Koff v. Brighton Pharmaceutical, Inc.

• Decision Date: 29 December 1988
• Docket Number: Civ. A. No. 88-1982.
• Citation: 709 F. Supp. 520
• Parties: Bernard E. KOFF, et al., Plaintiffs, v. BRIGHTON PHARMACEUTICAL, INC. and Kansas City Southern Industries, Inc., Defendants.
• Court: U.S. District Court — District of New Jersey

709 F. Supp. 520

Bernard E. KOFF, et al., Plaintiffs, v. BRIGHTON PHARMACEUTICAL, INC. and Kansas City Southern Industries, Inc., Defendants.

Civ. A. No. 88-1982.

United States District Court, D. New Jersey.

October 24, 1988.

As Amended December 29, 1988.

COPYRIGHT MATERIAL OMITTED

John M. Newman, Porzio, Bromberg & Newman, Morristown, N.J., for plaintiffs.

Linda G. Harvey, Greenberg, Dauber & Epstein, Newark, N.J., for defendants.

OPINION

WOLIN, District Judge.

The substance of this case is the alleged breach of a Stock Purchase Agreement between plaintiffs and defendants. The current issue before the Court, however, is whether there are sufficient "minimum contacts" between the defendants and the State of New Jersey to support the assertion of in personam jurisdiction over defendants by a New Jersey court. A secondary issue is whether the Court should transfer this action to the Western District of Missouri pursuant to 28 U.S.C. § 1404(a).

The Court concludes that there are sufficient contacts; thus defendants' motion to dismiss for lack of personal jurisdiction will be denied. The Court further concludes that defendants have not met their burden in overcoming the presumption that plaintiffs' choice of forum should be honored; therefore, defendants' alternative motion to transfer will also be denied.

INTRODUCTION

Plaintiffs, all New Jersey residents, are individual stockholders of USI Technology, Inc. (USI), a New Jersey corporation. Defendants Brighton Pharmaceutical, Inc. (Brighton) and Kansas City Southern Industries, Inc. (KCSI) are both Delaware corporations with their principal place of business in Missouri. Subject matter jurisdiction is thus founded on diversity of citizenship.¹

The immediate basis for the lawsuit is the Stock Purchase Agreement between plaintiffs and defendant Brighton, with defendant KCSI the guarantor of Brighton's obligations. Defendants rely on the fact that this Agreement was negotiated and executed in Missouri, as well as their contention that defendants have had no other contacts with New Jersey, to support their claim that defendants do not have the minimum contacts necessary to sustain jurisdiction. Plaintiffs, on the other hand, note that preliminary negotiations were conducted via correspondence and telephone conversations to and from New Jersey. In addition, the Agreement concerns the purchase of a New Jersey corporation from New Jersey residents and contains a choice-of-law provision choosing New Jersey law in part. Moreover, the parties have a prior relationship, dating back at least to March of 1983, through which defendants had contacts with New Jersey and out of which the Stock Purchase Agreement arose.

On June 23, 1983, USI and a company named Martec Pharmaceuticals, Inc. (later renamed Midwest Pharmaceutical, Inc.) (MPI), entered into a joint venture for the purpose of manufacturing and distributing the generic drug propranolol hydrochloride. MPI is a wholly owned subsidiary of L.M. Johnson Co., which is a wholly owned subsidiary of defendant Brighton. Defendant KCSI, in turn, owns a majority interest in Brighton.

As averred by plaintiffs, the joint venture maintained a base of operations in New Jersey. According to plaintiffs, KCSI, Brighton and their officers and directors played a significant role in managing the joint venture. Specifically, plaintiffs allege that William G. Skelly, KCSI's manager of corporate development (and the vice-president and later president of the joint venture), conducted various aspects of the joint venture's business by letters written on KCSI letterhead. See Affidavit of Richard C. Zeich, at 2-4. In addition, plaintiffs allege that Skelly and Landon Rowland, KCSI's president, came to New Jersey on several occasions in 1984 and 1985 to discuss various business matters pertaining to the joint venture. See id. at 4-5. Furthermore, plaintiffs allege that KCSI was named as the insured for the joint venture's automobile; provided employment benefits for Zeich, who was not an employee of KCSI but rather an employee of the joint venture; agreed to provide insurance for the propranolol venture when additional insurance became necessary; and allowed an MPI employee to use KCSI's Federal Express account. See id. at 6-7. In sum, Mr. Zeich alleges:

During all of the time that I had dealings with Martec Pharmaceuticals, Inc., USI's partner in the joint venture, I was under the distinct impression that, no matter with whom I spoke, whether to Gene Goode, William Skelly or Landon Rowland, that person spoke as an officer of KCSI. It appeared to me that Martec and KCSI were one and the same. It was also my understanding that Brighton and KCSI were one and the same.

Id. at 9.

In light of the joint venture's activities in New Jersey, Skelly and USI's accountant apparently agreed to acknowledge to New Jersey that the joint venture was doing business in that state; this is evidenced by a letter addressed to Skelly in his capacity as a KCSI employee.² Defendant Brighton actually had a certificate of authority to conduct business in New Jersey from August 1, 1984 to December 31, 1985.³

Because of internal disagreements and personality conflicts, the two principals to the joint venture began to look for a way to dissolve their relationship in the summer and early fall of 1985. The result was the Stock Purchase Agreement, which is the subject of the instant action. Under the Agreement, Brighton agreed to acquire a 100% interest in USI by purchasing the USI shares from the USI shareholders, plaintiffs in this action. Allegedly because of plaintiffs' demands, KCSI served as the guarantor of Brighton's obligations under the Agreement.

Section 12.08 of the Agreement contains the following choice-of-law provision:

The validity of this Agreement, the terms hereof, and all duties, obligations and rights arising therefrom, shall be governed by and interpreted in accordance with the laws and decisions of the State of Missouri as applicable to contracts made and to be performed in this State; provided, however, stock transfer taxes ... shall be governed by the laws of the State of New Jersey and title transfer shall be deemed to have occurred in New Jersey.

DISCUSSION

I. The Motions to Dismiss

A federal district court sitting in diversity jurisdiction may assert personal jurisdiction over a nonresident defendant to the extent permitted by the long-arm statute of the forum state. See Fed.R.Civ.P. 4(e). The applicable long-arm statute, N.J. Civ. Prac. R. 4:4-4, permits personal jurisdiction over a nonresident defendant to the extent allowed by the Due Process Clause of the Fourteenth Amendment. Avdel Corp. v. Mecure, 58 N.J. 264, 268, 277 A.2d 207, 209 (1971); see DeJames v. Magnificence Carriers, Inc., 654 F.2d 280, 284 (3d Cir.), cert. denied, 454 U.S. 1085, 102 S.Ct. 642, 70 L.Ed.2d 620 (1981); Alchemie International, Inc. v. Metal World, Inc., 523 F.Supp. 1039, 1042 (D.N.J.1981). Thus this Court's inquiry is limited to whether personal jurisdiction over defendants KCSI and Brighton comports with the Due Process Clause itself. Carty v. Beech Aircraft Corp., 679 F.2d 1051, 1058 (3d Cir. 1982); DeJames, 654 F.2d at 284.

In light of the "traditional notions of fair play and substantial justice" inherent in the Due Process Clause, a state may exercise personal jurisdiction over a nonresident defendant only if there are sufficient "contacts" between defendant and the forum state. International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). In order for an individual's contacts with a forum state to constitute the requisite "minimum contacts," the connection with the forum state must be sufficient so that the individual "`should reasonably anticipate being haled into court there.'" Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528 (1985) (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 295, 100 S.Ct. 559, 566, 62 L.Ed.2d 490 (1980)). Implicit in the requirement of minimum contacts is the necessity that there be some act or acts by virtue of which defendant has purposely availed himself of the benefits and protections of the laws of the forum state. Burger King, 471 U.S. at 474-76, 105 S.Ct. at 2174-75.

Burger King delineates a two-part analysis to resolve the Due Process issues. First, the Court must determine whether minimum contacts exist. Next, the Court must consider several "other factors" to determine whether the assertion of jurisdiction would comport with the concepts of fairness and justice inherent in the Due Process Clause. 471 U.S. at 476-77, 105 S.Ct. at 2184.

A person or entity having a continuous and systematic relationship with a state may be subject to "general jurisdiction" there—that is, he may be amenable to service of process for any and all claims against him. On the other hand, as long as a cause of action arises out of a defendant's contacts with the forum state, defendant may be subject to "specific jurisdiction" there even in the absence of general and sustained contacts. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-15 & nn. 8-9, 104 S.Ct. 1868, 1872 & nn. 8-9, 80 L.Ed.2d 404 (1984).

(A) Minimum Contacts

The facts in the instant case indicate that both defendants' contacts with New Jersey were sufficient to sustain in personam jurisdiction over them without violating the Due Process Clause. Since plaintiffs' cause of action arises out of or is related to these contacts, the Court has specific jurisdiction over defendants. There is thus no need to determine whether the contacts are sufficient to sustain general jurisdiction.

1. Defendant KCSI

The Stock Purchase Agreement involved the purchase of a New Jersey corporation from New Jersey residents. Although the final negotiating sessions were held in Missouri and the Agreement was executed there, plaintiffs allege that preliminary negotiations were...