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Lexel Imaging Systems, Inc. v. Video Display Corporation

United States District Court, E.D. Kentucky, Central Division, Lexington

January 28, 2015

LEXEL IMAGING SYSTEMS, INC. and CITIDAL PARTNERS, LLC, Plaintiff,
v.
VIDEO DISPLAY CORPORATION, Defendant.

OPINION AND ORDER

KAREN K. CALDWELL, District Judge.

This matter is before the Court on the motion for a temporary restraining order or injunction (DE 2) filed by the plaintiff Citidal Partners, LLC. For the following reasons, the motion will be denied.

The defendant in this matter, Video Display Corporation (VDC), sold its wholly owned subsidiary - Lexel Imaging Systems, Inc. - to Citidal for $3.9 million. Each party argues that the other party has somehow breached various agreements between the parties that governed the sale. And each party argues that it should be in control of Lexel.

VDC's representatives have now entered Lexel and taken physical control of the company and have locked Citidal's representatives out of Lexel's offices. Citidal filed this action seeking an injunction that would require VDC's representatives to leave Lexel's premises and restore Citidal's control of Lexel.

The stock purchase agreement between the parties pretty clearly requires arbitration of all disputes regarding the agreement as long as one party serves written notice of intent to arbitrate. (DE 1-1, Stock Purchase Agreement, ¶ 10(i)(ii).) By letter dated October 21, 2104, VDC served Citidal notice of its intent to arbitrate disputes over whether Citidal had made the payments required for the purchase of Lexel. (DE 2-2, Oct. 21, 2014 Letter.) Both parties agree that the underlying issue of whether either party has defaulted on its obligations must be arbitrated.

The arbitration clause notwithstanding, the agreement permits the parties to go to court to seek injunctive relief. (DE 1-1, Stock Purchase Agreement, ¶ 10(i)(iii).) Each party has now come to this Court seeking some form of injunctive relief. VDC filed the first action and then voluntarily dismissed it. Video Display Corporation v. Lexel Imaging Systems, Inc. et al., No. 5:14-cv-403-KKC (filed October 23, 2014).

Citidal then filed this action also seeking injunctive relief. VDC objects to this Court's personal jurisdiction over it and also objects to Citidal's entitlement to the requested relief.

I.

VDC is a Georgia corporation. (DE 12, Response at 8.) It argues that this Court cannot exercise personal jurisdiction over it. VDC has not actually filed a motion to dismiss this action for lack of personal jurisdiction under Rule 12(b)(2) but did object to this Court's jurisdiction in its response to Citidal's motion and at the hearing on the motion. In compliance with the Court's order, both parties have briefed the issue. Because VDC requests that this matter be dismissed for lack of personal jurisdiction, the Court will analyze its request under the 12(b)(2) standard.

"The procedural scheme which guides the district court in disposing of Rule 12(b)(2) motions is well-settled." Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). The plaintiff has the burden of establishing personal jurisdiction. Id. In responding to such a motion, the plaintiff cannot "stand on his pleadings but must, by affidavit or otherwise, set forth specific facts showing that the court has jurisdiction." Id.

The court has three options for deciding a 12(b)(2) motion prior to trial: 1) the court can decide the motion upon the affidavits alone; 2) the court can permit discovery to decide the motion; or 3) the court can conduct an evidentiary hearing to resolve any factual disputes. Serras v. First Tennessee Bank Nat. Ass'n, 875 F.2d 1212, 1214 (6th Cir. 1989) (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2nd Cir. 1981)).

If all the specific facts which the plaintiff alleges collectively fail to state a prima facie case for jurisdiction, the court need not conduct an evidentiary hearing before dismissing the claim. Kerry Steel, Inc. v. Paragon Industries, Inc., 106 F.3d 147 (6th Cir. 1997). A prima facie showing means that the plaintiff only has to present enough facts to avoid a motion to dismiss. Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980) (quoting Data Disc, Inc. v. Systems Technology, Associates, Inc., 557 F.2d 1280, 1285 (9th Cir. 1977)). In determining whether the plaintiff has met this burden, the court must consider the pleadings and affidavits in a light most favorable to the plaintiff. Dean v. Motel 6 Operating L.P., 134 F.3d 1269, 1272 (6th Cir. 1998). The court "does not weigh the controverting assertions of the party seeking dismissal." Theunissen, 935 F.2d at 1459 (citing Serras, 875 F.2d at 1214). A court is not required, however, to "ignore undisputed factual representations of the defendant which are consistent with the representations of the plaintiff." Kerry Steel, 106 F.3d at 153.

The determination that the plaintiff has made the prima facie showing of jurisdiction necessary to survive a motion to dismiss does not relieve him from ultimately having to prove jurisdiction by a preponderance of the evidence if the defendant again raises the jurisdictional issue later in the action. Serras, 875 F.2d. at 1214 (stating that even if court issues pretrial order denying defendant's 12(b)(2) motion, the defendant may proceed to trial without waiving the defense; a threshold determination that personal jurisdiction exists does not relieve the plaintiff at the trial from proving the facts upon which jurisdiction is based by a preponderance of the evidence); Dean, 134 F.3d at 1272 (stating that a defendant "can raise jurisdictional arguments during the trial as well. It is not as if this early determination, with the burden on the plaintiff so low, is the last word on jurisdiction"); Neogen Corp. v. U.S. Dept. of Justice, 2006 WL 3422691, at * 7 n.4 (E.D. Ky. 2006).

If there are no factual disputes regarding the jurisdiction issue, then the court need not conduct a hearing but can decide on the pleadings and affidavits whether the plaintiff has established jurisdiction by a preponderance of the evidence. Dean, 134 F.3d at 1272. (stating that where "the reason for not having an evidentiary hearing was that there was no real dispute' as to the facts or to the extent of discovery... plaintiffs face the same burden as they would if there had been an evidentiary hearing: proof of jurisdiction by a preponderance of the evidence.").

Neither party in this case has requested discovery on the issue of jurisdiction or an evidentiary hearing to resolve relevant factual disputes. Thus, to resolve the jurisdictional issue raised by VDC, the Court will determine whether, taking all of Citidal's allegations as true, it has made the necessary prima facie showing of jurisdiction.

When determining whether personal jurisdiction exists over a defendant in a diversity case, "a federal court must apply the law of the state in which it sits, subject to constitutional limitations." Reynolds v. Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1115 (6th Cir.1994). "[T]he defendant must be amenable to suit under the forum state's long-arm statute and the due process requirements of the Constitution must be met." CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996) (citation omitted).

The Kentucky Supreme Court has determined that the state's long-arm statute does not allow for personal jurisdiction to the full extent of the due-process clause. Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 57 (Ky. 2011). In other words, there may be situations where a defendant has sufficient contacts with the state to satisfy jurisdiction under the due-process clause but the Kentucky statute still does not permit jurisdiction. Id. (citing Banco Ambrosiano, S.P.A. v. Artoc Bank & Trust Ltd., 62 N.Y.2d 65, 476 N.Y.S.2d 64, 464 N.E.2d 432, 435 (1984)).

Thus, in determining whether this Court may exercise personal jurisdiction over a defendant, the Court must first look to whether jurisdiction is permissible under Kentucky's long-arm statute. That statute provides, in relevant part, that a Kentucky court may exercise personal jurisdiction over a person with regards to a claim arising from ...


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