Penco Prods., Inc. v. Wec Mfg., LLC

• Decision Date: 24 September 2013
• Docket Number: Civil Action No. 13–959.
• Citation: 974 F.Supp.2d 740
• Parties: PENCO PRODUCTS, INC., Plaintiff v. WEC MANUFACTURING, LLC, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

974 F.Supp.2d 740

PENCO PRODUCTS, INC., Plaintiff

v.WEC MANUFACTURING, LLC, Defendant.

Civil Action No. 13–959.

United States District Court, E.D. Pennsylvania.

Sept. 24, 2013.

Michael J. Barrie, Jennifer E. Smith, Benesch Friedlander Coplan Aronoff LLP, Philadelphia, PA, for Plaintiff.

Adam J. Eckstein, Andrew Gardella, Martin Tate Morrow & Marston PC, Memphis, TN, Nipun J. Patel, Reed Smith LLP, Philadelphia, PA, for Defendant.

MEMORANDUM OPINION AND ORDER

RUFE, District Judge.

Plaintiff Penco Products, Inc. (“Penco”), a manufacturer of metal lockers and related products, entered into exclusive distribution contracts with Wholesale Equipment Company (“Wholesale”) in 2007 and 2009. Defendant WEC Manufacturing, LLC (“WEC”) is allegedly the successor-in-interest to Wholesale, which went through bankruptcy and is now apparently defunct. Penco has sued WEC to recover money allegedly owed by Wholesale.

In its complaint, Penco asserted that the Court has both general and specific personal jurisdiction over Defendant. Specifically, it asserts “Defendant's alter ego and predecessor, [Wholesale], contracted with Plaintiff to transact business and, upon information and belief, Defendant regularly transacts other business within the Commonwealth of Pennsylvania.” ¹ Now before the Court is WEC's Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2), asserting lack of personal jurisdiction. For the reasons below, the Court will deny the motion without prejudice to renewal following jurisdictional discovery.

I. FACTUAL BACKGROUNDA. The Parties' Business Relationship²

Penco is a Delaware corporation with its principal place of business in Pennsylvania. Defendant WEC is a limited liability company organized under the laws of Tennessee, and its single member, Keith Dunham, is a resident of Tennessee.³ As a limited liability company's citizenship is determined by the citizenship of its members,⁴ WEC is a Tennessee citizen. WEC is allegedly the successor-in-interest to Wholesale.

Penco's business relationship with Wholesale arose from a networking opportunity at a trade show in Chicago, Illinois in 2007.⁵ After meeting there, the parties negotiated and agreed to an exclusive distributioncontract, which provided that Penco would sell its products to Wholesale for commercial sale within a defined geographic area. ⁶ Wholesale negotiated this contract outside of Pennsylvania. ⁷ The contract was signed by Wholesale in Tennessee.⁸

Over the next two years, Penco fulfilled Wholesale's purchase orders, delivering the ordered products to Wholesale or otherwise making them available to Wholesale, which resold them in the designated region. During the time period in which Penco and Wholesale were doing business, Wholesale frequently contacted Penco employees in Pennsylvania regarding payments, orders, and customer service, via thousands of emails and telephone calls.⁹ Wholesale executives traveled to Penco's offices in Pennsylvania once, to discuss sales and marketing.¹⁰ Penco products ordered by Wholesale were generally shipped from Penco's North Carolina and Utah warehouses, but sometimes were shipped from Pennsylvania.¹¹

In August 2009, Penco and Wholesale renewed the distribution agreement. Sometime after the contract was renewed, Wholesale fell behind on payments to Penco. By March 2010, Wholesale owed Penco $1.4 million in accounts payable. The parties negotiated a plan for repayment of this accounts payable balance, reaching an agreement (“settlement agreement”) in March 2010. The settlement agreement was first discussed at an in-person meeting in Tennessee, and was later negotiated during telephone conversations between Wholesale personnel in Tennessee and James Benenson, CEO of Penco's parent company, in Ohio.¹² The agreed-upon terms were memorialized in a letter settlement agreement, which was executed by Wholesale in Tennessee and mailed to James Benenson III in New York.¹³ Wholesale then issued a promissory note.¹⁴

As one part of the settlement agreement, the parties agreed to a 42–month payment plan for the payment of $290,000 of the total amount owed. On April 22, 2010, Wholesale executed and delivered a promissory note (the “Note”) to Penco, promising to repay $290,000 for value received. The parties agreed that Wholesale would make monthly payments of $6,904.76 against the principal from May 2010 though October 2013, at which time the unpaid principal balance and any accrued interest would be due.¹⁵ However, upon occurrence of certain events set forth in the Note, including failure to make a monthly payment within three days of the date due, the entire unpaid balance would become immediately due at Penco's option, that balance would be subject to interest at a 5% per annum rate if not paid, and Wholesale would be responsible for Penco's attorneys' fees, court costs, and expenses in connection with its collection of the debt. The parties also agreed that Wholesale would return $250,000 worth of Penco products, and that Penco would forgive $160,000 in debt so long as Wholesale satisfied the other terms of the agreement.

It is alleged that Wholesale failed to make its required monthly payment on October 1, 2010, and Penco notified Wholesale that it was in default on October 12, 2010. Some subsequent payments were also missed, and additional default notices were sent in January 2011, February 2011, and February 2012. On April 10, 2012, Penco notified Wholesale that, given the history of default, it was seeking immediate payment of the entire unpaid balance of the Note and interest at 5% per annum from October 12, 2010. In that letter, Penco indicated that Wholesale owed $156,000 in principal, $14,262,50 in accrued interest, and that interest would accrue at the rate of $21.37 per day until the balance was paid. In addition, that letter indicated that Penco had agreed to forgive $160,000 of Wholesale's debt to it, as part of their settlement agreement, but as that forgiveness was contingent upon compliance with the terms of the Note, and Wholesale had defaulted on the Note, the $160,000 in forgiven debt was also due.

WEC was formed by Wholesale's vice president, Keith Dunham, in May 2011. Both WEC and Wholesale listed Dunham as officers on their 2011 Annual Reports to the Tennessee Secretary of State. Penco alleges that WEC “is operating the same business as [Wholesale] including but limited to the same ownership, management, personnel, physical location and general business operation as [Wholesale],” ¹⁶ and indicates that Wholesale has continued its business as WEC. On September 12, 2012, Wholesale filed a liquidated Chapter 7 bankruptcy case in the Western District of Tennessee, but alleged successor-in-interest WEC has not sought bankruptcy protection. Penco sues only WEC, and alleges that all of Wholesale's contacts with Pennsylvania can be attributed to WEC, as WEC was formed to avoid Wholesales's settlement obligations and it is the successor-in-interest to Wholesale's business operations.

B. Wholesale's and WEC's General Contacts with Pennsylvania¹⁷

Wholesale and WEC sold no Penco products in Pennsylvania. However, Wholesale did occasionally sell its own products in Pennsylvania, and WEC continues to do so. Wholesale maintained, and WEC now maintains, a non-interactive website which indicated, among other things, that its products were available in Pennsylvania through an independent sales contractor for the mid-Atlantic region. Defendant's website is consistent with its allegation that the independent contractors solicit locker orders within designated regions, and that Atlantic Sales and Marketing Association, Inc. (“Atlantic”) ¹⁸ covers the Mid–Atlantic region, including but not limited to eastern Pennsylvania.¹⁹ Atlantic also markets the products of other, non-competing companies.²⁰ The website provides contact informationfor that independent contractor, as well as for the independent sales contractors covering other regions. Wholesale's sales (and later WEC's sales) in Pennsylvania represented a very small percentage of the overall business (e.g. approximately 1%–2% of annual sales in 2010 through 2012).

II. STANDARD OF REVIEW

On a motion to dismiss, a court is required to accept a plaintiff's allegations as true and construe disputed facts in favor of the plaintiff.²¹ Once a defendant raises a jurisdictional defense, the plaintiff has the burden of proving that jurisdiction is proper by affidavits or other competent evidence.²² Plaintiff need only establish a prima facie case of personal jurisdiction,²³ and meets this burden by stating the bases for personal jurisdiction with reasonable particularity.²⁴ Federal courts sitting in diversity may exercise personal jurisdiction over nonresident defendants to the extent provided by the law of the state in which the federal court sits.²⁵ Pennsylvania's Long–Arm Statute allows personal jurisdiction over nonresident defendants to the constitutional limits of the due process clause of the Fourteenth Amendment.²⁶ Under this standard, nonresident defendants are required to have minimum contacts with Pennsylvania so as not to offend traditional notions of fair play and substantial justice.²⁷ There are two types of personal jurisdiction: general and specific.²⁸

III. DISCUSSIONA. General Personal Jurisdiction²⁹

WEC is not incorporated in Pennsylvania, and is not licensed or registered to do business here. As WEC has not consented to the Court's jurisdiction, to establish general personal jurisdiction based on contacts with the state that are unrelated to the cause of action, due process requires Penco to demonstrate that the company (or its predecessor-in-interest) had continuous and systematic contacts with the forum.³⁰ The Court must examine factors such as the nature and quality of business contacts within the forum, direct sales in the forum, the maintenance of a sales force in Pennsylvania, and marketing efforts targeting citizens of...