Sheppard v. Jacksonville Marine Supply, Inc.

• Citation: 877 F. Supp. 260
• Decision Date: 22 February 1995
• Docket Number: Civ. A. No. 2:93-3194-18.
• Court: United States District Courts. 4th Circuit. United States District Court of South Carolina
• Parties: William J. SHEPPARD, Jr. and Patricia A. Sheppard, Plaintiffs, v. JACKSONVILLE MARINE SUPPLY, INC., Thomas Shanty, and Michael Sharrow, Defendants.

877 F. Supp. 260

William J. SHEPPARD, Jr. and Patricia A. Sheppard, Plaintiffs, v. JACKSONVILLE MARINE SUPPLY, INC., Thomas Shanty, and Michael Sharrow, Defendants.

Civ. A. No. 2:93-3194-18.

United States District Court, D. South Carolina, Charleston Division.

February 22, 1995.

COPYRIGHT MATERIAL OMITTED

Joseph C. Wilson, IV, Robert H. Hood, Carl Everette Pierce, II, Charleston, SC, for plaintiffs.

Paul A. Dominick, Hanna Casper George, Charleston, SC, for defendants.

ORDER

NORTON, District Judge.

This action came for hearing before the court on Defendants' Motion to Dismiss the Amended Complaint for lack of personal jurisdiction and improper venue pursuant to Fed.R.Civ.P. 12(b)(2) and 12(b)(3), or in the alternative for an order transferring venue to the Middle District of Florida, Tampa Division. In addition to oral argument heard on January 3, 1995, this court considered the pleadings and memoranda filed by the parties. Because this court finds that jurisdiction is proper over Jacksonville Marine Supply, Inc. and Thomas Shanty, and venue is proper in this district, Defendants' motion to dismiss those two Defendants is denied. However, because this court finds it cannot exercise jurisdiction over Michael Sharrow, he is hereby dismissed from this action.

I. BACKGROUND

This case arises as a result of a financial transaction involving Plaintiffs William A. Sheppard and Patricia J. Sheppard and Defendants Jacksonville Marine Supply, Inc. ("Jax Marine"), Thomas Shanty, the corporate president of Jax Marine, and Michael Sharrow, the corporate vice-president of Jax Marine. The exact nature of the transaction is in dispute.¹

Jax Marine is a Florida corporation with its principal place of business in St. Petersburg, Florida. Defendants Thomas Shanty and Michael Sharrow reside in St. Petersburg, Florida. In addition to its headquarters in St. Petersburg, Jax Marine maintains warehouses and sales facilities in Jacksonville, Florida and Hanahan, South Carolina. The Jax Marine warehouse in South Carolina operates under the name "C-Mar Division" and employs fourteen people. The employees include three salespersons, warehouse workers, telephone operators and a billing person. According to Plaintiffs, Jax Marine distributes between two to three million dollars of sales inventory from its South Carolina location representing approximately twenty-five to thirty percent of its total sales, and the warehouse serves as the sales and shipping facility for products shipped to Georgia, Virginia, and the Carolinas. Plaintiffs also contend that Marinex, a wholly owned subsidiary of Jax Marine, distributes up to one million dollars worth of products from the warehouse, also representing between twenty-five to thirty percent of Marinex's annual sales.

Commencing in the mid eighties, Jax Marine rented the warehouse in Hanahan, South Carolina from Plaintiffs. Since then, Mr. Shanty has traveled to South Carolina approximately twice a year to meet with his employees at C-Mar. Mr. Sharrow has occasionally traveled to South Carolina on Jax Marine business. In 1988, Defendants Shanty and Sharrow purchased the warehouse taking back a mortgage from Plaintiffs. The individual Defendants now rent the warehouse to Jax Marine. Plaintiff William Sheppard was employed by Jax Marine as manager of the Hanahan warehouse from around July 1992 until September 1993, and Plaintiff Patricia Sheppard was employed as a computer operator by Jax Marine commencing August 1992 and was still so employed as of November 30, 1994.

In the late 1980s, Mr. Sheppard and Shanty apparently began discussing the possibility of Sheppard's investing in Jax Marine. According to Sheppard, he initially expressed this desire to Shanty when Shanty was visiting in South Carolina. This expression of interest led to numerous telephone conversations between Shanty in Florida and Sheppard in South Carolina. Plaintiffs also state that they discussed this topic over dinner one night in Charleston with Shanty and his wife although Shanty denies ever discussing the transaction while in South Carolina. Sharrow contends that he never discussed nor solicited the business transaction with Mr. Sheppard prior to its fruition, a fact that Plaintiffs concede. The negotiations between Sheppard and Shanty led to a transaction in February 1988 in which Sheppard delivered to the Jax Marine headquarters in Florida a $300,000 check for twenty shares of stock in Marinex Corporation, a newly developed and wholly owned subsidiary of Jax Marine. Marinex is a Florida corporation incorporated in 1987 as a wholesale supplier of imported marine bulk hardware. After the transaction, the Sheppards owned twenty percent of Marinex while Jax Marine owned the remaining eighty percent.

In their Amended Complaint, Plaintiffs contend the financial transaction, although initially in the nature of a stock purchase of Marinex stock, was later replaced by agreement of the parties by a twenty-five percent stock acquisition in Jax Marine and even later converted to a loan secured by stock in either corporation. Plaintiffs further allege that the loan was to be repaid in a single lump sum payment of $600,000 on or about February 25, 1993, which was approximately five years after the money was tendered. Sheppard states that he was treated as a partner in Jax Marine subsequent to the transaction and that throughout the "period of the loan," both Shanty and Sharrow assured him in person and via telephone that the money would be repaid.

Apparently, Marinex is now insolvent and although Plaintiffs have demanded a return of their initial payment, they have received no money from Defendants. The gravamen of the Sheppards' complaint is that the Defendants' refusal or inability to repay the money is a result of fraudulent activities between Jax Marine and Marinex. In their Amended Complaint, Plaintiffs assert causes of action based on breach of contract, fraudulent conveyance, breach of fiduciary duty, constructive fraud, common law fraud, and breach of contract accompanied by a fraudulent act. Defendants argue that the transaction was an investment in the form of a stock purchase agreement and that after the investment Marinex incurred considerable losses as a result of a marine industry recession and that Plaintiffs' loss is a legitimate business loss.

II. ANALYSIS

Defendants' moved to dismiss this action based on Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction over each Defendant and 12(b)(3) for improper venue. This court will first address the personal jurisdiction arguments raised by Defendants.

When a court's jurisdiction over a defendant is contested, the plaintiffs have the burden of proving facts necessary to support personal jurisdiction. Ryobi America Corp. v. Peters, 815 F.Supp. 172, 175 (D.S.C.1993) (citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936)).

While plaintiffs' written allegations of jurisdictional facts are generally construed in their favor, their showing of personal jurisdiction must be based on specific facts set forth in the record in order to defeat defendants' motion to dismiss. "In reviewing the record before it, a court may consider pleadings, affidavits, and other evidentiary materials without converting the motion to dismiss to a motion for summary judgment."

Magic Toyota v. Southeast Toyota Distributors, 784 F.Supp. 306, 310 (D.S.C.1992) (citations omitted) (quoting VDI Technologies v. Price, 781 F.Supp. 85, 87 (D.N.H.1991)).

Plaintiffs argue that this court can find that either specific or general jurisdiction exists over each Defendant. When a court exercises jurisdiction over a suit that does not arise out of a defendant's activities in the forum state, such jurisdiction is called "general jurisdiction." Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 9, 104 S.Ct. 1868, 1872 n. 9, 80 L.Ed.2d 404 (1984). Jurisdiction over a suit that arises out of or is related to a defendant's activities in the forum state is called "specific jurisdiction." Id. at 414 n. 8, 104 S.Ct. at 1872 n. 8. In analyzing jurisdictional challenges against multiple defendants, this court must consider each defendant separately. Magic Toyota, 784 F.Supp. at 313.

The Fourth Circuit recently reiterated the proper constitutional test for personal jurisdiction in Lesnick v. Hollingsworth & Vose Co., 35 F.3d 939 (4th Cir.1994). The court stated:

We hold that the test to be applied in considering the reach of personal jurisdiction inquires whether (1) the defendant has created a substantial connection to the forum state by action purposefully directed toward the forum state or otherwise invoking the benefits and protections of the laws of the state; and (2) the exercise of jurisdiction based on those minimum contacts would not offend traditional notions of fair play and substantial justice, taking into account such factors as (a) the burden on the defendant, (b) the interests of the forum state, (c) the plaintiff's interest in obtaining relief, (d) the efficient resolution of controversies as between states, and (e) the shared interests of the several states in furthering fundamental substantive social policies.

Id. at 945-46. (citing Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102, 113, 107 S.Ct. 1026, 1032-33, 94 L.Ed.2d 92 (1987); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 2183-84, 85 L.Ed.2d 528 (1985); Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239-40, 2 L.Ed.2d 1283 (1958)). With this test in mind, the court will consider the facts of the case to determine whether South Carolina can assert personal jurisdiction over Jax Marine, Thomas Shanty or Michael Sharrow.

A. Specific Jurisdiction

In South Carolina, specific jurisdiction over a cause of action arising from a defendant's contacts with the state is granted pursuant to the long arm statute. South...