Professional Billing, Inc. v. Zotec Partners, LLC, and Medical Management Professionals, LLC , 99 N.E.3d 657 ( 2018 )

FILED
Apr 04 2018, 8:48 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Mark D. Gerth Robert D. MacGill
Sarah A. Hurdle Charles P. Edwards
Kightlinger & Gray, LLP Alexander P. Orlowski
Indianapolis, Indiana Leah L. Seigel
Barnes & Thornburg, LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Professional Billing, Inc., April 4, 2018
Appellant-Defendant, Court of Appeals Case No.
49A02-1709-PL-2219
v. Appeal from the Marion Superior
Court
Zotec Partners, LLC, and The Honorable Heather A. Welch,
Medical Management Judge
Professionals, LLC, Trial Court Cause No.
Appellees-Plaintiffs 49D01-1612-PL-44334
Baker, Judge.
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[1] Professional Billing, Inc. (PBI), brings an interlocutory appeal from the trial
court’s denial of its motion to dismiss the claims filed against it by Zotec
Partners, LLC, and Medical Management Professionals, LLC (collectively,
Zotec). PBI argues that dismissal is warranted because the trial court lacks
personal jurisdiction over it. Zotec argues that the trial court should be
affirmed; it alternatively requests additional time to conduct discovery. Finding
that Indiana cannot assert personal jurisdiction over PBI and that additional
time for discovery is unwarranted, we reverse and remand with instructions for
the trial court to dismiss Zotec’s claims against PBI.
Facts
[2] Zotec is a medical billing company with its principal place of business in
Carmel. In 2013, Zotec acquired a competitor, and as part of the acquisition,
Zotec agreed to retain the competitor’s CEO, G. Darrell Hulsey, who became
an executive at Zotec. Hulsey’s employment agreement with Zotec included a
non-compete provision that would last for two and one-half years after any
termination of Hulsey’s employment. In February 2014, Hulsey resigned from
Zotec. In September 2016, he became PBI’s CEO and purchased an ownership
stake in the company.
[3] PBI is a medical billing company incorporated and headquartered in Alabama.
It has offices in Alabama, Louisiana, Mississippi, and Ohio. It is not registered
to do business in Indiana. It has no offices, real estate, employees, or customers
in Indiana. It has no contracts with anyone in Indiana.
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[4] On December 19, 2016, Zotec filed a complaint against PBI, Hulsey, and
another company.1 On February 16, 2017, PBI filed its first motion to dismiss
for lack of personal jurisdiction. On March 17, 2017, Zotec filed an amended
complaint against PBI, alleging that PBI violated Indiana’s Uniform Trade
Secrets Act and committed tortious interference with contract. Specifically,
Zotec alleged that PBI misappropriated Zotec’s trade secrets by obtaining them
from Hulsey, knowing that Hulsey obtained Zotec’s trade secrets through
improper means, and by using them to compete with Zotec. Zotec further
alleged that PBI targeted and induced certain Zotec customers to terminate
their contractual relationships with Zotec. Zotec did not allege that PBI
solicited Zotec’s customers in Indiana.
[5] On April 6, 2017, in response to Zotec’s amended complaint, PBI filed a second
motion to dismiss Zotec’s claims against it for lack of personal jurisdiction. In
support of its motion to dismiss, PBI submitted an affidavit from Douglas Bush,
PBI’s president and CFO. In his affidavit, Bush stated that PBI is incorporated
and headquartered in Alabama; that it has offices in Alabama, Louisiana,
Mississippi, and Ohio; and that PBI has never had or solicited customers in
Indiana, owned or leased offices or real estate in Indiana, employed anyone in
Indiana, entered into contracts with anyone in Indiana, or registered to do
business in Indiana. Bush further stated that PBI had no communication with
Hulsey while he was employed by Zotec and that it was not until May 2016—
1
Neither Hulsey nor the other company are parties to this appeal.
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more than two years after Hulsey had left Zotec—that PBI initiated
conversations with Hulsey about joining PBI. Bush also stated that he and
Hulsey are friends and that any conversations between them before May 2016
were purely social and were undertaken by Bush as an individual, not as a
representative of PBI.
[6] On May 1, 2017, Zotec opposed PBI’s motion to dismiss, arguing that PBI did
not meet its burden to prove a lack of personal jurisdiction, or, alternatively,
that Zotec should be granted additional time “to obtain the discovery it has
been seeking from Hulsey for almost four months and, if necessary, obtain
jurisdictional discovery directly from PBI.” Appellant’s App. Vol. II p. 108.
[7] On May 22, 2017, a hearing regarding the motion to dismiss took place. On
June 27, 2017, the trial court denied PBI’s motion, making the following
findings of fact:
25. Presently, Hulsey is an owner and the Chief Executive
Officer of PBI. PBI offers medical billing and technology
solutions to physicians and other healthcare providers in
competition with Zotec.
26. PBI is a competitor of Zotec whom Zotec believes has
recently begun activity soliciting Zotec’s customers.
27. Hulsey is personally soliciting Zotec’s customers on behalf of
PBI through his knowledge of Zotec’s Confidential Information
and trade secrets. Because of his role at Zotec . . . Hulsey is
keenly aware of Zotec’s trade secrets, . . . Zotec’s proprietary
software and confidential business practices, and which clients
are most receptive to transitioning to PBI.
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28. As a result of Defendants’ actions, Zotec has incurred
significant damages, including lost clients.
Appealed Order p. 5. The trial court then made the following conclusions of
law:
. . . the Court cannot but find that the facts of the case as alleged
provide this Court with specific personal jurisdiction over PBI in
this matter. The allegations against PBI are violations of
Indiana’s Trade Secret Act and tortious interference with
contract. . . . [T]he allegations on the face of the complaint argue
that Hulsey was acting intentionally and tortuously [sic] when
[he] left Zotec to join a competitor, knowing that disclosure of
Zotec’s trade secrets would constitute harm to Zotec. The
express aim at the State of Indiana arises out of the alleged
harms. The Indiana Trade Secret Act is a statutory protection
given to persons and companies that conduct business in the
State of Indiana. While other states have similar trade secret
acts, Indiana’s Act was created by the legislative action of the
Indiana General Assembly for the benefit of those citizens and
domiciled companies that wish to conduct business. Committing
an act which directly implicates this statute directly involves
Indiana in the alleged tortious conduct. Essentially, the alleged
misappropriation involves taking/copying a protectable interest
from an Indiana company and disseminating it. Even if Hulsey
was not an agent of PBI when the alleged misappropriation took
place, PBI placed Hulsey as an executive within the company,
giving him significant control of the company’s operations. This
dovetails with Zotec’s allegation of tortious interference with
contract regarding Zotec customers. Even if PBI had never made
contact with Indiana prior to hiring Hulsey, the allegations
surrounding Hulsey’s conduct and PBI’s involvement subject PBI
to jurisdiction in this Court by way of specific personal
jurisdiction.
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Appealed Order p. 9-10. PBI now brings this interlocutory appeal.
Discussion and Decision
[8] PBI argues that the trial court erred by finding that PBI is subject to Indiana’s
jurisdiction through specific personal jurisdiction. Zotec requests additional
time to conduct discovery if this Court finds in favor of PBI.
I. Standard of Review
[9] Indiana Trial Rule 12(B)(2) allows for a dismissal of a complaint if there is a
lack of personal jurisdiction. Our standard of review regarding a defense of lack
of personal jurisdiction is well established:
Personal jurisdiction presents a question of law we review de
novo. But whether personal jurisdiction exists can depend upon
factual determinations concerning a defendant’s contacts with the
forum state—in which case the challenger bears the burden of
disproving personal jurisdiction. Accordingly, when the trial
court issues findings of jurisdictional facts (as it did here), we
review those findings for clear error. In so doing, we consider
whether the evidence supports the findings and whether the
findings support the judgment. We will reverse the trial court’s
factual findings only when the record contains no facts to support
them either directly or indirectly.
Boyer v. Smith, 42 N.E.3d 505, 508-09 (Ind. 2015) (internal citations omitted).
II. Specific Personal Jurisdiction
[10] Our Supreme Court has explained personal jurisdiction as follows:
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Personal jurisdiction refers to a court’s power to impose
judgment on a particular defendant. In Indiana, personal
jurisdiction analysis begins with Indiana Trial Rule 4.4(A), which
sets out examples of activities that often support jurisdiction. It
also provides that “a court of this state may exercise jurisdiction
on any basis not inconsistent with the Constitutions of this state
or the United States.”
. . . [B]efore an Indiana court can properly assert personal
jurisdiction over a defendant, the Due Process Clause of the
Fourteenth Amendment mandates that the defendant have
“certain minimum contacts with the state such that the
maintenance of the suit does not offend traditional notions of fair
play and substantial justice.” Minimum contacts include acts
defendants themselves initiate within or without the forum state
that create a substantial connection with the forum state itself.
. . . . To state this another way, due process requires that
potential out-of-state defendants be able to predict what conduct
might make them liable in our courts. . . . Consistent with this
longstanding precedent, Indiana courts will employ caution and
exert potentially coercive legal authority only over a defendant
who has the requisite minimum contacts to Indiana.
. . . . Specific jurisdiction exists when a lawsuit arises from or is
closely related to a defendant’s minimum contacts with or
substantial connection to the forum state. Specific jurisdiction
also requires purposeful availment—meaning a defendant
invoked her contacts or connection with Indiana, and therefore
should have reasonably anticipated being called into court to
answer for her actions.
Id. at 509-10 (footnote omitted) (internal citations omitted) (quoting
LinkAmerica Corp. v. Cox, 857 N.E.2d 961, 967 (Ind. 2006)).
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[11] In Walden v. Fiore, — U.S. —, 134 S.Ct. 1115 (2014), the United States Supreme
Court provided further guidance for determining whether minimum contacts
exist for specific jurisdiction. The Court stressed that the inquiry into whether a
forum state “may assert specific jurisdiction over a nonresident defendant
focuses on the relationship among the defendant, the forum, and the litigation.”
Id. at 1121 (internal quotation marks and citation omitted). For a state’s
exercise of jurisdiction to comport with due process, “the defendant's suit-
related conduct must create a substantial connection with the forum State.” Id.“[T]he relationship must arise out of contacts that the defendant himself creates
with” the forum state. Id. at 1122 (internal quotation marks and citation
omitted) (emphasis original). The “minimum contacts” analysis looks to the
defendant’s contacts with the forum state itself, not the defendant’s contacts
with persons who reside there. Id.[12] The Walden Court further explained that
. . . the plaintiff cannot be the only link between the defendant
and the forum. Rather, it is the defendant’s conduct that must
form the necessary connection with the forum State that is the
basis for its jurisdiction over him. To be sure, a defendant’s
contacts with the forum State may be intertwined with his
transactions or interactions with the plaintiff or other parties. But
a defendant’s relationship with a plaintiff or third party, standing
alone, is an insufficient basis for jurisdiction. Due process
requires that a defendant be haled into court in a forum State
based on his own affiliation with the State, . . .
Id. at 1122-23 (internal citations omitted).
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[13] Our Supreme Court incorporated the federal clarifications into Indiana law,
finding that “a substantial connection to Indiana is the touchstone, because that
is the only way defendants can reasonably anticipate being called into court
here to defend themselves.” Boyer, 42 N.E.3d at 511 (emphasis original). We
must now determine whether PBI’s own suit-related conduct created minimum
contacts and a substantial connection between itself and Indiana such that it
should reasonably anticipate being called into our courts.
[14] In its amended complaint, Zotec alleged that PBI hired Hulsey after Hulsey
resigned from Zotec and that PBI has begun to solicit Zotec’s customers using
confidential information and trade secrets that Hulsey misappropriated from
Zotec. But Zotec made no allegations that Hulsey was an employee or agent of
PBI when he misappropriated Zotec’s trade secrets, that PBI conspired with
Hulsey during Hulsey’s employment with Zotec, that PBI solicited any of
Zotec’s customers located in Indiana, or that PBI made any use of the
confidential information or trade secrets in Indiana. Douglas Bush’s affidavit
that PBI submitted with its motion to dismiss stated that PBI has never had or
solicited customers in Indiana, owned or leased offices or real estate in Indiana,
employed anyone in Indiana, entered into contracts with anyone in Indiana, or
registered to do business in Indiana. Bush also stated that PBI had no
communication with Hulsey while he was employed by Zotec and that it was
not until May 2016 that PBI initiated conversations with Hulsey about joining
PBI. Zotec submitted no evidence to rebut Bush’s affidavit statements.
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[15] Without question, then, PBI has proved the trial court’s lack of personal
jurisdiction. The record shows that PBI has had no contact with Indiana
whatsoever, let alone sufficient minimum contacts or a substantial connection
with Indiana. PBI cannot be said to have purposely availed itself of the trial
court’s jurisdiction. See Simek v. Nolan, 64 N.E.3d 1237, 1243 (Ind. Ct. App.
2016) (finding that Indiana lacked specific jurisdiction over defendant who had
no contact with Indiana; who had never been to Indiana; who never owned,
operated, or conducted any business in Indiana; and who did not personally
initiate, expect, or encourage contacts with Indiana such that she could have
reasonably foreseen being haled into court here).
[16] Moreover, PBI’s sole connection to Indiana is through its employment of
Hulsey. Zotec suggests that Hulsey’s significant role in PBI matters to our
analysis, asserting that PBI minimizes its “relationship with Hulsey—its part
owner and CEO—whose direct conduct indisputably subjects PBI and Hulsey
to personal jurisdiction here,” appellee’s br. p. 19, and that Hulsey “is PBI,” id.
at 22 (emphasis original). But PBI is a separate legal entity from Hulsey,
regardless of his role in the corporation and regardless of how intertwined the
two may be. See Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1231-32
(Ind. 1994) (“[A] corporation is a legal entity separate and distinct from its
shareholders and officers.”). Accordingly, Indiana’s jurisdiction over Hulsey,
which is not contested in this appeal, does not necessarily also grant Indiana
jurisdiction over PBI. Their separate identities make Hulsey a third party to
PBI’s ostensible relationship with Indiana. And “‘a defendant’s relationship
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with a plaintiff or third party, standing alone, is an insufficient basis for
jurisdiction.’” Boyer, 42 N.E.3d at 511 (quoting Walden, 134 S.Ct. at 1123).
PBI and Hulsey are not one and the same, and if PBI did not have a
relationship with Hulsey, it would have no alleged contacts with Indiana.
[17] Zotec further argues that Indiana has personal jurisdiction over PBI because
PBI acquired and used stolen information from Indiana “specifically knowing
the effects of its actions would cause harm in Indiana.” Appellee’s Br. p. 18.
The trial court similarly found that PBI’s “express aim at the State of Indiana
arises out of the alleged harms.” Appealed Order p. 5. In Walden, however, the
United States Supreme Court held that “mere injury to a forum resident is not a
sufficient connection to the forum. Regardless of where a plaintiff lives or
works, an injury is jurisdictionally relevant only insofar as it shows that the
defendant has formed a contact with the forum State.” Walden, 134 S.Ct. at
1125 (finding that the petitioner’s actions in one state did not create sufficient
contacts with another state “simply because he allegedly directed his conduct at
plaintiffs whom he knew” had connections in the other state). The harm or
injury Zotec suffered does not connect PBI to Indiana in a meaningful way.
[18] In sum, the record does not show that PBI has had any contact with Indiana.
PBI did not create sufficient minimum contacts or a substantial connection
between itself and Indiana. Accordingly, Indiana cannot assert specific
personal jurisdiction over PBI, and the trial court should have granted its
motion to dismiss.
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III. Discovery
[19] Because we find that Indiana cannot exercise jurisdiction over PBI, we must
now consider Zotec’s request that, rather than outright dismiss its claims, we
remand this matter so that Zotec can conduct jurisdictional discovery.
[20] Indiana Trial Rule 26(B)(1) permits discovery into “any matter, not privileged,
which is relevant to the subject-matter involved in the pending action, whether
it relates to the claim or defense of the party seeking discovery or the claim or
defense of any other party.” Because Indiana’s trial rule on discovery is
adopted from the Federal Rules of Civil Procedure, see Am. Bldgs. Co. v. Kokomo
Grain Co., 506 N.E.2d 56, 59 (Ind. Ct. App. 1987), we may consider federal
court interpretations when applying the Indiana rule. Goldberg v. Farno, 953
N.E.2d 1244, 1252 (Ind. Ct. App. 2011) (“When an Indiana Trial Rule is based
on a corresponding Federal Rule of Civil Procedure, it is appropriate for our
courts to look at federal court interpretations when applying the Indiana rule.”).
[21] “It is well established that a [trial court] has the power to require a defendant to
respond to discovery requests relevant to his or her motion to dismiss for lack of
jurisdiction.” Andersen v. Sportmart, Inc., 179 F.R.D. 236, 241 (N.D. Ind. 1998)
(citation omitted). “As a general matter, discovery under the Federal Rules of
Civil Procedure should be freely permitted, and this is no less true when
discovery is directed to personal jurisdiction.” Id. A trial court risks erring “by
not allowing some limited discovery into the personal jurisdiction issue.” Id.The court further explained that
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. . . it is also well established that a plaintiff does not enjoy an
automatic right to discovery pertaining to personal jurisdiction in
every case. A plaintiff must make a threshold or prima facie
showing with some competent evidence demonstrating that
personal jurisdiction might exist over a defendant in order to be
entitled to jurisdictional discovery. For example, a plaintiff is
entitled to jurisdictional discovery if he or she can show that the
factual record is at least ambiguous or unclear on the jurisdiction
issue.
Id. at 241-42 (internal citations omitted) (emphasis original).
[22] Here, the timeline relevant to discovery is as follows:
• On December 19, 2016, Zotec filed its first complaint.
• On January 9, 2017, Zotec served discovery requests on Hulsey.
• On February 16, 2017, PBI filed its first motion to dismiss for lack of
personal jurisdiction.
• On March 14, 2017, Hulsey responded to requests for production.
• On March 17, 2017, Zotec filed its amended complaint.
• On April 6, 2017, PBI filed its second motion to dismiss in response to
Zotec’s amended complaint.
• On May 1, 2017, Zotec filed its motion in opposition to PBI’s motion to
dismiss.
• On May 5, 2017, Zotec filed a motion to compel against Hulsey.
• On May 22, 2017, a hearing regarding PBI’s motion to dismiss took
place.
At no point before the May 22, 2017, hearing did Zotec serve discovery on PBI,
nor did it request any depositions of PBI representatives.
[23] Since PBI filed its motion to dismiss, Zotec has asked for more time to conduct
discovery. In Zotec’s motion opposing PBI’s motion to dismiss, Zotec asked
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the trial court for more time to obtain discovery from Hulsey “and, if necessary,
obtain jurisdictional discovery directly from PBI” if the trial court did not deny
PBI’s motion. Appellant’s App. Vol. II p. 108. In Zotec’s motion opposing
PBI’s motion for interlocutory appeal, Zotec argued that it had not yet had the
opportunity to conduct jurisdictional discovery on PBI and that, before the
motion was granted, Zotec should first be allowed to discover PBI’s contacts
with Indiana, including by deposing Douglas Bush. While we acknowledge the
short timeline of the initial stages of this case—not even six months passed from
the time of Zotec’s initial complaint to the time of the hearing on PBI’s motion
to dismiss—we must also acknowledge that Zotec had time to serve discovery
requests on Hulsey during this time. The record and Zotec’s briefs are devoid
of reasons why Zotec did not also conduct jurisdictional discovery—or any
discovery—on PBI before the hearing even though it had time to do so.
[24] Approximately three months passed between when PBI filed its first motion to
dismiss for lack of personal jurisdiction and the hearing on the motion. As PBI
points out, if Zotec needed additional time to conduct discovery that it deemed
necessary to oppose PBI’s motion, it could have requested a continuance of the
hearing to enable it to do so. See Azhar v. Town of Fishers, 744 N.E.2d 947, 951
(Ind. Ct. App. 2001) (noting that the approximately three months between the
filing of a motion to dismiss and the hearing thereon was ample time to allow
the party to file a motion for additional time to conduct discovery to ascertain
the evidence in opposition to the motion). Zotec made no such request.
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[25] Zotec’s arguments to the trial court and this Court suggest that it hoped to
collect the necessary evidence from Hulsey. As discussed above, however, PBI
and Hulsey are two separate entities, and in this case, they are represented by
separate counsel. Moreover, most of the claims Zotec asserted against Hulsey
relate to Hulsey’s interactions with other entities that are not parties to this
appeal and are wholly unrelated to PBI; therefore, Hulsey’s interests do not
fully align with PBI’s. Zotec offers no reason why it did not seek discovery
from PBI at the same time as when it sought discovery from Hulsey. Its
argument that it should be able to do so now is unavailing.
[26] Further, Zotec failed to make a prima facie showing with some competent
evidence demonstrating that personal jurisdiction might exist over PBI. As
discussed above, Zotec showed that PBI’s connection to Indiana is solely
through Hulsey, a third party. Zotec designated no evidence suggesting that
jurisdiction over PBI might exist, nor did it show that the factual record is at
least ambiguous or unclear on the jurisdiction issue. Simply put, Zotec did not
meet its burden. We therefore deny Zotec’s request for additional time to
complete jurisdictional discovery.
[27] The judgment of the trial court is reversed and remanded with instructions to
dismiss Zotec’s claims against PBI.
Riley, J., and Brown, J., concur.
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