General Environmental Science Corp. v. Horsfall

• Decision Date: 12 December 1990
• Docket Number: No. 1:90 CV 1340.,1:90 CV 1340.
• Citation: 753 F. Supp. 664
• Parties: GENERAL ENVIRONMENTAL SCIENCE CORP., Plaintiff, v. Frank L. HORSFALL, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

753 F. Supp. 664

GENERAL ENVIRONMENTAL SCIENCE CORP., Plaintiff, v. Frank L. HORSFALL, et al., Defendants.

No. 1:90 CV 1340.

United States District Court, N.D. Ohio, E.D.

December 12, 1990.

COPYRIGHT MATERIAL OMITTED

Jerome F. Weiss, Richard L. Stoper, Jr., and Niki Z. Schwartz, Cleveland, Ohio, for plaintiff.

Thomas C. Buford and Jason C. Blackford, Cleveland, Ohio, for defendants.

ORDER

BATTISTI, District Judge.

Before the court is Defendants Biosys Corporation ("Biosys") and Gustavo Gysler's multi-pronged motion to dismiss the instant action, and Defendant Frank L. Horsfall's motion to apply the law of Switzerland. For the reasons stated herein, the motion to dismiss is DENIED, and the motion to apply the law of Switzerland is GRANTED IN PART and DENIED IN PART.

I. FACTS

On July 27, 1990, Plaintiff, General Environmental Science Corporation ("GES"), filed an eighteen count complaint against Defendants Biosys, Gysler, Horsfall, and John L. Strauss (collectively the "Defendants"). GES is an Ohio corporation engaged in the manufacture, distribution and sale of micro-biological products used for bacterial augmentation in waste water treatment and aqua culture. In essence, the complaint alleges that the defendants carried out a pattern of fraudulent activity with the intent of entering into competition with GES. This fraudulent activity allegedly included the theft and use of GES trade secrets to initiate the manufacture, sale and distribution of products in direct competition with GES products.

According to the complaint, prior to November 22, 1989, both Horsfall and Strauss were under contract with GES. Strauss is a resident of Virginia, and Horsfall is alleged to be a resident of Ohio.

On December 17, 1987, Strauss and GES signed a contract granting Strauss the exclusive right to sell GES products in Europe and the Middle East (the "Strauss Agreement"). By its terms the Strauss Agreement was valid until terminated by one of the parties. In addition, it stated that "Strauss must not utilize or pass on to any third person either any trade or business secret of any other confidential information which has become known to him in any way during the period of this AGREEMENT." It also stated that "Strauss agrees in particular and explicitly not to represent, market, sell or distribute products other than those manufactured and/or sold by GES which are identical or similar to the PRODUCTS; or to participate directly or indirectly in any way whatsoever in any company competitive to GES."

On May 19, 1989, GES and Horsfall entered into a contract providing that Horsfall would work as a consultant to GES in the area of micro-biology (the "Horsfall Agreement"). The Horsfall Agreement stated that "Horsfall agrees to preserve GES's trade secrets, and will not reveal or use any such trade secret for the benefit of himself or a third party without GES's written consent." In addition, it stated that "Horsfall agrees that while this contract remains in force and for one year thereafter, he will not, for the benefit of himself or another, in any capacity, and without the prior written consent of GES, engage anywhere in the world in the development, manufacture or marketing of bacterial cultures intended for sale as bacterial augmentation products for use in wastewater treatment or aquaculture in direct competition with products made by GES."

On or about November 22, 1989, GES entered into a contract with Biosys, then operating under the name of X-O Corporation (the "X-O Contract"). Biosys is alleged to be a business entity organized under the laws of Switzerland, with its headquarters in Rolle, Switzerland. The X-O Contract provided that X-O would be the exclusive distributor of GES products in Europe. It further provided that Horsfall and Strauss would become employees of X-O, and that accordingly, they would be released from their contracts with GES. Finally, Section Ten of the X-O Contract stated:

This Agreement shall be governed by the laws of Switzerland and the place of court is Rolle Switzerland in case of claims from GES. In the case of claims by Biosys, this Agreement shall be governed by the laws of the State of Ohio and the federal laws of the United States of America as applied by the United States Federal Courts in the State of Ohio.

Plaintiff's complaint alleges that this contract was part of defendants' fraudulent scheme. Specifically, the complaint alleges that the defendants have violated the Racketeer Influenced Corrupt Organization Act, 18 U.S.C. § 1961 et seq., and committed numerous torts under the laws of the State of Ohio.¹ The complaint does not raise any claims based upon the alleged breach of the X-O Contract.

II. DEFENDANTS BIOSYS AND GYSLER'S MOTION TO DISMISS

On September 5, 1990, Defendants Biosys and Gysler (referred to collectively as the "Swiss Defendants"),² moved to be dismissed from this action for lack of jurisdiction, improper venue, insufficiency of service of process, and forum non conveniens.

A. Forum Selection Clause

The Swiss Defendants claim that Plaintiff is bound by the X-O Contract's forum selection clause, and that, therefore, this suit must be dismissed.

As the Swiss Defendants note, it has long been established that in a diversity suit a federal court must apply the conflict of laws rules prevailing in the state in which it is located. Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). Were this a simple contract action, cognizable within the court's diversity jurisdiction, the court would look to Ohio conflict of laws rules to determine whether a choice of forum provision could be enforced.

In the instant case, however, the Plaintiff claims violations of the federal RICO statute, state statutes and state common law. No contractual claims are made and no contract remedies sought. Plaintiff is entitled to try this case under its chosen theory. Accordingly, this court will not treat the instant action as arising out of the X-O Contract. Instead, it will be deemed to have arisen out of the Plaintiff's ongoing business relationships with the Defendants. The X-O Contract is merely one of the final manifestations of those relationships, and as such, its terms cannot limit a comprehensive challenge to the Defendants' entire courses of conduct in this forum.

This suit is, therefore, broader than the forum selection clause. See Farmland Industries, Inc. v. Frazier-Parrott Commodities, Inc., 806 F.2d 848, 852 (8th Cir. 1986). As Plaintiff's claims do not arise directly from the X-O Contract, Plaintiff could not have foreseen being bound by its forum selection clause in bringing these claims. At the most, the Defendants' actions with regard to the X-O Contract may be claimed as predicate acts to the establishment of some of Plaintiff's other claims.³ Accordingly, Plaintiff's choice of forum prevails unless the Swiss Defendants can establish another reason for dismissal.

B. Personal Jurisdiction

The Swiss Defendants move pursuant to Fed.R.Civ.P. 12(b)(2) to dismiss the claims against them due to this court's lack of personal jurisdiction. The exercise of personal jurisdiction over the Swiss Defendants is alleged to be improper because the requirements of the Ohio long-arm statute have not been met, and because the exercise of jurisdiction does not comport with the requirements of due process.

The Supreme Court examined the prerequisites to a federal court's exercise of jurisdiction in Omni Capital, Int'l. v. Rudolf Wolff & Co., 484 U.S. 97, 108 S.Ct. 404, 98 L.Ed.2d 415 (1987). The Omni Court held:

Before a federal court may exercise personal jurisdiction over a defendant, the procedural requirement of service of summons must be satisfied. "Service of summons is the procedure by which a court having venue and jurisdiction of the subject matter of the suit asserts jurisdiction over the person of the party served." Mississippi Publishing Corp. v. Murphree, 326 U.S. 438, 444-45 66 S.Ct. 242, 245-46, 90 L.Ed. 185 (1946). Thus, before a court may exercise personal jurisdiction over a defendant, there must be more than notice to the defendant and a constitutionally sufficient relationship between the defendant and the forum. There also must be a basis for the defendant's amenability to service of summons.

484 U.S. at 104, 108 S.Ct. at 409. The Court further noted that "today, service of process in a federal action is covered generally by Rule 4 of the Federal Rules of Civil Procedure." Id.

Rule 4(f) describes the territorial limits of effective service.⁴ Specifically, it authorizes service anywhere in the state in which the district court sits and anywhere otherwise authorized by federal statute or by the Federal Rules of Civil Procedure. The Plaintiff does not seriously dispute the Swiss Defendants' assertion that 18 U.S.C. § 1965(d) authorizes nationwide service of process, see, e.g., Rolls-Royce Motors, Inc. v. Charles Schmitt & Co., 657 F.Supp. 1040, 1055 (S.D.N.Y.1987), but does not provide for international service. See, e.g., Michelson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 709 F.Supp. 1279, 1285 (S.D.N.Y.1989). Accordingly, the court will assume without deciding that in the instant matter § 1965(d) does not authorize service. See also Shaw v. Rolex Watch U.S.A., Inc., 745 F.Supp. 982, 987 (S.D.N.Y. 1990).

Plaintiff asserts, however, that service is authorized by Rule 4(e). The second sentence of Rule 4(e) provides for service on out-of-state defendants by the means prescribed in state statutes or rules.⁵ A federal court, therefore, may look "to the longarm statute of the State in which it sits to determine whether a defendant is amenable to service...." Omni, 484 U.S. at 105, 108 S.Ct. at 410.

The Ohio long-arm statute is found in Section 2307.382 Ohio Rev.Code Ann. (Anderson 1981 & Supp.1989). "The statute confers on the district court the ability to exercise specific or limited personal jurisdiction...