Infrasys, Inc. v. Bros. Pavement Prods., Corp.

• Citation: 2020 Ohio 1157,152 N.E.3d 1274
• Decision Date: 27 March 2020
• Docket Number: No. E-19-047,E-19-047
• Parties: INFRASYS, INC., et al., Appellants v. BROTHERS PAVEMENT PRODUCTS, CORP., et al., Appellees
• Court: United States Court of Appeals (Ohio)

152 N.E.3d 1274

2020 Ohio 1157

INFRASYS, INC., et al., Appellants

v.BROTHERS PAVEMENT PRODUCTS, CORP., et al., Appellees

No. E-19-047

Court of Appeals of Ohio, Sixth District, Erie County.

Decided: March 27, 2020

James L. Murray, Dennis E. Murray, Jr. and William H. Bartle, Sandusky, for appellants.

James W. Hart, Sandusky, and Mark P. Smith, for appellees.

DECISION AND JUDGMENT

ZMUDA, P.J.

{¶ 1} This matter is before the court on appeal from the judgment of the Erie County Court of Common Pleas, granting the motion to dismiss for lack of personal jurisdiction of appellees Walsh & Hughes, Inc., dba VelveTop Products, Inc. and John B. Walsh.

I. Facts and Procedural Background

{¶ 2} Appellants, InFrasys, Inc. and ThorWorks Industries, Inc. are related Minnesota corporations, with their principal place of business in Erie County, Ohio. ThorWorks owns the SealMaster brand, and manufactures and sells seal coating products and equipment to SealMaster system franchises. InFrasys oversees and supports the franchise owners, and protects the SealMaster brand. InFrasys is the franchisor for the SealMaster system.

{¶ 3} Walsh & Hughes, Inc. dba VelveTop Products, Inc. ("VelveTop") is a New York corporation, with John B. Walsh as the president and owner. Brothers Pavement Products, Corp. (Brothers) is a New York corporation doing business with VelveTop. John K. Walsh and James K. Walsh are the owners/operators of Brothers. John B. Walsh is the father of John K. and James K. Walsh.

{¶ 4} The facts alleged by appellants regarding appellees, relative to the issue of personal jurisdiction, are as follows.

{¶ 5} In July 2007, John B. Walsh traveled to Ohio to negotiate VelveTop's sale of SealMaster products to the Long Island, New York area. John B. Walsh followed up by phone to InFrasys in Ohio to continue negotiations, and responded to correspondence from InFrasys on behalf of his sons and their company, Brothers. The franchise negotiations resulted in the Supplier Agreement between VelveTop and Brothers, and a Franchise Agreement between InFrasys and Brothers.

{¶ 6} On April 11, 2008, appellee VelveTop entered into a Supplier Agreement with Brothers. The agreement concerned the production and supply of SealMaster products to VelveTop, requiring VelveTop to cease manufacture of its sealers pursuant to a contractual phase-in of purchasing SealMaster products from Brothers, with 100 percent of seal coat products purchased from Brothers within three years, and 100 percent of asphalt emulsion sealer purchased from Brothers commencing the first day Brothers began manufacture of the sealants. The Supplier Agreement also expressly referenced the InFrasys franchise as follows:

4. Notwithstanding the terms and conditions of this agreement, it is the understanding between the respective parties that all other terms and conditions which would apply to market conditions, such as pricing, supply, need, etc. will apply and that this agreement is entered into based on the familial relationship between the principals of the parties to this agreement and as an inducement for INFRAYSIS [sic], INC. to grant its franchise to BROTHERS PAVEMENT PRODUCTS CORP. (Emphasis added.)

{¶ 7} InFrasys and Brothers executed the InFrasys, Inc. Franchise Agreement on June 11, 2008. The franchise agreement recited a term of ten years, and granted Brothers the right to a SealMaster sales and distribution business, with additional permission to manufacture pavement sealers marketed with the SealMaster brand. The franchise was exclusive within Brother's New York territory. Pursuant to the Franchise agreement, InFrasys permitted Brother's use of all SealMaster proprietary marks and copyrighted materials, and shared the InFrasys confidential operations manual and other confidential information, including processes, systems, and product specifications.

{¶ 8} The Franchise agreement expressly referenced VelveTop in Paragraph XVI.H. as follows:

H. Special Provisions Regarding VelveTop Products, Inc. Anything in this Paragraph XVI. to the contrary notwithstanding, Franchisor, Franchisee and the individual shareholders of Franchisee (the "Individual Shareholders") who are executing this Agreement (who are also deemed to be "Franchisees" by virtue of Paragraph XVI.B) hereby agree as follows:

1. Franchisor acknowledges that John B. Walsh ("John Sr.") is the father of the Individual Shareholders and that he owns and operates a business by the name of VelveTop Products, Inc. ("VelveTop"), which will be in direct competition with the franchised Business after commencement of the terms of this Agreement.

2. Franchisor agrees that VelveTop and John Sr. may continue their current business under the terms of a Supplier Agreement with Franchisee, a copy of which is attached as Exhibit C.¹ The Supplier Agreement shall continue in force between the parties thereto through the term of this Agreement and may not be amended without prior consent of Franchisor. Franchisor further agrees that the Supplier Agreement may be assigned at the time of any sale of VelveTop. As referenced in the Supplier Agreement, Franchisor defines DECO SURFACING PRODUCTS to be any product in direct competition with the Franchisor's SportMaster brand.

{¶ 9} The Franchise Agreement contained a choice of law and venue clause, requiring Ohio law and jurisdiction in Erie County, Ohio, with a waiver of personal jurisdiction in Paragraph XXIX.B. Both John K. and James K. Walsh executed the Agreement on behalf of Brothers.

{¶ 10} On February 6, 2018, appellants terminated the franchise of Brothers alleging numerous breaches of the Franchise Agreement, including the failure to enforce the terms of the Supplier Agreement between VelveTop and Brothers. On June 14, 2018, appellants filed a complaint in Erie County Common Pleas Court, alleging breach of the Franchise Agreement and Supplier Agreement, and seeking monetary and injunctive relief. As to VelveTop and John B. Walsh, appellants alleged tortious interference with a business/contractual relationship, and claimed VelveTop failed to comply with the phase-in periods in the Supplier Agreement and continued to manufacture its own sealers. Appellants further alleged that Brothers sold "ingredients" for this unauthorized manufacture rather than the finished product.

{¶ 11} Appellants alleged that ThorWorks is an intended third-party beneficiary of the Franchise Agreement and Supplier Agreement, and InFrasys is an intended third-party beneficiary of the Supplier Agreement.

{¶ 12} After extensions, discovery disputes, and limited discovery regarding the issue of jurisdiction, VelveTop and John B. Walsh filed a motion to dismiss, alleging lack of personal jurisdiction. InFrasys and ThorWorks opposed dismissal. They alleged John B. Walsh controlled the negotiations for both VelveTop and his sons' company, Brothers, traveled to Ohio for initial negotiations, called InFrasys in Ohio for continued negotiations, and sent his VelveTop trucks to ThorWorks in Sandusky, Ohio, to pick up SealMaster materials and products.

{¶ 13} While apparently acknowledging John B. Walsh's participation in negotiations and his visit to Sandusky in 2007, appellees argued that they never had an intention to enter into any agreement with appellants, and lacked the necessary contact with the forum state to permit an exercise of personal jurisdiction.

{¶ 14} The trial court determined the motion based on the memoranda, affidavits and deposition transcripts submitted in support.² The trial court noted the applicable standard in ruling without hearing, that appellants need only make "a prima facie showing of jurisdiction" to survive the motion to dismiss. In applying the standard under R.C. 2307.382 and Civ.R. 4.3(A)(1), the trial court determined that appellants satisfied the first prong of the Goldstein test, finding an exercise of personal jurisdiction proper under the long-arm statute and applicable civil rule based on Goldstein v. Christiansen , 70 Ohio St.3d 232, 235-236, 638 N.E.2d 541 (1994). As to the second prong, however, in applying the three-part test for due process, the trial court found that VelveTop and John B. Walsh had the required minimum contacts and caused injury within the forum state. The court determined, however, that the exercise of personal jurisdiction would be unreasonable and deprive VelveTop and John B. Walsh of due process.

{¶ 15} As to this third factor of the due process analysis, the trial court found the lack of evidence regarding frequency of travel to the ThorWorks site by VelveTop trucks weighed against personal jurisdiction. The trial court, furthermore, noted that VelveTop and John B. Walsh executed the Supplier Agreement two months prior to execution of the Franchise Agreement, and made no mention of any connection between the two agreements, as alleged by appellants.

{¶ 16} The trial court granted dismissal of VelveTop and John B. Walsh for want of personal jurisdiction, and entered a finding of no just cause for delay. In a subsequent "Nunc Pro Tunc" entry, the trial court sua sponte revised its judgment, striking the final appealable language from the dismissal judgment entry. After appellants moved to reinsert the final appealable language, the trial court did so, finding the dismissal judgment entry to be final and appealable once more.

II. Assignments of Error

{¶ 17} InFrasys and ThorWorks now appeal the dismissal, asserting the following assignments of error:

1. The Trial Court Erred in Granting Defendants, Walsh & Hughes, Inc., dba VelveTop Products, Inc. and John B. Walsh's Motion to Dismiss Plaintiffs' Complaint for Lack of Personal Jurisdiction.

2. The Trial Court Erred in Removing, Via its 8-13-2019 Nunc Pro Tunc Judgment Entry, the Civil Rule 54(B) Certification Included in its Initial Judgment Entry of 8-7-2019. The 8-7-2019 Judgment Entry Granting Defendants, Walsh & Hughes, Inc. and John B. Walsh's Motion to Dismiss for Lack of Personal Jurisdiction Was and Remains a

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