Appendix — LAK, Inc. v. Deer Creek Enterprises
Supreme Court brief1990
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Text
No.
In The
Supreme Court of the United States
October Term 1989
>
LAK, INC.,
Petitioner,
VS.
DEER CREEK ENTERPRISES,
Respondent.
>
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
D. MICHAEL KRATCHMAN
(Counsel of Record)
2500 Buhl Building
535 Griswold
Detroit, Michigan 48226
(313) 963-9625
Attorney for Petitioner
93
TABLE OF CONTENTS
Page
Opinion of the United States Court of Appeals for
the Sixth Circuit dated September 20, 1989... App. 1
Order of the United States Court of Appeals for the
Sixth Circuit Denying Petition for Rehearing Dated
PUOURINE FTPs ss cee escspesessveenecaiys App. 31
Judgment of the United States Court of Appeals for
the Sixth Circuit dated September 20, 1989... App. 32
Memorandum Opinion and Order of the United
States District Court, Eastern District of Michigan,
Southern Division dated February 1, 1985.... App. 34
Memorandum Opinion and Order of the United
States District Court, Eastern District of Michigan,
Southern Division dated March 13, 1987...... App. 48
Memorandum Opinion and Order of the United
States District Court, Eastern District of Michigan,
Southern Division dated October 31, 1987..... App. 68
Jury Verdict dated September 12, 1986........ App. 76
App. 1
APPENDIX
No. 87-1321
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
LAK, INc., On ApreaAt from
the United
States District
Court for the
Eastern District
of Michigan
Plaintiff-Appellee,
V.
DEER CREEK ENTERPRISES,
Defendant-Appellant.
Decided and Filed
September 20, 1989
Before: NELSON and BOGGS, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
DAVID A. NELSON, Circuit Judge. This is an appeal
from a judgment entered by a federal district court in
Michigan in an action against an Indiana partnership on a
contract for the sale of a valuable tract of land in Florida.
The plaintiff is a Michigan corporation, and the federal
courts have subject matter jurisdiction under 28 U.S.C.
§ 1332. The defendant partnership was never present in
Michigan, however, it never consented to be sued there,
and it has insisted from the outset of the litigation that it
never invoked the benefits and protections of Michigan’s
laws by purposefully availing itself of the privilege of
transacting business in that state. The first question we
must address, therefore - a question that is dispositive of
the appeal, as it turns out — is whether the facts estab-
lished by the plaintiff corporation justified the district
App. 2
court’s exercising jurisdiction over the person of the
defendant partnership.
The district court concluded (a) that the case came
within the terms of Michigan Comp. Laws § 600.725 (the
section of Michigan’s long-arm statute dealing with “lim-
ited” personal jurisdiction over partnerships) and (b) that
such personal jurisdiction could be exercised without
violating the defendant’s rights under the Due Process
Clauses of the Fifth and Fourteenth Amendments. A
timely motion to dismiss the complaint for want of in
personam jurisdiction was denied, and the district court
ultimately went on to enter a decree of specific perfor-
mance against the defendant.
We believe that the jurisdictional question was
decided incorrectly, in light of the particular facts pre-
sented here, and we shall reverse the judgment for that
reason.
|
The Supreme Court has rejected any resort to “tal-
ismanic jurisdictional formulas” for resolving questions
of personal jurisdiction. Burger King Corp. v. Rudzewicz,
471 U.S. 462, 485 (1985). Instead, “ ’ the facts of each case
must [always] be weighed’ in determining whether per-
sonal jurisdiction would comport with ‘fair play and
substantial justice.’ ” Id. at 485-486, quoting Kulko v. Calli-
fornia Superior Court, 436 U.S. 84, 92 (1978). We are there-
fore prompted to sketch out the facts of the present case
in somewhat greater detail than might have been neces-
sary had the case arisen at an earlier stage in the develop-
ment of our jurisprudence.
App. 3
Defendant Deer Creek Enterprises is an Indiana gen-
eral partnership formed by two brothers, Mark and Hart
Hasten. Both of the Hastens are residents of Indiana.
Their Deer Creek partnership has its principal place of
business in Indianapolis, Indiana. Deer Creek transacts
no business in Michigan, according to an affidavit signed
by Mark Hasten, nor has it ever transacted business in
that state. Deer Creek has no real or personal property in
Michigan, and there is no contention that it ever desig-
nated an agent to accept service of process there.
At the time with we are concerned in this proceeding,
Deer Creek had substantial real estate holdings in Flor-
ida. It owned, among other things, a 45-acre tract of land
known as the “Cypress parcel.” This particular parcel,
which is located in a residential area between Boca Raton
and Ft. Lauderdale, Florida, was unimproved by any
buildings other than a small eight-unit apartment struc-
ture. The land had considerable potential for develop-
ment, it appears.
Deer Creek did not advertise the Cypress parcel for
sale, either in Michigan or elsewhere. In November of
1983, however, Deer Creek’s Florida representative, Mr.
Richard Jerman, received an unsolicited inquiry about a
possible purchase of the parcel by Beznos Realty Invest-
ment Company, a Michigan limited partnership that was
the predecessor in interest of plaintiff LAK, Inc. The
property acquisition manager for Beznos Realty, Mr. Al
Beke, met with Mr. Jerman in Florida on November 17,
1983. On the following day Mr. Jerman was giving a letter
of intent, signed by Mr. Beke on behalf of the Beznos
organization, proposing to purchase part of the parcel.
App. 4
Messrs. Beke and Jerman had several subsequent
meetings in Florida, and they spoke over the telephone at
times when Beke was in Michigan and Jerman in Florida.
At no point did Mr. Jerman or any other representative of
Deer Creek go into the State of Michigan on business
related to this matter.
On two occasions in the latter part of December,
1983, Mr. Harold Beznos, one of the principals of Beznos
Realty, met in Florida with the Hasten brothers, at the
latters’ invitation, to discuss the proposed purchase. Mr.
Beznos met again with Mark Hasten in Florida on Janu-
ary 4, 1984, and an affidavit subsequently signed by Mr.
Beznos says of this meeting that “we continued to negoti-
ate the specifics of a real estate transaction. .. .”
Mr. Beznos returned to his home in Michigan shortly
after the January 4 negotiating session, and he had fur-
ther discussions with Mark Hasten and other representa-
tives of Deer Creek over the telephone.! In February of
1984 — around the time of yet another meeting between
' A supplemental affidavit of Mr. Hasten says “we did not
negotiate the substantive terms of the Purchase Agreement for
the sale of the Cypress parcel in any of the telephone conversa-
tions. The substantive terms of the Purchase Agreement were
all negotiated in Florida during face-to-face meeting with
Harold Beznos.” A responsive affidavit of Mr. Beznos says, and
other evidence confirms, that certain warranties and other
substantive terms of the deal were negotiated by attorneys,
rather than by the principals directly. Mr. Beznos also had
telephone conversations from Michigan with Mr. Hasten about
the purchaser’s contractual obligation to secure financing from
a third party.
a
App. 5
Messrs. Beznos and Hasten in Florida - Mr. Hasten
instructed his lawyer in Indianapolis, Mr. Stephen Backer,
to draw up a contract for the sale to Beznos Realty of the
entire Cypress parcel.
On February 13, 1984, Attorney Backer dispatched a
draft purchase agreement by Federal Express to Harold
Beznos at the Biltmore Hotel in Phoenix, Arizona. It was
subsequently learned that Mr. Beznos had left Phoenix,
and on February 15 a second copy was sent to him at a
hotel in Beverly Hills, California. (The record suggests
that Mr. Beznos traveled extensively, and at various times
he communicated with Deer Creek by telephone from
Canada, Mexico, Texas, New York, Arizona and Califor-
nia, as well as from Michigan. Some of these calls evi-
dently dealt with the third-party financing that was being
arranged by Beznos, and others concerned matters hav-
ing nothing to do with the Cypress parcel.)
Mr. Beznos gave the draft purchase agreement to his
lawyer in Detroit, Mr. Michael Mehr, who promptly
placed a telephone call to Attorney Backer in Indi-
anapolis. The two lawyers had a number of telephone
conversations over the telephone in the latter part of
February, and the agreement went through three addi-
tional drafts. Typed copies of these drafts were prepared
in Mr. Backer’s office in Indianapolis and were mailed to
Mr. Mehr’s office in Detroit. Unlike their principals, who
had met several times in Florida, the lawyers never met
face-to-face; all of their communications with one another
were conducted by telephone or in writing.
App. 6 —
Attorney Mehr’s affidavit makes the point that “[n]o
agreement to purchase and sell existed between the par-
ties until the matters negotiated by me and Stephen
Backer were expressed in the written Purchase Agree-
ment.” The affidavit of Mr. Beznos, similarly, says that
“[n]jo agreement to purchase the Deer Creek parcel exis-
ted until the matters set forth in the written Purchase
Agreement were finalized.” A revised copy of the pur-
chase agreement was signed by Mr. Beznos in Michigan
on February 29, 1984, and the document was then sent to
Indiana for signature by Mr. Hasten. The purchase agree-
ment was “finalized,” in the sense that it became legally
binding, only when Mr.. Hasten signed it on behalf of
Deer Creek. That signing occurred on March 2, 1984, in
the State of Indiana.
The purchase agreement, which recited that Deer
Creek was an Indiana general partnership, that Beznos
Realty was a Michigan partnership, and that the land
which formed the subject of the agreement was located in
Florida, provided by its terms that the agreement was to
be governed by the law of the situs state, Florida. (We
pause here to note, parenthetically, that the agreement’s
Florida choice-of-law provision is by no means irrelevant
to the question of personal jurisdiction. Burger King, 471
U.S. at 481. “Nothing in our cases,” the Supreme Court
has said, “suggests that a choice-of-law provision should
be ignored in considering whether a defendant has ‘pur-
posefully invoked the benefits and protections of a State’s
laws’ for jurisdictional purposes.” Id. at 482 (emphasis
omitted). A showing that Deer Creek purposefully
availed itself of the benefits and protections of Michigan
law is essential to the plaintiff's jurisdictional claim, as
anal tiel
App. 7
we shall see, and this essential showing is not helped by
the fact that the parties chose to have the contract gov-
erned by the law of Florida, rather than the law of Michi-
gan. The parties having elected to invoke the benefits of
Florida law for deciding disputes under the contract,
there is obviously much to be said in favor of letting such
disputes be resolved in a Florida court.)
The agreement specified a purchase price of
$5,501,562.00, to be paid by cash or certified check at the
time of closing. It also provided that upon acceptance of
the agreement by Deer Creek, Beznos Realty would ten-
der $275,078.10 as earnest money. The latter sum, it was
agree, would be held until the closing in an account at a
designated bank in Indianapolis. (The earnest money, in
the form of a check drawn on a Michigan bank, was duly
received by the Backer firm in Indiana and was deposited
by it in the Indianapolis Bank.) The closing was to be held
with in 60 days, subject to a conditional right of extension
for 30 days; the closing was to take place in the State of
Florida.
Beznos Realty retained a right to terminate the agree-
ment and recover the earnest money if it could not obtain
a satisfactory loan commitment from the Atlanta and
New York officers of Metropolitan Life Insurance Com-
pany. (An agreement negotiated by telephone on April 3,
1984, and agreed to by Mark Hasten in writing on May 5,
provided for a 30-day extension of the closing date if a
loan commitment were received from “any lender;” on
April 26, 1984, Beznos Realty signed a loan commitment
agreement with Lomas & Nettleton Financial Corpora-
tion, a mortgage banker with a regional office in Atlanta
and headquarters in Texas.
App. 8
The purchase agreement did not require either Deer
Creek or Beznos Realty to take any action in the State of
Michigan. Neither did it provide for any significant con-
tinuing relationship of the sort that the seller’s retention
of a purchase money mortgage might have entailed, for
example. The agreement did, however, give Beznos
Realty an option to purchase golf club membership in a
facility in which Deer Creek had an interest. (The golf
club was located near the Cypress parcel.) Exercise of this
option would also give Beznos Realty a right to obtain
social memberships in a nearby tennis club operated by
Deer Creek. Under certain circumstances, the member-
ships in these Florida recreation facilities could be held
open for as long as four years.
Deer Creek undertook to convey good, marketable
and insurable title to the Cypress property, in fee simple,
and obligated itself to provide, in addition to title insur-
ance, a survey meeting the minimum standards of the
Florida Board of Land Surveyors. A section of the agree-
ment entitled “Seller Representations and Warranties” set
forth a lengthy series of additional vendor’s covenants.
The first one that is significant here recited that “the
Property is currently zoned to permit the construction of
532 units, and 532 units shall be available to the property in
accordance with an appropriate site plan, as long as Pur-
chaser complies with all appropriate laws and regulations
governing the development of the Property.” (emphasis
supplied.)
The language set out in italics was appended to the
purchase agreement as a footnote. Testimony presented at
trial established that the language of the footnote was
proposed by Attorney Mehr, in Detroit, and accepted by
~~
App. 9
Attorney Backer, in Indianapolis. Mr. Backer also
accepted proposals for the addition of footnotes reciting
that both a local improvement association and the munic-
ipality in which the property was situated (the City of
Deerfield Beach, Florida) would approve site plans for
532 housing units. These provisions presumably reflected
representations that Deer Creek had made to Beznos
Realty directly, but we have not been able to ascertain
whether any such representation was made to Beznos
Realty in Michigan.
Shortly before the purchase agreement was finalized,
according to Mr. Jerman’s testimony, the City of Deerfield
Beach agreed to an earlier request for allocation of a total
of 508 housing units to the Cypress parcel. The zoning
itself would have accommodated a substantially higher
number, but a 540-unit site plan? that Beznos Realty’s Mr.
Beke submitted to Deerfield Beach on April 10, 1984, was
rejected by the city because, in the city’s words, “the
proposed number of units exceeded the 508 unit cap... .”
The parties disagree as to when and how the 508-unit
cap was supposed to be raised, and they disagree as to
whether Mr. Beke botched the job of persuading the city
to raise it. (The district court’s final judgment, which was
entered on October 31, 1986, ordered defendant Deer
Creek to obtain approval for the construction of 532 new
units on pain of having the purchase price reduced by
$10,188 per unit for each unil short of that number. Deer
? The 540-unit plan contemplated the construction of 532
housing units in addition to the eight apartment units already
in existence.
App. 10
Creek promptly sought such approval, and later submit-
ted evidence to the district court that on January 27, 1987,
the Deerfield Beach City Commission decided to support
construction of all of the additional units requested.)
No such decision by the city was forthcoming before
the scheduled closing date, which had been extended to
May 31, 1984, and the parties could not agree on how
much of the purchase price ought to be paid over to Deer
Creek at the time of closing. Mr. Beznos testified that he
called Mr. Hasten and proposed putting approximately
$300,000 of the agreed price in escrow until it was deter-
mined whether the total number of units permitted
would be 540 or 508. Mr. Hasten rejected this proposal,
according to the testimony, insisting that Beznos “take the
property as is,” with “no reduction of price period... .”
Hasten maintained that Beznos could get city approval
for the additional units after the closing; Beznos was
unwilling to pay the full price on the basis of such an
assumption.
On May 1, 1984, attorney Backer sent a letter to
Beznos Realty’s lawyers in Detroit confirming that “[t]he
Hastens will not reduce the purchase price due to the
Purchaser’s inability to receive approval to construct 532
units on the Cypress Parcel.” Beznos Realty then assigned
its interest in the purchase agreement to LAK, Inc. Two
weeks before the scheduled closing date, LAK filed the
present lawsuit in the United States District Court for the
Eastern District of Michigan.
In its complaint, LAK asserted that Mr. Backer’s let-
ter of May 1 constituted an anticipatory breach of the
App. 11
purchase agreement; the letter, LAK claimed, “repudi-
ate(d] the representations, covenants, and warran-
ties .. . that an additional 532 units would be allowed to
be erected on the property. . . .” The complaint also
alleged that the representations that the 532 units would
be available were knowingly false when made. The com-
plaint sought declaratory relief under Florida law, a
decree of specific performance compelling transfer of the
Cypress parcel at a price dependent on the number of
units approved by the City of Deerfield Beach, Florida,
and a judgment for money damages, including exemplary
and punitive damages.
The plaintiff attempted to effect service on defendant
Deer Creek by having a process server hand a summons
and a copy of the complaint to Mark Hasten at the Deer
Creek office in Indianapolis, Indiana.* Deer Creek
promptly filed a motion to dismiss, contending that Deer
Creek “lacks sufficient contact with the State of Michigan
* Service beyond the territorial limits of Michigan could
not be effective, under Rule 4(f), Fed. R. Civ. P., unless extrater-
ritorial service was authorized by the law of the State of
Michigan. See Rule 4(c)(2)(C)(1), Fed. R. Civ. P. The Michigan
Court Rules that were in effect at the time of the purported
service on Deer Creek said that there was no territorial limita-
tion on the range or service upon a person having any of the
relations with the state specified in the Michigan long-arm
statute, see Mich. Gen. Ct. R. 1963, 105.9, but Michigan courts
have routinely granted motions to quash extraterritorial ser-
vice of process where personal jurisdiction is lacking. See e.g.,
Khalaf v. Bankers & Shippers Ins. Co., 62 Mich. App. 678, 233
N.W.2d 696-697 (1975), aff'd, 404 Mich. 134, 273 N.W.2d 811
(1978).
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App. 12
for this court to assert in personam jurisdiction over defen-
dant consistent with the due process requirements of the
United States Constitution.” The district court denied the
motion to dismiss, and the case eventually went to trial
before a jury.
The jury returned a special verdict finding that there
had been a material breach of contract and material mis-
representations by Deer Creek, but finding also that the
plaintiff had suffered no damage as a result. The jury
recommended an award of specific performance without
an award of damages. The court accepted this recommen-
dation and entered a decree in conformity with it. After
extensive post-trial proceedings, in the course of which
the court filed a memorandum opinion adhering to its
earlier ruling on the jurisdictional issue, the case was
brought here by the filing of a timely notice of appeal.
Il
In a diversity action such as this, federal courts must
look to the law of the forum state to determine the district
court’s “in personam jurisdictional reach.” Southern
Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374, 376 n.
2 (6th Cir. 1968.) Cf. American Greetings Corp. v. Cohn, 839
F.2d 1164, 1167 (6th Cir. 1988). Plaintiff LAK chose neither
Florida nor Indiana as its forum, of course, but opted
instead for Michigan.
Michigan’s long-arm statute authorizes the exercise
of “general” personal jurisdiction over foreign partner-
ships on either of two grounds: consent, and “[t]he carry-
ing on of a continuous and systematic part of [the
partnership’s] general business within the state.” Mich.
App. 13
Comp. Laws § 600.721. Neither of these grounds can be
invoked in the case at bar; Deer Creek has not consented
to be sued in Michigan, and there is no contention that a
continuous and systematic part of Deer Creek’s general
business is carried on there.
A subsequent section of the long-arm statute, Mich.
Comp. Laws § 600.725, deals with what Professors von
Mehren and Trautman have labeled “specific jurisdic-
tion,” or jurisdiction limited to the adjudication of “issues
deriving from, or connected with, the very controversy
that establishes jurisdiction to adjudicate.” Von Mehren &
Trautman, Jurisdiction to Adjudicate: A Suggested Analysis,
79 Harv. L. Rev. 1121, 1136 (1966). Cf. Helicopteros
Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 8
(1984).
Mich. Comp. Laws § 600.725 provides that Michigan
courts may exercise “limited” personal jurisdiction over
foreign partnerships where the claim on which judgment
is sought is one “arising out of” an act or acts creating
any of five designated “relationships.” Three of the
named relationships (relationships involving in-state
property, insurance, and contracts to perform services or
furnish materials within the state) have no conceivable
application in the present case. The two that might argua-
bly apply are these:
“(1) The transaction of any business within the
state.
(2) The doing or causing of any act to be done,
or consequences to occur, in the state resulting
in an action for tort.”
App. 14
Generally speaking, at least, “[t]he Michigan statute
confers on the state courts the maximum scope of per-
sonal jurisdiction permitted by the due process clause of
the Fourteenth Amendment.” Chrysler Corp. v. Fedders
Corp., 643 F.2d 1229, 1236 (6th Cir.), cert. denied, 454 US.
893 (1981). Cf. Sifers v. Horen, 385 Mich. 195, 188 N.W.2d
623 (1971) (Michigan legislature attempted to expand lim-
ited personal jurisdiction to the “full potential” allowed
by the Federal Constitution.)4
The fountainhead of contemporary wisdom on what
the United States Constitution permits in this respect is
International Shoe Co. v. State of Washington, 326 U.S. 310
(1945). That was an action brought by the State of Wash-
ington to collect unpaid contributions to an unemploy-
ment compensation fund from a non-resident corporation
that had employed 11 to 13 commission salesmen within
the state over a four-year period. The defendant corpora-
tion exercised direct supervision and control over the
salesmen, who both lived and worked in Washington.
The men engaged there in a regular and systematic solic-
itation of orders which, when filled, produced a contin-
uous flow of the corporation’s product into the state. The
obligation sought to be enforced “arose out of those very
activities,” which were “systematic and continuous
throughout the years in question.” Id. at 320. Against this
background, the Supreme Court decided that the defen-
dant’s actual presence within the territorial jurisdiction of
* Michigan may have stopped short of the constitutional
limit, however, as far as actions for tort are concerned. Rann v.
McInnis, 789 F.2d 374, 377 (6th Cir. 1986), citing Woodward v.
Keenan, 88 Mich.App. 791, 279 N.W.2d 317 (1979).
App. 15
the state was not a prerequisite to a Washington court's
exercise of personal jurisdiction over it: the defendant
had “certain minimum contacts with [the territory of the
forum] such that the maintenance of the suit does not
offend ‘traditional notions of fair play and substantial
justice.’ ” Id. at 316, quoting Milliken v. Meyer, 311 U.S.
457, 463 (1940).
Whether “traditional notions of fair play and sub-
stantial justice” would be offended by a Michigan’s
court’s exercising personal jurisdiction over defendant
Deer Creek on the strength of the largely fortuitous “con-
tacts” that Deer Creek had with the State of Michigan is,
no doubt, a debatable question, Clearly, however, Deer
Creek’s contacts with Michigan bear little resemblance to
the far more substantial contacts in which the Interna-
tional Show Company engaged, over a period of years,
with the State of Washington.
The “traditional jurisprudential premise” was that
“the plaintiff should seek out the defendant.” Von
Mehren & Trautman, supra, 79 Harv. L. Rev. at 1148. (Von
Mehren and Trautman observe that the traditional bias
favoring defendants in this respect “is doubtless fully
appropriate as between parties of relatively equal eco-
nomic power and legal sophistication.” Id. at 1147.) Tradi-
tions can change, however, and by 1957 the Supreme
Court was remarking on a clearly discernable trend - a
trend that neither began nor ended with the International
Shoe decision - “toward expanding the permissible scope
of state jurisdiction over foreign corporations and other
nonresidents.” McGee v. International Life Insurance Co.,
355 U.S. 220, 222 (1957).
se
App. 16
Less than a year later, on the other hand, the
Supreme Court warned that “it is a mistake to assume
that this trend heralds the eventual demise of all restric-
tions on personal jurisdiction of state courts.” Hanson v.
Denckla, 357 U.S. 235, 251 (1958). That warning remains
fully operative today. The Supreme Court has “never
accepted the proposition that state lines are irrelevant for
jurisdictional purposes,” not could it do so without
betraying “the principles of interstate federalism embod-
ied in the Constitution.” World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 293 (1980). Cf. Denckla, 357 U.S. at
251 (restrictions on state court personal jurisdiction “are a
consequence of territorial limitations on the power of the
respective States.”) It is still incumbent upon the plaintiff
to establish the requisite minimum contacts, as a condi-
tion to requiring an absent party to defend itself on the
plaintiff’s turf, and those contacts must still be sufficient
to satisfy “traditional notions of fair play and substantial
justice.”
Even when anchored to the “traditional,” of course,
notions of what constitutes “fair play and substantial
justice” can exhibit a fair amount of diversity. Not sur-
prisingly, perhaps, International Shoe has spawned a vast
number of judicial opinions - many of which have been
cited to us here - in which courts have attempted to give
content to these generalized notions in a variety of con-
crete factual settings.
In the leading case of Southern Machine Co. v. Mohasco
Industries, 401 F.2d 374, supra, - a case which, like this
one, involved limited (or specific”) jurisdiction — Judge
Celebrezze, drawing on almost a quarter century of
post-International Shoe caselaw, identified three criteria
App. 17
that must be met before such jurisdiction may be
exercised:
“First, the defendant must purposefully avail
himself of the privilege of acting in the forum
state or causing a consequence in the forum
state. Second, the cause of action must arise
from the defendant’s activities there. Finally, the
acts of the defendant or consequences caused by
the defendant must have a substantial enough
connection with the forum state to make the
exercise of jurisdiction over the defendant rea-
sonable.” Id. at 381.
We have invoked these criteria often in the years
since Mohasco Industries was decided. See, most recently,
Third National Bank of Nashville v. WEDGE Group, Inc., __
F.2d ___ (6th Cir. 1989). The district court sought to apply
the Mohasco Industries criteria in analyzing the facts of the
present case, and we shall do the same.
Ill
A
The first criterion — a showing that the defendant has
“purposefully availed itself of the privilege of transacting
business” in the forum state, thus invoking the benefits
and protections of its laws — is “the sine qua non for in
personam jurisdiction.” Mohasco Industries, 401 F.2d at
381-82. That such a showing is “essential,” see Denckla,
357 U.S. at 253, was re-emphasized by the Supreme Court
in Burger King, 471 U.S. at 474-75, and in Asahi Metal
Industry Co., Ltd. v. Superior Court, 480 U.S. 102, 112
(1987). Even in a case where the cause of action arose in
the plaintiff's home state, that state may not exercise in
App. 18
personam jurisdiction if the defendant has not purposefuly
[sic] entered into a connection with it “such that he
should reasonably anticipate being haled into court
there.” World-Wide Volkswagen, 444 U.S. at 297.
“This ‘purposeful availment’ requirement ensures
that a defendant will not be haled into a jurisdiction
solely as a result of ‘random,’ ‘fortuitous’ or ‘attenuated’
contacts.” Burger King, 471 U.S. at 475, quoting Keeton v.
Hustler Magazine, 465 U.S. 770, 774 (1984) and World-Wide
Volkswagen, 444 U.S. at 199. There is a difference between
what World-Wide Volkswagen calls a mere “collateral rela-
tion to the forum State,” 444 U.S. at 299, and the kind of
substantial relationship with the forum state that invokes,
by design, “the benefits and protections of its laws.”
Denckla, 357 U.S. at 253. An understanding of this differ-
ence is important to the proper application of the “pur-
poseful availment” test.
The Supreme Court has emphasized, with respect to
interstate contractual obligations, that “parties who
‘reach out beyond one state and create continuing rela-
tionships and obligations with citizens of another state’
are subject to regulation and sanctions in the other State
for the consequences of their activities.” Burger King, 471
U.S. at 473. The defendant in the case at bar, it seems to
us, did not “reach out” to Michigan for the purpose of
creating “continuing relationships and obligations” with
any citizen of that state.
Defendant Deer Creek, it will be recalled, did not
advertise the Cypress parcel for sale in Michigan or
ao 0
App. 19
elsewhere.° Deer Creek had no “program” for seeking out
prospective buyers in Michigan. Cf. Rann v. McInnis, 789
F.2d at 376. It was Beznos Realty, on the contrary, that
reached out to Deer Creek in Florida —- and it did so not
for the purpose of creating any “continuing relationship”
in Michigan, but for the purpose of making a cash pur-
chase of a choice piece of real estate in Florida.
The purchase negotiations that began in Florida rip-
ened into a binding contract only when defendant Deer
Creek signed the final agreement back home in Indiana.
(The place where the contractual obligation was incurred
is a factor that courts often deem important, although it
cannot normally be determinative. See, e.g., Denckla, 357
U.S. at 251-52, and Davis H. Elliott Co. v. Caribbean Utilities
Co., 513 F2d 1176, 1181 (6th Cir. 1975).) The fact that
Beznos Realty may have found it convenient to conduct
some of the negotiations at long distance from Michigan
is not of controlling significance, in our view. The tele-
phone calls and letters on which the plaintiff’s claim of
jurisdiction primarily depends strike us as precisely the
sort of “random,” “fortuitous” and “attenuated” contacts
that the Burger King Court rejected as a basis for haling
non-resident defendants into foreign jurisdictions.
A numerical count of the calls and letters has no
talismanic significance: “The quality of the contacts as
° The district court thought «& significant that “Defendant
solicited purchasers nationally,” but the record does not dis-
close any national solicitation. Deer Creek did receive a
number of unsolicited inquiries and offers, and that circum-
stance may well have encouraged it to hold firm on its price.
a
App. 20
demonstrating purposeful availment is the issue, not
their number or their status as pre- or post-agreement
communications.” Stuart v. Spademan, 772 F.2d 1185, 1194
(5th Cir. 1985). And the majority of the lawyers’ tele-
phone calls between Detroit and Indianapolis, for what-
ever that datum may be worth, were originated not by
the defendant’s lawyer, Mr. Backer, but by Mr. Mehr, the
lawyer for Beznos Realty.
“The unilateral activity of those who claim some
relationship with a non-resident defendant cannot satisfy
the requirement of contact with the forum State.” Helicop-
teros Nacionales, 466 U.S. at 417, quoting Denckla, 357 U.S.
at 253.6 We are not prepared to hold that when Mr. Mehr
placed calls to Mr. Backer in Indiana, the latter was
required to hang up the phone if he wished to protect his
client against a subsequent finding of “purposeful avail-
ment” of the benefits of the laws of whatever state or
states the calls happened to come from. Mere awareness
that Beznos Realty and its legal counsel were from Michi-
gan clearly was not enough. See Asahi Metal Industry, 480
U.S. at 105. |
Mr. Backer did, to be sure, originate some calls to Mr.
Mehr, and he did send three draft contracts to Mr. Mehr
in Detroit. (Deer Creek’s refusal to adjust the purchase
price was also confirmed by letter to Mr. Mehr, but that
has little or no significance in this context.) On the facts
6 “The ‘substantial connection’ [citations omitted] between
the defendant and the forum State necessary for a finding of
minimum contacts must come about by an action of the defen-
dant purposefully directed toward the forum State.” Asahi Metal
Industry, 480 U.S. at 112 (1987). (Emphasis in original.)
App. 21
of this case, however, we do not find these communica-
tions sufficient to establish “purposeful availment.” Cf.
Scullin Steel Co. v. National Railway Utilization Corp., 676
F.2d 309, 314 (8th Cir. 1982) (The use of interstate facilities
such as the telephone and the mail is a “secondary or
ancillary” factor and “cannot alone provide the ‘mini-
mum contacts’ required by due process”). See also Hydro-
kinetics, Inc. v. Alaska Mechanical, Inc., 700 F.2d 1026, 1029
(Sth Cir. 1983), cert. denied, 466 U.S. 962 (1984) (“As for the
exchange of communications [by telex, telephone and
letter] between Texas and Alaska in the development of
the contract, that in itself is also insufficient to be charac-
terized as purposeful activity invoking the benefits and
protections of the forum state’s laws.”). On the record
before us, to borrow from this court’s language in Weller
v. Cromwell Oil Co., 504 F.2d 927, 931 (6th Cir. 1974), there
is no reason to suppose that either Mr. Hasten, the gen-
eral partner, or Mr. Backer, the lawyer, intended to lay
himself open to liability “in every state of the union
whenever [he made] telephone calls or wrote letters to a
customer who [might subsequently claim] that they con-
stitute[d] misrepresentations.”
One of the Sixth Circuit decisions most pertinent to
the present case on its facts is Capital Dredge & Dock Corp.
v. Midwest Dredging Co., 573 F.2d 377 (6th Cir. 1978). The
plaintiff in Midwest Dredging, an Ohio corporation,
brought an action in Ohio on a contract with a foreign
company under which the plaintiff had “iaken back” a
subcontract for a dredging project in Illinois. The contract
on which suit was filed had been the subject of face-to-
face negotiations in Arkansas and Florida, but modifica-
tions were negotiated in telephone calls placed by the
App. 22
plaintiff from Ohio, the forum state. The defendant
mailed an amended contract to the plaintiff in Ohio, and
a vice president of the defendant subsequently traveled
to Ohio to obtain the plaintiff's signature on the contract
and pick up a check there for $250,000 the initial payment
under the agreement.
Although the final signature was placed on the con-
tract in the forum state at a time when an officer of the
defendant corporation was physically present in that
state, this court, speaking through Judge Peck, accepted
the district court’s characterization of the defendant's
visit as “a convenience” to the plaintiff. Id. at 380. We
agreed with the district court that the facts were “simply
insufficient to establish long-arm jurisdiction over defen-
dant.” Id. Almost a fortiori, it seems to us, the facts of the
present case are insufficient to establish long-arm juris-
diction over defendant Deer Creek - a defendant that
never sent its representatives into the forum state, and
that did not consummate the contract there.
The Midwest Dredging panel took pains to distinguish
the facts in that case from the facts in Mohasco Industries
and In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d
220 (6th Cir. 1972). The differences are no less instructive
here.
The defendant in Mohasco Industries entered into a
licensing agreement under which the plaintiff - which
had its sole manufacturing plant in Tennessee, the forum
state - was authorized to manufacture and sell machine
attachments on which the defendant held patent rights.
The agreement contemplated “a long continuing relation-
ship” between the parties, and the defendant “retained
App. 23
substantial control over the manufacture and marketing
of the attachments... .” 401 F.2d at 385. The contract was
“not a one-shot affair.” Id. Because the manufacturing
plant was located in Tennessee, that state had “a continu-
ing interest in this continuing relationship, and appar-
ently [the defendant] ha[d] a continuing interest in
profiting from the Tennessee market.” Id. at 385-386.
No such relationship was created by the real estate
purchase agreement with which we are concerned in the
case at bar, and defendant Deer Creek had no “continuing
interest in profiting from the [Michigan] market.” Plain-
tiff LAK makes a weak argument that Deer Creek might
have been required to provide memberships in the recre-
ational facilities it owned near the Cypress parcel, and
the parties could anticipate a continuing relationship as
neighbors in Florida. That is a circumstance of no interest
to Michigan, however, and it is one that could not rea-
sonably be expected to have any significant impact on the
commerce of Michigan. (We note also that if Beznos
Realty chose unilaterally to perform work in Michigan on
site plans, architectural renderings, and financial studies
for the Florida property, that was a happenstance in
which defendant Deer Creek had no continuing interest
and over which it had no control.)
The Van Dusen Air case, like Mohasco Industries,
involved a contract that contemplated the manufacture of
a substantial quantity of goods in the forum state. The
defendant company did not do business there directly,
but it had a subsidiary in the forum state, and the defen-
dant’s officer met with the plaintiff in the city where the
subsidiary was located to discuss delivery plans and the
operational features of the goods being contracted for. As
App. 24
in Mohasco, this court found that the “purposeful action”
requirement had been satisfied, in the context of a long-
arm statute that spoke of “transacting any business” in
the forum state, because “obligations created by the
defendant or business operations set in motion by the
defendant [had] a realistic impact on the commerce of
that state,” and the defendant “should have reasonably
foreseen that the transaction would have consequences in
that state.” 466 F.2d at 226, quoting Mohasco, 401 F.2d at
382-83. That is not the situation here.
The commerce that was affected by the defendant's
“purposeful action” in Mohasco Industries and Van Dusen
Air involved, as we have noted, significant ongoing man-
ufacturing operations within the forum state. (There is
some similarity, it would seem, between these ongoing
operations and the 20-year franchise relationship that
was actively managed from the forum state in Burger
King. See 471 U.S. at 480.) The case at bar involves no
comparable operations in Michigan. Because the plaintiff
was domiciled in Michigan, to be sure, the claimed injury
to its purse might be said to have been suffered there -
but the locus of such a monetary injury is immaterial as
long as the obligation did not arise from “a privilege the
defendant exercised in [the forum state].” Denckla, 357
U.S. at 252. With the benefit of hindsight, moreover, we
know — because the jury so found - that the plaintiff in
the case at bar suffered no damages as a result of the
defendant’s breach of duty.
This case is not comparable, we would add, to Lanier
v. American Board of Endodontics, 843 F.2d 901 (6th Cir),
cert. denied, 109 S.Ct. 310, 102 L.Ed.2d 329 (1988). There,
as we observed, the defendant licensing board sought
App. 25
“to extend its influence and prestige in Michi-
gan as the principal national determiner of spe-
cial competence for the practice of endodontics.
Thus, the real object of the Board’s contacts with
Michigan is to have ongoing, far-reaching conse-
quences in the Michigan dental services market.
These consequences are continuous and sub-
stantial, affording jurisdiction... .” Id. at 911.
There has been no showing that the object of Deer
Creek’s contacts with Michigan was to have “ongoing,”
or “far-reaching,” or “continuous,” or “substantial” con-
sequences in the Michigan real estate market, thereby
affording jurisdiction to the Michigan courts.
The plaintiff having failed to pass the “purposeful
availment” test, we need not dwell on the other criteria 0/
Mohasco Industries; each criterion represents an indepen-
dent requirement, and failure to meet any one of the three
means that personal jurisdiction may not be invoked.
Following the lead of the lower court and the parties,
however, we shall touch on the second and third criteria
briefly.
We are not persuaded that plaintiff AK has shown
that its cause of action “arose out of’ the defendant's
activities in Michigan. Essentially, of course, the cause of
action arose out of a failure to obtain approval from local
authorities in Florida for construction of additional hous-
ing untis [sic] there, after the defendant had warranted,
in an Indiana contract negotiated in several different
states, that such approval would be forthcoming. If the
contract had borne a more substantial relationship to
App. 26
Michigan, it would not have been necessary for the repre-
sentations it embodied actually to have been made to the
plaintiff in Michigan. See WEDGE Group, __ F.2d __.
Where the defendant's contacts with the forum state are
as attenuated as they are here, however, we think it is
incumbent on the plaintiff to show affirmatively that the
fraudulent misrepresentations were actually made in the
forum state. See Serras v. First Tennessee Bank N.A., 875
F.2d 1212 (6th Cir. 1989).
The plaintiffs in Serras were individual citizens of
Michigan who had purchased an out-of-state restaurant
on the strength of fraudulent misrepresentations as to its
value. The documents consummating the sale were exe-
cuted in Michigan. Not only had the defendant made its
fraudulent misrepresentations in telephone calls initiated
by it to the plaintiffs in Michigan, moreover, it had actu-
ally sent an agent into the state who continued the fraud-
ulent conduct there in person. On these facts, the Serras
panel found that there was no constitutional impediment
to haling the foreign defendant before a court in Michi-
gan. The panel went out of its way, however, to distin-
guish the sort of situation with which we are confronted
in the case at bar:
“We are not confronted here with a case in
which the only alleged contact besides the plain-
tiffs’ Michigan residency, is the defendant’s
making a telephone call from an out-of-state
location to the plaintiffs in Michigan, seeking to
solicit the plaintiff to engage in an out-of-state
transaction. These facts are not sufficient to sup-
port long-arm jurisdiction. Speckine v. Stanwick
Int'l, Inc., 503 F.Supp. 1055, 1059 (W.D. Mich.
1980). In the present case, the plaintiffs rely not only
on alleged telephone calls but also on an allegation
App. 27
that the defendant actually travelled to Michigan to
solicit their business, and actually made fraudulent
representations while in Michigan.” 875 F.2d at
1217. (Emphasis supplied.)
The Serras panel went on to point out, in a passage
particularly relevant here, that:
“The alleged fraudulent misrepresentations
practiced upon plaintiffs within Michigan, both
in the phone calls and during the visit of the
Bank’s agent, are an element of the cause of
action itself. We therefore must reject the Bank’s
feeble argument that, if it had a duty to disclose
anything, that duty could have been performed
anywhere so that any failure to perform
shouldn’t be held to establish a Michigan con-
tact. Plaintiffs have averred positive acts of mis-
representation in Michigan.” Id. at 1218.
(Emphasis in original.)
“The burden of establishing jurisdiction is on the
plaintiff.” Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980),
cert. denied, 450 U.S. 981 (1981); WEDGE Group, __ F.2d at
__.. For all we can tell from the record in the case at bar,
Beznos Realty’s people were in Florida when they were
told that the city would approve construction of an addi-
tional 532 units on the Cypress parcel. It is true that
during a telephone conversation with Attorney Backer in
Indiana, Mr. Mehr, the Michigan Lawyer, proposed put-
ting language to this effect in the contract. There was no
showing that any misrepresentations were made in the
course of this conversation, however — the district court
confessed itself “without knowledge of the precise con-
tent of the conversation” - and as both Mr. Mehr and Mr.
Beznos have acknowledged, the contract became binding
only when it was signed in Indianapolis. On these facts,
App. 28
we do not believe that the plaintiff has sustained its
burden of showing that its cause of action arose out of
“positive acts of misrepresentation in Michigan.” Serras,
875 F.2d at 1218.
Cc
Finally, notwithstanding the perhaps unreasonable
length this opinion has already reached,” we add a word
about “reasonableness.”
In Pickens v. Hess, 573 F.2d 380 (6th Cir. 1978), we
affirmed a district court finding that it would not be
reasonable for a Tennessee court to exercise jurisdiction
in a dispute arising out of a contract for the construction
of a house in Arkansas, notwithstanding that the plaintiff
7 If it suggests nothing else, this case may suggest that
there is a downside, as well as an upside, to the judicially
imposed requirement that each and every question of personal
jurisdiction over a non-resident defendant be decided “on its
own facts,” American Greetings Corp. v. Cohn, 839 F.2d 1164,
1169 (6th Cir. 1988), with counsel and court sifting through
each new complex of facts in search of “contacts” demonstrat-
ing that the plaintiff's choice of a forum does or does not
accord with the notions of “reasonableness” and “fair play”
reflected in a vast number of fact-specific judicial opinions.
More sharply defined standards might well reduce miscalcula-
tions on the part of lawyers who, not surprisingly, normally
seck a home court advantage if they think they see some
chance of getting it — and it is not inconceivable that clearer
standards might lead to more expeditious and efficient resolu-
tion of those jurisdictional questions that counsel choose to
fight out in court. In this particular case, diligent lawyers have
favored us with several hundred case citations: scholarship
that comprehensive carries obvious costs both in time and in
money.
ee iS
App. 29
builder was from Tennessee and notwithstanding that the
defendant's architect was also from Tennessee and had
dealt directly with the plaintiff builder in that state with
regard to the contract. In the case at bar the district court
attempted to distinguish Pickens on the following
grounds:
“Unlike the defendant in Pickens, the
involvement of Deer Creek in this transaction is
substantial enough to make it reasonable for this
Court to assume jurisdiction over the parties.
This forum has a vested interest in the outcome
of this matter, particularly because Plaintiff and
at least one Michigan banking institution are
involved.”
This attempt to distinguish Pickens is not persuasive,
in our view. If Tennessee had no vested interest in the
outcome of the Tennessee builder’s dispute with a foreign
owner Over a contract for the construction of a house in
Arkansas, we are something of a loss to see why Michi-
gan should be thought to have a vested interest in the
outcome of a Michigan company’s dispute with a foreign
owner Over a contract for the sale of a tract of land in
Florida. That a Michigan plaintiff happens to be involved
in the transaction is hardly enough: “If the question is
whether an individual’s contract with an out-of-state
party alone can automatically establish sufficient mini-
mum contacts in the other party’s home forum, we
believe the answer clearly is that it cannot.” Burger King,
471 US. at 478.
If the Michigan bank on which Beznos Realty drew
its $275,000 check for the earnest money was somehow
“involved” in this transaction, moreover, the involvement
App. 30
is entitled to no consideration. See Helicopteros Nacionales,
466 U.S. at 416-17:
“Common sense and everyday experience sug-
gest that, absent unusual circumstances, the
bank on which a check is drawn is generally of
little consequence to the payee and is a matter
left to the discretion of the drawer. Such uni-
lateral activity of another party or a third person
is not an appropriate consideration when deter-
mining whether a defendant has sufficient con-
tacts with a forum State to justify an assertion of
jurisdiction.” (Footnote and citations omitted.)
Plaintiff LAK suggests that it would be reasonable for
the Michigan courts to exercise jurisdiction here because
defendant Deer Creek was a “sophisticated business
entity” that “stood to profit handsomely” from its trans-
action with the Michigan company. But the case law is
quite clear that when the world beats a path to the door
of one who has a better mousetrap for sale, the mouse-
trap seller, even if “sophisticated,” does not automatically
subject himself to suit in every part of the world from
which mousetrap buyers chance to come. And when the
buyer of the mousetrap is no less sophisticated than the
seller, the buyer can hardly claim surprise at being told
that jurisdiction over the seller’s person is not dependent
on the buyer’s domicile.
The judgment of the district court is REVERSED, and
the case is REMANDED with instructions that it be dis-
missed for want of personal jurisdiction.
App. 31
No. 87-1321
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
LAK, INC., A MICHIGAN
CORPORATION,
Plaintiff-Appellee,
ORDER
. (Filed
DEER CREEK Nov. 2, 1989)
ENTERPRISES, AND
INDIANA GENERAL
PARTNERSHIP,
Defendant-Appellant
BEFORE: NELSON AND BOGGS, Circuit Judges; and
EDWARDS, Senior Circuit Judge
The Court having received a petition for rehearing en
banc, and the petition having been circulated not only to
the original panel members but also to all other active
judges of this Court, and no judge of this Court having
requested a vote on the suggestion for rehearing en banc,
the petition for rehearing has been referred to the original
hearing panel.
The panel has further reviewed the petition for
rehearing and concludes that the issues raised in the
petition were fully considered upon the original submis-
sion and decision of the case. Accordingly, the petition is
denied.
ENTERED BY ORDER
OF THE COURT
/s/ Leonard Green
Leonard Green, Clerk
App. 32
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
No. 87-1321
LAK, INC.,
Plaintiff-Appellee,
V.
DEER CREEK ENTERPRISES,
Defendant-Appellant.
Before: NELSON and BOGGS, Circuit Judges; and
EDWARDS, Senior Circuit Judge.
JUDGMENT
(Filed Sep. 20, 1989)
ON APPEAL from the United States District Court
for the Eastern District of Michigan.
THIS CAUSE came on to be heard on the record
from the said district court and was argued by counsel.
ON CONSIDERATION WHEREOF, It is now here
ordered and adjudged by this court that the judgment
of the said district court in this case be and the same is
hereby reversed and the case is remanded with instruc-
tions that it be dismissed for want of personal
jurisdiction.
IT IS FURTHER ORDERED that Defendant-Appellant
recover from Plaintiff-Appellee the costs on appeal, as
itemized below, and that execution therefor issue out of
said district court, if necessary.
App. 33
ENTERED BY ORDER
OF THE COURT
Leonard Green, Clerk
/s/ Leonard Green
Clerk
Issued as Mandate: November 13, 1989 A True Copy.
COSTS: APPELLANT TO RECOVER Attest:
ee Ue REE TT EC ee re $ 100.00
eee er ee nr $ 773.76
ee ey we ae $ 873.76
/s/ Tom (illegible)
Deputy Clerk
App. 34
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LAK, INC., a Michigan
Corporation,
Plaintiff Civil Action
V. No. 84-2370
DEER CREEK ENTERPRISES,
an Indiana general
partnership,
Defendant
/
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS
(Filed Feb. 1, 1985)
At a session of the United States Dis-
trict Court for the Eastern District of
Michigan in the United States Court-
house in Detroit, Michigan on
PRESIDING:
HONORABLE JULIAN
ABELE COOK, JR.
United States District
Judge
|
Plaintiff, Lak, Inc. [Lak], is a Michigan corporation
that is principally engaged in the business of acquiring
and developing real property. Defendant, Deer Creek
Enterprises [Deer Creek], is an Indiana general partner-
ship which is principally engaged in the business of real
estate investment. Jurisdiction of this matter is based
upon diversity of citizenship under 28 U.S.C. § 1332.
App. 35
On March 2, 1984, Beznos Investment Company
[Beznos], a Michigan co-partnership, and Deer Creek
entered into a purchase agreement involving a real estate
development (“Cypress Park”) which consists of approx-
imately forty-five acres of mostly developed land along
the eastern coast of Florida. On May 8, 1984, Beznos
assigned all of its rights under the purchase agreement to
Lak.
On May 16, 1984, Lak, as Beznos’ assignee, filed a
Complaint for Declaratory Relief, pursuant to the Uni-
form Declaratory Judgment Act and Fed.R.Civ.P. 57, in
which he sought to have this Court (1) compel Deer
Creek to comply with the terms of the agreement, and (2)
grant an appropriate abatement of the purchase price to
compensate it for Deer Creek’s failure to comply with the
purchase agreement.
On June 11, 1984, Deer Creek filed a Motion to Dis-
miss, pursuant to Fed.R.Civ.P. 12(b)(2). Lak filed an
answer to Deer Creek’s Motion to Dismiss on June 29,
1984. Both pleadings were supplemented. Defendant's
Motion is presently before the Court for resolution.
I]
In its Motion to Dismiss, Deer Creek asserts that this
Court lacks in personam jurisdiction. Initially, it argues
that this Court’s ability to assert in personam jurisdiction
is subject to those limitations which have been estab-
lished by the Michigan long arm statute (to wit, Michigan
Compiled Laws Annotated [M.C.L.A.] § 600.725) and the
due process clause of the Fifth and Fourteenth Amend-
ments of the United States Constitution. Deer Creek
App. 38
California, New Jersey, and perhaps in every state [where
the parties] had telephone conversations.”
Finally, Deer Creek maintains that its knowledge of
Lak’s residency in Michigan is an insufficient basis upon
which to assert in personam jurisdiction. Deer Creek
contends that the law requires more, Speckine v. Stanwick
Intern., Inc., supra, and Doebler v. Stadium Productions, Ltd.,
91 FR.D. 211 (1981)
il
Lak has filed three briefs in opposition to the pend-
ing Motion to Dismiss, in which it argues that Deer Creek
has established sufficient contacts with this forum to
support its argument (to wit, this Court has personal
jurisdiction over Deer Creek)
First, Lak argues that this Court has jurisdiction
under M.C.L.A. § 600.725(1). In this regard, Lak says that
this statute authorizes a court to assume jurisdiction if a
party has transacted “any” business within the state - a
term that should be read broadly. It contends that Deer
Creek's absence from the state is not relevant to a deter-
mination that business was transacted in Michigan, Sifers
v. Horen, 385 Mich. 195, 198 (1971); McGraw v. Matthaei,
340 F Supp. 162 (E.D. Mich. 1972)
In addition, although Lak recognizes the due process
limitations which have been placed upon the long arm
statute by virtue of the Fourteenth Amendment, it argues
that the tripartite test has been met, Southern Machine Co
v. Mohasco Industries, supra, in that Deer Creek pur-
posefully sought benefits by negotiating a commerical
ae emt all,
App. 39
[sic] transaction with a Michigan entity. Thus, in addition
to “actively” negotiating the purchase agreement by tele-
phone and through the mail, Lak maintains that (1) Deer
Creek delivered a draft of the purchase agreement to
Michigan, and (2) after the execution of the purchase
agreement, Deer Creek continued to deliver documents to
Michigan and to negotiate over the telephone. Lak con-
tends that these contacts constitute sufficient bases upon
which this Court can assert jurisdiction, Chrysler Corp. v
Traveleze, 527 F. Supp. 246 (E.D. Mich. 1981); K-Mart Corp.
v. Knitjoy Manufacturing, Inc., 534 F. Supp. 153 (D.C. Mich
1981); In-Flight Devices Corp. v. VanDusen Air, Inc., 466
F.2d 220, 234-235 (6th Cir. 1972); Microelctronix Systems
Corp. v. Bamberger’s, 434 F. Supp. 168, 170 (E.D. Mich
1977); Mad Hatter, Inc. v. Mad Hatters Night Club Company,
399 F. Supp. 889, 892 (E.D. Mich. 1975); McGraw v. Mat-
thaet, supra. Lak asserts that these cases support the rec-
ognized proposition that jurisdiction is not based on an
incidental contact with the state, but rather upon a series
or stream of continuous contacts which constitute a pur-
poseful availment
Lak submits that the second part of the test has been
satisfied because this cause of action arises from Deer
Creek's actions in Michigan. To support this position, it
argues that the contract being sued upon was negotiated
and drafted through correspondence and telephone calls
to and from Michigan. Moreover, Lak contends that Deer
Creek was, at all times, aware that it was dealing with a
Michigan entity. To conclude its argument that the South-
ern Machine test has been met in this case, Lak argues that
Veer Creek was a willing party who sought to deal with a
Michigan entity in an attempt to profit handsomely from
App. 41
Erato Shipping, Inc., 684 F.2d 352 (6th Cir. 1982); First Nat'l
Bank v. ]. W. Brewer Tire Co., 680 F.2d 1123 (6th Cir. 1982);
Herzberg & Noveck v. Spoon, 681 F.2d 474 (6th Cir. 1982);
National Can Corp. v. K Beverage Co., 674 F.2d 1134 (6th Cir.
1982); Noel v. S.S. Kresge Co., 669 F.2d 1150 (6th Cir. 1982).
[V
In this diversity matter, the Court must look to Mich-
igan law to determine the existence of its in personam
jurisdiction, if any, over Deer Creek. In Michigan, the
applicable law is set forth in M.C.L.A. § 600.725 which
provides, in pertinent part, as follows
Sec. 725. The existence of any of the following
relationships between a partnership or limited
partnership or an agent thereof and the state
shall constitute a sufficient basis of jurisdiction
to enable the courts of record of this state to
exercise limited personal jurisdiction over such
partnership or limited partnership and to enable
such courts to render personal judgments
against such partnership or limited partnership
arising out of the act or acts which create any of
the following relationships
1) The transaction of anv business within the
State
[Ihe Michigan Supreme Court has followed other state
urts which have held that “limited personal jurisdiction
ver defendants, based on ‘the transaction of any busi
ness within the state,’ [should] generally [be] con
strued as extending the state’s jurisdiction to the
farthest limits permitted by due process,” Sifers v. Horen
pra
App. 44
testing, title and survey requirements and the
closing agenda.
Defendant’s Reply Brief at 5
In effect, Deer Creek contends that the telephonic com
munication between its agents and those representing
Lak was informal and insufficient to constitute a transac
tion of business within the forum.
Admittedly, “[t]he nature and quality of a [partner
ship’s] contact with a state that will serve as the basis for
the exercise of in personam jurisdiction over that [part
nership] by the State is not a subject of easy description.’
Southern Machine Co. v. Mohasco, supra
While some terms of a contract are more significant
than others, this Court is of the opinion that all of the
terms of a contract are negotiable. [hus, even though
Deer Creek does not believe that the content of the dis
cussion between Backer and Mehr was “substantive,” the
contract terms, which were negotiated by Backer, are
important for the purposes of determining whet! hi
Court has in personam jurisdiction. Therefore, even wit!
out knowledge of the precise content of the conversation
that took place between the parties, this Court concluds
that Deer Creek purposefully availed itself of the priv
lege of transacting business in Michigan
AA | AA
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igreement, the Court determined that “the negotiatio1
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rirst Question, the (4 irt stated
App. 45
In considering this question, we can first dis-
pose of those matters that are immaterial. For
example, Mohasco has denied that any of its
agents have been physically present in Tennes-
see concerning any matter related to the licens-
ing agreement. Physical presence of an agent is
not necessary, however, for the transaction of
business in a state. The solicting [sic] of insur-
ance by mail, the transmission of radio broad-
casts into a state, and the sending of magazines
and newspapers into a state to be sold there by
independent contractors are all accomplished
without the physical presence of an agent; yet
all have been held to constitute the transaction
of business in a state. Similarly, the contention
that Southern Machine solicited the agreement
from Mohasco is immaterial. Shealy v. Challenger
Manufacturing Company, 304 F.2d 102 (4th Cir.
1962). Mohasco chose to deal with Southern
Machine; and as Judge Sobeloff noted in Shealy,
it cannot diminish the puposefulness [sic] of
Mohasco’s choice that “. . . [Mohasco,] like the
maker of the better mousetrap, is fortunate
enough to get the business without active solic-
itation. .. .” 304 F.2d at 104.
In the instant cause, Deer Creek did not have any
agents who were physically present in Michigan. In addi-
tion, although it did not solicit the business from Lak, this
does not diminish the “purposefulness of [Deer Creek’s]
choice.”
Moreover, this Court believes that Deer Creek’s
involvement with the drafting of the Purchase Agreement
constitutes a sufficient nexus between Deer Creek and the
cause of action to satisfy the second part of the test. The
communication or negotiations that took place between
Lak and Deer Creek concerned the purchase agreement
and its terms and amendments. Thus, this cause of action
App. 46
arose from Deer Creek’s activities in Michigan. Accor-
dingly, the first two parts of the Southern Machine test
have been established.
The third part of the test requires that Deer Creek’s
acts or the consequences which have been caused by it
have a substantial enough connection with the forum to
make the exercise of jurisdiction reasonable. Deer Creek
relies upon Pickens v. Hess, supra, which involved the
construction of a residence in Arkansas. The Pickens
Court, in holding that the District Court in Tennessee did
not have in personam jurisdiction over defendants, stated
that “[n]o continuing business relationship was estab-
lished with the Tennessee plaintiff and the defendants
had no reason to believe that their contract with [plain-
tiff} would have substantial consequences within Tennes-
see,” 573 F.2d at 386. In that case, it was determined that
all negotiations took place in Arkansas, outside of the
foruin state.
Unlike the defendant in Pickens, the involvement of
Deer Creek in this transaction is substantial enough to
make it reasonable for this Court to assume jurisdiction
over the parties. This forum has a vested interest in the
outcome of this matter, particularly because Plaintiff and
at least one Michigan banking institution are involved.
App. 47
For these reasons, Deer Creek’s Motion for Summary
Judgment is denied.
SO ORDERED.
/s/ Julian Abele Cook, Jr.
JULIAN ABELE COOK, JR.
United States District Judge
Dated:
Detroit, Michig
App. 48
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LAK, INC., a Michigan
corporation,
rr Civil Action No.
>
dle 84-CV-72370-DT
: HON. JULIAN ABELE
DEER CREEK COOK, JR.
ENTERPRISES,
an Indiana general
partnership,
Defendant
. a
MEMORANDUM OPINION AND ORDER
On November 12, 1986, Defendant filed a Motion for
Judgment Notwithstanding Verdict, New Trial, or
Amendment of Judgment or Stay of Execution. The
motion (1) seeks to overturn a jury verdict on certain
issues, and (2) requests a withdrawal or an amendment of
a judgment! which granted a remedy of specific perform
ance to Plaintiff. The jury found that Defendant (1) mate
rially breached its obligations under a contract for the
sale of land in Florida, and (2) had committed fraud in
connection with the transaction. Although the jury did
not award damages, it did recommend that the Court
| The judgment was entered by this Court on October 31
1986.
App. 49
grant specific performance to Plaintiff.2 This Court subse-
quently adopted this recommendation.3
I
Defendant asserts that the jury verdict is invalid
because this Court did not have personal jurisdiction
over it. However, this Court has already issued a thirteen
page Opinion, which specifically rejected the same argu-
ment that Defendant now makes with regard to the juris-
diction of the Court in the instant motion.4 This Court
does not find any reason to modify the rationale and/or
the conclusion of that Opinion. However, the Court will
address those new authorities which have been relied
upon by Defendant.
Defendant states that the Supreme Court decision in
Burger King v. Rudzewicz, 471 U.S. 462 (1985) and a recent
decision by the Eleventh Circuit in Borg-Warner Accept-
ance Corporation v. Lovett & Thorpe, Inc., 786 F.2d 1055
(11th Cir. 1986) require a different result. Defendant also
contends the instant cause is very much like Helicopteros
Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408 (1966).
In Burger King, the Court held that in personam juris-
diction existed in Florida against a Michigan resident
* The recommendation of the jury was rendered in the
form of an “Advisory Verdict.”
* The recommendation of the jury was subsequently incor-
porated into the judgment which was entered by this Court on
October 31, 1986.
* See Memorandum Opinion and Order Denying Defen-
dant’s Motion to Dismiss which was filed on January 31, 1985.
—
App. 52
This case is also distinguishable from Borg-Warner
and Helicopteros. Borg held that a mere one-time pur-
chaser of goods from a seller in the forum state cannot be
subjected to personal jurisdiction. Borg is distinguishable
from this case because the contract at issue in that cause
was negotiated in Georgia with no connection to Mis-
souri, the forum state. Here, the continual negotiations
were done by correspondence and on the telephone
between the parties in Florida and the parties in Michi-
gan. The continual negotiations here sharply contrast
with the one trip into Missouri which had been made by
defendant to return goods in Borg. In addition, the pur
chaser in this cause signed the contract in the forum state
where he lived. Moreover, the Court in Borg noted that
“(Where is no evidence that Lovett & Thorpe solicited
business in Missouri ” Borg, 786 F.2d at 1057. By
contrast, Defendant in this case solicited nationally for
purchasers and accepted offers from people within the
State of Michigan
Helicopteros is also not relevant when one examines
lustice Blackmun’‘s opinion
We hold that mere purchases, even if occurring
at regular intervals, are not enough to warrant a
State's assertion of in personam jurisdiction over
a nonresident corporation in a cause of action not
related to those purchase transactions
466 US. at 418 (emphasis added). Here, in contrast, Plain
tiff’s causes of action (breach of contrast and fraud) are
directly related to the purchase transaction which pro
vides the basis for the jurisdiction of this Court. Thus, for
all of the above reasons, and the analysis in the earlier
otions for summary judgment
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App. 59
factual question which the jury was required to resolve. !°
Moreover, Defendant never established that Plaintiff
failed to comply. Defendant’s Proposed Jury Instruction 6
simply gave a definition of a material breach. Jury
Instruction 311! already did that.
Defendant’s [sic] also argues that the Court should
have given the Proposed Jury Instruction 3, J 5, which
Says:
'0 At the hearing on the motions for summary judgment,
this Court never said that Plaintiff failed to comply. It simply
ruled preliminarily that “it appears that the purchaser did not
comply... .” (emphasis added). Thus, this was not a matter
that the Court had already determined. Instead, the Court took
a preliminary position, as it was obligated to do, for the
purposes of summary judgment. Any final determination was
left for the jury.
'! Jury Instruction 31 reads
A material breach (or a violation) of a contract
occurs when one party breaks its obligations to the
other party by, among other things:
(1) the repudiation of its liabilities under the con-
tract, or
the failure or refusal to perform a substantial
portion of its obligations to the other party.
Material means relevant or pertinent. A material
breach occurs whenever one party’s failure or refusal
to perform defeats the purpose of the contract in
whole or in some vital aspect. However blameless
the failure or refusal to perform may be, if the result
t the breach is to deprive the other party of an
essential part of the contract, then a material breach
has occurred
App. 60
The provision of paragraph 8(g) which required
Deer Creek to secure an increase in the available
density from 508 units to 532 was conditioned
upon Plaintiff’s compliance with all appropriate
laws and regulations governing development of
the property. Therefore, I instruct you that Deer
Creek was not obligated to secure the increase
in density if you find that Plaintiff did not com
ply with all such regulations, unless you find
their failure to comply was excused.
Defendant asserts that the omission of this instruction is
severely prejudicial and, thus, merits a new trial
A fundamental problem with Defendant’s position is
that the omission is not am error at all because the inclu
sion of Defendant’s proposed jury instruction would have
been cumulative. In fact, paragraph 2 and 3 of Jury
Instruction 30 take care of this issue, as do other parts of
he instructions
Instruction 30 paragraph 2, states that
T |
In order to prevail on its breach of contra
; . 1] .
claim, [Plaintiff] must satisfy each of the follow
ing elements by a preponderance of thi
evidence
ry } } }
tnat | Defendant] naaq a auty to perfor!
certain specific obligations under the contra
t, convey at < 1 parce ’
x T iS ( TeSS , x tT)
App. 61
8(g) because it was quoted in Jury Instruction 5. Clearly,
the jury was fully informed about Paragraph 8(g) before
deciding whether Defendant did, or did not, have a duty
to perform.
In addition, Paragraph 3 of Jury Instruction 30 says
that Plaintiff must show “(3) that [Defendant] materially
breached its contractual obligations to [Plaintiff] under
the contract...” Jury Instruction 31 defined a breach as
“(2) the failure or refusal to perform a substantial portion
of [a party’s] obligation to the other party.” In deciding
whether the contractual obligations were breached by
Defendant, the jury could not have avoided an examina-
tion of Paragraph 8(g) before resolving the issues in con-
troversy. Jury Instruction 33 also advised the jury to focus
on Paragraph 8(g). Page 21 of the instructions also explic-
itly advised the jury of Defendant's theory of the case,
saying “l[a]ccordingly, the seller maintains that the pur-
chaser breached the agreement by failing to follow the
procedures of the city and county.” Thus, Defendant's
proposed instruction was not needed.
Defendant repeatedly argued that Plaintiff breached
its contractual obligations by failing to comply with the
municipal ordinances which permit a plat amendment.
The jury was fully aware of Defendant's position on this
issue. The verdict represented an absolute rejection of
Defendant's argument. Moreover, it should be noted that
Defendant did not, and has not, identified any other
regulation that Plaintiff could have violated. Thus, Defen-
dant is incorrect in arguing that this Court was obliged to
give its proposed instruction 3(5). Such an instruction
was unnecessary because the issue of Plaintiff’s pur-
ported breach had been already covered elsewhere.
2 ————————
App. 62
Even if this Court did err in failing to give this
instruction, the error was certainly harmless. The pro-
posed instruction would have expressly required the jury
to determine whether Plaintiff breached the contract. The
Omission was harmless at best because the jury had to
resolve that issue anyway for the reasons which have
been discussed above. The omission was also harmless
because Defendant failed to establish that Plaintiff
breached the agreement. Even the proposed instruction
says that Plaintiff’s alleged breach could be excused by
the actions of Defendant. The evidence of Defendant's
anticipatory repudiation suggests the presence of such an
excuse.
(he other jury instruction issue, upon which Defen
dant seeks a new trial, involves anticipatory repudiatio1
Defendant asserts that Mori v. Matsuhita, 380 So.2d 461
(Fla. App. 3d Dist. 1980) means that only uNequivoc
absolute repudiations constitute repudiations. Accordit
to Defendant, this Court’s Jury Instruction 33 precludes «
jury finding of repudiation because it says that ths
tract is ambiguous. Defendant points out that il
have unequivocally repudiated the contract if its
were consistent with one of two permissib
constructions.
This Court’s statement (to wit, that the
ambiguous) is essentially used by Def
that the contract in unenforceable. Howev:
statement should not have been interpreted
the contract was SO ambiguous that
A jury was unanimously abl«
App. 63
Court was not based on this detailed factual examination.
Such an examination of questions regarding intent is
clearly the province of the jury. Defendant is bound by
the jury’s conclusion. Defendant’s own confusion about
the contract cannot be used to avoid specific performance
when a jury unanimously finds Plaintiff's view to be
correct. Contracts would be rendered useless in this
scheme.
Mori is also not apposite because it does not speak
about ambiguities in the language of the contract. The
focus of Mort is on whether the actions taken by the
breaching party unequivocally denonstrate repudiation.
This focus is shown by the statements of that Court:
Such a repudiation may be evidenced by words
or voluntary acts but the refusal must be dis-
tinct, unequivocal and absolute.
Id. at 463 (emphasis added). The May 1, 1984 letter from
Defendant’s attorney could not be more absolute:
Without arguing the meaning of the representa-
tions and warranties in paragraph 8, subsections
‘g), (k)(i) and (k)(ii), it is our position that the
property must be accepted by the purchaser “as
is.” The Hastens will not reduce the purchase
price due to the purchaser’s inability to receive ‘
approval to construct 532 units on the Cypress
Parcel. In light of the reduced density, would you
please advise me immediately if Beznos Realty
Investment Co. is not willing to close... ”
(emphasis added).
As Plaintiff correctly points out, this letter does not con-
tain any promise to obtain additional units after the real
estate closing. The absence of such language casts severe
doubt on Defendart’s representations that it was merely
cliente
App. 64
complying with its own interpretation of the contract (to
wit, that the units could be obtained after the closing).
According to the letter, Plaintiff must close “as is” with
the “reduced density” and fend for itself. This is absolute
repudiation.
Defendant took a risk in repudiating the contract. It
was fully well aware of such a risk. The May 1 letter from
its own attorney expressly indicated no concern for what
the contract meant. Defendant cannot now claim that it
was relying upon one of two possible contract interpreta-
tions. Defendant is bound by the jury’s determination
that (1) its actions were wrongful, and (2) it repudiated
the contract.
Defendant’s Motion for a New Trial must be denied
for all of these reasons.
V
Defendant claims that the judgment should be
amended because of Paragraph 2 of the Judgment which
orders it “to obtain density approval in accordance with
paragraph 8(g) of the agreement.” An amendment is pur-
portedly needed because Defendant cannot know what to
do when the Court has not construed Paragraph 8(g).
Defendant’s position must be rejected because the
remainder of Paragraph 2 is actually quite specific. It
requires Defendant to “obtain density approval .. . to
permit the construction of 532 new multi-family residen-
tial units . . . no later than 60 days from the entry of this
Judgment.” Moreover, the jury has made it clear that
Defendant breached its obligations under the contract.
App. 65
Thus, Defendant must pay the costs of securing the den-
sity increase.
VI
Defendant has raised several grounds for amending
the Judgment which involve imposing obligations upon
Plaintiff.
Defendant initially contends that the terms of the
Judgment do not specifically impose any time limitations
on when Plaintiff must submit a site plan once a density
increase is secured. Defendant also claims the Court
should require Plaintiff to submit a site plan for the
maximum number of units that are permitted by the
density increase. However, in a Supplemental Motion for
a Stay filed by Defendant, Deer Creek acknowledges it
has not been able to secure the density increase in a
timely fashion. Absent any modification of this Court’s
Judgment regarding the time allowed for the density
increase, Defendant’s two points here no longer require
comment since there has been no increase.
Defendant further contends that an extension fee of
two percent (2%) over the Chase Manhattan Bank prime
rate should be paid by Plaintiff because of an agreement
to pay such a fee for a one month extension of the closing
date.'2 The Clarkson letter was written on April 27, 1984,
and it sought to extend the original closing date of May 2,
1984 by thirty days. However, as Plaintiff points out, and
12 See letter from Kenneth Clarkson to Steven Backer
(Plaintiff’s Exhibit 9).
App. 66
as the jury appears to have concluded, Defendant antici-
patorially repudiated the purchase agreement in its May
1, 1984 letter.!3 Thus, no extension ever went into effect.
Defendant’s request for this extension fee must be
denied.
Defendant also seeks to have this Court retain juris-
diction to resolve any problems that may arise as it seeks
the density increase. This Court will retain jurisdiction
over these issues. Defendant’s request on this point is
granted.
In addition, Defendant claims that Plaintiff should
pay interest at the contract rate of two percent (2%) over
the prime rate through the date of closing. Defendant
says that Plaintiff refused to close, and yet could have
done so. This contention was rejected by the jury which
determined that Defendant breached the contract. Clos-
ing did not occur because Defendant anticipatorially
repudiated the agreement. Thus, Plaintiff has not
received an undeserved windfall. It was Defendant who
caused the two year delay by refusing to comply with the
contract and requiring Plaintiff to obtain redress through
the Court.
Defendant reiterates that the special verdict did not
allow the jury to find that Plaintiff breached its obliga-
tions. However, this is not correct because the jury was
carefully instructed on the elements of a breach of this
contract and, as discussed earlier, would not have found
a breach if Plaintiff had been obliged to secure the den-
sity increase.
13 Plaintiff’s Exhibit 7.
App. 67
Defendant also contends that the jury’s refusal to
award damages is inconsistent with the decision by this
Court to grant specific performance. This Court rejects
Defendant's contention for the reasons which have been
stated in its Memorandum Opinion and Order of October
31,_1986.
VII
Defendant seeks to stay the execution of this Judg-
ment pending a resolution of these motions. Defendant
has also filed a Supplemental Motion for Stay. Such a stay
cannot be granted at this time because the Court has now
resolved all of the pending motions.
IT IS SO ORDERED.
/s/ Julian Abele Cook
JULIAN ABELE COOK, JR.
United States District Judge
Dated: March 13, 1987
Detroit, Michigan
App. 68
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LAK, INC., a Michigan
corporation,
Plaintiff Civil Action No. 84-
CV-72370-DT
* HON. JULIAN
DEER CREEK ENTERPRISES, ABELE COOK, JR.
an Indiana general
partnership,
Defendant
MEMORANDUM OPINION AN ORDER
This case involves a dispute over the last unde-
veloped parcel of land in the Deer Creek subdivision in ~
Deerfield Beach, Florida. LAK brought suit, seeking dam-
ages and specific performance against Deer Creek for
fraud and its purported failure to carry out the terms of a
Purchase Agreement regarding the sale of land. On Sep-
tember 12, 1986, after a two week trial, the jury found
that Deer Creek (1) did “materially breach” its obligations
under the Purchase Agreement, and (2) had made a
fraudulent misrepresentation to LAK. The jury decided
not to award damages for the breach of contract or fraud
claim. However, in a part of the jury verdict form, enti-
tled “Specific Performance Advisory Verdict,” the jury
answered the following question in the affirmative: Do
you recommend specific performance be awarded to
LAK?!
! The jury’s verdict on this issue is only advisory because
specific performance is an equitable remedy.
App. 69
This Court must now address the question of
whether it will award specific performance to Plaintiff. To
aid in this: determination, the Court requested, and
received, supplemental memorandum of law from both
parties on the propriety of specific performance. This
Court, having carefully read these memoranda, has
decided that specific performance is appropriate for the
reasons which have been set forth below.
1. HAS PLAINTIFF SATISFIED THE REQUISITE ELE-
MENTS FOR SPECIFIC PERFORMANCE?
In Tipton v. Woodbury, 616 F.2d 170, 178 (5th Cir.
1980), the court made clear that under Florida law, “the
proof required both to establish a contract and specific
performance as an appropriate remedy, is only that
shown by the preponderance of the evidence.”
First, LAK seeks to purchase real property which is
unique. At trial, all of the witnesses admitted the special
qualities of the land. The subject property is the last
undeveloped parcel within the Deer Creek subdivision.
The land is close to shopping and to the City of Boca
Raton. Finally, there is a lake on the northern portion
with cypress trees. Moreover, no remedy at law could be
as efficient at bringing about justice for the Plaintiff as
specific performance. See Laclede Gas Co. v. Amoco Oil Co.,
522 F.2d 33, 40 (8th Cir. 1975).
Second, LAK acted properly and in good faith, in that
it has consistently expressed a desire to pay for the land
pursuant to the contract terms or on a prorata basis. LAK
also spent over $200,00 getting ready to perform.
App. 70
Finally, LAK has been ready, willing, and able to fully
perform under the Agreement. Financing was in place by
April 27, 1984. No contrary evidence has been shown.
Accordingly, this Court concludes that LAK has
clearly satisfield [sic] the three elements that are neces-
sary for specific performance by a preponderance of the
evidence.
2. WHAT FORM OF SPECIFIC PERFORMANCE
SHOULD PLAINTIFF RECEIVE?
Florida case law supports specific performance with
an abatement in the purchase price when there is a breach
of warranty under a land contract. In Black v. Clifton, 284
So.2d 465 (Fla. 4th Dist. Ct. App. 1973), the court held
that this was the appropriate kind of specific performance
where the seller remains unable to fully perform the
contract. The court noted that prohibiting specific
performance because of an inability or a refusal to fully
perform would allow a wrongdoer to reap the benefits of
his own deficiency.
Furthermore, in American Real Equities v. A.L.M.
Investment Corp., 406 So.2d 507 (Fla. 3d Dist. Ct. App.
1981), the court clearly held that a purchaser may enforce
a purchase agreement through specific performance and
collect damages rather than seek a rescission of the con-
tract. Here, despite of the seller’s inability to perform
because it did not get site plan approval for the requisite
number of units, the purchaser has not elected to rescind
the contract. For the proposition that an equity court may
award abatement like damages which are incidental to
the main relief, see Miller v. Rolfe, 97 So.2d 132 (Fla. 1957).
App. 71
Thus, an abatement in addition to the specific perform-
ance, is permissible.
These cases provide the authority for the view by this
Court that specific performance is appropriate. However,
this Court concludes that Plaintiff is only conditionally
entitled to an abatement in the purchase price. The abate-
ment is conditioned upon Deer Creek not obtaining site
plan approval by the City of Deerfield Beach and the
County of Broward for the construction of 532 new multi-
family residential units on this property within sixty days
of entry of judgment. Should Deer Creek obtain such an
approval, the abatement would be unnecessary.
This Court determines that if an abatement is neces-
sary after the expiration of sixty days from the date of
this Order, the abatement will be based on a per unit pro
rata of the diminution in value which may be caused by
the seller’s failure to perform. American Realequities sup-
ports this position. In American Realequities, the purchase
price was not prorated on the basis of the deficiency in
the land acreage because the court found that (1) the sale
was “in gross,” and (2) the purchaser “was more inter-
ested in the number of units that could be constructed on
the site than as to the gross acreage.” Id. at 508. However,
the court did impose a prorata abatement on the basis of
the damages which had been caused by the seller’s fail-
ure to disclose that plaintiff would be required to install a
$150,000 lift station to pump water to the property. The
proration was for that amount of the cost of the lift
station which would represent that portion to be used by
the property, with the rest to be paid by other property
owners who would use the station. Here, as in American
Realequities, the purchaser also focused on the units.
App. 72
Unlike American Realequities, the deficiency was in the
units. Thus, American Realequities strongly suggests that
any abatement be a prorata reduction which would be
based on the number of missing units.?
3. DO DEFENDANT’S OBJECTIONS TO SPECIFIC PER-
FORMANCE HAVE MERIT?
Defendant’s central position is the jury’s conclusion
that (1) there was no damage (Jury Verdict Question IB),
and (2) the fraudulent misrepresentation by Deer Creek
was not the proximate cause of the injury to LAK (Jury
Verdict Question IIIF) precludes an award of specific
performance. Deer Creek claims that Knowles v. CIT Corp.,
346 So.2d 1042 (Fla. Ist Dist. Ct. App. 1977), stands for
the proposition that a breach of contract under Florida
law can be found only if a plaintiff was injured by the
2 Defendant’s argument (to wit, that an abatement is inap-
propriate because the value of the property has increased and
not diminished) misses the point. Specific performance seeks
to restore Plaintiff to the exact position that it would have been
in had the sale been consummated. Had the sale gone through,
Plaintiff would have obtained the 532 new units. The appropri-
ate remedy is an abatement at the original price of what
Plaintiff would be missing from the 532 units. Subsequent
appreciation value is irrelevant.
Defendant’s other argument (to wit, that it is entitled to an
extension fee) is also meritless. An extension fee is only appro-
priate where the purchaser requests an extension of the clos-
ing. The jury verdicts (to wit, that Deer Creek did “materially
breach” the Purchase Agreement and made knowing misrepre-
sentations to LAK) hardly suggest that the delay which ensued
is the fault of LAK.
App. 73
breach.* Defendant further contends this Court so held in
a colloquy with Plaintiff’s counsel. See Defendant's Brief
at 6. Defendant summarizes its own argument when it
states that, “since the jury found that Plaintiff had not
proven the element of injury, no breach of contract rem-
edy is appropriate, let along specific performance.”
Defendant’s Brief at 7. Defendant also says that the form
of verdict was erroneous in allowing the jury to proceed
to the question of specific performance, even after
answering Question IB in the negative (i.e., no damage).
Defendant’s reliance on Knowles is not on point.
Knowles is an extremely brief per curiam opinion regarding
a contract dispute where the court stated, in part, that:
In order to recover on a claim for breach of
contract the burden is upon the claimant to
prove by a preponderance of the evidence the
existence of a contract, a breach thereof and
damages flowing from the breach.
Id. at 1043. Such a statement is hardly arguable as a
general proposition. However, the issue here is specific
performance. Moreover, Knowles never specified that
showing damages is an element of breach of contract. In
fact, damages are specifically independent from a breach.
Damages are a result of a breach - not an element of
proof of a breach. See Plaintiff’s Brief at 17-19. Thus, the
jury could properly find that there was a breach of con-
tract and, as [sic] the same time, conclude that the breach
did not cause any damages.
3 Paragraph 20 of the Purchase Agreement provides that it
shall be governed by and construed according to Florida law.
App. 74
Unlike Knowles, Plaintiff’s reliance on Coates v. Hale,
429 So.2d 761 (Fla. 1st Dist. Ct. App. 1983) is on point. In
Coates, the court directed specific performance of a land
contract even though the evidence was insufficient to
sustain an award of damages. Coates demonstrates that
Florida also recognizes that the breach of a land contract
is independent of the issue of damages. Coates also shows
how the jury verdict form here was correct in having the
jurors address the specific performance question, even
after finding that no damages should be awarded.
Moreover, the jury was fully informed that damages
and specific performance were in lieu of one another. This
Court stated in Jury Instruction Number 48 that:
If I grant the remedy of specific performance it
will be in lieu of damages, and LAK will not be
entitled to both remedies, and will not obtain
such damages, if any, that you have awarded if I
grant specific performance.
Thus, the jury’s decision not to award damages is per-
fectly consistent with the award of specific performance
by this Court. The decision of this Court with regard to
specific performance is not based upon the jury’s decision
regarding damages. The jury and the lawyers were well
informed of this fact.
This Court acknowledges that ‘t may have been in
error on Page 30, Paragraph 4, of the Jury Instructions
when it stated that one of the elements of breach of
contract was that “LAK suffered damages as a result of
the breach of contract by Deer Creek.” However, this
error is harmless in that the law does not require this
element to be proven. Thus, the jury’s conclusion that
LAK did not suffer damages does not change the fact that
App. 75
the jury still found the other three elements of a breach
present — these elements are all that is necessary.
For the above stated reasons, this Court awards
Plaintiff specific performance in accordance with the
attached judgment.
IT IS SOQ ORDERED.
/s/ Julian Abele Cook, Jr.
JULIAN ABELE COOK, JR.
United States District Judge
Dated: Oct 31, 1987
Detroit, Michigan
~_
App. 76
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LAK, INC., a Michigan
corporation,
Plaintiff gh =
. HON. JULIAN
DEER CREEK ENTERPRISES, an ABELE COOK, JR.
Indiana general partnership,
Defendant
JURY VERDICT
(Filed Sep. 12, 1986)
I. LAK’s First Claim (Breach of Contract)
A.
Did Deer Creek materially breach its obligations
to LAK under the contract?
YES v¥ NO__
B.
Yes____
[Note: If your answer is “NO,” do not
answer any additional questions under I,
and proceed directly to II. However, if your
answer is “YES,” proceed to answer the
next question under I].
Did LAK suffer damages as the result of the
breach of contract by Deer Creek?
NO v
[Note: If your answer is “NO,” do not
answer any additional questions under I,
and proceed directly to II. However, if your
answer is “YES,” preceed to answer the
next question under I].
Il.
ITI.
App. 77
C. What is the amount of LAK’s damages?
$
(Note: Proceed directly to II].
Specific Performance Advisory Verdict
A. Do you recommend specific performance
be awarded to LAK?
YES ¥# NO__
[Note: Proceed directly to III].
LAK’s Second Claim (Fraud)
A. Did Deer Creek misrepresent to purchaser
the number of new units that could be built
on the Cypress Park property?
YES ¢ NO__
(If your answer is “NO,” do not answer any
additional questions under III, and proceed
directly to IV].
Did Deer Creek make the representation know-
ingly and without regard for its truth or falsity
or (2) tell LAK that it had knowledge that the
representation was true, while not having such
knowledge?
“A NO__
[If your answer is “NO” do not answer any
additional questions under III, and proceed
directly to IV].
C. Did LAK rely upon the representations by Deer
Creek?
App. 78
YES ¢ NO
[If your answer is “NO,” do not answer any
additional questions under III, and proceed
directly to IV].
D. Was LAK deceived by the representations of
Deer Creek?
YES ¢ NO
[If your answer is “NO,” do not answer any
additional questions under III, and proceed
directly to IV].
E. Did LAK act with ordinary prudence in relying
upon the representations by Deer Creek?
YES vo NO
[If your answer is “NO,” do not answer any
additional questions under III, and proceed
directly to IV].
F. Was the representation by Deer Creek the proxi-
mate cause of the injury to LAK?
YS... NO og
[If your answer is “NO,” do not answer any
additional questions under III, and proceed
directly to IV}.
G. Did LAK suffer damages as the result of the
fraud by Deer Creek?
YES NO
{Note: If your answer is “YES,” proceed to
answer Question III(I) with your assessment
of damages. However, if your answer is
“NO,” enter the sum of one dollar ($1.00) in
Question III(1).
App. 79
H. What is the amount of LAK’s damages?
$
[Note: Proceed directly to IV].
IV. Summary
A. Do you recommend specific perfor-
mance be awarded to LAK?
YES 7 _ NO__
B. Have you assessed damages in favor
of LAK and against Deer Creek in the
breach of contract claim?
(a NO Vv
(Note: Proceed to answer IV(C)].
ea Have you assessed damages in favor
of LAK and against Deer Creek in the
fraud claim?
YES__ NO Jv
{Note: If your answer is “NO” to IV(B) and
IV(C), do not answer any additional ques-
tions. Have your foreperson sign and date
the form. However, if your answer is “YES”
to IV(B) and IV(C), proceed to answer
IV(D)].
D. What is the total amount of damages
to be assessed in favor of LAK and
against Deer Creek?
$
(Note: If you have answered IV(D), this jury
verdict form should be signed and dated by
your foreperson. Contact the bailiff of the
Court and await further instructions].
App. 80
/s/ Harry L. Dorms
Foreperson
Dated: 9/12/86
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.