the constitutional touchstone remains whether the defendant purposefully established 'minimum contacts' in the forum State," Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528 (1985) (quoting Internat ional Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945)), and "the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there," id. (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980)). When specific jurisdiction ¹ is based upon a contractual dispute, we must evaluate "prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing ... in determining whether the defendant purposefully established minimum contacts with the forum." Id. 471 U.S. at 479, 105 S.Ct. at 2185. "[P]arties who 'reach out beyond one state and create continuing relationships and obligations with citizens of another state' are subject to regulation and sanctions in the other State for the consequences of their activities." 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)). And if a defendant's actions cause foreseeable injuries in another state, it is, "at the very least, presumptively reasonable for [the defendant] to be called to account there for such injuries." Id. 471 U.S. at 480, 105 S.Ct. at 2186.

Defendant's contacts with Kansas arise mainly from the fact that he was employed by a corporation with its principal offices in Kansas. ² The district court, in a brief analysis, concluded that jurisdiction over defendant is proper because "defendant chose to be employed by a corporation with its principal place of business in Kansas." I R. tab 18, at 6. Because a contract with an out-of-state party cannot alone justify personal jurisdiction in the foreign state, Burger King, 471 U.S. at 478, 105 S.Ct. at 2185, this statement is too sweeping. But we believe that the nature of defendant's relationship with his Kansas employer supports the district court's exercise of personal jurisdiction over defendant in Kansas in this dispute arising out of that relationship.

Although defendant worked solely in southern California, as a branch manager in charge of White & White offices there, his only direct supervision came from White & White employees in Kansas. Defendant had regular contact with White & White employees in Kansas, both by telephone, mail, and through electronic data communications. Defendant's customers were invoiced from and made payment directly to White & White in Kansas. Defendant and his personnel were paid directly by White & White from Kansas, and that company's Kansas office reimbursed expenses for defendant's offices and provided those offices with necessary materials and supplies. Defendant also negotiated the terms of his employment contract directly with White & White's president, a contract which paid him $120,000 to $140,000 per year over his last two years of employment.

There were no intermediaries between defendant and his employer in Kansas. Cf. Corporate Investment Business Brokers v. Melcher, 824 F.2d 786, 789 n. 4 (9th Cir.1987) (lack of intermediary between resident franchisor and nonresident franchisee supported jurisdiction over franchisee). Indeed, defendant admitted at the hearing that he knew that any disputes regarding his employment contract would originate in Kansas. R.Supp. 1, at 52. See also FMC Corp. v. Varonos, 892 F.2d 1308, 1313-14 (7th Cir.1990) (jurisdiction over nonresident employee in suit by resident employer); Union Carbide Corp. v. UGI Corp., 731 F.2d 1186, 1190 (5th Cir.1984) (same); Inter-Collegiate Press, Inc. v. Myers, 519 F.Supp. 765, 768-69 (D.Kan.1981) (same; defendant employee "dealt directly with the home office rather than through a regional supervisor"); cf. Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522, 526-29 (4th Cir.1987) (jurisdiction over nonresident director in shareholder derivative suit on behalf of resident corporation); T.M. Hylwa, M.D., Inc. v. Palka, 823 F.2d 310, 314-15 (9th Cir.1987) (jurisdiction over nonresident accountant in suit by resident client).

Defendant's only significant physical presence in Kansas in connection with his employment was to attend a training session when he was still an independent contractor working for White & White, and when he was summoned to White & White's Kansas offices for a reprimand shortly before he resigned. That defendant's employment duties were carried out exclusively in California, however, cannot defeat jurisdiction. See Burger King, 471 U.S. at 476, 105 S.Ct. at 2184. "[T]he relationship among the defendant, the forum, and the litigation ... [is] the central concern of the inquiry into personal jurisdiction." Shaffer v. Heitner, 433 U.S. 186, 204, 97 S.Ct. 2569, 2580, 53 L.Ed.2d 683 (1977). The underlying dispute arises from defendant's relationship with his employer, and that relationship was a California-Kansas one. Cf. Melcher, 824 F.2d at 789-90 (nonresident defendant-franchisee's forum related activity was its relationship with the resident plaintiff-franchisor). Defendant's two trips to Kansas merely reinforce the interstate character of that relationship. And the fact that defendant's employment contract provided it would be governed by Kansas law also reinforces defendant's "deliberate affiliation with the forum State and the reasonable forseeability of possible litigation there." Burger King, 471 U.S. at 482, 105 S.Ct. at 2187.

Defendant's brief alleges that jurisdiction cannot be predicated upon his contractual relationship with his employer because of White & White's "overweening bargaining power," citing Burger King, 471 U.S. at 486, 105 S.Ct. at 2189. But defendant's claim of overweening bargaining power is not supported by the record. Defendant was a highly compensated...