Precept Medical Products, Inc. v. Klus, CIV.1:03 CV 11.

• Decision Date: 19 September 2003
• Docket Number: No. CIV.1:03 CV 11.,CIV.1:03 CV 11.
• Citation: 282 F.Supp.2d 381
• Court: U.S. District Court — Western District of North Carolina
• Parties: PRECEPT MEDICAL PRODUCTS, INC., f/k/a WHITE KNIGHT HEALTHCARE, INC., Plaintiff, v. George KLUS, Defendant.

Page 381

282 F.Supp.2d 381

PRECEPT MEDICAL PRODUCTS, INC., f/k/a WHITE KNIGHT HEALTHCARE, INC., Plaintiff, v. George KLUS, Defendant.

No. CIV.1:03 CV 11.

United States District Court, W.D. North Carolina, Asheville Division.

September 19, 2003.

Frederick S. Barbour, McGuire, Wood & Bissette, P. A., Asheville, NC, for plaintiff.

Mark C. Kurdys, Roberts & Stevens, P.A., Asheville, NC, for defendant.

MEMORANDUM AND ORDER

THORNBURG, District Judge.

THIS MATTER is before the Court on the Defendant's timely filed objections to the Memorandum and Recommendation of United States Magistrate Judge Max O. Cogburn, Jr. Pursuant to standing orders of designation and 28 U.S.C. § 636, the undersigned referred the Defendant's motion to dismiss and alternative motion to change venue, filed March 7, 2003, to the Magistrate Judge for a recommendation as to disposition. Having conducted a de novo review to those portions of the recommendation to which specific objections were filed, the undersigned denies the motion to dismiss or to transfer venue. 28 U.S.C. § 636(b); Fed.R.Civ.P. 72.

I. STATEMENT OF FACTS

On July 23, 1999, the Plaintiff, Precept Medical Products, Inc.,¹ and the Defendant, George Klus, entered an agreement that called for the Defendant to serve as an independent sales representative for the Plaintiff, a company that sells medical supplies. Complaint ¶¶ 5, 7; Affidavit of George Klus, attached to Defendant's Motion to Dismiss and Alternative Motion to Change Venue ["Defendant's Motion"], filed March 7, 2003, ¶ 5. The Defendant's territory was to include Minnesota and parts of Iowa and Nebraska. See Exhibit A, attached to Klus Affidavit. One provision of the agreement was the Defendant would "not represent lines competitive to [the Plaintiff] so long as we are working together." Id. Although the agreement was to expire on January 31, 2000, unless extended by the Plaintiff, the Plaintiff alleges both parties operated under the agreement until November 2001. Complaint, ¶ 11.

The Plaintiff alleges that in August 2001, the Defendant violated the terms of the agreement and breached his fiduciary duty by "representing, selling, and otherwise offering lines competitive to plaintiff." Complaint, ¶¶ 15, 20. The Plaintiff also alleges the Defendant, who was an officer of AK Medical Corporation, a corporation that conducted business with the Plaintiff, converted over $90,000 of the Plaintiff's money by refusing to make payments that AK Medical owed to the Plaintiff. Complaint ¶¶ 24, 26, 27. The Plaintiff further alleges that the Defendant committed constructive fraud and fraud by failing to act openly, honestly, and fairly with the Plaintiff and by making false statements concerning AK Medical's payments to the Plaintiff. Complaint ¶¶ 32, 35. Finally, the Plaintiff alleges that the acts mentioned above constitute unfair and deceptive trade practices under N.C. Gen.Stat. § 75-1.1 et seq. Complaint, ¶ 44.

Of particular relevance to this motion are the contacts the Defendant had with residents of North Carolina. The Plaintiff alleges the Defendant contacted the Plaintiff's North Carolina office to seek a position as sales representative. Affidavit of Thomas J. Kennelly, Jr., attached to Plaintiff's Response to Defendant's Motion to Dismiss ["Plaintiff's Response"], filed March 24, 2003, ¶ 6; Affidavit of Patsy J. Smith, attached to Plaintiff's Response, ¶ 7. Defendant claims the Plaintiff initiated the relationship. Klus Affidavit, ¶ 5. It is undisputed that the Defendant traveled to North Carolina to meet with the Plaintiff, although the parties dispute when the trip occurred. The Defendant claims the trip occurred before the parties entered into the agreement. Id. The Plaintiff claims the trip occurred in March of 2000. Kennelly Affidavit, ¶ 14; Affidavit of Charles K. Walker, attached to Plaintiff's Response, ¶ 14. The Plaintiff alleges that after the parties entered into the agreement, the Defendant frequently called and e-mailed the Plaintiff in North Carolina. Smith Affidavit, ¶¶ 10, 11; Walker Affidavit, ¶¶ 9, 10, 12, 13. The Plaintiff further alleges that the Defendant's checks from the Plaintiff were drawn on a North Carolina bank, and payments for the products sold by the Defendant were received in a lock box in North Carolina. Walker Affidavit, ¶¶ 15-16. Finally, Plaintiff alleges between January and May of 2001, the Defendant, through AK Medical, sold $26,244 worth of the Plaintiff's product to the VA Hospital in Durham, North Carolina. Id., ¶ 17. The Defendant claims that during this time period he "continued to conduct all business activities as an individual ... or as an employee in Minneapolis." Defendant's Motion, ¶ 4. It is unclear from the Defendant's motion whether this statement is a denial that he made the alleged sales to the hospital in Durham.

III. PROCEDURAL HISTORY

On January 10, 2003, the Plaintiff filed this action against George Klus for breach of contract, breach of fiduciary duty, conversion, constructive fraud, fraud, and unfair and deceptive trade practices. On March 7, 2003, the Defendant moved, under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(3), to dismiss the case for lack of personal jurisdiction and for improper venue or, in the alternative, to transfer venue to the District of Minnesota. On August 6, 2003, the Magistrate Judge issued a Memorandum and Recommendation that the Defendant's motions be denied. The Defendant filed timely objections to that Recommendation on August 18, 2003.

IV. DISCUSSION

A. Personal jurisdiction.

The first issue is whether the Court may take personal jurisdiction over the Defendant. For a federal district court to take personal jurisdiction over a non-resident defendant, two conditions must be met: (1) the exercise of jurisdiction must be authorized by the long-arm statute of the forum state, and (2) the exercise of jurisdiction must comport with Fourteenth Amendment due process requirements. Christian Science Bd. of Dir. of the First Church of Christ, Scientist v. Nolan, 259 F.3d 209, 215 (4th Cir.2001). However, because the North Carolina long-arm statute has been construed to extend personal jurisdiction over non-resident defendants to the full extent permitted by the due process clause of the Constitution, the two inquiries collapse into a due process analysis. Church v. Carter, 94 N.C.App. 286, 289, 380 S.E.2d 167, 169 (1989).

Under due process jurisprudence, the requisite level of contact between the non-resident defendant and the forum state depends on whether or not the action at hand is based upon the defendant's contacts with the forum state. A court may assert specific jurisdiction, jurisdiction over cases involving the defendant's contacts with the forum state, "if the defendant has `purposefully directed' his activities at residents of the forum and the litigation results from alleged injuries that `arise out of or relate to' those activities." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (internal citations omitted). For a court to assert general jurisdiction, jurisdiction over cases not concerning the defendant's contacts with the forum state, the defendant must have "systematic and continuous" contacts with the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984). The plaintiff ultimately carries the burden of proving grounds for jurisdiction by a preponderance of the evidence; but when the Court must decide a pretrial motion for dismissal based on an alleged lack of personal jurisdiction, the Court must resolve all factual disputes in favor of the plaintiff. Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 59-60 (4th Cir.1993).

On the issue of specific jurisdiction, the first inquiry is whether the Defendant has purposefully directed his activities at residents of North Carolina. Burger King, supra. The Plaintiff alleges that the Defendant called the Plaintiff's office in Arden, North Carolina, to propose that he sell the Plaintiff's product, and that the Defendant made sales of a considerable volume in North Carolina. Smith Affidavit, ¶ 7; Walker Affidavit, ¶ 17. The Plaintiff further alleges the Defendant communicated extensively, at times more than once daily, through telephone or electronic mail with the Plaintiff in North Carolina regarding his selling the Plaintiff's products. Smith Affidavit, ¶¶ 5-6, 10-11; Walker Affidavit, ¶¶ 9-10. The Defendant also attended at least one meeting in North Carolina regarding his position as a sales representative of the Plaintiff. Kennelly Affidavit, ¶¶ 13-14; Walker Affidavit, ¶ 14; Klus Affidavit, ¶ 5. Furthermore, the Defendant submitted orders to the Plaintiff's offices in North Carolina and accepted commission checks from North Carolina. Smith Affidavit, ¶ 5; Walker Affidavit, ¶ 15. All of these alleged activities were voluntary on the part of the Defendant, and they can only lead to the conclusion that the Defendant purposefully directed his activities at residents of North Carolina.

It should be noted that the Defendant disputes many of the allegations mentioned above. For example, the Defendant claims that he never affirmatively reached out to North Carolina but, instead, the Plaintiff invited him to become a sales representative. Klus Affidavit, ¶ 5. Also, the Defendant claims that from July 23, 1999, through January 31, 2000, he conducted no business in and sold no products to North Carolina; and even after January 31, 2000, the Defendant conducted all business in Minneapolis. Defendant's Motion, ¶¶ 3, 4. Finally, by citing cases which hold that "isolated communications," "fleeting communication by telephone and fax," and "several telephone calls to North Carolina" are not sufficient contacts with North Carolina to establish specific jurisdiction, the Defendant implies that his communications with North Carolinians were more limited than the Plaintiff allege...