Lucachick v. NDS Americas, Inc., 169 F. Supp. 2d 1103 (D. Minn. 2001)

*1104 *1105 Brian N. Toder, Chestnut & Cambronne, P.A., Minneapolis, MN, on behalf of Plaintiff.

Denis E. Grande, MacKall, Crounse & Moore, P.L.C., Minneapolis, MN, on behalf of Defendant.

DAVIS, District Judge.

This matter is before the Court on Defendant's motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b) (2), or in the alternative to transfer venue to the Southern District of California. Plaintiff Lucachick filed suit in Minnesota State District Court, alleging breach of contract and fraud. Defendant NDS Americas, Inc. ("NDS") removed the suit to this Court on the basis of diversity jurisdiction. Based on a review of all the files, records, and proceedings herein, the Court finds that it lacks personal jurisdiction over Defendant, and therefore Defendant's motion to dismiss is GRANTED.

In 1999, Plaintiff Phillip Lucachick interviewed, both by telephone and in person in California, for employment with NDS, a Delaware corporation with its principle place of business in California. NDS provides systems and services for the secure distribution of entertainment and information over digital media and the Internet to televisions and personal computers. NDS hired Lucachick in the summer of 1999, as a regional sales manager in Minnesota.

According to Plaintiff, during employment negotiations, he told NDS he would only accept an employment offer if it included stock options. NDS's subsequent written offer of employment contained the following provision, "You will also be eligible to receive 10,000 units of future NDS options upon program implementation." Ex. 1, Rudolph Decl. Lucachick also signed an At-Will Employment Agreement.

NDS terminated Lucachick in February, 2000. After his termination, he asked NDS for the stock options discussed in the employment offer. NDS told him that his stock options had not vested, according to the Executive Share Option Scheme. Lucachick then sued in Minnesota State District Court, alleging breach of contract and fraud. NDS removed the case to this court, and now moves for dismissal based on lack of personal jurisdiction.

When a defendant challenges jurisdiction, the burden is on the plaintiff to prove the minimum contacts necessary to satisfy due process. See Hardrives, Inc. v. City of LaCrosse, Wisconsin, 307 Minn. 290, 240 N.W.2d 814, 816 (1976); Newhard, Cook & Co. v. Inspired Life Centers, Inc., 895 F.2d 1226, 1228 (8th Cir. 1990). "At the pre-trial stage, however, the plaintiff need only make a prima facie showing of sufficient Minnesota-related *1106 activities through the complaint and supporting evidence, which will be taken as true." Hardrives, 240 N.W.2d at 816. For the purpose of this motion, this court must take Plaintiffs' allegations as true. See Dakota Industries, Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1387 (8th Cir.1991).

Federal courts have been instructed to use a two-step inquiry when determining if jurisdiction exists over a non-resident party: "(1) whether the facts presented satisfy the forum state's long-arm statute, and (2) whether the non-resident has minimum contacts with the forum state, so that the court's exercise of jurisdiction would be fair and in accordance with due process." Soo Line R. Co. v. Hawker Siddeley Canada, Inc., 950 F.2d 526, 528 (8th Cir.1991).

Minnesota's long-arm statute will be satisfied if a corporation "[t]ransacts any business within the state, or ... [c]ommits any act in Minnesota causing injury or property damage in Minnesota, or ... [c]ommits any act outside Minnesota causing injury or property damage in Minnesota...." Minn.Stat. § 543.19. The Minnesota Legislature intended the state long-arm statute to "have the maximum extraterritorial effect allowed under the due process clause of the federal constitution." Rostad v. On-Deck, Inc., 372 N.W.2d 717, 719 (Minn.1985), cert. denied, 474 U.S. 1006, 106 S. Ct. 528, 88 L. Ed. 2d 460 (1985). Since Minnesota's long-arm statute has such broad extraterritorial effect, the determination as to the propriety of this court's exercise of personal jurisdiction over NDS "collapses into the single question of whether exercise of personal jurisdiction comports with due process." Bell Paper Box, Inc. v. U.S. Kids, Inc., 22 F.3d 816, 818 (8th Cir.1994).

The due process clause requires that there are "minimum contacts" between the defendant and the forum state before the forum state may exercise jurisdiction over the defendant. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980). The "minimum contacts" requirement will be satisfied if the defendant's conduct and connection with the forum state is such that the defendant should reasonably anticipate being haled into the forum state's court. See id. at 291, 100 S. Ct. 559. Furthermore, the maintenance of the suit in the forum state must not offend traditional notions of fair play and substantial justice. See International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 (1945) (citations omitted).

The United States Court of Appeals for the Eighth Circuit applies a five factor test to determine if a defendant's minimum contacts reconcile with federal due process requirements. Those factors are: (1) The quantity of contacts within the forum state, (2) the nature and quality of contacts, (3) the source and connection of the cause of action with these contacts, (4) the interest of the state providing a forum, and (5) the convenience of the parties. See Mountaire Feeds, Inc. v. Argo Impex, S.A., 677 F.2d 651, 654 (8th Cir. 1982). The courts must not mechanically apply these factors, for it has been held that the last two factors are to be considered, but are not determinative. See Soo Line, 950 F.2d at 529, quoting Aaron Ferer & Sons v. American Compressed Steel, 564 F.2d 1206, 1210 n. 5 (8th Cir.1977).

Lucachick argues that NDS has contacts with Minnesota in the form of his employment contract, and ongoing contractual dealings with two corporations that have ties to Minnesota. Plaintiff contends first that the existence of the employment contract between him and Defendant is enough to confer jurisdiction. *1107 Entering into this contract is by itself insufficient grounds upon which to predicate the exercise of this Court's jurisdiction. See Mountaire Feeds, 677 F.2d at 655. Nor is the fact that some of the negotiations were conducted over the telephone, with Lucachick in Minnesota and NDS in California, enough to confer jurisdiction. See Stangel v. Rucker, 398 N.W.2d 602, 605 (Minn.Ct.App.1986) (holding that telephone conversation did not confer personal jurisdiction over non-resident in a fraud claim, where plaintiff initiated the call).

Lucachick argues that the contract was being performed in Minnesota, and therefore any alleged breach took place in Minnesota and this confers jurisdiction. Whether Lucachick's employment is sufficient to confer jurisdiction requires an evaluation of the "real object of the business transaction." Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 317, 63 S. Ct. 602, 87 L. Ed. 777 (1943). What must be contemplated is the future course of dealing between the parties. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 479, 105 S. Ct. 2174, 85 L.Ed.2d 528(1985) (evaluating prior negotiations, contemplated future consequences, terms of the contract and the parties' actual course of dealing in determining whether minimum contacts were established).

Lucachick argues that his involvement in the sale of $200,000 worth of services to DigitalXpress, L.L.C. ("DXP") in 1999 by itself shows that he was expected to do at least some of his work in Minnesota. NDS counters this by pointing out that this sale occurred soon after Lucachick started working, and had been "in the works" for some time prior to his start date. See Rubin Decl. at ¶ 5; Lucachick Aff. at ¶¶ 7-10. Lucachick does not provide any further evidence that he conducted work in Minnesota or was expected to do so.

The Court is not convinced by Plaintiff's argument. Lucachick's residence was the only connection between the employment contract and Minnesota. He does not dispute Defendant's assertions that his residence in Minnesota was a personal choice and not a requirement of the contract. See Rudolph Decl. at ¶ 10. Most of the contract negotiations and final signing took place in California. The job description required Plaintiff to report to NDS's headquarters in California, and to create business contacts with companies located outside of Minnesota. As to the one time Y2K upgrade sale to DXP, the affidavits presented by Plaintiff do not establish that he played a critical role in the sale. See Wright Aff. at ¶¶ 4,5; Combs Aff. at ¶¶ 4, 5. The alleged breach therefore does not support a finding of jurisdiction.

Lucachick also claims that NDS's ongoing contractual relationships with two corporations that do business in Minnesota, the aforementioned DXP and United States Satellite Broadcasting (USSB), are enough to confer general jurisdiction. General jurisdiction arises where the defendant's contacts with the forum are "continuous and systematic" and would allow suit against the defendant even if the contacts are not related to the suit. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416, 104 S. Ct. 1868, 80 L. Ed. 2d 404 (1984).

DXP, a subsidiary of Boeing, provides satellite delivered digital services. From approximately 1995 to 2000, NDS supplied DXP with distribution systems and services. DXP maintains an office and technical uplink site in Minneapolis, both of which received services from NDS. NDS contends that the provision of these services do not constitute a purposeful contact with Minnesota because the contract negotiations and monitoring took place at Boeing's corporate headquarters in Washington.

*1108 Lucachick also testified to his personal knowledge of the ongoing relationship between NDS and a Minnesota facility owned by USSB.^[1] He states that USSB constructed a broadcast center in Oakdale, Minnesota in 1993. As part of its delivery of television signals to the entire continental United States via transponders on a high powered satellite, USSB maintained redundant conditional access uplink system servers provided by NDS. These servers were purchased from NDS, and installed by NDS personnel in 1994. NDS received monthly fees for the use of its technology, including upgrades to hardware and software (over $10 million from 1994-present). Lucachick states that USSB developed its business "in cooperation with" DirecTV, a Delaware corporation with its principle place of business in California. From 1994-1999, USSB paid monthly fees for the use of NDS technology, through DirecTV, which managed the contract with NDS. DirecTV bought out USSB in 1999.

The Court finds that neither of these relationships rise to the level of "systematic and continuous" contacts with Minnesota, because while those companies may have used the NDS products in Minnesota, the original contracts were made elsewhere. The specific contacts described by Lucachick (the 1994 installation of equipment in Oakdale, the 1999 meetings) were isolated incidents. Nor were they "systematic," because DXP is a subsidiary of Boeing which merely happens to have a Minnesota facility, and DirecTV decided to install the equipment in Minnesota after purchasing it from NDS. Any contacts between NDS and USSB, which was located in Minnesota, were conducted through DirecTV, which was located in California. Any contacts between NDS and DXP's Minnesota operation were conducted through DXP's headquarters in Seattle. The Court finds that these contacts are tenuous and not sufficiently numerous or sustained to support jurisdiction.

The critical factor in this portion of the analysis is a determination of whether the contacts of NDS with Minnesota constituted "voluntary, affirmative, economic activity of substance," Zumbro, Inc. v. California Natural Products, 861 F. Supp. 773, 780 (D.Minn.1994). As discussed supra, the contacts between NDS and Minnesota were neither purposeful nor meaningful. Lucachick's residence in state was voluntary. While NDS employees had sporadic contact with Minnesota-based facilities, these do not rise to the level of "affirmative economic activity of substance." Id.

In a contract dispute, a finding of specific jurisdiction requires a substantial connection between the contract breach and the state. See Dent-Air, Inc. v. Beech Mountain Air Service, Inc., 332 N.W.2d 904, 907 (Minn.1983). NDS points to a lack of alleged relationship between the failure to grant stock options and Minnesota. The Court has already determined, see supra, that Lucachick's employment contract was not to be performed in-state, so to the extent that Plaintiff's complaint rests on a breach of the employment contract, there is only marginal contact with Minnesota. Further, all conversations concerning stock options, the basis of the suit, were conducted either on the telephone or in California. The NDS stock *1109 option plan is administered out of London, England, where the Directors of NDS Group plc (the parent corporation of NDS) are based. The "general jurisdiction" contacts alleged by Lucachick all occurred before the option scheme was adopted or Lucachick was hired by NDS.

Lucachick argues that Minnesota has an interest in protecting its citizens. While this may be true, California has an equally strong interest given the residency of the defendants. Furthermore, the resolution of this conflict requires the interpretation of the employment contract, which was negotiated and signed in California, and the NDS employment stock option plan, which affects mostly California residents. Given that forum state interest and the convenience of the parties are secondary concerns in this analysis, it is the opinion of the Court that this factor does not weigh in favor of maintaining this action in Minnesota.

Accordingly, the Court finds that Defendants are not subject to the in personam jurisdiction of the United States District Court, District of Minnesota. IT IS HEREBY ORDERED that:

1. Defendant's Motion to Dismiss is Granted.

Let judgment be entered.

[1] Plaintiff was employed by USSB from 1987-1999, first as a Senior Project Engineer and later as Director of Systems Integration.