Holland v. Hay

• Decision Date: 18 January 1994
• Docket Number: Civ. A. No. 2:93cv978.
• Citation: 840 F. Supp. 1091
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Kathryn G. HOLLAND, K. Patricia Stanley, and Hollstan Enterprises, Ltd., Plaintiffs, v. Donald M. HAY, John Barton Puett, and the Maid Brigade Systems, Inc., Defendants.

840 F. Supp. 1091

Kathryn G. HOLLAND, K. Patricia Stanley, and Hollstan Enterprises, Ltd., Plaintiffs, v. Donald M. HAY, John Barton Puett, and the Maid Brigade Systems, Inc., Defendants.

Civ. A. No. 2:93cv978.

United States District Court, E.D. Virginia, Norfolk Division.

January 18, 1994.

COPYRIGHT MATERIAL OMITTED

Cheryl Schroeder Thomas, Virginia Beach, VA, for plaintiffs.

John S. Wilson, John Y. Pearson, Jr., Willcox & Savage, P.C., Norfolk, VA, and Leland G. Cook, and Marcia M. Ernst, Smith, Gambrell & Russell, Atlanta, GA, for defendants.

OPINION AND FINAL ORDER

REBECCA BEACH SMITH, District Judge.

This case comes before the court on defendants' motion to dismiss or stay the action under the Colorado River doctrine of abstention. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Defendants assert that the instant suit should be stayed or dismissed pending judgment in a concurrent Georgia state court action, arising out of virtually the same set of facts and claims as this federal action. Alternatively, defendants move this court to dismiss this case pursuant to Federal Rules of Civil Procedure 12(b)(2) (lack of personal jurisdiction), 12(b)(3) (improper venue), and 12(b)(4) (insufficient service of process).

I. Factual and Procedural History

Defendant The Maid Brigade Systems, Inc. ("MBS") is a Delaware corporation with its principal place of business in Gwinnet County, Georgia. Defendants Donald M. Hay, president of defendant corporation, and John Barton Puett, its director of franchise operations, are individuals who reside in Georgia. Plaintiff Hollstan Enterprises, Ltd. ("Hollstan") is a Virginia corporation with its principal place of business in Suffolk, Virginia. Plaintiffs Kathryn G. Holland and K. Patricia Stanley, officers of Hollstan, reside in Virginia.

MBS developed an integrated system for the operation of a household cleaning service and, shortly thereafter, began granting franchises authorizing the use of the Maid Brigade name and system. On November 5, 1986, plaintiff Holland entered into a franchise agreement with defendant MBS and became a franchisee. In December of 1986, defendant MBS invited its franchisees, including plaintiffs Holland and Stanley to Georgia for a sales presentation. The purpose of the presentation was to offer subfranchisor contractual arrangements to the invitees. Plaintiffs Holland and Stanley negotiated with defendant MBS and ultimately decided to enter into such a contract.¹

Defendant MBS mailed the contract to Virginia and plaintiffs Holland and Stanley executed it there on December 15, 1986. The contract granted plaintiffs Holland and Stanley, for a term of ten years, the exclusive right to search for, interview, select and recommend potential Maid Brigade franchisees in the states of North Carolina, West Virginia, and all of Virginia except Fairfax and Loudon Counties. The agreement further provided that defendant MBS would pay to the subfranchisor eighty-five percent of all royalties paid to it by the franchisees. On December 18, 1986, plaintiffs Holland and Stanley made a $25,000 partial payment of the $100,000 initial franchise fee to defendant MBS in Georgia. Thereafter, on January 9, 1987, plaintiffs Holland and Stanley assigned the subfranchise to plaintiff Hollstan, as contemplated and allowed by the subfranchise agreement. Plaintiff Hollstan continued to make payments on the franchise fee until January of 1993, when it failed to make a payment.

The terms of the Master Franchise Agreement provided for a triparty franchise contract between the franchisor, subfranchisor and franchisee in the event that MBS granted a franchise as recommended by plaintiff Hollstan. That triparty franchise agreement required the franchisee pay to the franchisor a seven percent royalty based on the franchisee's gross revenue.² According to plaintiff Hollstan, in early December of 1992, defendant MBS circulated a reduced royalty structure to plaintiff Hollstan's franchisees, without Hollstan's consent. Plaintiffs then advised MBS that they would escrow all future franchise fee payments until such time as the controversy could be resolved. Thereafter, MBS terminated plaintiff Hollstan's subfranchise for nonpayment of the franchise fee.

From the time defendant MBS granted the subfranchise until it terminated same, the parties communicated over the telephone, facsimile machine, and by telegram on a daily basis. Plaintiff Hollstan mailed all its master franchise fee installments, and payments from its franchisees, to MBS in Georgia. Further, plaintiffs attended franchisee and subfranchisor meetings hosted by defendant MBS in Georgia, and defendants Hay and Puett attended franchisee meetings in Virginia. Defendants Hay and Puett, at these meetings and on other occasions, came to Virginia to solicit additional Maid Brigade franchises and to induce existing franchisees to increase their business volume.

When Hollstan failed to make its January, 1993 franchise payment, MBS, defendant in this action, instituted suit in the Superior Court of Gwinnet County, Georgia on February 23, 1993. In that suit, MBS seeks to recover the remainder of the franchise fee, attorneys fees and costs, a judgment declaring the franchise agreement terminated, and injunctive relief to prevent Hollstan from interfering with its franchisees.³ Plaintiff Hollstan then brought suit in the Circuit Court of the City of Suffolk, Virginia on August 31, 1993. Subsequently, defendants removed the action to this court and filed a motion to dismiss or stay this action, together with a brief in support thereof. Plaintiffs having filed a brief in opposition, the motion to dismiss or stay is now ripe for decision.

II. Standard of Review

On a motion to dismiss, the court considers plaintiffs' allegations as true, and views the record as a whole in the light most favorable to them. Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir.1991), cert. denied, ___ U.S. ___, 112 S.Ct. 1475, 117 L.Ed.2d 619 (1992). As a general rule, a motion to dismiss for lack of personal jurisdiction should be denied if the complaint alleges sufficient facts to support the reasonable inference that the defendants could be subjected to the jurisdiction of the court. Cable News Network, Inc. v. Video Monitoring Servs. of America, Inc., 723 F.Supp. 765, 766 (N.D.Ga. 1989).

III. Analysis

Defendants contend that application of the Supreme Court's decision in Colorado River, 424 U.S. 800, 96 S.Ct. 1236, requires this court to stay or dismiss the case sub judice, pending the outcome of the Georgia state court action. Their argument is based, in part, on the contention that this court lacks personal jurisdiction. For this reason, it is necessary to determine initially whether this court may exercise jurisdiction over defendants and only then whether, under Colorado River, abstention is appropriate.

A. Personal Jurisdiction

The Fourth Circuit has set forth a two-step analysis that courts should apply when evaluating the propriety of jurisdiction obtained pursuant to a long-arm statute. English & Smith v. Metzger, 901 F.2d 36, 38 (4th Cir.1990). First, a court "must determine whether the statutory language applies to the defendant; second, if the statutory language applies, the court must determine whether the statutory assertion is consistent with the due process clause of the Constitution." Id.; see Verosol, B.V. v. Hunter Douglas, Inc., 806 F.Supp. 582, 587 (E.D.Va. 1992).

1. The Corporate Defendant

The Long-Arm Statute

Plaintiffs are proceeding under a section of the Virginia long-arm statute providing that a court may exercise jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person's transaction of business in Virginia. Va.Code Ann. § 8.01-328.1(A)(1) (Michie 1992). The Virginia Supreme Court has stated that the "manifest purpose" of this section of the Virginia long-arm statute is "`to assert jurisdiction over non-residents who engage in some purposeful activity in Virginia to the extent possible under the due process clause.'" Raymond Colesar, Glaspy & Huss v. Allied Capital, 761 F.Supp. 423, 426 (E.D.Va.1991) (quoting John G. Kolbe, Inc. v. Chromodern Chair Co., 211 Va. 736, 180 S.E.2d 664, 667 (1971)). Moreover, the Virginia long-arm statute is a single act statute. Therefore, under section 8.01-328.1(A)(1), "`a single act by a nonresident which amounts to transacting business in Virginia and gives rise to the cause of action may be sufficient to confer jurisdiction upon Virginia courts.'"⁴ Metzger, 901 F.2d at 39 (quoting Danville Plywood Corp. v. Plain & Fancy Kitchens, Inc., 218 Va. 533, 238 S.E.2d 800, 802 (1977)).

As this court has noted, determining whether the Virginia long-arm statute permits jurisdiction requires an examination of both the quantity and quality of the defendants' contacts with Virginia. Allied Capital, 761 F.Supp. at 426. The analysis "involves questions such as who benefited from the contacts, who initiated them and why, whether the contacts involved any person's physical presence in the state, and what further conduct in the forum was contemplated by the parties." Id. Applying this analysis, defendant MBS' contacts with Virginia clearly are sufficient to constitute the transaction of business within the meaning of the statute.

Defendant MBS initiated the relationship with plaintiffs Holland and Stanley, inviting them to become subfranchisors, knowing that they were Virginia residents. Moreover, defendant MBS anticipated that Holland and Stanley, as subfranchisors, would establish franchises in Virginia. The contract was sent to plaintiffs in Virginia and signed by them in Virginia. Furthermore, the parties communicated on a daily basis via telephone, mail and fax. Defendant MBS sent letters and other communications to plaintiffs in Virginia and received payments from Maid...