Greer v. Tailor Maid Services, LLC. ( 2021 )

IN THE COURT OF APPEALS OF IOWA
No. 20-1055
Filed September 1, 2021
PHILLIP D. GREER,
Plaintiff-Appellant,
and
RICHARD L. GREER and GREER CLEANING, LLC d/b/a SPARKLING CLEAN,
Plaintiffs,
vs.
TAILOR MAID SERVICES, LLC, DONNETTE SMITH, STEWART SMITH and
TOM DIEDRICH,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Mary E. Chicchelly,
Judge.
Phillip Greer appeals the district court’s order dismissing his breach-of-
contract action against the defendants for lack of personal jurisdiction. AFFIRMED
IN PART, REVERSED IN PART, AND REMANDED.
Phillip D. Greer, Cedar Rapids, self-represented appellant.
Donnette Smith, Blue Ridge, Texas, self-represented appellee.
Stewart Smith, Blue Ridge, Texas, self-represented appellee.
Tom Diedrich, Dallas, Texas, self-represented appellee.
Considered by Vaitheswaran, P.J., and Tabor and Ahlers, JJ.
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VAITHESWARAN, Presiding Judge.
Cedar Rapids resident Phillip Greer sued Texas company Tailor Maid
Services, LLC (Tailor Maid) and Texas residents Donnette Smith, Stewart Smith,
and Tom Diedrich1 following failed negotiations to purchase the Texas company.
He and two other plaintiffs, Richard Greer and Greer Cleaning, LLC, alleged in part
that a letter of intent afforded the plaintiffs “the exclusive right to negotiate terms
with the seller” and the defendants breached the letter of intent “by entering into
discussions with one or more other interested buyers during the exclusive
negotiating time frame.” The district court granted a defense motion to dismiss the
petition for lack of personal jurisdiction or standing.2
On appeal, Phillip Greer argues (1) “the District Court erred in determining
that the ‘Letter of Intent’ was not a valid contract”; (2) “the District Court erred in
[d]etermining that the Plaintiffs had not incurred any damages and thus had no
standing to file suit”; and (3) “the District Court erred in not applying the ‘Calder
Test’ in determining whether the Defendants are subject to specific jurisdiction in
the state of Iowa.” The third issue is dispositive, stated more generically as
whether the court had personal jurisdiction over the Texas defendants.
1 Deidrich was never served with process.
2 Phillip Greer represented himself and also purported to act on behalf of Richard
L. Greer and Greer Cleaning. In an order denying his request for additional time
to serve the defendants, the district court noted that Phillip Greer did not appear to
be a licensed attorney and Iowa law did not allow business entities other than
partnerships to represent themselves in court except through a licensed Iowa
attorney, nor did Iowa law allow a non-lawyer to represent others in court. Phillip
Greer moved to dismiss the other two plaintiffs. The district court found it
unnecessary to rule on the motion.
3
The United States Supreme Court recently reaffirmed the “minimum
contacts” standard for establishing personal jurisdiction. See Ford Motor Co. v.
Mont. Eighth Jud. Dist. Ct., 141 S. Ct. 1017, 1024 (2021). The Court stated the
focus is “on the nature and extent of the defendant’s relationship to the forum
State.” Id. (internal quotation and citation omitted). The Court proceeded to
discuss general and specific jurisdiction. Id. at 1024–25. Specific jurisdiction—
the only type at issue here—”covers defendants less intimately connected with a
State, but only as to a narrower class of claims” than encompassed by general
jurisdiction. Id. at 1024. “The contacts needed for this kind of jurisdiction often go
by the name ‘purposeful availment.’” Id. “The defendant . . . must take some act
by which [it] purposefully avails itself of the privilege of conducting activities within
the forum State.” Id. (alteration in original) (internal quotation and citation omitted).
The contacts “must show that the defendant deliberately reached out beyond its
home—by, for example, exploi[ting] a market in the forum State or entering a
contractual relationship centered there.” Id. at 1025 (alteration in original) (internal
quotation and citation omitted). But “even then—because the defendant is not ‘at
home’—the forum State may exercise jurisdiction in only certain cases.” Id. “The
plaintiff’s claims . . . must arise out of or relate to the defendant’s contacts with the
forum.” Id. (internal quotation and citation omitted).
The purposeful-availment requirement was explicated by the Court in
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985). There, the Court
stated, “Jurisdiction is proper . . . where the contacts proximately result from
actions by the defendant himself that create a ‘substantial connection’ with the
forum State.” Burger King Corp., 471 U.S. at 475 (citations omitted). Where
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defendants create “‘continuing obligations’ between [themselves] and residents of
the forum,” purposeful availment will be found. Id. at 476. “Jurisdiction in these
circumstances may not be avoided merely because the defendant did not
physically enter the forum State.” Id. “[I]t is an inescapable fact of modern
commercial life that a substantial amount of business is transacted solely by mail
and wire communications across state lines, thus obviating the need for physical
presence within a State in which business is conducted.” Id. “So long as a
commercial actor’s efforts are ‘purposefully directed’ toward residents of another
State, we have consistently rejected the notion that an absence of physical
contacts can defeat personal jurisdiction there.” Id.Jurisdiction over defendants also may be appropriate based on the effects
of their out of state conduct. See Calder v. Jones, 465 U.S. 783, 789 (1984). In
Calder, Florida defendants were “primary participants in an alleged wrongdoing
intentionally directed at a California resident.” Id. at 790. The Court concluded
jurisdiction over them was proper. Id.Iowa follows the same framework. See Ostrem v. Prideco Secure Loan
Fund, LP, 841 N.W.2d 882, 892–93 (Iowa 2014) (noting, “In the past we have used
a five-factor test to evaluate whether a nonresident defendant had sufficient
minimum contacts with Iowa,” but “[a]lthough we have never expressly disavowed
the five-factor test, we have recently followed the modern framework, which
evaluates two criteria”: “whether the defendant has purposefully directed his
activities at residents of the forum and whether the litigation results from alleged
injuries that arise out of or relate to those activities” (internal quotations and
citations omitted)); Shams v. Hassan, 829 N.W.2d 848, 856 (Iowa 2013) (noting,
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“we have utilized an arguably different test from the federal model,” but “we have
followed the modern federal framework more closely in recent years”). Our courts
examine whether a “defendant has purposefully directed [the defendant’s]
activities at residents of the forum and the litigation results from alleged injuries
that arise out of or relate to those activities.” Cap. Promotions, L.L.C. v. Don King
Prods., Inc., 756 N.W.2d 828, 834 (Iowa 2008) (quoting Burger King Corp., 471
U.S. at 472–73). The supreme court has cited and applied the Calder effects test.
Id. at 836–37. In Capital Promotions, the court stated, “The Calder ‘effects’ test,
as it has come to be known, is but one facet of the ordinary minimum contacts
analysis, to be considered as part of the full range of the defendant’s contacts
within the forum.” Id. at 836 (internal quotation and citation omitted).
The court also addressed the thorny issue of when internet marketing
triggers personal jurisdiction. Sioux Pharm, Inc. v. Summit Nutritionals Int’l, Inc.,
859 N.W.2d 182, 193 (Iowa 2015). Although Sioux Pharm, Inc. considered general
rather than specific jurisdiction, the court cited and applied a test used in the
specific jurisdiction context:
[T]he likelihood that personal jurisdiction can be constitutionally
exercised is directly proportionate to the nature and quality of
commercial activity that an entity conducts over the Internet. This
sliding scale is consistent with well developed personal jurisdiction
principles. At one end of the spectrum are situations where a
defendant clearly does business over the Internet. If the defendant
enters into contracts with residents of a foreign jurisdiction that
involve the knowing and repeated transmission of computer files
over the Internet, personal jurisdiction is proper. At the opposite end
are situations where a defendant has simply posted information on
an Internet Web site which is accessible to users in foreign
jurisdictions. A passive Web site that does little more than make
information available to those who are interested in it is not grounds
for the exercise [of] personal jurisdiction. The middle ground is
occupied by interactive Web sites where a user can exchange
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information with the host computer. In these cases, the exercise of
jurisdiction is determined by examining the level of interactivity and
commercial nature of the exchange of information that occurs on the
Web site.
Id. (alterations in original) (quoting Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.
Supp. 1119, 1124 (W.D. Pa. 1997)).
With these principles in mind, we turn to the standard of review and burden
of proof. “[T]he constitutional minimum-contacts analysis is a fact-intensive one;
and we apply it on a case-by-case basis.” Shams, 829 N.W.2d at 858. “Rulings
on questions of personal jurisdiction are reviewed for correction of errors at law.”
PSFS 3 Corp. v. Seidman, ___ N.W.2d ___, ___, 2021 WL 2603082, at *10 (Iowa
2021) (citation omitted). “The plaintiff has the burden to set forth a prima facie
case that jurisdiction is appropriate, with the district court ‘accept[ing] as true the
allegations of the petition and the contents of uncontroverted affidavits.’” Id.(alteration in original) (citation omitted). “Once ‘the plaintiff makes a prima facie
case . . . , the burden shifts to the defendant to rebut that showing.’” Id. (alteration
in original) (citation omitted).
Greer alleged the following in his petition: “On or before April 24, 2019,
Greer responded to an advertisement listing Tailor Maid for sale. This was one of
several advertisements placed on websites commonly utilized to solicit potential
buyers of small businesses. These ads were targeted to all states nationwide
including Iowa.” Greer further alleged: “After some discussion between Greer and
all of the Defendants, a Letter of Intent (LOI), attached as Exhibit A, was finalized
and signed by both parties as of May 20, 2019.”
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The LOI contained an acknowledgment that “time is of importance” and they
would “work towards closing the transaction as quickly as possible,” with Greer
“target[ing] a closing date of July 31,” pushed back “as late as August 31.” The
LOI further stated, “The primary driver will be the amount of time that financing
arrangements and due diligence can be completed.” Although the document
stated “this letter is nonbinding and constitutes an indication of intent only,” the
same paragraph excepted two paragraphs from the propositions. One of those
paragraphs, titled “Exclusive Negotiations,” stated:
During the interim period between the execution of this letter
of intent and either a) the final closing of the transaction or b) it has
become evident that a transaction cannot be agreed upon, the buyer
has the exclusive right to negotiate terms with the seller. Under no
circumstances shall this right be extended beyond June 30, 2019
unless both parties agree in writing to renew this agreement for an
additional time period.
Greer alleged, “After May 20, 2019, but before June 28, 2019, one or more
Defendants made contact with one or more additional buyers and began
discussions with those buyers while the original LOI was still in force.” And Greer
alleged:
Beginning on or around June 13 and continuing until June 27,
the Defendants began deliberately or negligently providing false and
incorrect data on the firm to be purchased. This was manifested in
many financial statements with different numbers being presented
on the statements. There were also false statements with regard to
the level of insurance that was provided for the firm. This caused
unnecessary delays and was slowing and delaying the due diligence
and closing process substantially.
Greer further alleged that, on June 27, 2019, he “was seeking additional data to
address the discrepancies and other information and begin the final preparation of
the Purchase Agreement” when the defendants’ agent, “knowing that the firm was
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subject to an exclusive negotiating period and the implied duty of negotiating in
good faith, notified [him] via email that there was another buyer involved.” Greer
alleged he received another email containing “misleading and entirely false”
assertions and declining to negotiate further. He raised several claims including
breach of contract.
We must accept Greer’s allegations as true for purposes of the personal-
jurisdiction analysis. Those allegations establish that the defendants marketed to
Iowa via a website catering to potential purchasers of small businesses. See Ford
Motor Co., 141 S. Ct. at 1026 (noting Ford “actively seeks to serve the market for
automobiles and related products in” the forum states); Ostrem, 841 N.W.2d at 902
(concluding the defendant “purposefully directed its activities at residents of Iowa”);
Cascade Lumber Co. v. Edward Rose Bldg. Co., 596 N.W.2d 90, 92 (Iowa 1999)
(“We have recognized a stronger interest in seeing jurisdiction extended to
nonresident sellers than to nonresident purchasers.”). The defendants sought out
potential purchasers, including Greer. They were not simply passive purveyors of
information on the internet. The defendants followed up by executing a document
with an Iowa resident that afforded Greer the exclusive right to negotiate contract
terms for the purchase of their business for a specified period of time. See Ostrem,
841 N.W.2d at 887 (“[W]e hold that this assignee is subject to personal jurisdiction
in Iowa based on its own contacts with this forum through the contractual
relationships it assumed by the assignment.”). We recognize contracts alone do
not establish minimum contacts. See Ross v. First Sav. Bank of Arlington, 675
N.W.2d 812, 818 (Iowa 2004) (stating participation agreements “do not alone
establish sufficient minimum contacts”). But the question here is not whether the
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LOI was an enforceable contract that established sufficient minimum contacts with
Iowa but whether the LOI and the discussions that preceded and followed its
execution were sufficient to establish that the defendants purposefully availed
themselves of the forum state. See Burger King Corp., 471 U.S. at 478–79.
According to the plaintiffs, those discussions established the defendants’
failure to honor the exclusivity clause. Before the deadline for consummating an
agreement or ending negotiations, the defendants allegedly acknowledged there
was another buyer. See Sioux Pharm, Inc., 859 N.W.2d at 197 (noting “allegedly
unfair competition harmed the Iowa plaintiff . . . in this state under the Calder effects
test”); cf. Cap. Promotions, 756 N.W.2d at 837 (declining to find specific jurisdiction
where “the acts alleged to constitute the interference [with contract] were directed
toward” a resident of Nevada and his Nevada manager). Greer carried his
preliminary burden of proof to support exercise of specific personal jurisdiction over
the defendants.
The Smiths proffered affidavits to counter the assertion of personal
jurisdiction. Those affidavits did not controvert Greer’s key allegations. Donnette
Smith acknowledged signing the LOI and attested that she “believed the parties
were on track to close a deal in July 2019.” She also acknowledged sending Greer
“approximately five direct messages on behalf of Tailor Maid” during the exclusivity
period. Stewart (“Allen”) Smith relied on the fact that he only “participated in a
single phone call with Phillip Greer.” But he said nothing to contradict Greer’s
assertion that the defendants executed a document giving the plaintiffs the
exclusive right to negotiate the purchase of Tailor Maid’s assets and then went
behind their back to solicit another buyer. Because the affidavits failed to
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undermine the allegations contained in the petition, those allegations—which
ultimately may be disproved but are the litmus test for personal jurisdiction—lead
us to conclude the defendants “purposefully availed” themselves of the privilege of
conducting activities in Iowa. See Shams, 829 N.W.2d at 859 (noting defendant
“was aware of the location of the bank from which she was allegedly
misappropriating [the plaintiff’s] funds” and “knew the bank account was in Iowa”).
We are left with Greer’s suggestion that he sued the Smiths in their
representative and individual capacities. Nothing in his petition suggests that the
Smiths were sued in their individual capacities. Accordingly, specific personal
jurisdiction is established only in their capacity as owners and/or representatives
of Tailor Maid.3
We affirm the dismissal of the Smiths in their individual capacities. We
reverse the dismissal of Tailor Maid Services, LLC and the Smiths in their
representative capacities and remand for further proceedings.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
3 Although Allen Smith averred that he was not an owner, the petition raises
sufficient allegations that he was involved in the negotiation.