Spotts Bros., Inc. v. Seraphim USA Mfg., Inc., Civil No. 3:18-CV-2235

SPOTTS BROTHERS, INC., Plaintiff, v. SERAPHIM USA MFG., INC., RYAN ERWIN, Defendants.

Civil No. 3:18-CV-2235

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

August 20, 2019

(Judge Mariani)

(Magistrate Judge Carlson)

REPORT AND RECOMMENDATION

I. Statement of Facts and the Case

The concept of personal jurisdiction is one that is defined by rule and statute but also has a constitutional dimension. As a matter of constitutional due process, in order for personal jurisdiction to exist over a non-resident party in a litigation forum, two requirements typically must be met: first, the non-resident defendant must have some minimum contacts with the forum jurisdiction, a requirement which is satisfied if the defendant purposefully directed its activities towards a forum jurisdiction resident. If this threshold requirement is met, the second question that must be answered is "whether the assertion of personal jurisdiction would comport with 'fair play and substantial justice.' International Shoe Co. v. Washington, 326 U.S., at 320, 66 S.Ct., at 160." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct. 2174, 2184, 85 L. Ed. 2d 528 (1985).

In this breach of contract litigation, we are now called upon to consider a motion to dismiss for lack of personal jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(2) filed by the defendants, Seraphim USA Manufacturing, Inc. ("Seraphim") and Ryan Erwin. (Doc. 9.) The plaintiff, Spotts Brothers, Inc. ("Spotts") brought this suit against the defendants alleging breach of contract, fraud, and fraudulent inducement. The plaintiff also contends that Erwin should be held personally liable for the breach of contract and fraud based on a piercing the corporate veil theory. Spotts alleges that the defendants failed to timely deliver solar panels in accordance with a contract that Spotts entered into with Seraphim.

Specifically, the plaintiff's complaint alleges that Spotts is a Pennsylvania company, and the defendants Seraphim and Erwin are residents of Texas. (Doc. 1, ¶¶1-3.) According to the complaint, Spotts had a contract with the Commonwealth of Pennsylvania to construct a solar energy generation facility, and in order to construct the facility, Spotts needed to purchase solar panels. (Doc. 1, ¶¶ 8-9.) Spotts purchased a number of solar panels from Seraphim, at a mutually negotiated price and warranty, but not all of the panels were delivered in time for Spotts to construct the facility for the Commonwealth. (Id., ¶¶ 10-13.) The parties had initially agreed upon a 30% down payment by Spotts to Seraphim for these solar panels, which theplaintiff timely made on July 2, 2018. (Id., ¶¶ 14-15.) However, in late September 2018, these payment arrangements were changed, allegedly at Seraphim's request. Specifically, on September 21, 2018, Seraphim requested an advance payment of the remaining invoice balance, $93,119.00. Before the defendants requested final payment and invoiced the plaintiff a final invoice, the defendants told the plaintiff in writing that shipment of the order would be the following week. (Id., ¶ 19.) On September 25, 2018, Spotts wired the requested remaining payment, $93,119.00, from Pennsylvania to Seraphim with the expectation that all of the ordered solar panels would be delivered the following week. (Id., ¶ 20.) However, as time progressed, Seraphim was unable to produce and deliver the solar panels called for under the purchase order. (Id., ¶ 21.)

Instead, upon receipt of the payment, Seraphim shipped only twenty-two percent (22%) of the order on October 2, 2018, in time for an event the Commonwealth was having at the project site. (Id., ¶ 27.) The plaintiff alleges that Seraphim led the plaintiff to believe that the remainder of the order would come within one week of the first shipment. (Id., ¶ 28.) However, on October 14, 2018, the defendants admitted in a letter from Erwin that the panels had not been produced and that it would not return the funds that were wired by the plaintiff. (Id., ¶ 29.) The plaintiff alleges that it has demanded the return of the funds that it paid and cancellation of the balance of the order, but the defendants have refused. (Id., ¶ 30.)It is also alleged that the funds wired on September 25, 2018 were used by the defendants on other projects and for investment, instead of for the production of the plaintiff's solar panels. (Id., ¶ 23.) Further, Spotts asserts that Erwin, by and through Seraphim's sales personnel and other employees, engaged in fraudulent actions and communications with the plaintiff in order to deceive Spotts into believing that once payment was made, the panels would be delivered in a timely manner. (Id., ¶ 24.)

On November 19, 2018, Spotts filed this action. In its complaint, Spotts brings breach of contract, fraud, and fraudulent inducement claims against Seraphim. Spotts also alleges that Erwin, who is described as the President of Seraphim, should be held personally liable under a corporate veil-piercing theory. (Doc. 1.) The defendants now move to dismiss the complaint, alleging a lack of personal jurisdiction over the defendants pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. (Doc. 9.) Specifically, the defendants argue that a Pennsylvania court does not have jurisdiction over Seraphim and Erwin, who reside in Texas, as the plaintiff has not shown that the defendants have sufficient minimum contacts with this jurisdiction that would give rise to personal jurisdiction in Pennsylvania.

The defendants support their motion to dismiss with two affidavits, which describe the limited nature of the defendants' contacts with Pennsylvania, a declaration from Mr. Erwin, and a second declaration from a corporate representative for Seraphim, Steve Ostrenga. As to Seraphim, this affidavit revealsthat Seraphim is a Texas company that does not own real property in Pennsylvania; does not maintain any office in Pennsylvania; does not employ any Pennsylvania residents; and has never attended marketing functions in Pennsylvania. (Doc. 9-3.) Seraphim's total sales in Pennsylvania from 2016 through 2018 consisted of three sales which were less than 3% of the company's total sales. (Id.) While Seraphim's affidavit makes these general allegations regarding the company's overall contacts to Pennsylvania, in terms of this specific set of transactions with Spotts which form the basis of this lawsuit, the affidavit did not dispute the chronology of events set forth in the complaint, and did not contest the allegations that Seraphim entered into this agreement in July of 2018 and negotiated accelerated payments under the agreement in late September 2018, based upon a promise to timely perform in October. Seraphim also did not contest the allegation that it failed to produce all of the solar panels ordered by Spotts in October, within weeks of receiving the accelerated contract payment based upon its alleged promise to perform. Instead, Seraphim simply asserted that no representative of Seraphim traveled to Pennsylvania to conduct these negotiations, which were done by telephone and email, and no representative of Seraphim ever physically traveled to Pennsylvania following the issuance of the purchase order for these goods. (Id.)

As for Defendant Erwin, this defense affidavit speaks both to Erwin's general ties to Pennsylvania and discusses his lack of involvement in this particulartransaction, setting forth even more minimal ties to Pennsylvania than those outlined by the corporate defendant Seraphim. According to Erwin's affidavit, he has never traveled to Pennsylvania; owns no property or businesses in Pennsylvania; pays no taxes in Pennsylvania; and has no bank accounts in Pennsylvania. (Doc. 9-4.) Erwin also specifically denies the allegation that he was the President of Seraphim at the time of these events, stating that he simply served in non-salary capacity as a member of the company's board of directors along with three other individuals. (Id.) Erwin further alleges that he was not involved in the negotiation of the contract between Seraphim and Spotts; played no role in the creation of the invoice for this sale; never visited the Spotts facilities in Pennsylvania; and had no communication with Spotts other than signing an October 14, 2018 letter that was sent by Seraphim to Spotts as its business relationship with Spotts collapsed. (Id.)

This motion to dismiss is fully briefed by the parties and is, therefore, ripe for resolution. For its part, Spotts has briefed the motion in a somewhat spare fashion and has provided no affidavits or evidence contradicting or contesting the factual matters alleged by Erwin and Seraphim. Therefore, those factual matters alleged by the defendants are uncontradicted on this record by any competent evidence.

Upon consideration, for the reasons set forth below, while we regard this as a close case, we recommend that the motion to dismiss be granted with respect to Erwin but denied with respect to Seraphim.

II. Discussion

A. Motion to Dismiss for Lack of Personal Jurisdiction- Standard of Review

In their motion to dismiss, the defendants first seek to dismiss this complaint pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure on the grounds that this court lacks personal jurisdiction over them. This court has recently defined the standard of review that applies to Rule 12(b)(2) motions which seek to dismiss cases based upon the court's lack of personal jurisdiction over defendants, stating that:

Motions to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), like those for failure to state a claim under Rule 12(b)(6), require the court to accept as true the allegations of the pleadings and all reasonable inferences therefrom. Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir. 2002). However, unlike Rule 12(b)(6), Rule 12(b)(2) does not limit the scope of the court's review to the face of

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