Solid Comfort, Inc. v. Hatchett Hospitality Inc.

• Decision Date: 29 August 2013
• Docket Number: No. 20120415.,20120415.
• Parties: SOLID COMFORT, INC., Plaintiff and Appellant v. HATCHETT HOSPITALITY INCORPORATED, Defendant and Hospitality Depot, LLC, Nu Horizon Renovation, LLC, and William Glenn Hatchett, individually, Defendants and Appellees.
• Court: North Dakota Supreme Court

836 N.W.2d 415

2013 ND 152

SOLID COMFORT, INC., Plaintiff and Appellant

v. HATCHETT HOSPITALITY INCORPORATED, DefendantandHospitality Depot, LLC, Nu Horizon Renovation, LLC, and William Glenn Hatchett, individually, Defendants and Appellees.

No. 20120415.

Supreme Court of North Dakota.

Aug. 29, 2013.

Katrina A. Turman Lang (argued) and Joseph A. Turman (on brief), Fargo, N.D., for plaintiff and appellant.

Jason R. Butts (argued) and Amy M. Clark (appeared), Wahpeton, N.D., for defendants and appellees.

KAPSNER, Justice.

[¶ 1] Solid Comfort, Inc., appeals from a judgment awarding damages against Hatchett Hospitality, Inc., and dismissing William Glen Hatchett (“Glen Hatchett”), Nu Horizon Renovation, LLC (“Nu Horizon”), and Hospitality Depot, LLC (“Hospitality Depot”), for lack of personal jurisdiction. Under the law applied in the district court, we conclude Solid Comfort established a prima facie showing of personal jurisdiction over Glen Hatchett, Nu Horizon, and Hospitality Depot sufficient to defeat their motion to dismiss. Because we conclude the court erred in dismissing Glen Hatchett, Nu Horizon, and Hospitality Depot for lack of personal jurisdiction, we reverse and remand for further proceedings.

I

[¶ 2] Solid Comfort, a North Dakota corporation with its principal place of business in Fargo, manufactures furniture and fixtures, including hotel furniture. Hatchett Hospitality is a Tennessee corporation that has supplied furniture, fixtures, and equipment to the hotel industry throughout the United States. Glen Hatchett, a Tennessee resident, is the owner and president of Hatchett Hospitality. Solid Comfort and Hatchett Hospitality contracted for Solid Comfort to supply hotel furniture to two separate hotel properties—a Comfort Suites in Hudson, Wisconsin, and a Hampton Inn in Pickwick Dam, Tennessee. In August 2011, December 2011, and January, 2012, Hatchett Hospitality placed orders for hotel furniture and other goods with Solid Comfort, and Solid Comfort delivered the goods under those orders. Solid Comfort required a deposit of one-half of the order amount to be paid at the time of the order, with remaining amounts due after delivery. Although Solid Comfort delivered the goods, Hatchett Hospitality failed to pay the amounts remaining due and owing under the various orders.

[¶ 3] In April 2012, Glen Hatchett, as “the owner and President of Hatchett Hospitality,” sent a letter to Solid Comfort indicating Hatchett Hospitality was not able to pay its bills, could not fulfill its orders, and proposing a plan that included “fil[ing] a pre-packaged Chapter 11 Plan of Reorganization.” In the letter, Glen Hatchett indicated “[o]ver the last few months” he had terminated “a long term banking relationship,” negotiated transfer of their office warehouse building, and substantially downsized the company, stating “[t]he result of these transactions is that I individually have a secured interest in all of the assets of [Hatchett Hospitality] to include all cash, contracts, accounts receivable, furniture, fixtures and equipment in the approximate amount of $3.5M.” Hatchett's letter also indicated that Hatchett Hospitality did not have adequate funds to pay its vendors:

Unfortunately, some, but not all of our vendors, have taken the position that unless [Hatchett Hospitality] pays the entire past due invoices, these vendors will no longer honor and ship orders, even if paid in advance. While I understand the financial pressures that many of these vendors are under, these actions have effectively shut my company down due to our inability to fill orders.

[¶ 4] The letter stated that Hatchett Hospitality's “customers have approximately $2.1M in orders that are pending and those customers still owe Hatchett Hospitality, Inc. approximately $1.6M upon completion of those orders, leaving a potential discrepancy of about $500,000.” The letter also said Hatchett Hospitality had “approximately $1.5M in accounts receivable that are in various stages of collection” and that “[a]pproximately $500,000 of that is current and should be collected over the next few months.” Hatchett's letter stated that, for vendors agreeing to go along with the proposed plan, he was prepared to subordinate his security interest in Hatchett Hospitality's assets “to the claims of those vendors who supply the goods needed to fill the orders,” which would enable the funds be paid to the vendors on a pro rata basis. However, if a vendor did not agree to participate in the plan, he would not “subordinate [his] secured interest to their debt,” those vendors would take their risks as general unsecured creditors, and the likelihood of being fully or partially paid was “probably not very good.”

[¶ 5] In a June 25, 2012, affidavit, Glen Hatchett further explained that Regions Bank had declared Hatchett Hospitality to be in “technical default” of loan covenants regarding its operating line of credit, and the “lack of liquidity” caused Hatchett Hospitality's financial distress. He explained that the reason he became a secured creditor “stem[med] from the forced restructuring and bank issues that occurred approximately eighteen months ago ” (emphasis added) and that he had personally purchased with his own assets “the existing line of credit note and related collateral documents from the bank that forced the restructuring.” He stated he purchased the promissory note secured by Hatchett Hospitality's assets in April 2011 using personal assets.

[¶ 6] In May 2012, Solid Comfort commenced this action, alleging breach of contract against Hatchett Hospitality for failure to pay under the contracts to purchase hotel furniture and fixtures, and alleging conversion by Hatchett of funds due and owing to Solid Comfort. Solid Comfort also sought to impose liability for Hatchett Hospitality's debts against Glen Hatchett, Nu Horizon, and Hospitality Depot, seeking to pierce the corporate veil of Hatchett Hospitality and claiming Hatchett Hospitality and Glen Hatchett were operating under the alter ego of Hospitality Depot and Nu Horizon. Solid Comfort sought damages for the remaining amounts due under the contracts in the amount of $110,067.87 with interest.

[¶ 7] Hatchett Hospitality answered the complaint, admitting various amounts were due and owing to Solid Comfort. However, Hospitality Depot, Nu Horizon, and Glen Hatchett moved to dismiss on grounds the district court lacked personal jurisdiction over them. Solid Comfort opposed their motion. After a hearing, the court granted the motion to dismiss relying on the pleadings, affidavits and exhibits, concluding Solid Comfort had not made a prima facie showing to establish personal jurisdiction over Glen Hatchett, Nu Horizon, and Hospitality Depot. Solid Comfort then moved for judgment on the pleadings against Hatchett Hospitality, which the court granted. Judgment was entered against Hatchett Hospitality in the amount of $125,296.81, and the complaint against Glen Hatchett, Nu Horizon, and Hospitality Depot was dismissed. It is undisputed on appeal that since the judgment was entered in this case, Hatchett Hospitality filed a petition for bankruptcy under Chapter 7 in the Western District of Tennessee.

II

[¶ 8] Solid Comfort argues the district court erred in dismissing Glen Hatchett, Nu Horizon, and Hospitality Depot for lack of personal jurisdiction.

A

[¶ 9] Our review of a district court's decision regarding personal jurisdiction over a defendant is well-established:

“Analysis of a district court's ruling regarding personal jurisdiction is a question of law, which we consider under the de novo standard of review.” Luger v. Luger, 2009 ND 84, ¶ 12, 765 N.W.2d 523. “If the defendant challenges the court's [exercise of personal] jurisdiction, the plaintiff bears the burden of proving jurisdiction exists.” Id. (quoting Bolinske v. Herd, 2004 ND 217, ¶ 7, 689 N.W.2d 397);Ensign v. Bank of Baker, 2004 ND 56, ¶ 11, 676 N.W.2d 786. “The plaintiff must make a prima facie showing of jurisdiction to defeat a motion to dismiss for lack of personal jurisdiction, and if the court relies only on pleadings and affidavits, the court must look at the facts in the light most favorable to the plaintiff.” Ensign, at ¶ 11;see also Bolinske, at ¶ 7. “Questions of personal jurisdiction must be decided on a case-by-case basis, depending on the particular facts and circumstances.” Ensign, at ¶ 11;see also Bolinske, at ¶ 7.

Lund v. Lund, 2012 ND 255, ¶ 7, 825 N.W.2d 852 (emphasis added); see also Rodenburg v. Fargo–Moorhead Young Men's Christian Ass'n, 2001 ND 139, ¶ 17, 632 N.W.2d 407.

[¶ 10] We have explained that a two-part test applies for deciding when a court may properly exercise personal jurisdiction over a nonresident defendant. Lund, 2012 ND 255, ¶ 8, 825 N.W.2d 852. “The court first must decide whether the requirements of the state's long-arm provision, N.D.R.Civ.P. 4(b)(2), are satisfied and, if so, then must decide whether the exercise of personal jurisdiction comports with due process.” Id. (citing Ensign v. Bank of Baker, 2004 ND 56, ¶ 9, 676 N.W.2d 786;Hansen v. Scott, 2002 ND 101, ¶ 16, 645 N.W.2d 223). “To satisfy due process concerns, the nonresident defendant must have sufficient minimum contacts with North Dakota so the exercise of personal jurisdiction does not offend traditional notions of fair play and substantial justice.” Ensign, at ¶ 9;see also Hansen, at ¶ 16.

[¶ 11] Rule 4(b)(2), N.D.R.Civ.P., North Dakota's long-arm provision, states in relevant part:

(2) Personal jurisdiction based on contacts. A court of this state may exercise personal jurisdiction over a person who acts directly or by an agent as to any claim for relief arising from the person's having such contact with this state that the exercise of personal jurisdiction over the person does not offend against traditional notions of justice or fair play or the due process of law, under one or more of the following circumstances:

(A)...