Court Opinion

ID: 4261148
Source: CourtListenerOpinion
Date Created: 2018-04-04 15:13:28.840382+00
Date Added: 2024-06-11T14:29:37.110693
License: Public Domain

FILED
                                                                           Apr 04 2018, 8:48 am

                                                                                CLERK
                                                                            Indiana Supreme Court
                                                                               Court of Appeals
                                                                                 and Tax Court

ATTORNEYS FOR APPELLANT                                     ATTORNEYS FOR APPELLEES
Mark D. Gerth                                               Robert D. MacGill
Sarah A. Hurdle                                             Charles P. Edwards
Kightlinger & Gray, LLP                                     Alexander P. Orlowski
Indianapolis, Indiana                                       Leah L. Seigel
                                                            Barnes & Thornburg, LLP
                                                            Indianapolis, Indiana

                                             IN THE
    COURT OF APPEALS OF INDIANA

Professional Billing, Inc.,                                 April 4, 2018
Appellant-Defendant,                                        Court of Appeals Case No.
                                                            49A02-1709-PL-2219
        v.                                                  Appeal from the Marion Superior
                                                            Court
Zotec Partners, LLC, and                                    The Honorable Heather A. Welch,
Medical Management                                          Judge
Professionals, LLC,                                         Trial Court Cause No.
Appellees-Plaintiffs                                        49D01-1612-PL-44334

Baker, Judge.

Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018                            Page 1 of 15
[1]   Professional Billing, Inc. (PBI), brings an interlocutory appeal from the trial

      court’s denial of its motion to dismiss the claims filed against it by Zotec

      Partners, LLC, and Medical Management Professionals, LLC (collectively,

      Zotec). PBI argues that dismissal is warranted because the trial court lacks

      personal jurisdiction over it. Zotec argues that the trial court should be

      affirmed; it alternatively requests additional time to conduct discovery. Finding

      that Indiana cannot assert personal jurisdiction over PBI and that additional

      time for discovery is unwarranted, we reverse and remand with instructions for

      the trial court to dismiss Zotec’s claims against PBI.

                                                       Facts
[2]   Zotec is a medical billing company with its principal place of business in

      Carmel. In 2013, Zotec acquired a competitor, and as part of the acquisition,

      Zotec agreed to retain the competitor’s CEO, G. Darrell Hulsey, who became

      an executive at Zotec. Hulsey’s employment agreement with Zotec included a

      non-compete provision that would last for two and one-half years after any

      termination of Hulsey’s employment. In February 2014, Hulsey resigned from

      Zotec. In September 2016, he became PBI’s CEO and purchased an ownership

      stake in the company.

[3]   PBI is a medical billing company incorporated and headquartered in Alabama.

      It has offices in Alabama, Louisiana, Mississippi, and Ohio. It is not registered

      to do business in Indiana. It has no offices, real estate, employees, or customers

      in Indiana. It has no contracts with anyone in Indiana.

      Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018     Page 2 of 15
[4]   On December 19, 2016, Zotec filed a complaint against PBI, Hulsey, and

      another company.1 On February 16, 2017, PBI filed its first motion to dismiss

      for lack of personal jurisdiction. On March 17, 2017, Zotec filed an amended

      complaint against PBI, alleging that PBI violated Indiana’s Uniform Trade

      Secrets Act and committed tortious interference with contract. Specifically,

      Zotec alleged that PBI misappropriated Zotec’s trade secrets by obtaining them

      from Hulsey, knowing that Hulsey obtained Zotec’s trade secrets through

      improper means, and by using them to compete with Zotec. Zotec further

      alleged that PBI targeted and induced certain Zotec customers to terminate

      their contractual relationships with Zotec. Zotec did not allege that PBI

      solicited Zotec’s customers in Indiana.

[5]   On April 6, 2017, in response to Zotec’s amended complaint, PBI filed a second

      motion to dismiss Zotec’s claims against it for lack of personal jurisdiction. In

      support of its motion to dismiss, PBI submitted an affidavit from Douglas Bush,

      PBI’s president and CFO. In his affidavit, Bush stated that PBI is incorporated

      and headquartered in Alabama; that it has offices in Alabama, Louisiana,

      Mississippi, and Ohio; and that PBI has never had or solicited customers in

      Indiana, owned or leased offices or real estate in Indiana, employed anyone in

      Indiana, entered into contracts with anyone in Indiana, or registered to do

      business in Indiana. Bush further stated that PBI had no communication with

      Hulsey while he was employed by Zotec and that it was not until May 2016—

      1
          Neither Hulsey nor the other company are parties to this appeal.

      Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 3 of 15
      more than two years after Hulsey had left Zotec—that PBI initiated

      conversations with Hulsey about joining PBI. Bush also stated that he and

      Hulsey are friends and that any conversations between them before May 2016

      were purely social and were undertaken by Bush as an individual, not as a

      representative of PBI.

[6]   On May 1, 2017, Zotec opposed PBI’s motion to dismiss, arguing that PBI did

      not meet its burden to prove a lack of personal jurisdiction, or, alternatively,

      that Zotec should be granted additional time “to obtain the discovery it has

      been seeking from Hulsey for almost four months and, if necessary, obtain

      jurisdictional discovery directly from PBI.” Appellant’s App. Vol. II p. 108.

[7]   On May 22, 2017, a hearing regarding the motion to dismiss took place. On

      June 27, 2017, the trial court denied PBI’s motion, making the following

      findings of fact:

              25. Presently, Hulsey is an owner and the Chief Executive
              Officer of PBI. PBI offers medical billing and technology
              solutions to physicians and other healthcare providers in
              competition with Zotec.

              26. PBI is a competitor of Zotec whom Zotec believes has
              recently begun activity soliciting Zotec’s customers.

              27. Hulsey is personally soliciting Zotec’s customers on behalf of
              PBI through his knowledge of Zotec’s Confidential Information
              and trade secrets. Because of his role at Zotec . . . Hulsey is
              keenly aware of Zotec’s trade secrets, . . . Zotec’s proprietary
              software and confidential business practices, and which clients
              are most receptive to transitioning to PBI.
      Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 4 of 15
        28. As a result of Defendants’ actions, Zotec has incurred
        significant damages, including lost clients.

Appealed Order p. 5. The trial court then made the following conclusions of

law:

        . . . the Court cannot but find that the facts of the case as alleged
        provide this Court with specific personal jurisdiction over PBI in
        this matter. The allegations against PBI are violations of
        Indiana’s Trade Secret Act and tortious interference with
        contract. . . . [T]he allegations on the face of the complaint argue
        that Hulsey was acting intentionally and tortuously [sic] when
        [he] left Zotec to join a competitor, knowing that disclosure of
        Zotec’s trade secrets would constitute harm to Zotec. The
        express aim at the State of Indiana arises out of the alleged
        harms. The Indiana Trade Secret Act is a statutory protection
        given to persons and companies that conduct business in the
        State of Indiana. While other states have similar trade secret
        acts, Indiana’s Act was created by the legislative action of the
        Indiana General Assembly for the benefit of those citizens and
        domiciled companies that wish to conduct business. Committing
        an act which directly implicates this statute directly involves
        Indiana in the alleged tortious conduct. Essentially, the alleged
        misappropriation involves taking/copying a protectable interest
        from an Indiana company and disseminating it. Even if Hulsey
        was not an agent of PBI when the alleged misappropriation took
        place, PBI placed Hulsey as an executive within the company,
        giving him significant control of the company’s operations. This
        dovetails with Zotec’s allegation of tortious interference with
        contract regarding Zotec customers. Even if PBI had never made
        contact with Indiana prior to hiring Hulsey, the allegations
        surrounding Hulsey’s conduct and PBI’s involvement subject PBI
        to jurisdiction in this Court by way of specific personal
        jurisdiction.

Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018    Page 5 of 15
       Appealed Order p. 9-10. PBI now brings this interlocutory appeal.

                                      Discussion and Decision
[8]    PBI argues that the trial court erred by finding that PBI is subject to Indiana’s

       jurisdiction through specific personal jurisdiction. Zotec requests additional

       time to conduct discovery if this Court finds in favor of PBI.

                                        I. Standard of Review
[9]    Indiana Trial Rule 12(B)(2) allows for a dismissal of a complaint if there is a

       lack of personal jurisdiction. Our standard of review regarding a defense of lack

       of personal jurisdiction is well established:

               Personal jurisdiction presents a question of law we review de
               novo. But whether personal jurisdiction exists can depend upon
               factual determinations concerning a defendant’s contacts with the
               forum state—in which case the challenger bears the burden of
               disproving personal jurisdiction. Accordingly, when the trial
               court issues findings of jurisdictional facts (as it did here), we
               review those findings for clear error. In so doing, we consider
               whether the evidence supports the findings and whether the
               findings support the judgment. We will reverse the trial court’s
               factual findings only when the record contains no facts to support
               them either directly or indirectly.

       Boyer v. Smith, 42 N.E.3d 505, 508-09 (Ind. 2015) (internal citations omitted).

                              II. Specific Personal Jurisdiction
[10]   Our Supreme Court has explained personal jurisdiction as follows:

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 6 of 15
        Personal jurisdiction refers to a court’s power to impose
        judgment on a particular defendant. In Indiana, personal
        jurisdiction analysis begins with Indiana Trial Rule 4.4(A), which
        sets out examples of activities that often support jurisdiction. It
        also provides that “a court of this state may exercise jurisdiction
        on any basis not inconsistent with the Constitutions of this state
        or the United States.”

        . . . [B]efore an Indiana court can properly assert personal
        jurisdiction over a defendant, the Due Process Clause of the
        Fourteenth Amendment mandates that the defendant have
        “certain minimum contacts with the state such that the
        maintenance of the suit does not offend traditional notions of fair
        play and substantial justice.” Minimum contacts include acts
        defendants themselves initiate within or without the forum state
        that create a substantial connection with the forum state itself.

        . . . . To state this another way, due process requires that
        potential out-of-state defendants be able to predict what conduct
        might make them liable in our courts. . . . Consistent with this
        longstanding precedent, Indiana courts will employ caution and
        exert potentially coercive legal authority only over a defendant
        who has the requisite minimum contacts to Indiana.

        . . . . Specific jurisdiction exists when a lawsuit arises from or is
        closely related to a defendant’s minimum contacts with or
        substantial connection to the forum state. Specific jurisdiction
        also requires purposeful availment—meaning a defendant
        invoked her contacts or connection with Indiana, and therefore
        should have reasonably anticipated being called into court to
        answer for her actions.

Id. at 509-10 (footnote omitted) (internal citations omitted) (quoting

LinkAmerica Corp. v. Cox, 857 N.E.2d 961, 967 (Ind. 2006)).

Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018        Page 7 of 15
[11]   In Walden v. Fiore, — U.S. —, 134 S.Ct. 1115 (2014), the United States Supreme

       Court provided further guidance for determining whether minimum contacts

       exist for specific jurisdiction. The Court stressed that the inquiry into whether a

       forum state “may assert specific jurisdiction over a nonresident defendant

       focuses on the relationship among the defendant, the forum, and the litigation.”

       Id. at 1121 (internal quotation marks and citation omitted). For a state’s

       exercise of jurisdiction to comport with due process, “the defendant's suit-

       related conduct must create a substantial connection with the forum State.” Id.

       “[T]he relationship must arise out of contacts that the defendant himself creates

       with” the forum state. Id. at 1122 (internal quotation marks and citation

       omitted) (emphasis original). The “minimum contacts” analysis looks to the

       defendant’s contacts with the forum state itself, not the defendant’s contacts

       with persons who reside there. Id.

[12]   The Walden Court further explained that

               . . . the plaintiff cannot be the only link between the defendant
               and the forum. Rather, it is the defendant’s conduct that must
               form the necessary connection with the forum State that is the
               basis for its jurisdiction over him. To be sure, a defendant’s
               contacts with the forum State may be intertwined with his
               transactions or interactions with the plaintiff or other parties. But
               a defendant’s relationship with a plaintiff or third party, standing
               alone, is an insufficient basis for jurisdiction. Due process
               requires that a defendant be haled into court in a forum State
               based on his own affiliation with the State, . . .

       Id. at 1122-23 (internal citations omitted).

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 8 of 15
[13]   Our Supreme Court incorporated the federal clarifications into Indiana law,

       finding that “a substantial connection to Indiana is the touchstone, because that

       is the only way defendants can reasonably anticipate being called into court

       here to defend themselves.” Boyer, 42 N.E.3d at 511 (emphasis original). We

       must now determine whether PBI’s own suit-related conduct created minimum

       contacts and a substantial connection between itself and Indiana such that it

       should reasonably anticipate being called into our courts.

[14]   In its amended complaint, Zotec alleged that PBI hired Hulsey after Hulsey

       resigned from Zotec and that PBI has begun to solicit Zotec’s customers using

       confidential information and trade secrets that Hulsey misappropriated from

       Zotec. But Zotec made no allegations that Hulsey was an employee or agent of

       PBI when he misappropriated Zotec’s trade secrets, that PBI conspired with

       Hulsey during Hulsey’s employment with Zotec, that PBI solicited any of

       Zotec’s customers located in Indiana, or that PBI made any use of the

       confidential information or trade secrets in Indiana. Douglas Bush’s affidavit

       that PBI submitted with its motion to dismiss stated that PBI has never had or

       solicited customers in Indiana, owned or leased offices or real estate in Indiana,

       employed anyone in Indiana, entered into contracts with anyone in Indiana, or

       registered to do business in Indiana. Bush also stated that PBI had no

       communication with Hulsey while he was employed by Zotec and that it was

       not until May 2016 that PBI initiated conversations with Hulsey about joining

       PBI. Zotec submitted no evidence to rebut Bush’s affidavit statements.

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 9 of 15
[15]   Without question, then, PBI has proved the trial court’s lack of personal

       jurisdiction. The record shows that PBI has had no contact with Indiana

       whatsoever, let alone sufficient minimum contacts or a substantial connection

       with Indiana. PBI cannot be said to have purposely availed itself of the trial

       court’s jurisdiction. See Simek v. Nolan, 64 N.E.3d 1237, 1243 (Ind. Ct. App.

       2016) (finding that Indiana lacked specific jurisdiction over defendant who had

       no contact with Indiana; who had never been to Indiana; who never owned,

       operated, or conducted any business in Indiana; and who did not personally

       initiate, expect, or encourage contacts with Indiana such that she could have

       reasonably foreseen being haled into court here).

[16]   Moreover, PBI’s sole connection to Indiana is through its employment of

       Hulsey. Zotec suggests that Hulsey’s significant role in PBI matters to our

       analysis, asserting that PBI minimizes its “relationship with Hulsey—its part

       owner and CEO—whose direct conduct indisputably subjects PBI and Hulsey

       to personal jurisdiction here,” appellee’s br. p. 19, and that Hulsey “is PBI,” id.

       at 22 (emphasis original). But PBI is a separate legal entity from Hulsey,

       regardless of his role in the corporation and regardless of how intertwined the

       two may be. See Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1231-32

       (Ind. 1994) (“[A] corporation is a legal entity separate and distinct from its

       shareholders and officers.”). Accordingly, Indiana’s jurisdiction over Hulsey,

       which is not contested in this appeal, does not necessarily also grant Indiana

       jurisdiction over PBI. Their separate identities make Hulsey a third party to

       PBI’s ostensible relationship with Indiana. And “‘a defendant’s relationship

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 10 of 15
       with a plaintiff or third party, standing alone, is an insufficient basis for

       jurisdiction.’” Boyer, 42 N.E.3d at 511 (quoting Walden, 134 S.Ct. at 1123).

       PBI and Hulsey are not one and the same, and if PBI did not have a

       relationship with Hulsey, it would have no alleged contacts with Indiana.

[17]   Zotec further argues that Indiana has personal jurisdiction over PBI because

       PBI acquired and used stolen information from Indiana “specifically knowing

       the effects of its actions would cause harm in Indiana.” Appellee’s Br. p. 18.

       The trial court similarly found that PBI’s “express aim at the State of Indiana

       arises out of the alleged harms.” Appealed Order p. 5. In Walden, however, the

       United States Supreme Court held that “mere injury to a forum resident is not a

       sufficient connection to the forum. Regardless of where a plaintiff lives or

       works, an injury is jurisdictionally relevant only insofar as it shows that the

       defendant has formed a contact with the forum State.” Walden, 134 S.Ct. at

       1125 (finding that the petitioner’s actions in one state did not create sufficient

       contacts with another state “simply because he allegedly directed his conduct at

       plaintiffs whom he knew” had connections in the other state). The harm or

       injury Zotec suffered does not connect PBI to Indiana in a meaningful way.

[18]   In sum, the record does not show that PBI has had any contact with Indiana.

       PBI did not create sufficient minimum contacts or a substantial connection

       between itself and Indiana. Accordingly, Indiana cannot assert specific

       personal jurisdiction over PBI, and the trial court should have granted its

       motion to dismiss.

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018    Page 11 of 15
                                               III. Discovery
[19]   Because we find that Indiana cannot exercise jurisdiction over PBI, we must

       now consider Zotec’s request that, rather than outright dismiss its claims, we

       remand this matter so that Zotec can conduct jurisdictional discovery.

[20]   Indiana Trial Rule 26(B)(1) permits discovery into “any matter, not privileged,

       which is relevant to the subject-matter involved in the pending action, whether

       it relates to the claim or defense of the party seeking discovery or the claim or

       defense of any other party.” Because Indiana’s trial rule on discovery is

       adopted from the Federal Rules of Civil Procedure, see Am. Bldgs. Co. v. Kokomo

       Grain Co., 506 N.E.2d 56, 59 (Ind. Ct. App. 1987), we may consider federal

       court interpretations when applying the Indiana rule. Goldberg v. Farno, 953

       N.E.2d 1244, 1252 (Ind. Ct. App. 2011) (“When an Indiana Trial Rule is based

       on a corresponding Federal Rule of Civil Procedure, it is appropriate for our

       courts to look at federal court interpretations when applying the Indiana rule.”).

[21]   “It is well established that a [trial court] has the power to require a defendant to

       respond to discovery requests relevant to his or her motion to dismiss for lack of

       jurisdiction.” Andersen v. Sportmart, Inc., 179 F.R.D. 236, 241 (N.D. Ind. 1998)

       (citation omitted). “As a general matter, discovery under the Federal Rules of

       Civil Procedure should be freely permitted, and this is no less true when

       discovery is directed to personal jurisdiction.” Id. A trial court risks erring “by

       not allowing some limited discovery into the personal jurisdiction issue.” Id.

       The court further explained that

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 12 of 15
               . . . it is also well established that a plaintiff does not enjoy an
               automatic right to discovery pertaining to personal jurisdiction in
               every case. A plaintiff must make a threshold or prima facie
               showing with some competent evidence demonstrating that
               personal jurisdiction might exist over a defendant in order to be
               entitled to jurisdictional discovery. For example, a plaintiff is
               entitled to jurisdictional discovery if he or she can show that the
               factual record is at least ambiguous or unclear on the jurisdiction
               issue.

       Id. at 241-42 (internal citations omitted) (emphasis original).

[22]   Here, the timeline relevant to discovery is as follows:

           • On December 19, 2016, Zotec filed its first complaint.
           • On January 9, 2017, Zotec served discovery requests on Hulsey.
           • On February 16, 2017, PBI filed its first motion to dismiss for lack of
             personal jurisdiction.
           • On March 14, 2017, Hulsey responded to requests for production.
           • On March 17, 2017, Zotec filed its amended complaint.
           • On April 6, 2017, PBI filed its second motion to dismiss in response to
             Zotec’s amended complaint.
           • On May 1, 2017, Zotec filed its motion in opposition to PBI’s motion to
             dismiss.
           • On May 5, 2017, Zotec filed a motion to compel against Hulsey.
           • On May 22, 2017, a hearing regarding PBI’s motion to dismiss took
             place.

       At no point before the May 22, 2017, hearing did Zotec serve discovery on PBI,

       nor did it request any depositions of PBI representatives.

[23]   Since PBI filed its motion to dismiss, Zotec has asked for more time to conduct

       discovery. In Zotec’s motion opposing PBI’s motion to dismiss, Zotec asked

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 13 of 15
       the trial court for more time to obtain discovery from Hulsey “and, if necessary,

       obtain jurisdictional discovery directly from PBI” if the trial court did not deny

       PBI’s motion. Appellant’s App. Vol. II p. 108. In Zotec’s motion opposing

       PBI’s motion for interlocutory appeal, Zotec argued that it had not yet had the

       opportunity to conduct jurisdictional discovery on PBI and that, before the

       motion was granted, Zotec should first be allowed to discover PBI’s contacts

       with Indiana, including by deposing Douglas Bush. While we acknowledge the

       short timeline of the initial stages of this case—not even six months passed from

       the time of Zotec’s initial complaint to the time of the hearing on PBI’s motion

       to dismiss—we must also acknowledge that Zotec had time to serve discovery

       requests on Hulsey during this time. The record and Zotec’s briefs are devoid

       of reasons why Zotec did not also conduct jurisdictional discovery—or any

       discovery—on PBI before the hearing even though it had time to do so.

[24]   Approximately three months passed between when PBI filed its first motion to

       dismiss for lack of personal jurisdiction and the hearing on the motion. As PBI

       points out, if Zotec needed additional time to conduct discovery that it deemed

       necessary to oppose PBI’s motion, it could have requested a continuance of the

       hearing to enable it to do so. See Azhar v. Town of Fishers, 744 N.E.2d 947, 951

       (Ind. Ct. App. 2001) (noting that the approximately three months between the

       filing of a motion to dismiss and the hearing thereon was ample time to allow

       the party to file a motion for additional time to conduct discovery to ascertain

       the evidence in opposition to the motion). Zotec made no such request.

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 14 of 15
[25]   Zotec’s arguments to the trial court and this Court suggest that it hoped to

       collect the necessary evidence from Hulsey. As discussed above, however, PBI

       and Hulsey are two separate entities, and in this case, they are represented by

       separate counsel. Moreover, most of the claims Zotec asserted against Hulsey

       relate to Hulsey’s interactions with other entities that are not parties to this

       appeal and are wholly unrelated to PBI; therefore, Hulsey’s interests do not

       fully align with PBI’s. Zotec offers no reason why it did not seek discovery

       from PBI at the same time as when it sought discovery from Hulsey. Its

       argument that it should be able to do so now is unavailing.

[26]   Further, Zotec failed to make a prima facie showing with some competent

       evidence demonstrating that personal jurisdiction might exist over PBI. As

       discussed above, Zotec showed that PBI’s connection to Indiana is solely

       through Hulsey, a third party. Zotec designated no evidence suggesting that

       jurisdiction over PBI might exist, nor did it show that the factual record is at

       least ambiguous or unclear on the jurisdiction issue. Simply put, Zotec did not

       meet its burden. We therefore deny Zotec’s request for additional time to

       complete jurisdictional discovery.

[27]   The judgment of the trial court is reversed and remanded with instructions to

       dismiss Zotec’s claims against PBI.

       Riley, J., and Brown, J., concur.

       Court of Appeals of Indiana | Opinion 49A02-1709-PL-2219 | April 4, 2018   Page 15 of 15