Court Opinion

ID: 2642166
Source: CourtListenerOpinion
Date Created: 2013-11-14 01:05:16.960812+00
Date Added: 2024-06-11T12:33:34.622821
License: Public Domain

AILED
                                                                                        COURT OF APPPALS
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                                                                                      2013 NOV i         M 11: 15
             IN THE COURT OF APPEALS OF THE STATE OF WASHIN
                                                                                                     ASHINi   O I
                                            DIVISION II
                                                                                      Py
                                                                                              DEMTY
KRISTINE FAILLA,                                                   No. 43405 -9 -II

                                  Respondent,
                                                              PUBLISHED OPINION
        V.

FIXTUREONE CORPORATION; and
KENNETH A. SCHUTZ,

        BJoRGEN, J. — Kenneth A. Schutz, president and chief executive officer of FixtureOne

Corporation, appeals the denial of his motion to dismiss Kristine Failla' s claims against him for

unpaid wages and other relief and the granting of Failla' s summary judgment motion on the same

claims. Schutz argues that Washington State lacks personal jurisdiction over him because he does

not have the requisite minimum contacts with the state; and, even if Washington did have

personal jurisdiction, that summary judgment was .inappropriate because genuine issues of

material fact are present. Concluding that Washington lacks personal jurisdiction, we reverse the

superior court' s denial of Schutz' s dismissal motion. Because Washington lacks jurisdiction, we

also reverse the superior court' s summary judgment in Failla' s favor and the accompanying

judgment and awards of prejudgment interest, attorney fees and costs.

                                                  FACTS

                       I. REMOTE EMPLOYMENT WITH PENNSYLVANIA CORPORATION

         FixtureOne is a Pennsylvania corporation headquartered in Philadelphia, specializing in

the design and production of custom store fixtures and furnishings for the retail industry. Schutz

was the president and chief executive officer of FixtureOne Corporation and had been an officer

and   director   of   the company between 2004   and   2011
No. 43405 -9 -II

           In October 2009 Failla e- mailed Schutz seeking a sales position with FixtureOne that she

could perform from her home near Seattle. Failla traveled to Pennsylvania for an interview with

Schutz. Following the interview, Schutz offered Failla an account executive position with the

company. The position required Failla to conduct her work via telephone, e- mail, and occasional

airplane travel. Schutz told Failla that having a sales representative in her part of the country

could be useful because he would like to do business with Starbucks. However, Failla did not

pursue Starbucks or any other Washington company as a customer. Failla' s compensation

included $75, 000 in annual salary and an additional three percent sales commission on new

accounts.

           At the end of 2010, Failla' s first full year of employment with FixtureOne, she e- mailed

Schutz asking for an accounting of her sales commissions and payment of those commissions.

Schutz instructed " Ed"'         to identify and report Failla' s 2010 sales commissions and to issue her.a

check. Clerk' s Papers ( CP) at 36.

           Schutz     promoted    Failla to   vice president   for   sales   in 2011.   He raised her base salary to

     135, 000 and continued her three percent sales commission, with the exception of one account.

Additionally, Schutz informed Failla that she would need to sign the company' s employment

agreement, which, among other terms, provided that it "shall be interpreted in accordance with

the laws     of the   Commonwealth        of Pennsylvania."        CP at 78. Failla responded that she would

sign and mail the agreement that day. Three days later, Failla sent a version of the agreement

 1
     The   e -mail    address   associated     with   this   person   is " Ed Friedman."        Clerk' s Papers at 36.
Otherwise, the record does not identify him. In the " Facts" section of Failla' s brief, she refers to
this    person as " staff."     See Br. of Resp' t at 3.
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No. 43405 -9 -II

back to Schultz      with proposed revisions.           Neither Schutz nor Failla took further action on the

agreement.

           In early April, Failla sent Schutz another request for the accounting and payment of her

2010   commissions.         Schutz   replied, "   If Ed does    not calculate soon,    I   will   do   so."   CP at 38..

Shortly thereafter, Schutz calculated Failla' s 2010 commissions as $ 21, 025. 06. He e- mailed that

calculation to Ed with instructions that Ed send a check for that amount to Failla by overnight

mail. Not having received payment in early May, Failla again asked Schutz about the situation.

Schutz responded that he had instructed Ed to make the payment and that he would find out what

happened.

           In late May Schutz e- mailed Failla, informing her that FixtureOne could not execute its

orders properly and needed to close. Schutz told Failla that the company needed to end her

employment as of        the   next   day, but he promised, " We will pay your commissions and expenses

asap in the    next several weeks as we complete operations."                CP at 44.

           In early June Failla again e- mailed Schutz, asking for her last payroll salary check, her

expenses, her 2010 sales commissions, and for documentation for her 2011 commissions.

Schultz     responded, "     I know that Ed cut a payroll check for you and I signed itI assume it

would have been sent overnight and will check on it. I will check the status of your expenses

and calculate    the 2011      commissions."        CP at 46.

           In late   July   Schutz   e- mailed   Failla stating, " Legally   we do not owe you any commissions

as   the   amount owed was negated when               Juicy   cancelled $ 50, 000 of   JFK ...         would like to pay you

a severance     in   an amount equal      to   what   the   commission would    have been assuming              we are     in   a
No. 43405 -9 -II

financial   position   to do   so,   however   right now we are not        in   a   financial   position   to do   so."   CP at

50.

           Through counsel, Failla sent a letter to Schutz demanding immediate payment. The letter

informed Schutz that Washington subjected employers to liability for double damages and

attorney. fees.

                                                   II. PROCEDURE .

           Failla filed a complaint in Washington State seeking judgment for double her unpaid

wages and for breach of her employment contract. Although Failla originally named both

FixtureOne and Schutz, she was unable to obtain service on FixtureOne; therefore, she

proceeded solely against Schutz and served him in Pennsylvania.

           Failla moved for summary judgment against Schutz, seeking wages, exemplary damages,

attorney fees,    and costs under      RCW 49. 52. 050        and . 070.   Schutz moved to dismiss for lack of

personal    jurisdiction    under    CR 12( b)( 2). The parties agreed that the trial court would consider

both motions concurrently.

           The trial court denied Schutz' s motion to dismiss and granted summary judgment for
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Failla.     The   order   included $ 59, 608. 12   as   the   principal amount, $ 3,      129.42 for prejudgment

interest, $ 8, 150. 00    in attorney fees, and $ 568.40 in costs. Schutz appeals.

2 The record before this court consists of only Clerk' s Papers; the record does not contain the
Verbatim Report of Proceedings.

                                                                rd
No. 43405 -9 -II

                                                ANALYSIS

         Schutz argues that the Washington court lacked personal jurisdiction over him under the

long -arm statute, RCW 4.28. 185, because he lacks minimum contacts with the forum state.

Schutz additionally argues that even if Washington has personal jurisdiction, summary judgment

was inappropriate because questions of material fact remained. Failla responds that Washington

has jurisdiction because Schutz knew that Failla lived and would perform her duties in

Washington. Failla also responds that Schutz failed to raise any issue of material fact before the

trial court. We hold that the superior court lacked personal jurisdiction over Schutz and, for that

reason, we reverse the superior court' s denial of Schutz' s dismissal motion and its grant of

summary judgment in favor of Failla.

                                          I. STANDARD OF REVIEW

         When reviewing a summary judgment order, we engage in the same inquiry as the trial

court. We determine if there are any genuine issues of material fact and, if not, whether the

moving party is entitled to judgment as a matter of law. Lewis v. Bours, 119 Wash. 2d 667, 669,

                                         t]he court must consider the facts in the light most
835 P.2d 221 ( 1992). In this review, "` [

favorable to the nonmoving party, and the motion should be granted only if, from all the

evidence, reasonable persons could reach        but   one conclusion. "'     Lewis, 119 Wash. 2d at 669

 quoting Marincovich     v.   Tarabochia, 114 Wash. 2d 271, 274, 787 P.2d 562 ( 1990)) ( alteration in

original).   More specifically, where the " underlying facts are undisputed, the trial court' s

assertion of personal   jurisdiction is   a question of   law   reviewable   de   novo."   MBMFisheries, Inc.

     Bollinger Mach.            Shipyard, Inc., 60 Wn.      App.   414, 418, 804 P.2d 627 ( 1991).   Failla
v.                     Shop &

has the burden of establishing jurisdiction, but she need only make a prima facie showing.

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No. 43405 -9 -II

CTVC of Hawaii Co., Ltd. v. Shinawatra, 82 Wn.         App. 699,   708, 919 P.2d 1243 ( 1996),    modified

by 932 P.2d 664 ( 1997).

                                             H. JURISDICTION

        Washington' s long -arm statute, RCW 4.28. 185, authorizes Washington courts to exercise

jurisdiction over a nonresident defendant to the extent permitted by the due process clause of the

United States Constitution. MBM Fisheries, Inc., 60 Wash. App. at 423.

         Specifically, RCW 4.28. 185 provides in pertinent part:

         1) Any person, whether or not a citizen or resident of this state, who in person or
        through an agent does any of the acts in this section enumerated, thereby submits
         said person, and, if an individual, his or her personal representative, to the
        jurisdiction of the courts of this state as to any cause of action arising from the
         doing of any of said acts:
             a) The transaction of any business within this state;
                b) The commission of a tortious act within this state;,

             3) Only causes of action arising from acts enumerated herein may be asserted
         against a defendant in an action in which jurisdiction over him or her is based
         upon this section.

         To subject a nonresident defendant to the personal jurisdiction of this state under RCW

4.28. 185, the following requirements must be met:

                    1) The nonresident defendant or foreign corporation must purposefully do
         some act or consummate some       transaction in the forum   state; (   2) the cause of
         action must arise from, or be connected with, such act or transaction; and ( 3) the
         assumption ofjurisdiction by the forum state must not offend traditional notions
         of fair play and substantial justice, consideration being given to the quality,
         nature, and extent of the activity in the forum state, the relative convenience of the
         parties, the benefits and protection of the laws of the forum state afforded the
         respective parties, and the basic equities of the situation.

Shute   v.   Carnival Cruise Lines, 113 Wash. 2d 763, 767, 783 P.2d 78 ( 1989) (       quoting Deutsch v. W.

Coast Mach. Co., 80 Wash. 2d 707, 711, 497 P.2d 1311 ( 1972)).

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No. 43405 -9 -II

            We will not find jurisdiction under the long -arm statute unless a nexus exists between the

plaintiff s cause of action and              the defendant'   s activities     in the   state.    14 KARL B. TEGLAND,

WASHINGTON PRACTICE: CIVIL PROCEDURE § 4. 13,                           at   89 ( 2d   ed.   2009). We determine the

propriety of long -arm jurisdiction " on a case -by -case basis, based upon the specific parties and

the   specific    facts."        14 WASHINGTON PRACTICE at 90.

A.          No Transaction of Business within Washington .

            To meet the first step in the Shute test, set out above, the evidence must show that Schutz

purposefully did some act or consummated some transaction in this state. Shute, 113 Wash. 2d at

767. Personal jurisdiction " exists where the contacts create a substantial connection with the

forum     state."   SeaHAVN, Ltd. v: Glitnir Bank, 154 Wash. App. 550, 564, 226 P.3d 141 ( 2010). We

determine the sufficiency of the contacts " by the quality and nature of the defendant' s activities,

not   the   number of acts or mechanical standards."                   Shinawatra, 82 Wash. App. at 710.

            The   execution of a contract with a state resident alone                   does     not   fulfill the "` purposeful

act "'   requirement. MBMFisheries, 60 Wash. App. at 423 ( quoting Burger King v. Rudzewicz, 471
U.S. 462, 478 -79, 105 S. Ct. 2174, 85 L. Ed. 2d 528 ( 1985)).                          To determine whether Schutz

purposefully established minimum contacts with Washington by hiring Failla, we must examine

the   entire   transaction,        including    negotiations, "   contemplated future consequences, the terms of

the   contract, and     the       parties'   actual course of   dealing." MBMFisheries, 60 Wash. App. at 423.

            Failla argues that Schutz consummated a transaction in Washington by employing her

knowing that she lived in Washington, citing Toulouse v. Swanson, 73 Wash. 2d 331, 438 P.2d 578

 1968), Thornton            v.   Interstate Sec. Co., 35 Wn.       App.      19, 21, 666 P.2d 370 ( 1983),         and Cofinco of

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No. 43405 -9 -II

Seattle, Ltd. v. Weiss, 25 Wn.               App.   195, 605 P.2d 794 ( 1980). These cases, however, do not

support this proposition.

          In Toulouse, 73 Wash. 2d at 331, an Idaho resident employed a Washington lawyer to

represent him in Washington in extended litigation involving his mother' s estate. Toulouse was

in the state of Washington on many occasions from 1956 to 1959 and was a frequent visitor, as a

client,   to his attorney'   s   law   office.      Toulouse, 73 Wash. 2d   at   331.   The court upheld Washington

jurisdiction over Toulouse in a suit by his attorney for compensation, holding that Toulouse

consummated a transaction in Washington by employing the plaintiff as his lawyer, that the

present action arose from that transaction, and that sustaining Washington jurisdiction would not

be " an affront to the `traditional notions of fair play and substantial justice' necessary for due

process of    law." Toulouse, 73 Wash. 2d at 334 ( citations omitted).

           In Thornton, a foreign corporation hired Thornton to expand into Washington and other

northwest states. Thornton worked in Washington, with Washington companies, and was chosen

for employment

           Necause of his numerous contacts in the industry, his position as vice -
                                                                                  president
           and then president of the Washington State Consumer Finance Association, his
           dealings since 1956 with Washington State' s Division of Banking, Department of
           General Administration, his knowledge of state laws regulating small loan
           companies, and his experience in the field since 1946.

Thornton, 35 Wn.       App.      at    21. When Thornton' s employment was terminated, he sued the

foreign corporation in the Washington courts. We held that Thornton' s role and the company' s

reasons for hiring him raised sufficient contacts with Washington to sustain personal jurisdiction.

 Thornton, 35 Wn.      App.       at   25.
No. 43405 -9 -II

        In Cofinco, 25 Wash. App. at 196, a Washington corporation with its principal place of

business in Seattle, hired Weiss, a New York resident, to sell shoes for Cofinco on the east coast.

Although Weiss never came to Washington, Cofinco provided him with goods, funds, and

advancements as part of     selling   shoes   for Cofmco.      Cofinco, 25 Wash. App. at 196. We held that

under these circumstances the long -
                                   arm statute gave Washington courts jurisdiction over Weiss

in a contract dispute with Confinco. By entering into the employment contract, we held Weiss

 purposefully [ availed himself] of the privilege of conducting activities" within the state of

Washington. Cofinco, 25 Wn.       App.    at    197 ( alteration in   original) ( citation omitted).

        None of these cases stand for the rule that Schutz is subject to Washington jurisdiction

merely because he hired Failla knowing that she lived in Washington. Instead, each decision

rests its holding on contacts that are not present in the relationship between Failla and Schutz or

FixtureOne.

        Failla reached out to. Schutz in Pennsylvania and flew to Pennsylvania to interview.

FixtureOne paid Failla by checks initiated, issued, and mailed from Pennsylvania. FixtureOne

did not register to do business in Washington and never had operations, officers, or customers in

this state. Nothing about Schutz' s employment of Failla anticipated that her activities in

Washington would consist of more than residing here, working from home, and collecting a

paycheck. Nothing in the record shows any attempt to do business with a Washington company,

let alone any transactions with Washington companies.

        Federal case law strongly indicates that this level of contact is insufficient to sustain

jurisdiction   over   Schutz. In Peterson      v.   Kennedy,   771 F.2d 1244, 1262 ( 9th Cir. 1985), the court

held that use of mails or telephones ordinarily does not qualify as purposeful activity invoking

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No. 43405 -9 -II

the benefits and protections of the forum state. Pennebacker v. Wayfarer Ketch Corp., 777
F. Supp. 1217, 1221 ( E.D. Pa. 1991), held that the plaintiff' s decisions to live in Pennsylvania and

receive some paychecks there were unilateral decisions on his part and did not support

Pennsylvania jurisdiction over the New York employer. Similarly, Romann v. Geissenberger

Mfg. Corp.,    865 F. Supp. 255, 261 -63 ( E.D. Pa. 1994), held that a salesman' s unilateral decision

to work partly in his home state of Pennsylvania did not establish jurisdiction over his New

Jersey employer where the salesman had an office in New Jersey and his employer neither

required nor encouraged him to live or work in Pennsylvania.

        The business relationship between Schutz and Failla shares its essential characteristics

with those relationships found inadequate to sustain jurisdiction in these federal cases. In

contrast, the relationship between Schutz and Failla lacks the sort of additional contacts on which

Toulouse, Thornton, and Cofinco relied to uphold jurisdiction. Thus, the case law leans heavily

against the conclusion that the superior court had jurisdiction over Schutz.

        Failla argues that her presence in Washington was more than simple residence, because

Schutz had told her that having a sales representative here could be useful in obtaining business

with Starbucks. However, the record merely shows that after Schutz hired Failla, he forwarded

an e -mail   to her   with   the   subject   line " Starbucks,"   mentioning that another company had certified

FixtureOne'    s   fixtures   under a   food   equipment standard.      CP   at   95.   The meaning of this e -mail is

obscure. Other than this bare subject line, the record does not show any attempt to do business

with Starbucks or any other Washington company. Failla' s employment began in November

2009   and ended      in   May 2011. During that time, there is no evidence of contact with Starbucks.

During that time, there are no e -mails discussing attempts to make contacts, no meetings

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No. 43405 -9 -II

concerning Starbucks, and no mention of phone calls concerning Starbucks. Not only did

FixtureOne fail to gain Starbucks or any other Washington company as a customer, there is no

evidence that Failla or anyone at FixtureOne ever solicited Starbucks or any other Washington

company' s business. Without any action, preparations, or planning, a single mention of

Starbucks in the subject line of an e -mail is without significance in determining whether

Washington courts have jurisdiction over Schutz.

        For these reasons, we conclude that Schutz did not transact business in Washington for

the purpose of the long -
                        arm statute. In reaching this holding, we do not ignore the potential

effect of the recent, revolutionary advances in communications, such as e -mail, video

conferencing, social media and the Internet, on the analysis ofjurisdiction. If Schutz and

FixtureOne had opened a physical. branch office here, the case for jurisdiction over them would

be much stronger. The availability of e -mail, the Internet and the rest invites consideration

whether Failla' s situation was effectively no different from a bricks and mortar branch office;

whether it was qualitatively different from that of an employee working at home using just mail

and   the telephone. The   case   law   rejects "` mechanical "' and "` conceptualistic "'   approaches to

long -arm jurisdiction in favor    of a "`   highly realistic "'   approach that considers actual course of

dealing. See Burger King Corp., 471 U.S. 462 at 478 -79 ( quoting Int' l Shoe v. Washington, 326
U.S. 310, 319, 66 S. Ct. 154, 90 L. Ed. 95 ( 1945) and Hoopeston Canning Co. v. Cullen, 318
U.S. 313, 316, 63 S. Ct. 602, 87 L. Ed. 777 ( 1943)).         The factual record in this appeal does not

allow proper consideration of the effect of the new electronic world on the " highly realistic"

approach to long -arm jurisdiction required by the case law. That question awaits another day.

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No. 43405 -9 -II

B.      No Commission of Tortious Act within Washington

        Failla also argues that Schutz committed a tortious act that established personal

jurisdiction in Washington      under   RCW 4.28. 185( 1)( b).        Specifically, Failla argues that Schutz

committed a tort by failing to pay her wages and that he injured her in Washington because that

is where she resided and should have been paid. Schutz correctly responds that because his

alleged failure to pay did not occur in Washington, that action cannot subject him to its

jurisdiction.

         Under RCW 4. 28. 185( 1)( b),     a tortious act occurs in Washington when the injury occurs

within our state.    Grange Ins. Assn      v.   State, 110 Wash. 2d 752, 757, 757 P.2d 933 ( 1988). An

injury " occurs"   in Washington for      purposes of    the     long -arm   statute, "   if the last event necessary

to   make   the defendant liable for the   alleged   tort   occurred   in Washington." MBMFisheries, 60
Wash. App. at 425. A nonphysical loss suffered in Washington is not sufficient in itself to confer
jurisdiction. Hogan     v.   Johnson, 39 Wn.      App.   96, 100, 692 P.2d 198 ( 1984). No jurisdiction

exists when alleged fraud had an effect in Washington only because plaintiff had chosen to

reside there. DiBernardo- Wallace v. Gullo, 34 Wash. App. 362, 366, 661 P.2d 991 ( 1983).

         The SeaHAVN decision is also instructive in resolving this issue. SeaHAVN alleged that

Glitnir Bank tortiously misrepresented that it had no conflicts of interest and that it would not

disclose SeaHAVN' s confidential information to benefit a competitor. SeaHAVN, 154 Wash. App.

at   569. SeaHAVN argued that Washington had jurisdiction because SeaHAVN was a

Washington based company and Glitnir had financially harmed SeaHAVN in Washington. See

SeaHAVN, 154 Wn.         App.   at   569. Division One      of this court concluded,         however, that "[ b] ecause

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No. 43405 -9 -II

the   alleged misrepresentations        did   not occur   in Washington, ...   Glitnir was not subject to

jurisdiction     under   RCW 4. 28. 185( 1)( b)."    SeaHAVN, 154 Wash. App. at 570.

          Here, Schutz allegedly committed a tort by failing to pay Failla' s wages. His failure to

pay occurred in Pennsylvania. Failla experienced nonphysical injury in Washington only

because she chose to live in Washington. Because the failure to pay is the " last event necessary"

to make Schutz liable and his alleged failure did not occur in Washington, he is not subject to

Washington jurisdiction. See MBMFisheries, 60 Wash. App. at 425.

          Failla does not show that Schutz either transacted business or committed a tort in

Washington. Consequently, Failla does not meet the first prong of the three -part Shute test, and

Washington courts lack personal jurisdiction over Schutz. See Shute, 113 Wash. 2d at 767. With

that conclusion, we need not consider the second or third parts of the Shute test.

          We reverse the superior court' s decision that.it had personal jurisdiction over Schutz and

its denial of Schutz' s dismissal motion. Because the superior court lacked jurisdiction, we reverse

its grant of summary judgment in favor of Failla and the accompanying judgment award and

award of prejudgment interest, attorney fees, and costs.

                                                               BJORGEN,
We       ncur:

      NT, P. J
                    k

                                    r
 SET U YAR, J .

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