Maui Toys, Inc. v. Brown
| Decision Date | 13 February 2014 |
| Docket Number | CASE NO. 12 MA 172 |
| Citation | 2014 Ohio 583 |
| Court | Ohio Court of Appeals |
| Parties | MAUI TOYS, INC., PLAINTIFF-APPELLANT, v. MICHAEL H. BROWN, ET AL., DEFENDANTS-APPELLEES. |
Hon. Gene Donofrio
Hon. Joseph J. Vukovich
Hon. Mary DeGenaro
{¶1} Plaintiff-appellant Maui Toys, Inc., appeals from a Mahoning County Common Pleas Court judgment denying its motion for leave to amend and dismissing its complaint against defendant-appellees, Michael Brown, Zippy Toyz, LLC, and Gary Brown, for lack of personal jurisdiction.
{¶2} Appellant is an Ohio corporation with its principal place of business in California. Appellant is the production-affiliate of Kessler Services, Inc. (Kessler), an executive management company incorporated in Nevada with its principal place of business in California. Brian Kessler (not a party to this action) is the president of both appellant and Kessler. Appellant is Kessler's only client; the two entities are indistinguishable with regard to financial obligations and corporate record-keeping.
{¶3} Appellant is a manufacturer and wholesaler of toys including "hula" hoops. Appellant operates a manufacturing, warehousing, and shipping facility in Youngstown, Ohio. Appellant's cornerstone product is assembled, warehoused, and shipped nationwide from the Youngstown facility.
{¶4} Appellee Michael Brown is a California resident and former employee of Kessler. Appellee Michael Brown's employment with Kessler began in June 1997, and continued until April 2008. It should be noted that it is not entirely clear from the record whether he was employed by Kessler Services or by appellant because for the duration of his employment, he held the title of Controller and Global Operations Manager for appellant. Nonetheless, throughout his employment, he resided in California; his office was also located in California. It is undisputed that he has never maintained an office in Ohio, nor has he ever transacted business here in his personal capacity. Additionally, he has never owned bank accounts, real property, or personal property in Ohio, and he has never paid Ohio state taxes. He has never initiated litigation in Ohio and has never voluntarily submitted to jurisdiction in Ohio.
{¶5} However, as Controller and Global Operations Manager, appellee Michael Brown was responsible for appellant's Youngstown facility and operations; the Ohio operations manager reported directly to him by telephone, e-mail, or fax, on an hourly basis, each day. Additionally, he was required to make trips to theYoungstown facility 6-7 times per year for a total of 30-45 days per year to meet with vendors and negotiate prices with potential suppliers.
{¶6} It is not disputed that as appellant's Controller and Global Operations Manager, appellee Michael Brown possessed access to confidential business and trade secret information. On February 1, 2008, in consideration of terminating his employment with Kessler, he signed a Confidentiality and Proprietary Information Agreement (Confidentiality Agreement) in which he contracted that he would not disclose appellant's confidential information. Additionally, on April 24, 2008, he signed a Confidential Separation Agreement (Separation Agreement) containing a permissive forum selection clause providing that an action seeking to enforce the terms of the Confidentiality Agreement may be brought in California.
{¶7} While still working for appellant, appellee Michael Brown along with appellee Gary Brown formed appellee Zippy Toyz, LLC (appellee Zippy Toyz) on April 26, 2007. Appellee Michael Brown is the statutory agent for appellee Zippy Toyz. It is a California limited liability company involved in the manufacture and sale of toys to the general public. Its operations take place in California; it does not maintain any offices, representatives, or operations in Ohio; it does not report any income from the state of Ohio. On April 6, 2009, during the course of discovery in this action, appellee Michael Brown dissolved appellee Zippy Toyz, LLC and reincorporated the business under the name Zippy Toyz, Inc.
{¶8} Appellee Gary Brown is both the son of appellee Michael Brown and an employee of appellee Zippy Toyz. It is undisputed that appellee Gary Brown was and remains a California resident at all times relevant to appellant's complaint; that he does not own an Ohio bank account or any other real or personal property in Ohio; that he does not have an Ohio driver's license; that he has never voted in Ohio; that he does not maintain an Ohio mailing address or maintain a business office in Ohio; that he has never filed Ohio state income taxes; and that he has never voluntarily submitted to the jurisdiction of Ohio.
{¶9} On March 18, 2009, appellant filed this action alleging that appellees Michael Brown and Gary Brown formed appellee Zippy Toyz for the purpose of competing with appellant. Therein, appellant alleged that after terminating his employment with Kessler, appellee Michael Brown utilized appellant's confidential trade secrets and pricing lists in breach of his confidentiality agreement. Appellant also alleged that appellees Gary Brown and Zippy Toyz acted in concert with appellee Michael Brown to utilize said information. Specifically, the complaint alleges: (1) breach of the Confidentiality Agreement; (2) business interference; (3) unfair competition; (4) unauthorized use and dissemination of trade secrets; and (5) violation of the Ohio Uniform Trade Secrets Act.
{¶10} Before filing their answer and counterclaim, appellees immediately moved to dismiss for lack of personal jurisdiction over any of the appellees pursuant to Civ.R. 12(B)(2); appellees attached a supplemental memorandum in support of their motion to dismiss. Thereafter, appellant filed a memorandum in opposition and appellees replied.
{¶11} On August 17, 2009, after considering the arguments set forth in the parties' briefs as well as the relevant case law and statutory law, the trial court overruled defendants' motion to dismiss by judgment entry and set the matter for a status hearing before a magistrate. The trial court further ordered that appellees file the Separation Agreement under seal upon their own motion and good cause shown.
{¶12} On September 11, 2009, the magistrate set the jury trial for May 18, 2010; thereafter, the matter proceeded to mediation, discovery, and other pre-trial matters.
{¶13} On December 14, 2009, defendants filed their answer to appellant's complaint; appellees raised four defenses. Additionally, appellee Michael Brown counterclaimed for breach of contract. Therein, he alleged that appellant breached the express terms of the Separation Agreement by failing to submit to arbitration in California. He requested that he be awarded judgment against appellant in excess of $25,000 for all attorney fees and expenses incurred.
{¶14} In the meantime, appellant learned that, during the course of discovery, appellees dissolved appellee Zippy Toyz, LLC, and reincorporated under the name Zippy Toyz, Inc. Pursuant to Civ.R. 15(A), appellant moved for leave to amend its complaint to add appellee Zippy Toyz, Inc. as a party to this action. Thereafter, appellant also filed a motion to compel discovery to obtain information regarding the formation, operations, and corporate structure of Zippy Toyz, Inc.
{¶15} Refusing to produce any of the requested materials, appellees filed a memorandum in opposition to appellant's motion for leave to amend and again moved to dismiss for lack of personal jurisdiction. As their basis for revisiting the issue, appellees pointed to the fact that the case had since been referred to a magistrate as agreed to by the parties. The magistrate set a hearing for September 12, 2011. Appellant again responded with its own memorandum in opposition to appellees' motion to dismiss. The parties' briefs in support of, and in opposition to, appellees' second motion to dismiss were nearly identical to those presented to the trial court at the commencement of this action.
{¶16} Prior to the hearing set by the magistrate for September 12, 2011, and without any hearing on the matter in the interim, the trial court judge abruptly denied appellant's motion for leave to amend its complaint and found that it did not have jurisdiction over the named appellees and that the Courts of Ohio are an improper forum for this action. As grounds for dismissal, the trial court pointed to the fact that appellant's principal place of business is in California; that all appellees are located in California; that the parties' Separation Agreement provides that all claims for the use of confidential information should be litigated in California courts; and that the parties have agreed by contract that California courts are the proper jurisdiction for resolving the disputes asserted in the present litigation.
{¶17} This appeal followed.
{¶18} On appeal, appellant lists two assignments of error. In the first, appellant argues that:
THE TRIAL COURT ERRED IN GRANTING THE DEFENDANT'S MOTION TO DISMISS.
{¶19} Under this assignment of error, appellant presents two issues: (1) "the trial court erred in determining that it did not have personal jurisdiction over the defendants," and (2) "the trial court erred in holding that the parties had contractually agreed to litigate this matter in California."
{¶20} As to appellant's second issue, the Separation Agreement unambiguously provides for a permissive - rather than mandatory - forum selection clause. The parties did not contractually agree to litigate this matter in California but...
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