Opinion ID: 2973423
Heading Depth: 5
Heading Rank: 1

Heading: The Ohio long-arm statute

Text: The district court found that Kroger made a prima facie showing that jurisdiction over Malease was proper under the Ohio long-arm statute. The court stated: Malease’s acknowledgment of Kroger’s rights and assumption of duties to Kroger as a landlord put Malease and Kroger in a quasi-contractual relationship or perhaps even makes Kroger a third-party beneficiary to the Two Party Agreements. In any event there was some kind of business relationship between Malease and Kroger. In addition, Malease’s receipt of rent payments from Kroger over a twenty-year period means that Malease “had dealings” with Kroger within the meaning of the long arm statute. Order of district court, September 22, 2003. In this appeal, Malease asserts that the district court erred in exercising jurisdiction over Malease pursuant to OHIO REV. CODE §2307.382(A)(1). This provision states “[a] court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the person’s [t]ransacting any business within the state; . . . . Id. In Kentucky Oaks Mall v. Mitchell’s Formal Wear, 559 N.E.2d 477 (Ohio 1990), the Ohio Supreme Court discussed the parameters of § 2307.382(A)(1). The court found that the broad wording of the statute permits jurisdiction over non-resident defendants who are transacting any business in Ohio. The Court stated that “transact”: means ‘to prosecute negotiations; to carry on business; to have dealings . . . .The word embraces in its meaning the carrying on or prosecution of business negotiations but it is a broader term than the word ‘contract’ and may involve 3 If an evidentiary hearing is held, the plaintiff is required to meet the “preponderance of the evidence standard.” See Serras, 875 F.2d at 1214. No. 04-4512 The Kroger Co. v. Malease Foods Corp. Page 6 business negotiations which have been either wholly or partly brought to a conclusion . . . .’ Id. at 479 (emphasis in original) (citation omitted). The Kentucky Oaks court determined that the defendant, Mitchell’s Formal Wear (“Mitchell’s”) was transacting business within the scope of the long-arm statute. Mitchell’s, a Georgia corporation, negotiated a lease agreement with an Ohio-based limited partnership, Kentucky Oaks Mall Company (“Kentucky Oaks”). The transaction involved the lease by Mitchell’s of warehouse space owned by Kentucky Oaks, located in Kentucky. After negotiating the terms by telephone, Mitchell’s executed a ten-year lease in Georgia and returned it via mail to Kentucky Oaks in Ohio. Id. at 480. The Ohio Supreme Court held that the lease arrangement was “transacting” business within the purview of this section of the Ohio long-arm statute. Even though Mitchell’s had no presence in Ohio and the leased space was located in Kentucky, the court stated that “[u]ndoubtedly, both parties sought the benefit of each other’s bargain in hopes of realizing a pecuniary gain.” Id. The court summarized its ruling stating, “[a]ccordingly, we hold that a commercial non-resident lessee, for purposes of personal jurisdiction, is ‘transacting any business’ within the plain and common meaning of the phrase, where the lessee negotiates, and through the course of dealing becomes obligated, to make payments to its lessor in Ohio.” Id.4 Kroger relies on Kentucky Oaks to demonstrate that jurisdiction over Malease is proper. While there are similarities between Kentucky Oaks and the instant facts, there are also substantial differences. In Kentucky Oaks, Mitchell’s directly negotiated the terms of the lease with Kentucky Oaks. In contrast, Malease never entered into any negotiations with Kroger regarding the terms of the lease, let alone direct negotiations. Instead, Malease became involved with Kroger simply by virtue of the assignment of the leases from Balkhouse. In essence, Malease was one step removed from the bargaining process, so it cannot be said that Malease directly sought the benefit of the bargain for purposes of mutual pecuniary gain, because Malease did not negotiate the lease with Kroger originally. Further, the primary contacts between Kroger and Malease were the rent checks sent from Ohio by Kroger to Malease in New York. As Malease points out, the rent checks could have been sent from the warehouse locales, or any other place in the United States. The fact that Kroger chose to send rent checks from their corporate office in Ohio does not constitute doing business in Ohio by Malease. While Malease did assume the landlord duties pursuant to the lease assignments, all required duties were performed at the out-state facilities, not in Ohio. The entire course of dealing between these entities occurred outside the state of Ohio. Finally, Malease has never maintained an office, a bank account, a telephone listing, or any kind of presence in Ohio. Moreover, the party’s roles in Kentucky Oaks are the opposite of those here. Kentucky Oaks was the Ohio resident, and the landlord of the Kentucky property. In negotiating for rental of the space, Mitchell’s intentionally entered into a transaction involving an Ohio landlord, to whom they were required to pay rent in Ohio. In addition to rent payments, Mitchell’s submitted maintenance costs, annual reports, association fees, and sales reports to Kentucky Oaks in Ohio. Kentucky Oaks, 599 N.E.2d at 481-82. Kentucky Oaks also maintained some control over the retail sale and rental operation in Kentucky, and Mitchell’s was required to obtain Kentucky Oaks’ approval for many 4 The Kentucky Oaks lease contained a Kentucky choice of law provision. The Ohio Supreme Court noted that notwithstanding the provision, Mitchell’s had engaged in the minimum contacts necessary for the court to exercise personal jurisdiction. Kentucky Oaks Mall, 559 N.E.2d at 482. No. 04-4512 The Kroger Co. v. Malease Foods Corp. Page 7 activities. The court noted that Mitchell’s failure to pay rent under the lease would “undoubtedly cause foreseeable injuries” in Ohio. Id. Malease had no such relationship with Kroger.5 Kroger relies on the February 14, 2003, affidavit signed by Thomas P. O’Brien, Assistant Secretary of The Kroger Company, to show that Malease had sufficient contacts with Kroger in Ohio. O’Brien conclusorily states that Kroger has communicated with Malease “wherein Kroger has sent correspondence from Ohio to Malease, and received correspondence in Ohio from Malease.” Assuming for the sake of argument that such correspondence might make a difference, however, the record is devoid of any correspondence from Malease to Kroger, except for the 6March 14, 2002, letter stating that Malease was unwilling to comply with the purchase option. The O’Brien affidavit, standing on its own, is inadequate to establish a prima facie showing that Malease was sufficiently transacting business in the State of Ohio to claim jurisdiction under the Ohio longarm statute. The Kentucky Oaks court held that a non-resident lessee transacts business for purposes of the long-arm statute when the lessee engages in negotiations, and through the course of dealing becomes obligated to make payments to an Ohio lessor. See id. at 480. This is not the case here. Malease did not engage in negotiations with Kroger, nor did they have ongoing contacts with the State of Ohio. Malease simply did not establish the type of contacts warranting the exercise of jurisdiction over an out-of-state corporation in Ohio such as were the basis of the holding in Kentucky Oaks. We further recognize that when the Ohio Supreme Court decided Kentucky Oaks, the court relied on Wright International Express, Inc. v. Roger Dean Chevrolet, Inc., 689 F. Supp. 788 (S.D. Ohio 1988), a federal district court opinion holding that a lease between a non-resident and a resident provided sufficient contacts under the long-arm statute.7 In Wright, the district court found that an international defendant had transacted business for purposes of the Ohio long-arm statute by entering into a contract with a resident to lease an Ohio-based aircraft. The court found that the defendant established adequate contacts with the state when it intentionally took actions that created a relationship with the resident. See id. at 790. In Wright, the court held that the contacts required to exercise personal jurisdiction over the defendant cannot be the result of the unilateral activity of the resident. This “insures that the defendant has become involved in the forum state through actions freely and intentionally undertaken by the defendant and prohibits jurisdiction where all contacts with a state result entirely from decisions made by the plaintiff.” Id. at 790 (citing Southern Machine Co. v. Mahasco Indus., Inc., 401 F.2d 374, 382-83 (6th Cir. 1968)). The facts in Wright are readily distinguishable from the facts in this case. In Wright, the non-resident corporation negotiated and entered into the lease agreement directly with an Ohio corporation, and the leased property was located in Ohio. Wright, 689 F. Supp. at 790. Malease never entered into any lease relationship in the State of Ohio. We also note that at the time the Wright decision was made, the Sixth Circuit had observed that the reach of the Ohio long-arm statute was as broad as the limits of constitutional due process. See id., citing In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 224 (6th Cir. 1972). 5 Malease sent rent checks into Ohio following Kroger’s re-purchase of the real properties, the unilateral act of Kroger. These rent payments cannot be relied upon to support the exercise of jurisdiction over Malease in Ohio. 6 During oral argument, Kroger was unable to identify any additional evidence of contacts initiated by Malease that would support the exercise of jurisdiction. 7 The Kentucky Oaks opinion also cites out of circuit opinions that are beyond the scope of this analysis. 559 N.E.2d at 480 (Ohio 1990). No. 04-4512 The Kroger Co. v. Malease Foods Corp. Page 8 Subsequently, the Sixth Circuit has overruled this portion of In-Flight Devices, recognizing that the Ohio Supreme Court determined that the relevant portion of the long-arm statute did not reach the limits of the Due Process Clause. See Cole v. Mileti, 133 F.3d 433, 436 (6th Cir. 1998) (citing Goldstein v. Christiansen, 638 N.E.2d 541, 545 n.1 (Ohio 1994)).8 This recognition militates in favor of an even narrower application of the holding in Kentucky Oaks, rather than the broader interpretation that Kroger asserts. In its brief, Kroger cites Goldstein to support its assertion that the term “transacting any business” has been given a broad construction in Ohio. “Because the [t]ransacting any business phrase is so broad, the statute and the rule have engendered cases which have been resolved on ‘highly particularized fact situations, thus rendering any generalization unwarranted.’” Goldstein, 638 N.E.2d at 544, quoting U.S. Sprint Communications Co., Ltd. Partnership v. Mr. K’s Foods, Inc. 624 N.E.2d 1048, 1052 (Ohio 1994). Kroger urges a broad interpretation of the “transacting any business” requirement of Ohio’s long-arm statute in this case. However, in view of Goldstein’s instruction that the Ohio long-arm statute does not extend to the full limits of due process, it is inappropriate to apply an expansive reading to the remainder of the holding. In contrast, Malease relies on Krutowsky v. Simonson, 672 N.E.2d 219 (Ohio App. 1996), to support its position that personal jurisdiction does not extend to Malease. In Krutowsky, the Ohio Court of Appeals held there was no jurisdiction over a non-resident who had entered into a contract for the repair of a resident’s Rolls Royce. See id at 222. The court held that Simonson never purposely availed himself of the privilege of acting in Ohio, because Krutowsky made the initial contact after seeing an advertisement in a magazine published outside of Ohio. Krutkowsky took the automobile to Illinois, where Simonson performed the repairs. Krutkowsky’s agent made payment for the work in Illinois. “The only intentional contact Simonson had with Ohio was the mailing of invoices and reports to Ohio and also calling Krutowksy in Ohio to occasionally give updates on the work. Such actions without more do not rise to the level of minimum contacts.” Id. (citation omitted). Krutowsky is instructive in our case. Like Simonson, Malease never entered Ohio with the intention of engaging in a business agreement with Kroger, and the bulk of the contacts with the forum were generated by Kroger. All of Malease’s duties under the agreements were conducted outside of Ohio. In fact, Malease had even less contact with Ohio than Simonson, because Simonson directly negotiated and entered into the contractual agreement with Krutkowsky. Based on the holding in Krutowsky, it is evident that Malease had inadequate contacts with Ohio to be subject to personal jurisdiction under the long-arm statute. Further, Kroger’s reliance on Kentucky Oaks is misguided because the facts in this case are markedly different. We find that extending the holding of Kentucky Oaks in order to find in personam jurisdiction here would impermissibly expand the reach of Ohio’s long-arm statute. 8 In Cole, a non-resident defendant entered into a contract with an Ohio resident after negotiating and executing a surety agreement via telephone calls and letters. The court held that the actions of the non-resident created substantial enough contacts with Ohio to place him within the reach of the long-arm statute. “If, as here, a nonresident defendant transacts business by negotiating and executing a contract via telephone calls and letters to an Ohio resident, then the defendant has purposefully availed himself of the forum by creating a continuing obligation in Ohio.” Cole v. Mileti, 133 F.3d 433, 436 (6th Cir. 1998). We note that Cole is inapposite to our case, because Malease initiated no contacts with Ohio. No. 04-4512 The Kroger Co. v. Malease Foods Corp. Page 9