Zobel v. Contech Enterprises

Citations: 170 F. Supp. 3d 1041; 2016 WL 1117592; 2016 U.S. Dist. LEXIS 36451Docket: Case No. 2:14-cv-2721

Court: District Court, S.D. Ohio; March 21, 2016; Federal District Court

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Plaintiff Mark Zobel, an Ohio resident, filed a lawsuit against Defendant Contech Enterprises, Inc., a British Columbia corporation, and its individual officers for fraudulently inducing his purchase of stock in November 2013, allegedly in violation of federal and state securities laws. The lawsuit includes individual Defendants Grambart, Gregory, Spigelman, Heppell, Zaplatynsky, and Burman, who are associated with Contech. Zobel claims that Grambart solicited him for a Vice President position in August 2013, leading to a series of communications that resulted in Zobel purchasing 643,750 shares for $200,000. He asserts that Defendants misrepresented Contech's financial condition to convince him to invest. Zobel seeks rescission of the stock purchase along with compensatory and punitive damages. The Court is considering Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction and Insufficient Service of Process, which is partially granted and partially denied.

To survive a motion to dismiss for lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2), a plaintiff must demonstrate jurisdiction over each defendant individually. A court may decide on such motions based solely on affidavits, allow discovery, or conduct an evidentiary hearing, but no further discovery or hearing was requested in this case. The plaintiff carries the burden of establishing personal jurisdiction, which is relatively minimal when the decision is based solely on written evidence. The plaintiff must provide a prima facie showing that personal jurisdiction exists, considering the evidence in the light most favorable to them while establishing specific facts supporting jurisdiction with reasonable particularity.

For a federal court in diversity, personal jurisdiction over an out-of-state defendant is contingent on the forum state's jurisdiction. Under Ohio law, this requires that the long-arm statute confers jurisdiction and that it complies with the Federal Due Process Clause. Ohio's long-arm statute does not extend to the limits of the Due Process Clause, warranting separate analysis. Federal securities claims asserted by Zobel establish sufficient grounds for personal jurisdiction over defendant Gregory, who resides in Pennsylvania, as Section 78aa of the Securities Exchange Act allows nationwide service of process, ensuring minimum contacts with the U.S. 

Ohio Rev. Code 2307.382 permits personal jurisdiction over individuals based on specific actions within the state, including transacting business, causing tortious injury within the state, or committing acts outside the state with the intent to injure individuals in Ohio.

Defendants contend that establishing jurisdiction over Contech does not automatically extend to individual corporate officers. Both Ohio and the Sixth Circuit adhere to the fiduciary shield doctrine, which protects individuals from personal jurisdiction if their state contacts arise solely from their fiduciary roles within the corporation. Relevant case law, such as Joyner v. MERS, illustrates this principle, where a CFO was dismissed from a complaint due to lack of personal jurisdiction, as no personal actions connected him to the state. However, the Sixth Circuit identifies exceptions to the fiduciary shield, particularly when an out-of-state agent is actively involved in the conduct underlying the claim. In such cases, personal jurisdiction must adhere to traditional due process, assessing whether the agent purposefully availed themselves of the forum and the foreseeable consequences.

The Due Process Clause mandates that nonresident defendants have "minimum contacts" with the forum state, ensuring that jurisdiction aligns with "traditional notions of fair play and substantial justice." A three-part test for minimum contacts includes: purposefully availing oneself of the forum, the cause of action arising from the defendant's activities in the state, and a substantial connection between the defendant's actions and the forum state justifying jurisdiction.

Purposeful availment occurs when a defendant's actions establish a significant connection with the forum state, enabling them to reasonably anticipate facing legal action there. This concept protects against jurisdiction based on random or fortuitous contacts. Significant actions, such as negotiating and executing contracts with residents of the forum state, can constitute purposeful availment, even without physical presence.

The contract alone does not establish personal jurisdiction over a foreign defendant; instead, a comprehensive evaluation of prior negotiations, future implications, contract terms, and the parties' interactions is necessary to determine if the defendant has purposefully established minimum contacts in the forum. In *Intern. Content Liquidation*, the court found that the defendant engaged in purposeful availment by communicating through email and phone to negotiate a contract with an Ohio resident, which included a term for Ohio law to govern the contract. Conversely, limited phone contact was deemed insufficient for purposeful availment in cases like *SFS Check* and *Healthcare Capital*, where interactions did not substantiate jurisdiction.

In the current case, Zobel claims Grambart solicited him for a Vice President position at Contech via phone and email while Zobel was in Ohio, and mailed a formal job offer to his Ohio residence. Zobel accepted the position and wired $200,000 from his Ohio bank to Contech's account in Canada, receiving a stock certificate mailed to his Ohio address. The Court finds Zobel has made a prima facie case that Grambart and Contech purposefully availed themselves of acting in Ohio, drawing parallels with *Intern. Content Liquidation*. The circumstances differ significantly from the *SFS Check* case due to the more substantial interactions. While *Healthcare Capital* indicated no purposeful availment, it focused on the lack of connection to the alleged harm rather than jurisdictional contacts.

Regarding defendants Spigelman, Heppell, Zaplatynsky, and Burman, no prima facie showing of purposeful availment was established, as Zobel did not specify their contacts with Ohio prior to his stock purchase. Zobel's vague assertion of email exchanges with these defendants does not meet the necessary specificity to support jurisdiction.

Zobel's claim that he communicated with Defendants Gregory and Spigelman about Contech while residing in Ohio lacks specificity regarding the timing and location of these discussions. Even if such calls occurred while Zobel was in Ohio, limited phone communication does not establish purposeful availment. The cause of action must arise from defendants' activities in the forum state, and in this case, Zobel's claims of common law fraud, rescission, and false statements stem from the negotiation and execution of a stock purchase in Ohio. 

For jurisdiction to be reasonable, the defendants’ actions must have a substantial connection to Ohio. Here, Grambart and Contech engaged in negotiations and contract execution with an Ohio resident, which satisfies this requirement. Ohio's interests, exemplified by its Blue Sky laws protecting investors, further support the reasonableness of exercising jurisdiction. 

Regarding service of process, the defendants argue that proper service has not been achieved for Grambart, who resides in Canada and was served by registered mail. Federal jurisdiction necessitates proper service of summons, which must conform to the requirements of Federal Rule of Civil Procedure 4(f)(1). This rule allows service via means reasonably calculated to provide notice, such as those permitted by the Hague Convention, which allows for postal service of judicial documents to individuals abroad if the destination state does not object.

District courts in the Sixth Circuit have differing opinions on whether the "freedom to send judicial documents" encompasses service of process. The Northern District of Ohio's decision in Sibley v. Alcan, Inc. supports the view that Article 10(a) of the Hague Convention allows for service of process, which is reinforced by a practical handbook from the convention's signatory countries. Subsequent cases in the Sixth Circuit have adopted this interpretation, affirming that service of process can be conducted internationally via registered mail. As a result, the court concludes that Grambart was properly served. In the ruling, the Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction and Insufficient Service of Process is partially granted and partially denied: it is granted for Defendants Burman, Zaplatynsky, Heppell, and Spigelman, who are dismissed, but denied for Defendants Contech, Grambart, and Gregory.