Sudduth v. Howard

• Decision Date: 26 August 1994
• Citation: 646 So.2d 664
• Parties: Bruce SUDDUTH and Blonnie C. Sudduth v. Larry HOWARD. 1930634.
• Court: Alabama Supreme Court

Page 664

646 So.2d 664

Bruce SUDDUTH and Blonnie C. Sudduth v. Larry HOWARD.

1930634.

Supreme Court of Alabama.

Aug. 26, 1994.

Ronald L. Davis and Charles E. Harrison of Rosen, Cook, Sledge, Davis, Carroll & Jones, P.A., Tuscaloosa, for appellants.

Earl E. Cloud, Jr. of Cloud & Cloud, Huntsville, for appellee.

HOUSTON, Justice.

Bruce and Blonnie Sudduth, residents of Tuscaloosa County, sued Consolidated Management Systems, Inc. (a Florida corporation not registered to do business in Alabama) (hereinafter called "CMS"); Larry Howard (a Florida resident and the general manager of CMS); and Michael Howard (a Florida resident and the vice president of CMS), alleging breach of contract and fraud "arising out of CMS's marketing of a vending machine franchise 'opportunity' to the Sudduths in May 1991." ¹ CMS, Larry Howard, and Michael Howard moved for summary judgments. The trial court entered a summary judgment for Larry Howard, holding that the State of Alabama lacked in personam jurisdiction over him; it denied the summary judgments for CMS and Michael Howard. The trial court certified the summary judgment for Larry Howard as final, pursuant to Rule 54(b), A.R.Civ.P. The Sudduths appeal. We reverse and remand.

The Sudduths contend that the trial court erred in entering the summary judgment for Larry Howard on the basis of lack of personal jurisdiction, because, they say:

"[T]he evidence submitted in opposition to summary judgment--seen in [the] light most favorable to [them as] the nonmoving parties--tended to show that [Larry Howard] participated in, if not masterminded, a scheme to defraud and deceive potential investors, and that the scheme to defraud and deceive ultimately led to a fraud perpetrated on Alabama residents...."

The issue is whether, within the bounds of the Due Process Clause of the Fourteenth Amendment to the United States Constitution, Larry Howard, who is a Florida resident, had sufficient contacts with the state of Alabama to make it fair and reasonable to require him to come to Alabama from Florida to defend against the present action.

Viewing the evidence in the light most favorable to the Sudduths, the nonmoving parties, as we are required to do under the applicable standard of review, we find evidence of the following:

CMS was a closely held family-operated corporation headquartered in Merritt Island, Florida. It marketed investment "opportunities" in vending machines to potential small investors throughout the United States.

When CMS was incorporated in 1988, William Hooper, Larry Howard's father-in-law, who was in his 70s and was a retired automobile body mechanic living in Pompano Beach, Florida, served as president. Michalin Howard, Larry Howard's wife, who was in her mid-40s, held a high school diploma, and had been a housewife before her involvement in CMS, served as vice-president and owned 100% of the stock in the company. Larry Howard was the general manager.

Neither William Hooper nor Michalin Howard had any experience in selling vending or other business opportunities. Larry Howard was the only member of his family with any experience in selling business opportunities. He had been involved in the vending machine business since 1985 (in Alabama and Georgia) and with other business opportunities before that time.

In 1989, Michael Howard, the son of Larry and Michalin Howard and the grandson of William Hooper, graduated from college with a degree in marketing and joined CMS as a salesman. He had no prior experience in the vending opportunity business. In 1991, Michalin Howard replaced William Hooper as president of the company and Michael Howard became vice president of the company. Larry Howard continued as the general manager.

CMS sent salespeople into Alabama and maintained an ongoing relationship with at least seven owner-operators in the state; however, it never registered to do business in Alabama. CMS is no longer in business and has not advertised or sought investors since 1992.

In May 1991, the Sudduths saw CMS's advertisement in The Tuscaloosa News offering an investment opportunity in "Fun Snax" 25-cent vending machines, which involve vends of smaller portions of an item for a lower price per vend. They contacted CMS about the advertisement. Thereafter, J.R. Rogers, a salesman for CMS, visited the Sudduths and gave them promotional literature drafted by Larry Howard and Michael Howard. The promotional literature contained a "Profit Performa [for Fun Snax]"; a "Fun Snax Profit Analysis"; a cassette tape entitled "Business Opportunities of the 90's"; a letter to "Dear Prospective Client" from Larry Howard as "General Manager"; and testimonials from allegedly satisfied CMS owner-operators. The "Profit Performa" and "Profit Analysis" projected anticipated vending sales of Fun Snax items. Both documents stated: "The figures here are mathematical calculations based on information from 'Vending Times Magazine' and their survey 'Census of the Industry.' The amount of profits you make depends upon your efforts and interest in the growth of your business." The letter to "Dear Prospective Client" from Larry Howard, as general manager, stated in pertinent part as follows:

"I would like to personally thank you for taking time out of your day to listen to this program. I'm sure that together, if you qualify, we can build for you a life of unlimited possibilities."

(Emphasis added.)

Relying on this promotional material given them by Rogers, the Sudduths contracted with CMS and paid it $12,000 for the "Plan I Investment" of 8 owner-operator machines and 4 company machines. After becoming aware that the projections in the "Profit Performa" and the "Profit Analysis" were misleading in that they were based on a general analysis of the entire confection/snack vending industry, and not Fun Snax machines in particular, and concluding that the CMS operation was a scam, the Sudduths tried to rescind the contract with CMS. CMS refused to refund their money.

Larry Howard, the general manager of CMS at the time of the sale to the Sudduths in May 1991, had discussed and worked with Michael Howard in drafting the "Profit Performa" and "Profit Analysis," and they chose and approved the form and size of the disclaimer on the "Profit Analysis." Larry Howard reviewed the final documents and approved their use by CMS salespeople in convincing people to buy into the Fun Snax program as owner-operators. He authorized the making of the cassette tape, reviewed and approved its contents, disseminated it through salespeople to potential owner-operators, such as the Sudduths, and signed the letter that appeared on the cover of the materials accompanying the cassette tape that was mailed to the Sudduths in May 1991. Larry Howard and Michael Howard recruited and hired salespeople for CMS, including Rogers. Larry Howard drafted other promotional materials, which were contained in a presentation notebook approximately 20-25 pages long, for use by the salespeople in recruiting owner-operators. He helped train the salespeople by giving them the promotional notebook and by reviewing the notebook with them. Larry Howard and Michael Howard spoke with the salespeople to determine if they were following the guidelines. All of the materials Rogers used during his meeting with the Sudduths had been approved by Larry Howard. In fact, CMS put out no material without Larry Howard's approval.

Before the sale to the Sudduths, Larry Howard knew that Rogers, the sales representative in Alabama, had requested that advertisements be placed in Alabama newspapers. Larry Howard admitted that, in placing advertisements in Alabama newspapers, he was targeting the readers of those newspapers and that the advertisements in Alabama newspapers were aimed at Alabama residents. Larry Howard also admitted knowing that Rogers would be taking into Alabama the sales promotional literature, including the cassette tape, that CMS salespeople had been trained to use in the presentation to potential owner-operators.

In Knowles v. Modglin, 553 So.2d 563, 565-66 (Ala.1989), the Court thoroughly discussed the due process analysis involved in determining whether a court has in personam jurisdiction:

"In Dillon Equities v. Palmer & Cay, Inc., 501 So.2d 459, 461 (Ala.1986), this Court stated:

" 'It has long been established that physical presence in the state is not a prerequisite to effective service of process on a nonresident defendant; Milliken v. Meyer, 311 U.S. 457, 61 S.Ct. 339, 85 L.Ed. 278 (1940); see also Shrout v. Thorsen, 470 So.2d 1222 (Ala.1985). What is required is that the out-of-state resident have "some minimum contacts with this state [so that], under the circumstances, it is fair and reasonable to require the person to come to this state to defend an action." Rule 4.2(a)(2)(I), Ala.R.Civ.P.

" ' " '[D]ue process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice." ' " ' McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), quoting International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). Alabama's long-arm statute (Rule 4.2, Ala.R.Civ.P.) has been interpreted by this Court to extend the jurisdiction of Alabama courts to the permissible limits of due process. DeSotacho, Inc. v. Valnit Industries, Inc., 350 So.2d 447 (Ala.1977), Duke v. Young, 496 So.2d 37 (Ala.1986).

" 'Alabama's long-arm procedure for service of process is not limited to "rigid transactional categories"...