Fruit of the Loom, Inc. v. Zumwalt

FRUIT OF THE LOOM, INC., ET AL. PLAINTIFFS v. RUSTON B. ZUMWALT DEFENDANT

CIVIL ACTION NO. 1:15CV-131-JHM

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY BOWLING GREEN DIVISION

November 19, 2015

MEMORANDUM OPINION AND ORDER

This matter is before the Court on a motion by Defendant, Ruston B. Zumwalt, to dismiss the Verified Complaint filed by Plaintiffs, Fruit of the Loom, Inc. and Russell Brands, LLC, for lack of personal jurisdiction, or alternatively, a motion to transfer the action to the United States District Court for the Northern District of Oklahoma. [DN 20] Fully briefed, this matter is ripe for decision.

I. BACKGROUND

Plaintiff, Ruston B. Zumwalt, is a resident of Owasso, Oklahoma. From April 2010 through September 15, 2015, Zumwalt was employed as a salesman by Russell Brands, LLC, an operating company of Fruit of the Loom. Both Fruit of the Loom and Russell Brands are Delaware limited liability companies with their principal place of business in Bowling Green, Kentucky. During his tenure as salesman, Zumwalt sold Russell Brands' athletic and Bike products in Oklahoma and south central Kansas. Zumwalt was Russell Brands' sole representative in the territory. During his five-year employment, Zumwalt traveled to Kentucky as part of his job duties with Russell Brands for national sales meetings. Zumwalt had access to sensitive and proprietary information concerning Fruit of the Loom and Russell Brands, including customer lists and contact information, account information, sales figures, merchandising and sales strategies, product pricing, and sales practices and policies.

On May 27, 2015, Zumwalt signed a Trade Secrets and Non-Competition Agreement (the "Agreement"). The Agreement was generated in Kentucky and signed by Zumwalt in Oklahoma. The parties to the Agreement were Zumwalt and Fruit of the Loom. In Section 7 of the Agreement, the parties stipulated that the Agreement "shall be construed according to the laws of the Commonwealth of Kentucky, without regard for its conflicts of laws principles." Zumwalt signed the Agreement in exchange for participation in Fruit of the Loom's 2015 Sales Incentive Program which awarded "bonus" compensation to Fruit of the Loom sales personnel based on their performance during the year. In Section 11 of the Agreement, Zumwalt acknowledged that participation in the 2015 Sales Incentive Program was "good and valid consideration" for his promises in the Agreement, "whether or not a bonus [was] actually earned under the Program."

In Section 1 of the Agreement, Zumwalt promised during and after his employment "not to disclose Confidential Information or Trade Secrets to third parties, or to use Confidential Information or Trade Secrets on behalf of third parties." In Section 5(a)(i) of the Agreement, Zumwalt promised that for a period of 12 months after termination of his employment, he would not solicit or participate in soliciting any Covered Customer, directly or indirectly, to purchase products from a competitor, or to decrease its level of business with Fruit of the Loom or Russell Brands. Further, in Section 5(a)(ii) of the Agreement, Zumwalt promised that for a period of 12 months after termination of employment, he would not directly or indirectly work or provide services for a competitor.

In September of 2015, Zumwalt announced his intent to resign his position with RussellBrands and go to work for BSN Sports, a competitor of Fruit of the Loom. On September 15, 2015, Zumwalt's attorney sent Fruit of the Loom a letter stating that the non-competition provision in the Agreement is "void and cannot be enforced" under Oklahoma law. The letter also informed Fruit of the Loom that Zumwalt "[w]ould not use or disclose any confidential or trade secret information" to any third party. On September 28, 2015, Zumwalt began working for BSN Sports.

Plaintiffs filed suit on October 23, 2015, alleging breach of the non-competition and the non-solicitation provisions and injunctive relief based on both provisions. On November 4, 2015, Zumwalt filed this motion to dismiss for lack of personal jurisdiction, or alternatively, to transfer the action to the United States District Court for the Northern District of Oklahoma.

II. MOTION TO DISMISS

The Court will first address Defendant's motion to dismiss for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2). The burden is on Plaintiffs to demonstrate that jurisdiction exists. See Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). To make such a showing, "the plaintiff may not stand on his pleadings but must, by affidavit or otherwise, set forth specific facts showing that the court has jurisdiction." Id. Further, when presented with a Rule 12(b)(2) motion, "the court has three procedural alternatives: it may decide the motion upon the affidavits alone; it may permit discovery in aid of deciding the motion; or it may conduct an evidentiary hearing to resolve any apparent factual questions." Id. (citation omitted).

Plaintiffs have not sought an evidentiary hearing. In his reply, Defendant suggests that if the Court found that there were issues of disputed facts related to personal jurisdiction which require resolution at an evidentiary hearing, the parties could address these issues at the time presently scheduled for the preliminary injunction hearing. Plaintiffs filed suit on October 23,2015, alleging breach of the non-competition and the non-solicitation provisions and injunctive relief based on both provisions. On November 4, 2015, Zumwalt filed this motion to dismiss for lack of personal jurisdiction, or alternatively, to transfer the action to the United States District Court for the Northern District of Oklahoma. The Court does not believe the matter requires a hearing. If the Court determines the jurisdictional issue on written submissions only, the plaintiff "need only make a prima facie showing of jurisdiction." Compuserve, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996). When making such a determination without an evidentiary hearing, "the court must consider the pleadings and affidavits in a light most favorable to the plaintiff." Id. Furthermore, the court must "not consider facts proffered by the defendant that conflict with those offered by the plaintiff." Neogen Corp. v. Neo Gen Screening, Inc., 282 F .3d 883, 887 (6th Cir. 2002).

Subject matter jurisdiction in this case is based on diversity of citizenship pursuant 28 U.S.C. § 1332. In a diversity case, a federal court determines whether personal jurisdiction exists over a nonresident defendant by applying the law of the state in which it sits. Third National Bank v. WEDGE Group Inc., 882 F.2d 1087, 1089 (6th Cir. 1989). The Court applies a two-step inquiry to determine whether it may exercise personal jurisdiction over a nonresident defendant: "(1) whether the law of the state in which the district court sits authorizes jurisdiction, and (2) whether the exercise of jurisdiction comports with the Due Process Clause." Brunner v. Hampson, 441 F.3d 457, 463 (6th Cir. 2006).

A. Kentucky's Long-Arm Statute

Looking first to Kentucky's long-arm statute, the Kentucky Supreme Court has found that the statute requires a two-prong showing before a court can exercise personal jurisdiction over a nonresident. Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 57 (Ky. 2011).First, the Court must find that a nonresident's conduct or activities fall within one of nine enumerated subsections in KRS § 454.210. In this case, Plaintiffs maintain that the cause of action falls under either KRS § 454.210(2)(a)(1) or (2), which provide that courts "may exercise personal jurisdiction over a person who acts directly or by an agent, as to a claim arising from the person's . . . [t]ransacting any business in this Commonwealth . . . ." or "contracting to supply services or goods in this Commonwealth."

If this first prong is satisfied, then the second prong requires the Court to determine if the Plaintiffs' claims arise from the Defendant's actions. See KRS § 454.210(2)(b) ("When jurisdiction over a person is based solely upon this section, only a claim arising from acts enumerated in this section may be asserted against him."). Accordingly, "even when the defendant's conduct and activities fall within one of the enumerated categories, the plaintiff's claim still must 'arise' from that conduct or activity before long-arm jurisdiction exists." Caesars Riverboat, 336 S.W.3d at 56. This requires a showing of "a reasonable and direct nexus between the wrongful acts alleged in the complaint and the statutory predicate for long-arm jurisdiction[.]" Id. at 59. This analysis should be undertaken on a case by case basis, "giving the benefit of the doubt in favor of jurisdiction." Id.

1. Transacting Business in Kentucky

Zumwalt argues that his limited contacts with Kentucky while employed as a sales representative with Russell Brands does not satisfy KRS § 454.210(2)(a)(1) which provides that personal jurisdiction is proper as to a claim arising from a person's transacting any business in Kentucky. Zumwalt represents that in the five years that he was employed by Russell Brands he never worked as a salesman in Kentucky, never made a single sales call to any potential customer in Kentucky, and has never sold any Russell Brands' merchandise in Kentucky.(Zumwalt Aff. ¶¶ 6, 10.) Similarly, Zumwalt avers that he has not done any work in Kentucky nor does he anticipate doing any work in Kentucky for his new employer, BSN Sports, where he has been employed since September 28, 2015. Id. at ¶¶ 11, 13-14. During Zumwalt's employment with Russell Brands, his immediate supervisor lived and worked in either Tennessee or Arkansas - not Kentucky. Further, Zumwalt maintains that the non-compete agreement does not contain Zumwalt's consent to jurisdiction in Kentucky or a choice of venue in Kentucky.

In response, Plaintiffs contend that personal jurisdiction over Zumwalt is...