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Schwartz T.P. Inc. v. McCarthy

United States District Court, W.D. Pennsylvania

March 31, 2015

SCHWARTZ T.P. INC., Plaintiff,



This action arises out of Christopher A. McCarthy ("McCarthy")'s alleged breach of an Employment Agreement ("Agreement") he executed with Plaintiff Schwartz T.P., Inc. ("Schwartz"), his former employer. McCarthy, who resigned his employment with Schwartz, effective April 30, 2014, has commenced employment with Timco, Inc. ("Timco"), an alleged competitor of Schwartz. It is Schwartz's contention that by working for Timco, McCarthy has breached the terms of the Agreement. Schwartz further alleges that apart from breaching the terms of the Agreement, while working for Timco McCarthy has misappropriated its trade secrets and other confidential information relating to Schwartz's products and current and prospective customers. Schwartz seeks a preliminary and permanent injunction that enjoins Schwartz from violating the Agreement and misappropriating its trade secrets and confidential information, filing both a Complaint and a Motion for Preliminary Injunction against McCarthy.

On August 25, 2014, McCarthy filed a Response in Opposition to Plaintiffs Motion for Preliminary Injunction. On that same date, he also filed a Motion to Dismiss, or in the Alternative, to Transfer; McCarthy is a citizen of Georgia. The Court ordered that a hearing be held with respect to the issue of whether it has personal jurisdiction over McCarthy. Before that hearing was held, on September 11, 2014, McCarthy filed a Motion to Stay Arbitration in which he stated, relevant for this decision, that he was not waiving the arguments set forth in his motion to dismiss, or in the alternative, to transfer, but was making a special appearance in order to file a motion to stay arbitration proceedings which Schwartz had initiated in Philadelphia, before the American Arbitration Association, Schwartz T.P., Inc. v. Christopher McCarthy, Case No. 01-14-0001-0831, "until after such time as this Court determines that it has personal jurisdiction over McCarthy, that transfer of this matter to the United States District Court for the Northern District of Georgia is inappropriate, whether the arbitration forum selection clause in McCarthy's Employment Agreement is enforceable, and which state law should apply to the Agreement." Motion to Stay, p. 1.

The hearing on jurisdiction was held on October 2, 2014. At the conclusion of the parties' arguments, the Court met with the parties in chambers to discuss the possibility of mediating the issue. On or about October 28, 2014, the parties communicated to the Court's staff that they were not able to agree on the terms of the mediation. Accordingly, we have now examined on its merits the jurisdiction question before us and conclude that this Court has specific personal jurisdiction over McCarthy. Accordingly, Defendant's motion to dismiss is denied to the extent it is based upon a lack of jurisdiction argument. We further conclude that our Court is the proper venue for this action. Accordingly, Defendant's motion to transfer this matter to the U.S. District Court for the Northern District of Georgia also is denied.

I. Motion to Dismiss for Lack of Personal Jurisdiction over Defendant McCarthy.

A. Waiver of Personal Jurisdiction argument.

As an initial matter, Schwartz argues that by filing his Motion to Stay Arbitration and because the Agreement contains a forum selection clause, Mr. McCarthy has waived his right to contest whether this Court has personal jurisdiction over him. Plaintiffs Surreply in Opposition to Defendant's Motion to Dismiss, or in the Alternative, to Transfer ("Plaintiffs Surreply"), pp. 2-5.

In Bel-Ray Co.. Inc. v. Chemrite (PTY) Ltd . 181 F.3d 435 (3d Cir. 1999), our appellate court discussed waiver of personal jurisdiction:

'Because the requirement of personal jurisdiction represents first of all an individual right, it can, like other such rights, be waived'. Insurance Corp. of Ireland, Ltd.. et al. v. Compagniedes Bauxites de Guinee . 456 U.S. 694, 703, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982). Moreover, the 'actions of the defendant may amount to a legal submission to the jurisdiction of the court, whether voluntary or not'. Id. at 704-705, 102 S.Ct. 2099.

Id. at 443.

With respect to the contention that McCarthy waived this objection by filing his Motion to Stay Arbitration, the appellate court further explained in Bel-Ray Co.. Inc.:

Moreover, the "actions of the defendant may amount to a legal submission to the jurisdiction of the court, whether voluntary or not." Id. at 704-705, 102 S.Ct. 2099. In particular, where a party seeks affirmative relief from a court, it normally submits itself to the jurisdiction of the court with respect to the adjudication of claims arising from the same subject matter. Adam v. Saenger, 303 U.S. 59, 58 S.Ct. 454, 82 L.Ed. 649 (1938).
Because there "exists a strong policy to conserve judicial time and resources, " we have held that "preliminary matters such as ... personal jurisdiction ... should be raised and disposed of before the court considers the merits or quasi-merits of a controversy." Wyrough & Loser. Inc. v. Pelmor Labs., Inc .. 376 F.2d 543, 547 (3d Cir. 1967). Accordingly, in Wyrough we held that a defendant who participates in the adjudication of the plaintiffs application for a preliminary injunction without securing a determination of his challenge to the court's personal jurisdiction over him submits himself to the jurisdiction of the court unless it is not reasonably feasible to first secure that determination. See Id. This is true even where the defendant raises his personal jurisdiction defense at the earliest point required by the Federal Rules. See id.

Id. at 443. We conclude that by filing his Motion to Stay Arbitration, McCarthy, who from the very start of this litigation has contested this Court's jurisdiction over him, has not waived his right to contest jurisdiction.

With respect to the contention that McCarthy waived this objection because the Agreement at issue contains a forum selection clause, in Sam Mannino Enterprises, LLC v. John W. Stone Oil Distributor. LLC . 2014 WL 2809385 (June 23, 2014), my colleague, the Honorable Kim Gibson explained:

It is well established that personal jurisdiction is a waivable right. Burger King v. Rudzewicz . 471 U.S. 462, 472 n. 14, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). Relevant here, a defendant may consent to personal jurisdiction through the execution of a valid forum selection clause. See Ins. Corp. of Ireland. Ltd. v. Compagnie des Bauxites de Guinee . 456 U.S. 694, 703-04, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982) (finding that a forum selection clause may act as consent to personal jurisdiction, thus obviating the need for the traditional minimum contacts analysis); see also, e.g., SKF USA Inc. v. Okkerse, ____F.Supp.2d___, CIV.A. 13-5111, 2014 WL 185221 (E.D.Pa. Jan. 15, 2014). In such cases, the court need only determine the validity and effect of the forum selection clause to find that a defendant has consented to personal jurisdiction . SKF USA Inc..____F.Supp.2d at____, 2014 WL 185221, at *7; Provident Mutual Life Ins. Co. of Phila. v. Bickerstaff . 818 F.Supp. 116, 118 (E.D.Pa. 1993) (citing Burger King, 471 U.S. at 475, 105 S.Ct. 2174). In diversity cases, federal law governs the effect to be given a contractual forum selection clause. Jumara v. State Farm Ins. Co ., 55 F.3d 873, 877 (3d Cir. 1995).

Id. at *2. Judge Gibson further explained that:

Under federal law, a forum selection clause is "prima facie valid" and should be enforced unless it is "unjust or unreasonable." M/S Bremen v. Zapata Off-Shore Co. . 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). A court must enforce a forum selection clause unless the party opposing its enforceability demonstrates (1) that it is the result of fraud or overreaching, (2) that enforcement would violate a strong public policy of the forum, or (3) that enforcement would in the particular circumstances of the case result in litigation in a jurisdiction so seriously inconvenient as to be unreasonable." Coastal Steel Corp. v. Tilghman Wheelabrator . 709 F.2d 190, 202 (3d Cir. 1983). This heavy burden "requires more than a showing of inconvenience or additional expense." Provident Mut. Life Ins. Co. of Philadelphia v. Bickerstaff . 818 F.Supp. 116, 118 (E.D.Pa. 1993) (citations omitted).

Id. at *2-3.

Applying the above-cited law, if the Agreement contained a forum selection clause that was applicable to the allegations contained in Schwartz's Complaint, then assuming that said clause was valid and effective, then we would hold that based upon there being an enforceable forum selection clause, McCarthy had waived any lack of personal jurisdiction. Upon review of the Agreement, however, the sole forum selection clause in the Agreement discusses the proper forum in which to arbitrate any disputes under the Agreement, see Agreement, ¶ 8(b). Accordingly, the argument that McCarthy waived his right to object to this Court's jurisdiction because the Agreement at issue contains a forum selection clause fails.

Thus, we find that McCarthy has not waived his lack of personal jurisdiction argument. We turn next to the merits of the personal jurisdiction issue.

B. Merits of Motion to Dismiss for lack of personal jurisdiction

As aptly summarized in Stillwagon v. Innsbrook Golf & Marina, LLC, 2012 WL 501685 (W.D. Pa.) (Hornak, J.):

When a defendant contests personal jurisdiction, the burden shifts to the plaintiff to prove its existence. Metcalfe [v. Renaissance Marine, Inc.], 566 F.3d [324, ] 330 [(3d Cir. 2009)]; Mellon Bank (E.) PSFS. Nat'l Assoc, v. Farino . 960 F.2d 1217, 1223 (3d Cir. 1992). The plaintiff may establish a prima facie case of personal jurisdiction by demonstrating, with reasonable particularity, sufficient contacts between the moving defendant and the forum state. Metcalfe, 56 F.3d at 330; Farino, 960 F.2d at 1223. A plaintiff may demonstrate these sufficient minimum contacts via affidavits or other competent evidence. Metcalfe, 56 F.3d at 330 (quoting Davhoff. Inc. v. H J. Heinz Co. . 86 F.3d 1287, 1302 (3d Cir. 1996)). The court must accept the plaintiffs allegations as true and construe disputed facts in his favor. Id.
A district court may exercise personal jurisdiction over a non-resident defendant in accordance with the law of the state where the district court sits. Fed. R. Civ. Pro. 4(e); Abel v. Kirbaran . 267 Fed.App'x 106, 108 (3d Cir. 2008.); Eurofins Pharma U.S. Holdings v. BioAlliance Pharma S.A., 623 F.3d 147, 155 (3d Cir. 2010). As Pennsylvania's long-arm statute is coextensive with the United States Constitution, the limits set by Due Process Clause of the Fourteenth Amendment govern the jurisdictional inquiry here. 42 Pa. Con. Stat. § 5322(b); Time Share Vacation Club v. Atlantic Resorts. Ltd. . 735 F.2d 61, 63 (3d Cir. 1984). The Due Process Clause requires that sufficient minimum contacts exist between the nonresident defendant and the plaintiffs chosen forum for personal jurisdiction to be proper. Time Share, 735 F.2d at 63.
Personal jurisdiction exists in two forms: specific and general. Abel, 267 Fed.App'x at 108. "Specific jurisdiction" applies where the defendant purposefully directed certain of its activities at the forum state, and the cause of action arises out of those same activities. Id.; O'Conner v. Sandy Lane Hotel Co., Ltd., 496 F.3d 312, 317 (3d Cir. 2007); Centimark Corp. v. Lavine . No. Ilcv0757, 2011 WL 2941214, at *5 (W.D. Pa. June 20, 2011). If these two requirements are met, the district court then considers whether the exercise of specific jurisdiction comports with notions of fair play and substantial justice. O'Conner, 496 F.3d at 317; Centimark Corp. . 2011 WL 2941214, at *5. The broader jurisdictional predicate-general jurisdiction-is proper where the defendant maintains continuous and systematic contacts with the forum, making the exercise of that state's judicial power over the defendant proper. Metcalfe, 566 F.3d at 344; Abel . 267 Fed.App'x at 108.
Regarding contract claims, the Supreme Court in Burger King Corporation v. Rudzewicz . 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985), noted that parties "who reach out beyond one State and create continuing relationships and obligations with citizens of another state are subject to regulation and sanctions in the other State for the consequences of their activities." Farino, 960 F.2d 1217 at 1222 (quoting Burger King Corp., 471 U.S. at 462) (internal quotations omitted). It is not unreasonable to require a contracting party to give an account in a particular forum when that party purposely availed itself of the privilege of conducting business there or created a continuing obligation with a forum resident. See Id. (citing Burger King Corp. . 471 U.S. at 475-76).
That being said, the mere act of contracting with a forum resident, in absence of other contacts, is not enough to satisfy the minimum contacts requirement of the Due Process Clause. Farino, 960 F.2d at 1223. However, a court may find that the requisite connections exist when looking at the totality of the parties' relationship, including their actual course of dealing. Id.; Remick v. Manfredy, 238 F.3d 248, 256 (3d Cir. 2001). See also Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d 172, 177-78 (3d Cir. 2006). For instance, mail and telephone communications sent by defendant into the forum are contacts supporting jurisdiction. Remick . 238 F.3d at 256; Telcordia Tech. Inc. . 458 F.3d at 178.

Id. at **2-3.

Therefore, in order for Schwartz to withstand McCarthy's motion to dismiss, it must establish through competent evidence that this Court has either general jurisdiction or ...

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