Welsh v. Gibbs

• Decision Date: 02 October 1980
• Docket Number: No. 79-3016,79-3016
• Citation: 631 F.2d 436
• Parties: John WELSH and Flo-Start, Inc., Plaintiffs-Appellants, v. James W. GIBBS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 436

631 F.2d 436

210 U.S.P.Q. 874

John WELSH and Flo-Start, Inc., Plaintiffs-Appellants, v. James W. GIBBS, Defendant-Appellee.

No. 79-3016.

United States Court of Appeals, Sixth Circuit.

Argued Aug. 11, 1980.

Decided Oct. 2, 1980.

John M. Glenn, Buckingham, Doolittle & Burroughs Co., L. P. A., Steven E. Sigalow, Mark Frasure, Akron, Ohio, for plaintiffs-appellants.

A. Russell Smith, Laybourne, Smith & Miller, Akron, Ohio, for defendant-appellee.

Before LIVELY and ENGEL, Circuit Judges, and BALLANTINE, ^* District judge.

LIVELY, Circuit Judge.

In this diversity case the district court determined that it lacked personal jurisdiction over the defendant and dismissed the complaint. We reverse and remand for further proceedings.

I.

The plaintiffs are an individual citizen and resident of Ohio and an Ohio corporation. The defendant is a citizen and resident of Florida. On October 31, 1974 plaintiff Welsh and defendant Gibbs executed a written contract whereby Gibbs sold to Welsh "a novel switch or electric control unit," which James Gibbs and his brother ¹ had invented. Included in the sale were all patent rights, trade secrets and "know-how" pertaining to the invention. The complaint in the district court sought damages for misrepresentations and breach of contract. Personal jurisdiction over the defendant was asserted under the Ohio long arm statute. ²

At the time of execution of the contract the invention though patented, had not been perfected. The agreement provided that Gibbs would cooperate with Welsh in developing the invention, and specifically that he would work, free of charge, for ten days in "Akron, Ohio or elsewhere" perfecting a working model and preparing a production model. In the contract Welsh agreed to form an Ohio corporation which was to be devoted solely to production and marketing of the invention, including the sale of franchises and establishment of distributorships. The plaintiff Flo-Start, Inc. is that Ohio corporation. Gibbs agreed to answer questions asked by representatives of Welsh and Flo-Start, Inc. "which may advance their technical understanding of said switch invention and its operation and enable them to perfect a production model thereof." In addition to the patented invention, the sale included other inventions and discoveries claimed to have been made by Gibbs which were related to the basic invention. The defendant agreed to cooperate with the plaintiff in obtaining patents and developing these claimed inventions. The contract also provided that in the event of disagreement it would be construed according to the law of Ohio.

The agreement of October 31, 1974 was executed by both parties in Florida. The contacts and negotiations between the parties which preceded the signing of the agreement were described by the district court as follows:

The first contact between the parties was in early 1974 when the defendant Gibbs called plaintiff Welsh about an electrical control unit he had developed to control electrically operated carts, trucks, and other vehicles. Plaintiff Welsh made a trip to Florida to discuss the invention with the defendant. Later in 1974 the defendant again called the plaintiff who made another trip to Florida to discuss possible purchase of the invention. According to the affidavit filed by plaintiff Welsh, it was at this second meeting in mid-August 1974 that material representations were made by the defendant which were subsequently discovered to be false. The alleged misrepresentations are the basis of the present suit. (The defendant's affidavit describes a third meeting in Florida between plaintiff's agents, plaintiff's attorney and patent attorney, and defendant, his attorney and patent attorney.)

The next contact between the parties was in early September when defendant brought a proto-type of the invention to plaintiff Welsh in Ohio. After signing a non-disclosure agreement in Akron, the defendant returned to Florida with the model. Plaintiff and defendant next met in Florida for negotiations extending over several days. Finally, plaintiff Welsh and his agents returned to Florida and signed the contract of sale.

The district court also noted that the plaintiffs selected a Florida engineering firm to assist in developing the invention and that Gibbs worked with that firm for 60 days rather than going to Akron for ten days work as required by the contract.

II.

The district court found that the defendant initiated the contract negotiations with Welsh in Ohio and entered into a contract which contemplated the formation of an Ohio corporation. These facts led to the further finding that "defendant purposely availed himself of business contacts and opportunities in the State of Ohio, and defendant could reasonably have foreseen that the transaction would have consequences in that state." Dismissal was based on the district court's further findings: (1) "... there has been no showing that the business operations of the plaintiffs have had a realistic impact on the commerce of the state of Ohio"; (2) "Plaintiffs have further failed to show that the claim arose from defendant's activities in Ohio ..."; and (3) "... the quality and frequency of defendant's contacts with Ohio viewed in their overall context will not sustain the exercise of jurisdiction over the defendant's person." In making these findings, the district court referred to this court's decisions in Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374 (1968), and In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220 (1972).

Before ruling on the defendant's motion to dismiss, the district court received affidavits from the parties. There was no hearing on the motion. The procedure to be followed in deciding a motion to dismiss for lack of jurisdiction was outlined by the Seventh Circuit in O'Hare International Bank v. Hampton, 437 F.2d 1173, 1176 (1971), as follows:

Rule 12(d), Federal Rules of Civil Procedure, enables a party asserting certain defenses enumerated in subsection (b) of that rule to raise such challenge prior to trial on the merits. The rule clearly contemplates hearing and determination of jurisdictional issues in advance of trial. 2A Moore, Federal Practice P 12.16, at 2352-54 (2d ed. 1968). "As there is no statutory direction for procedure upon an issue of jurisdiction, the mode of its determination is left to the trial court." Gibbs v. Buck, 307 U.S. 66, 71-72, 59 S.Ct. 725, 729, 83 L.Ed. 1111 (1939). When considering a challenge to its jurisdiction, a court may receive and weigh affidavits. 5 Wright and Miller, Federal Practice and Procedure § 1351, at 565 (1969).

Based upon evidence obtained, the court properly decides jurisdictional disputes before trial. Schramm v. Oakes, 352 F.2d 143, 149 (10th Cir. 1965); Williams v. Minnesota Mining & Manufacturing Co., 14 F.R.D. 1, 5 (S.D.Cal.1953). The burden of proof rests upon the party asserting existence of jurisdiction, id. at 5; KVOS, Inc. v. Associated Press, 299 U.S. 269, 278, 57 S.Ct. 197, 201, 81 L.Ed. 183 (1936). However, this burden is met by a prima facie showing that jurisdiction is conferred by the long arm statute. United States v. Montreal Trust Co., 358 F.2d 239 (2nd Cir. 1966).

The burden of establishing jurisdiction is on the plaintiff. Weller v. Cromwell Oil Co., 504 F.2d 927 (6th Cir. 1974). However, if the district court determines to decide the issue solely on the basis of written materials, the plaintiff should be required only to make a prima facie case of jurisdiction, that is, he need only "demonstrate facts which support a finding of jurisdiction in order to avoid a motion to dismiss." Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1285 (9th Cir. 1977) (citation omitted). Accord: Jetco Electronic Industries, Inc. v. Gardiner, 473 F.2d 1228 (5th Cir. 1973). However, if the district court concludes that the written submissions have raised issues of credibility or disputed issues of fact which require resolution, it may conduct a preliminary evidentiary hearing. Where this occurs the plaintiff must show by a preponderance of the evidence that jurisdiction exists. Data Disc, Inc. v. Systems Technology Associates, Inc., supra, 557 F.2d at 1285.

In the present case the district court apparently concluded that the written materials presented no disputed questions of fact on jurisdiction and no issues of credibility. Under these circumstances, the burden of the plaintiff is relatively slight and the district court "must consider the pleadings and affidavits in the light most favorable to the plaintiff." Poston v. American President Lines, Ltd., 452 F.Supp. 568, 571 (S.D.Fla.1978) (citation omitted). Accord: School District of Kansas City v. Missouri, 460 F.Supp. 421, 433 (W.D.Mo.1978), appeal dismissed, 592 F.2d 493 (8th Cir. 1979); Ammon v. Kaplow, 468 F.Supp. 1304 (D.Kan.1979).

III.

In determining whether personal jurisdiction exists over a nonresident defendant in a diversity case, a district court applies the law of the state in which it sits subject to due process limitations. It has been determined that the Ohio long arm statute is intended to extend the jurisdiction of its courts to the constitutional limits, at least with respect to the "transaction of any business" provision. See In-Flight Devices Corp. v. Van Dusen Air, Inc., supra, 466 F.2d at 225. The constitutional limit of jurisdiction over nonresidents has been defined by the Supreme Court in a series of cases. The issue was stated by the Court in International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945), in terms of two requirements: there must be minimum contacts with the forum state, and out-of-state service in the particular circumstances must not offend traditional notions of fair play. In Hanson v. Denckla, 357 U.S. 235, 251, 78 S.Ct. 1228, 1238, 2 L.Ed.2d 1283 (1958), the Court held that a defendant may not be required to defend an action...