Diamond Healthcare of Ohio, Inc. v. Humility of Mary Health Partners

229 F.3d 448, 2000 WL 1475554

• Court: Court of Appeals for the Fourth Circuit
• Decided: October 5, 2000
• Docket: No. 00-1006
• Status: Published

Opinions

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Senior Judge BEEZER joined. Judge LUTTIG wrote a dissenting opinion.

OPINION

NIEMEYER, Circuit Judge:

The question presented on appeal in this breach-of-contract action is whether Humility of Mary Health Partners (“HMH Partners”), an Ohio corporation with its principal place of business in Youngstown, Ohio, is subject to the personal jurisdiction of a federal court sitting in Virginia. Diamond Healthcare of Ohio, Inc. (“Diamond Healthcare”), a Virginia corporation which entered into a contract with HMH Partners, contends that by reason of this contract, HMH Partners subjected itself to personal jurisdiction in Virginia. The district court disagreed and granted HMH Partners’ motion, filed under Federal Rule of Civil Procedure 12(b)(2), to dismiss for lack of personal jurisdiction. We affirm.

I

Diamond Healthcare, which has its principal place of business in Richmond, Virginia, entered into a contract with HMH Partners, dated December 24, 1997. Under the contract, Diamond Healthcare agreed to provide services to HMH Partners in Boardman, Ohio, for the operation of “Project NuStart,” a partial-hospitalization program for the elderly. In July 1999, HMH Partners terminated the contract, and Diamond Healthcare filed this action in the district court in Virginia for breach of contract, relying on diversity of citizenship for subject matter jurisdiction. Diamond Healthcare alleged that HMH Partners failed to make its required monthly payments, failed to give 60 days’ notice of its termination of the contract, failed to give “notice of a specific alleged breach,” and failed to allow Diamond Healthcare an opportunity to cure. It demanded $1,364,000 in damages.

HMH Partners filed a motion to dismiss the complaint based on lack of personal jurisdiction. It contended that HMH Partners’ contacts with Virginia were constitutionally insufficient to subject it to personal jurisdiction in a Virginia court. The parties submitted numerous affidavits, which were not materially in conflict. Based on these affidavits, the district court granted HMH Partners’ motion to dismiss, - concluding that HMH Partners’ contractual relationship with Diamond Healthcare -did not create constitutionally sufficient contacts with Virginia to subject it to suit there. It noted that under the contract, Diamond Healthcare agreed to hire staff and run an Ohio partial-hospitalization program serving Ohio patients using Ohio personnel. Even though Diamond Healthcare was a Virginia corporation located in Richmond and would perform its contract under the general supervision of its corporate leadership in Richmond, the court concluded that the contract called for Diamond Healthcare to perform “predominantly in Ohio.” The court acknowledged, that there were many phone calls, letters, and fax communications between Ohio and Virginia, but concluded that “[t]he vast number of phone calls between Ohio and Richmond appear to have taken place between employees of the Virginia company, not between the companies themselves.” Dismissing as constitutionally insufficient the few contractual contacts that HMH Partners did have with Virginia, the court concluded: .

While the parties here did enter into extended negotiations, the Contract does not require Diamond [Healthcare] to perform its services from Virginia. At most, the Contract ... appears merely to document the unremarkable notion that a corporation’s home office may instruct that corporation’s operatives in the field, but this alone does not invest the Court with personal jurisdiction over [HMH Partners]. Nor is it at all clear from its course of dealing with Diamond [Healthcare] that [HMH Partners] could reasonably expect to be haled into court in Virginia, given that the utmost extent of [HMH Partners’] post-negotiation contacts with [Diamond Healthcare’s] corporate office appears to be the occasional payment mailed to Richmond. The defendant here did not seek out the forum corporation, it did not anticipate that the forum corporation would provide its services predominantly from the forum, it did not agree to a contract governed by forum law, and its course of performance under the Contract demonstrates that it could not expect to be haled into Court in Virginia.

From the district court’s opinion dismissing its action, Diamond Healthcare noticed this appeal.

II

Under Federal-Rule of Civil Procedure 4(k)(l)(A), a federal court may exercise personal jurisdiction over a defendant in the manner provided by state law. See ESAB Group, Inc. v. Centricut, Inc., 126 F.3d 617, 622 (4th Cir.1997). And a Virginia court may exercise personal jurisdiction “over a person ... as to a cause of action arising from the person’s ... [transacting any business” in Virginia. Va.Code Ann. § 8.01-328.1(A). This statute has been construed to extend personal jurisdiction to the full extent permitted by the Due Process Clause. See English & Smith v. Metzger, 901 F.2d 36, 38 (4th Cir.1990); Danville Plywood Corp. v. Plain & Fancy Kitchens, Inc., 218 Va. 533, 238 S.E.2d 800, 802 (1977). Accordingly, we recognize that, in determining the reach of the state’s long-arm statute, the statutory and constitutional inquiries coalesce into the question of whether HMH Partners had sufficient minimum contacts with Virginia to satisfy due process requirements. See Stover v. O’Connell As-socs., Inc., 84 F.3d 132, 135-36 (4th Cir.1996). At bottom, however, the question is a matter of Rule 4 interpretation and not of constitutional magnitude because Congress has authority constitutionally to permit service in federal court beyond any state’s boundaries.

* See Fed.R.Civ.P. 4(k)(l); ESAB Group, 126 F.3d at 622.

Applying the constitutional limitations on state service of process incorporated in Rule 4(k)(l)(A), we understand that when a defendant’s contacts with the forum state are continuous and systematic, irrespective of whether the transaction in question had sufficient contacts with the state, a court may exercise general personal jurisdiction over the defendant. See ESAB Group, 126 F.3d at 623-24. In the absence of continuous and systematic contacts, a court may still exercise specific personal jurisdiction when the contacts relate to the cause of action and create a substantial connection with the forum state. See id. at 625.

In this case, HMH Partners filed affidavits, which have remained uncontroverted, averring that it has not conducted any business in Virginia; that it owns no property in Virginia; that it has not solicited any business in Virginia; that its employees have not visited Virginia on its behalf to conduct its business; and that it has no Virginia patients. Because HMH Partners’ contacts with Virginia have accordingly not been continuous and systematic, the district court could not exercise general personal jurisdiction over HMH Partners. See ESAB Group, 126 F.3d at 623-24. The only potential basis for personal jurisdiction therefore is the contractual relationship between Diamond Healthcare and HMH Partners. The resulting inquiry probes whether, in connection with this contract, HMH Partners had a substantial connection with Virginia such that it “engaged in some activity purposefully directed toward [Virginia].” Id. at 625 (quotation marks and citations omitted). And HMH Partners’ actions must have been directed at Virginia “in more than a random, fortuitous, or attenuated way.” Id. It is on these criteria that we base our analysis.

Ill

The contract between Diamond Healthcare and HMH Partners was initiated by Diamond Healthcare, which approached HMH Partners in Ohio to solicit HMH Partners’ purchase of Diamond Healthcare’s capacity for managing a partial-hospitalization program. During negotiations, representatives of the parties met in Ohio on several occasions, but never in Virginia. They did, however, exchange telephone calls, letters, and faxes between their offices in Ohio and Virginia. Following negotiations, HMH Partners signed the agreement in Ohio and sent it to Richmond, where Diamond Healthcare signed it. Formed in these circumstances, the contract represents the product of HMH Partners’ favorable response to Diamond Healthcare’s unsolicited invitation for performance of a project in Ohio, which the parties agreed would be regulated under Ohio law, even though some aspects of the contract could be performed in Virginia. See Chung v. NANA Dev. Corp., 783 F.2d 1124, 1128 (4th Cir.1986) (Alaska defendant lacked minimum contacts with Virginia, even though the contract’s “essential terms were negotiated by telephone between Alaska and Virginia,” when “those communications were initiated by” the Virginia plaintiff).

Not only did Diamond Healthcare initiate the contractual relationship in Ohio, but the resulting agreement contemplated the bulk of the contract’s performance at Project NuStart in Boardman, Ohio. Under the contract, Diamond Healthcare was responsible for employing directors “to provide overall management and services” at Project NuStart, for furnishing “sufficient staff at all times to operate a quality program,” for developing “job descriptions for the personnel to be employed by” Diamond Healthcare at Project NuStart, for “[r]ecruiting, orienting, training and supervising the personnel to be employed by” Diamond Healthcare at Project NuS-tart, and for recruiting psychiatrists “to become members of the Medical Staff of’ Project NuStart. In addition to running Project NuStart in Ohio, Diamond Healthcare did agree that it would “provide consultation from its corporate office [in Richmond] as reasonably necessary in the areas of finance, program development and operations, personnel and labor relations, professional staff relations, recruiting, licensure, and survey compliance.”

While the principal part of Diamond Healthcare’s performance was required in Boardman, Ohio, virtually all of HMH Partners’ performance was required there. It agreed to provide the “services necessary for the operation” of Project NuStart, including the provision of equipment, supplies, and hospital support personnel. HMH Partners was obliged also to review and approve staff provided by Diamond Healthcare at the facility, to obtain necessary licenses and accreditation, and to regulate the admission of patients. As part of the financial arrangements between the parties, HMH Partners was required to mail to Diamond Healthcare in Richmond certain financial information about Project NuStart and its monthly management fees.

The fact that the contract called for the obligations of both parties to be performed mainly in Ohio and to be governed by Ohio law is inconsistent with Diamond Healthcare’s assertion that HMH Partners invoked the “benefits and protections” of Virginia law, Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958), and with its contention that HMH Partners could “reasonably anticipate being haled into court” in Virginia, World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980); see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 481, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (“[T]he Court of Appeals gave insufficient weight to provisions in the various [contract] documents providing that all disputes would be governed by [the forum state’s] law”). These factors undercut Diamond Healthcare’s argument that HMH Partners deliberately exercised the privilege of undertaking contractual activity in Virginia. See Hanson, 357 U.S. at 252, 78 S.Ct. 1228; cf. Burger King, 471 U.S. at 482, 105 S.Ct. 2174 (noting that foreign defendant “purposefully availed himself of the benefits and protections of [the forum state’s] laws by entering into contracts expressly providing that those laws would govern franchise disputes” (quotation marks omitted)).

While some acts required of and performed by HMH Partners necessitated its contact with Virginia — HMH Partners had to keep Diamond Healthcare advised of legal or regulatory action taken against Project NuStart and any denial of payment from a payer source, and it also had to send monthly payments to Richmond— these requirements were incidental to HMH Partners’ role under the contract. With Diamond Healthcare’s assistance, HMH Partners agreed to provide partial-hospitalization services in Boardman, Ohio; ancillary and isolated notifications and mailings to Richmond amounted only to “attenuated contact” with Virginia. Chung, 783 F.2d at 1128; see also Stover, 84 F.3d at 136.

Diamond Healthcare places heavy emphasis on the nature and extent of its own activities in Virginia, arguing that these activities should be imputed to HMH Partners by reason of the contractual relationship between the parties. But development of this argument can only lead to the conclusion that Diamond Healthcare directed its activities under the contract toward Ohio, not that HMH Partners directed its activities toward Virginia. See Hanson, 357 U.S. at 251-52, 78 S.Ct. 1228; Stover, 84 F.3d at 136; cf. Burger King, 471 U.S. at 480, 105 S.Ct. 2174 (jurisdiction existed in Florida where Michigan defendant entered “a carefully structured 20-year relationship that envisioned continuing and wide-reaching contacts with [the plaintiff] in Florida,” including “long-term and exacting regulation of [the defendant’s] business from [the plaintiff’s] Miami headquarters”).

Finally, Diamond Healthcare emphasizes the frequent communications and management activities between its Virginia office and Project NuStart in Boardman, Ohio. But these communications and management activities were principally between Diamond Healthcare’s employees in Richmond and its own employees at Project NuStart, for Project NuStart was developed, managed, and staffed by Diamond Healthcare, and Project NuStart personnel were responsible for virtually every aspect of its day-to-day operation. Diamond Healthcare provides no authority for the proposition that interactions between its headquarters and its own employees in the field, across state lines, may form a “sufficiently substantial” connection with an out-of-state entity with which those employees are contractually affiliated. Chung, 783 F.2d at 1126. Such contact represents unilateral activity by Diamond Healthcare that does not create personal jurisdiction over HMH Partners. See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 417, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); Hanson, 357 U.S. at 253, 78 S.Ct. 1228 (“The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State”); Cancun Adventure Tours, Inc. v. Underwater Designer Co., 862 F.2d 1044, 1046-47 (4th Cir.1988).

Accordingly, we affirm the judgment of the district court.

AFFIRMED

Of course, a state’s exercise of long-arm jurisdiction remains limited by the extent of its sovereignty and the protection of the Due Process Clause of the Fourteenth Amendment. See Stover, 84 F.3d at 136.