Pioneer Properties, Inc. v. Martin

• Decision Date: 03 March 1983
• Docket Number: No. 81-1137.,81-1137.
• Citation: 557 F. Supp. 1354
• Parties: PIONEER PROPERTIES, INC., Plaintiff, v. Ross Lloyd MARTIN and The Genesis Marketing Organization Limited, Defendants.
• Court: U.S. District Court — District of Kansas

557 F. Supp. 1354

PIONEER PROPERTIES, INC., Plaintiff, v. Ross Lloyd MARTIN and The Genesis Marketing Organization Limited, Defendants.

No. 81-1137.

United States District Court, D. Kansas.

March 3, 1983.

COPYRIGHT MATERIAL OMITTED

Alexander B. Mitchell of Sargent, Klenda, Haag & Mitchell, Wichita, Kan., for plaintiff.

Monte Vines of Adams, Jones, Robinson & Malone, Wichita, Kan., for defendants.

MEMORANDUM AND ORDER

CROW, District Judge.

Plaintiff, a Kansas corporation with its principal place of business in Kansas, has filed this action against a Canadian citizen and corporation alleging violations of Section 12(2) of the Securities Act of 1933,¹ and Rule 10b-5² promulgated under Section 10 of the Securities Exchange Act of 1934.³ In addition to alleging misleading and fraudulent statements in connection with the sale of securities as prohibited under these acts, plaintiff asserts pendant claims of common law fraud, breach of contract, and breach of fiduciary duties. The matter is before the court on defendants' motion to dismiss on jurisdictional and forum non conveniens grounds or, in the alternative, to stay proceedings pending arbitration. The parties have presented oral arguments, and have briefed the issues and filed with the court supporting affidavits and exhibits.

Plaintiff premises jurisdiction of the court on Section 22 of the 1933 Act⁴ and Section 27 of the 1934 Act,⁵ as well as on 28 U.S.C. § 1331 and 28 U.S.C. § 1332(a)(2). The complaint states that venue is proper under 28 U.S.C. § 1391(d), however, as we will discuss later, the above sections of the two securities acts contain applicable special venue provisions. The complaint also alleges personal jurisdiction under provisions of the Kansas long-arm statute, K.S.A. 60-308(b)(2) and (5).

The circumstances giving rise to this action involved plaintiff's purchase of interests in three joint ventures beginning in 1974. Three separate agreements pertaining to each joint venture were entered into between the defendants and plaintiff. Two of the ventures, the Eight Hundred Development Group and the Hampton Court Estates, were executed by written agreement. The third, the Cobourg venture, was by oral agreement. Similar joint venture agreements were also entered into between defendants and sixteen other investors, all of whom are Canadian citizens. The purpose of each venture was to develop and sell residential real estate properties located in Ontario, Canada. Under the terms of the agreements, defendants assumed management responsibilities for daily operation of the joint ventures while plaintiff and other investors provided whatever working capital was needed to maintain the properties and defray expenses. Each agreement also included an arbitration clause providing that any dispute arising under the joint ventures was to be arbitrated in Canada.

The motion to dismiss presents two theories for consideration. First, defendants challenge the presence of personal jurisdiction, arguing that the complaint should be dismissed for failure to satisfy a minimum contacts analysis under the Due Process clause of the Fifth Amendment. Second, defendants contend that even if jurisdiction is appropriate, the action should be dismissed under the traditional doctrine of forum non conveniens as set forth in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947). As discussed more fully below, the facts as alleged by the parties, and the relevant case law, persuade the court that jurisdiction over the defendants is proper. However, the court is further persuaded that this is an appropriate case in which to stay further proceedings pending arbitration in a foreign jurisdiction.

PERSONAL JURISDICTION

Extraterritorial service of process is authorized by Section 22 of the 1933 Act and Section 27 of the 1934 Act in the district where defendant is an inhabitant or wherever the defendant may be found, provided venue is properly laid within the forum under these sections. Where claims are made under both acts, proper venue may be determined according to the broader provisions of Section 27 which permit an action to be brought where any act or transaction connected with the alleged violation occurred. Martin v. Steubner, 485 F.Supp. 88, 90 (S.D.Ohio 1979) cert. denied 454 U.S. 1148, 102 S.Ct. 1013, 71 L.Ed.2d 302 (1982); Burkhart v. Allson Realty Trust, 363 F.Supp. 1286, 1292 (N.D.Ill.1973).

While the defendants do not contest venue in this district, or lack of subject matter jurisdiction, they nevertheless argue insufficient contacts with the state of Kansas prevent the assertion of in personam jurisdiction. Defendants rightly contend that in actions premised upon presence of a federal question the court's exercise of personal jurisdiction over foreign nationals is subject to constitutional constraints. It is well recognized that though the process provision of Section 27 permits service on a defendant in a foreign country, SEC v. Briggs, 234 F.Supp. 618 (N.D.Ohio 1964), the jurisdictional reach extends up to, but not beyond, the limits of the due process clause of the Fifth Amendment. Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326 (2d Cir.1972); Ferraioli v. Cantor, 259 F.Supp. 842, 847-48 (S.D.N. Y.1966).⁶ The familiar due process limitation, as stated in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), requires the defendant have certain minimum contacts with the forum "such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Id. at 316, 66 S.Ct. at 158.

The facts of the case must demonstrate that it is reasonable to require defendant to defend itself in the forum state. World Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 580, 62 L.Ed.2d 490 (1980). This inquiry into defendants' connection with the forum and the litigation focuses on the quality and nature of the contacts. Kulko v. Superior Court, 436 U.S. 84, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978). While physical presence is not necessary, McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), a requisite nexus between the defendant and the forum requires some act by which defendant purposefully avails itself of the privilege of conducting activities within the forum state. Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958).

These principles provide a broad framework within which to test the sufficiency of the contacts. In Leasco Data Processing Corp. v. Maxwell, supra, a decision which addressed the extraterritorial application of Section 27 in light of Hanson v. Denckla, supra, the court set forth a practical interpretation, stating: "Where a defendant has acted within a state or sufficiently caused consequences there, he may fairly be subjected to its judicial jurisdiction...." 468 F.2d at 1340. Applying this framework to the facts as set forth in the parties' pleadings, affidavits and attached exhibits, the court believes the assertion of jurisdiction over the defendants is fair and reasonable in this case.

In his affidavit, Zack Farha, the principal stockholder of plaintiff corporation, states that investments in the joint ventures was solicited by the defendants or their agents through telephone calls and correspondence between Canada and Wichita, Kansas. In addition, meetings between Farha and defendant Martin, concerning the joint ventures, are said to have occurred in Toronto, Chicago, and Wichita. Attached to the affidavit are copies of correspondence between the parties relating to these and other communications.

A culling of these documents reveals three categories of correspondence relevant to our inquiry. First, Farha received frequent correspondence from a Toronto law firm of Shiff, Gross, including one of the contracts for signature. The exact nature of this firm's relationship with defendants is not clear, however it is apparent that the firm handled various matters pertaining to the joint ventures and on occasion acted as intermediary between the parties.⁷ A second category of documents involves numerous communications from defendants to plaintiff providing ongoing status reports on the three joint ventures. In some instances, the reports reflected the substance of presentations by defendants to investors at periodic meetings held in the offices of Shiff, Gross. Finally, several communications involve requests by defendants for further contributions to the joint ventures to cover expenses and satisfy the periodic mortgage obligations on the development properties.⁸

For the most part, the nature of these communications is confirmed in the affidavit, and attached exhibits, of defendant Ross Martin. Martin states that any representations which may have been made to induce plaintiff to enter into the joint venture agreements, and make initial investments, were made during meetings in Ontario. He states that he was first introduced to Farha by Leona Chitel, who the court understands to be a Canadian investment broker. Only after all agreements were finalized in Ontario did he communicate with Farha in Kansas. These communications, involving letters and phone calls are said to have been made for the purpose of keeping plaintiff informed as to the progress of the joint venture projects, and advising Farha of necessary contributions to meet periodic mortgage obligations and other expenses. A schedule of these communications was compiled by Martin and is attached to the affidavit. Ross Martin's Affidavit, Dk. # 8, Exhibit D. The schedule lists 44 telephone calls spanning a period from late 1975 through early 1980, as well as 8 letters sent during the years 1977-79, and two memoranda sent during 1979.

Defendants' argument that assertion of personal jurisdiction would contravene the due process limitation on extraterritorial service of process rests on the characterization of the...