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Henderson v. SMC Productions, Inc.

Court of Appeals of Ohio, Sixth District, Erie

December 20, 2019

John Henderson, et al. Appellants
SMC Productions, Inc., et al. Appellees

          Trial Court No. 2009-CV-0576

          D. Jeffery Rengel and Thomas R. Lucas, for appellants.

          Jeffrey M. Stopar, for appellees.


          OSOWIK, J.

         {¶ 1} This is an appeal from a judgment of the Erie County Court of Common Pleas which granted appellees' motion to vacate default judgment for lack of personal jurisdiction. For the reasons set forth below, this court affirms the judgment of the trial court.

         {¶ 2} This litigation began in 2009, and we explained its lengthy procedural history in Henderson v. SMC Promotions, Inc., 6th Dist. Erie Nos. E-12-068, E-13-047, 2014-Ohio-4634. Briefly, in 2008 appellants, John and Dawn Henderson, a married couple living in Erie County, Ohio, entered into a business arrangement or enterprise (used interchangeably by the trial court) with California-based appellees, SMC Promotions, Inc. ("SMC Promotions"), Specialty Merchandise Corp. ("SMC"), and eMerchantClub, LLC ("EMC"). The business failed to launch within 30 days, and appellants commenced this litigation in Ohio on July 8, 2009. The trial court granted appellants' motion for default judgment on November 16, 2009, and awarded damages and attorney fees on September 26, 2012. Appellees finally appeared in the litigation on March 18, 2013, by filing a common law motion to vacate the default judgment for lack of personal jurisdiction. On August 2, 2013, the trial court denied the motion.

         {¶ 3} Both parties appealed that decision. On October 17, 2014, this court remanded the matter for the trial court to conduct a two-step analysis pursuant to Fraley v. Estate of Oeding, 138 Ohio St.3d 250, 2014-Ohio-452, 6 N.E.3d 9, to determine whether appellees were subject to the personal jurisdiction of the Ohio courts. That process took over three years for the trial court to complete. On December 20, 2017, the trial court granted appellees' March 18, 2013 motion.

         {¶ 4} Appellants filed this appeal setting forth four assignments of error:

I. The trial court erred in determining that it lacked personal jurisdiction over defendants-appellees.
II. The trial court erred in reversing, on remand, its prior decision to not enforce California form selection and arbitration clauses contained in an on-line document where no evidence exists that appellants ever agreed to its terms.
III. The trial court erred when it failed to deem admitted properly served requests for admission to which appellees never responded.
IV. The trial court erred when it failed to consider the unopposed testimony on the amount of appellants' damages suffered at the hands of appellees.

         {¶ 5} We will review the first and second assignments of error together.

         {¶ 6} In support of their first assignment of error, appellants argue the trial court had personal jurisdiction over the appellees and erroneously conducted its two-step analysis. Appellants argue the trial court had general personal jurisdiction because of the nature and types of appellees' contacts in Ohio and had specific personal jurisdiction because of the facts in this case. In response, appellees argue the trial court correctly determined that it lacked personal jurisdiction.

         {¶ 7} "'Jurisdiction' means 'the courts' statutory or constitutional power to adjudicate the case.' The term encompasses jurisdiction over the subject matter and over the person. * * * 'If a court acts without jurisdiction, then any proclamation by that court is void.'" (Citations omitted.) Pratts v. Hurley, 102 Ohio St.3d 81, 2004-Ohio-1980, 806 N.E.2d 992, ¶ 11. Personal jurisdiction is rudimentary for a court to render a valid judgment over a defendant. Maryhew v. Yova, 11 Ohio St.3d 154, 156, 464 N.E.2d 538 (1984). "This may be acquired either by service of process upon the defendant, the voluntary appearance and submission of the defendant or his legal representative, or by certain acts of the defendant or his legal representative which constitute an involuntary submission to the jurisdiction of the court." Id

         {¶ 8} We review the trial court's decision on personal jurisdiction de novo as a question of law. Fraley, 138 Ohio St.3d 250, 2014-Ohio-452, 6 N.E.3d 9, at ¶ 11, citing Kauffman Racing Equip., L.L.C. v. Roberts, 126 Ohio St.3d 81, 2010-Ohio-2551, 930 N.E.2d 784, ¶ 27.

The determination whether an Ohio trial court has personal jurisdiction over an out-of-state defendant requires a two-step inquiry. First, the court must determine whether the defendant's conduct falls within Ohio's long-arm statute or the applicable civil rule. If it does, then the court must consider whether the assertion of jurisdiction over the nonresident defendant would deprive the defendant of due process of law under the Fourteenth Amendment to the United States Constitution.

Id. at ¶ 12, citing Kentucky Oaks Mall Co. v. Mitchell's Formal Wear, Inc., 53 Ohio St.3d 73, 75, 559 N.E.2d 477 (1990).

         {¶ 9} Appellants have the burden to establish the trial court's personal jurisdiction. Henderson, 6th Dist. Erie Nos. E-12-068, E-13-047, 2014-Ohio-4634, at ¶ 56; Klunk v. Hocking Valley Ry. Co., 74 Ohio St. 125, 135, 77 N.E. 752 (1906) (at all times the burden of proof remains on the party whose case requires the proof of the fact at issue.). "'Once a defendant has challenged the trial court's personal jurisdiction over him or her, the plaintiff bears the burden of proving jurisdiction by a preponderance of the evidence.'" (Citation omitted.) State ex rel DeWine v. 9150 Group, L.P., 2012-Ohio-3339, 977 N.E.2d 112, ¶ 8 (9th Dist). "[P]reponderance of evidence means the greater weight of evidence. * * * The greater weight may be infinitesimal, and it is only necessary that it be sufficient to destroy the equilibrium." Travelers' Ins. Co. v. Gath, 118 Ohio St. 257, 261, 160 N.E. 710 (1928). Preponderance is a higher burden of proof than prima facie, which merely means "at first view" appearing sufficient to establish the fact unless rebutted. Carr v. Howard, 17 Ohio App.2d 233, 235, 246 N.E.2d 563 (2d Dist. 1969).

         {¶ 10} The trial court's decision on personal jurisdiction arose from appellees' March 18, 2013 common law motion to vacate the November 16, 2009 default judgment, which is the proper method to challenge a void judgment. Romp v. Jean-Pierre, 6th Dist. Lucas No. L-15-1123, 2016-Ohio-5072, ¶ 14. "The authority to vacate a void judgment is not derived from Civ.R. 60(B) but rather constitutes an inherent power possessed by Ohio courts." Patton v. Diemer, 35 Ohio St.3d 68, 518 N.E.2d 941 (1988), paragraph four of the syllabus.

         {¶ 11} The grant or denial of a common law motion to vacate a void judgment is reviewed for an abuse of discretion. Terwoord v. Harrison, 10 Ohio St.2d 170, 171, 226 N.E.2d 111 (1967). Abuse of discretion "'connotes more than an error of law or judgment; it implies that the court's attitude is unreasonable, arbitrary or unconscionable.'" Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983), quoting State v. Adams, 62 Ohio St.2d 151, 157, 404 N.E.2d 144 (1980).

         {¶ 12} The trial court did not conduct a separate oral evidentiary hearing on the common law motion to vacate default judgment for lack of personal jurisdiction, instead relying on the entire record, including, without limitation, the January 8, 2010 evidentiary hearing on damages. It was within the trial court's discretion whether to conduct an evidentiary hearing. See T.S Expediting Services, Inc. v. Mexican Industries, Inc., 6th Dist. Wood No. WD-01-060, 2002-Ohio-2268, ¶ 26, fn. ix. Even if the trial court was required to hold a hearing specifically on the motion, the record shows the trial court held a "hearing." A "hearing may be limited to a review of the record, or, at the judge's discretion, the hearing may involve the acceptance of briefs, oral argument and/or newly discovered evidence." Ohio Motor Vehicle Dealers Bd. v. Cent. Cadillac Co., 14 Ohio St.3d 64, 67, 471 N.E.2d 488 (1984).

         {¶ 13} We will not reverse the trial court's findings of fact absent an abuse of discretion, nor will we make a finding of fact the trial court should have made nor extract a finding where no such finding was made. In re Guardianship of Rudy, 65 Ohio St.3d 394, 396, 604 N.E.2d 736 (1992).

         A. R.C. 2307.382 and Civ.R. 4.3(A)

         {¶ 14} Our first step in the two-step analysis of personal jurisdiction over a nonresident defendant is to determine if appellees' conduct falls within R.C. 2307.382 or Civ.R. 4.3(A). Fraley, 138 Ohio St.3d 250, 2014-Ohio-452, 6 N.E.3d 9, at ¶ 13. R.C. 2307.382(A)(1) and Civ.R. 4.3(A) complement each other. "R.C. 2307.382(A)(1) authorizes a court to exercise personal jurisdiction over a nonresident defendant, whereas Civ.R. 4.3(A)(1) provides for service of process to effectuate that jurisdiction. Both require that the nonresident defendant be 'transacting any business' in Ohio." Kentucky Oaks, 53 Ohio St.3d at 75, 559 N.E.2d 477. "[T]o the extent that R.C. 2307.382(A) and Civ.R. 4.3(A) conflict, Civ.R. 4.3(A) controls." Fraiberg v. Cuyahoga Cty. Court of Common Pleas, Domestic Relations Div., 76 Ohio St.3d 374, 376, 667 N.E.2d 1189 (1996).

         {¶ 15} Only one factor under Civ.R. 4.3(A) or R.C. 2307.382(A) is required to be determined by the court for the first part of the two-part test. CompuServe, Inc. v. Trionfo, 91 Ohio App.3d 157, 162, 631 N.E.2d 1120 (10th Dist. 1993); Conn v. Zakharov, 667 F.3d 705, 713 (6th Cir.2012).

         {¶ 16} R.C. 2307.382(A)(1) states, "A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the person's * * * Transacting any business in this state." "For purposes of R.C. 2307.382, 'person' includes 'an individual, his executor, administrator, or other personal representative, or a corporation, partnership, association, or any other legal or commercial entity, who is a nonresident of this state.'" Fraley at ¶ 13, quoting R.C. 2307.381. R.C. 2307.382 is considered a procedural or remedial statute because it "prescribes the methods of enforcement of rights or obtaining redress" as opposed to a substantive law statute that "creates duties, rights and obligations." Kilbreath v. Rudy, 16 Ohio St.2d 70, 72, 242 N.E.2d 658 (1968).

         {¶ 17} We find "Civ.R. 4.3(A) defines 'person' in terms nearly identical to R.C. 2307.381." Fraley at ¶ 14. Civ.R. 4.3(A)(1) states:

When Service Permitted. Service of process may be made outside of this state, as provided in this rule, in any action in this state, upon a person who, at the time of service of process, is a nonresident of this state or is a resident of this state who is absent from this state. "Person" includes an individual, an individual's executor, administrator, or other personal representative, or a corporation, partnership, association, or any other legal or commercial entity, who, acting directly or by an agent, has caused an event to occur out of which the claim that is the subject of the complaint arose, from the person's * * * Transacting any business in this state.

         {¶ 18} The trial court's judgment entry evaluated the record in light of Civ.R. 4.3(A), R.C. 2307.382(A)(1)-(4) and (6), and R.C. 2307.382(B). The trial court then concluded that appellants successfully showed R.C. 2307.382(A)(1) applied.

         {¶ 19} The Ohio Supreme Court guides us to interpret "transacting any business in Ohio" under R.C. 2307.382(A)(1) and Civ.R. 4.3(A)(1) where the meaning of "transact" includes "to have dealings" and embraces in its meaning the carrying on or the prosecution of business negotiations that is broader than the word "contract" and may involve business negotiations which have been either wholly or partly brought to a conclusion. Kentucky Oaks, 53 Ohio St.3d at 75, 559 N.E.2d 477; Goldstein v. Christiansen, 70 Ohio St.3d 232, 236, 638 N.E.2d 541 (1994), citing U.S. Sprint Communications Co. Partnership v. Mr. K's Foods, Inc., 68 Ohio St.3d 181, 185, 624 N.E.2d 1048 (1994) (the broad terms cannot be defined in a generalized manner and rely on the particular facts of a case).

         {¶ 20} An Ohio court reviews all relevant factors in its determination of "transacting any business in Ohio," including, without limitation, where and by whom the business dealings were initiated, how much of the negotiations occurred in Ohio, and whether the agreement obligates the non-resident defendant to make payments or owe other obligations to an Ohio business. Ohlman Farm & Greenhouse, Inc. v. Kanakry, 6th Dist. Lucas No. L-13-1264, 2014-Ohio-4731, ¶ 22. Another factor for review could be whether the agreement orders the majority of the work to be performed in Ohio. Lucas v. P & L Paris Corp., 7th Dist. Mahoning No. 11-MA-104, 2012-Ohio-4357. We are mindful that "the mere solicitation of business does not constitute 'transacting business.' Furthermore, physical presence within the state is not necessary. * * * The determination of when internet use constitutes 'transacting business' depends upon the type of internet activity involved." (Citations omitted.) Ashton Park Apts., Ltd. v. Carlton-Naumann Constr., Inc., 6th Dist. Lucas No. L-08-1395, 2009-Ohio-6335, ¶ 15.

         {¶ 21} The trial court made a number of findings of fact from the record that SMC "transacted business in Ohio" for the first step in the personal jurisdiction analysis. However, the trial court concluded it did not have personal jurisdiction over SMC Promotions and EMC. The record contains the pleadings and supporting documents, including affidavits from fact witnesses. The record also contains the transcript of the January 8, 2010 damages hearing before the trial court's magistrate when each appellant and appellants' business broker expert testified and exhibits were admitted.

         {¶ 22} First, the trial court found appellees entirely operated their businesses from California. Appellees have no office or agents in Ohio, own no property in Ohio, send no representatives to Ohio, and have no statutory agent in Ohio. We reviewed the record and do not find the trial court abused its discretion in reaching this finding.

         {¶ 23} Mrs. Henderson testified at the January 8, 2010 hearing she was aware of seeking relief in the state of California because at one time she filed a complaint with the California attorney general about SMC not refunding all of their money. The record also contains two affidavits, dated March 16 and June 27, 2013, respectively, by Scott Palladino, the Chief Financial Officer of SMC, which by then had changed its name to Smart Living Company. Through his unrebutted affidavits, Mr. Palladino averred SMC is a California corporation and has been headquartered in California since 1954. None of SMC's employees, shareholders, officers or directors reside in Ohio; SMC has no property, office, telephone listing, or post office box in Ohio. SMC does not have any relationship with any bank or financial institution in Ohio, and "No payment from Mr. Henderson was accepted by SMC in the State of Ohio. * * * At no time has SMC shipped any SMC goods to Mr. Henderson for re-sale in the State of Ohio. * * * SMC engages in national advertising and has never directly targeted the State of Ohio with its advertising and/or internet website."

         {¶ 24} Second, the trial court found SMC did more than merely solicit business in Ohio by infomercials. SMC is "an import distribution company, which distributed merchandise to independent, individual distributors ('members'), who pay a membership fee." SMC's "intent and purpose of a national television infomercial was to establish paid memberships whereby other parties (members) would purchase distributed goods and re-sell them. This set-up was designed to be a continuing business endeavor intended to benefit both parties." We reviewed the record and do not find the trial court abused its discretion in reaching this finding.

         {¶ 25} Mr. Henderson testified that he and his wife were Ohio residents in 2008 when they saw the SMC infomercial on television at a time when they were both unemployed and looking for work. "And because I was in the retail business, my wife's got a bachelor's degree in business, we decided we could maybe put ourselves to work and take care of our family by selling and we thought this looked like a good idea." Mr. Henderson understood the infomercial was an advertisement: "Well, it was an ad, an infomercial, and they had Tom Bosley on there, and I, I grew up with Tom Bosley, and I trusted that." Mr. Henderson testified that after conferring with his wife, he called SMC: "Well, they sort of tell you what it's going to cost for membership, and it wasn't very much, and they were polite on the phone at that time and they explained a few things. * * * [T]hey were going to send us a package of information, and we did receive that." Mr. Henderson also went to SMC's website: "And this, this was on their website with Tom Bosley * * * saying make big profits by selling products, it's easy, * * *." Mr. Henderson received and read the large package of information: "I did find where it said that you could get your money back within 30 days, and so we thought it was safe, and then with Tom Bosley, you know, that advertises this, or his picture is on this information, we thought it would be a good thing to do."

         {¶ 26} He also testified how the business arrangement worked as an SMC member:

Court: Tell me how this was supposed to work. Were you, were you supposed to buy their materials online and then you were going to resell them? Is that how this would work?
A: Correct.
Court: Okay, okay. So * * * they had a storehouse of merchandise where you could go online and order the materials and then it would be -
A: Shipped to either the customer or to us.
Court: So you could go either way. You could either ship it directly or that it would be shipped to you and then you'd, you'd ship it out?
A: Correct, Your Honor.

         {¶ 27} Third, the trial court found that after appellants saw the infomercial on television, they called SMC, who then "provided information about membership and a business plan." Appellants were told after becoming a paid member: (1) "they would receive one-on-one coaching for 60 days"; (2) they would be provided "[instruction manuals, and suggestions on methods of sale"; (3) they would be provided merchandise "catalogues, sales circulars, and brochures"; and (4) they "could purchase goods, which they could mark up and re-sell." We reviewed the record and do not find the trial court abused its discretion in reaching this finding of the commercial nature of the business agreement.

         {¶ 28} The record also contains Mr. Henderson's April 23, 2013 affidavit in which he averred he is a 65-year-old high school graduate "with no prior business ownership or management training or experience." He further averred, "Based upon that [2008 Tom Bosley] advertisement, I telephoned SMC and verbally agreed to their business plan and agreed to send money to them for merchandise. * * * I never consulted legal counsel before contacting SMC by phone. No attorney was present when I contacted SMC. I have no particular legal training, education or experience."

         {¶ 29} Fourth, the trial court found appellants paid the membership fee over the phone via a credit card and then "purchased a gift card for website purchases of $5, 195. * * * The level of membership [appellants] purchased made them eligible to order the entire catalog of goods on Defendants' website." We reviewed the record and do not find the trial court abused its discretion in reaching this finding of appellants' actual purchases.

         {¶ 30} Mr. Henderson testified appellants used a credit card on June 11, 2008, to pay $264.95 for their membership with SMC. After their discussions with SMC, appellants then sent $5, 195 in "cash" via two separate Western Union transactions on June 19, 2008, for the set-up, activation, and initial monthly hosting of a website "with the whole catalog" of SMC merchandise, along with the promotional materials, catalogs, and flyers for the merchandise to re-sell, and for business coaching from "a person that would help you get your site up and train you as you were going." Mrs. Henderson testified they were able to pay the $5, 195 from "some money" they cashed out from mutual funds. Mr. Henderson presumed that with the "whole" SMC catalog online "everybody gets on the Internet [and] would see" his website. Mr. Henderson claimed the business coach told them their business could be up and running in three to four days. That did not happen because, "Well, you almost had to be a computer wizard, Your Honor, to sort of make it through all these things that they give you. * * * [I]t's just overwhelming, * * * you have to know what you're doing on the computer * * *."

         {¶ 31} Fifth, the trial court found that within 30 days after becoming SMC members, appellants had "problems communicating with their coach," and "[appellants] cancelled the membership, rescinding the contract, without purchasing a single item." We reviewed the record and do not find the trial court abused its discretion in reaching this finding.

         {¶ 32} Mr. Henderson testified he first emailed SMC on July 1, 2008, to cancel the membership. He then followed up with another email to SMC on July 23, 2008. Mrs. Henderson testified she spoke with "Joey" of SMC on July 31, 2008, who told her if everything received was mailed back, the full $5, 195 would be refunded. Appellants received a refund of $264.95 for their SMC membership, but never received a refund of $5, 195 for the non-refundable website development. There was no merchandise to return.

Court: Okay. But what I want to know is you, you never made any step toward ordering any goods from 'em, right?
A: That's correct, sir.
Court: Okay. And you never had a client at all * * * order any goods from them at all, period?
A: That's correct.

         {¶ 33} Sixth, the trial court found Elizabeth Moffitt established by affidavit that she is "another Ohioan [who] responded to a similar infomercial and purchased a membership, which led to Moffitt selling items from SMC's catalog actively over six (6) years. Moffitt ordered goods from SMC's catalog, which SMC shipped to Ohio." We reviewed the record and do not find the trial court abused its discretion in reaching this finding.

         {¶ 34} The record contains the unrebutted affidavit of Ms. Moffitt in which she averred:

In or about July of 2003, I signed up with Specialty Merchandise Corp. (SMC) and purchased a membership kit for the purpose of selling items from the SMC catalog to third-party purchasers. In or about late 2011 or early 2012, I terminated my business relationship with SMC. Between 2003 and 2009 I actively did business with SMC. All products I ordered from SMC were shipped by them to me in Ohio during this time period. I first learned of the SMC business opportunity as a resident of Xenia, Ohio through television infomercial advertising featuring spokesman Tom Bosley. That infomercial aired on a local Ohio television station that I received in my home in Xenia, Ohio in or about July of 2003.

         {¶ 35} Finally, the trial court found there was evidence of an intent for a profitable, ongoing business relationship between the parties. The trial court found appellants purchased a membership, and rescinded it "without purchasing a single item." We reviewed the record and do not find the trial court abused its discretion in reaching this finding of the intent of the parties.

         {¶ 36} The trial court found Ms. Moffitt, another Ohioan, substantiated "how this business enterprise worked." However, the trial court did not reference the July 18, 2017 affidavit by Michelle Myers-Honaker, on which appellants rely to support their assertion of continuous and ongoing contacts by SMC with Ohioans. The record contains the unrebutted, brief affidavit of Ms. Myers-Honaker in which she averred she is an Akron, Ohio resident and that sometime in 2001 "and for several years thereafter" she saw the Tom Bosley infomercial in her home on a local television channel she can no longer recall. She avers, "I contacted SMC after this infomercial and requested additional information on the company and its business opportunities." Ms. Myers-Honaker does not aver anything further beyond contacting SMC in California.

         {¶ 37} We reviewed de novo the entire record and find there is a preponderance of evidence to support the trial court's determination in support of the first step of personal jurisdiction analysis. The trial court did not abuse its discretion when it determined it had personal jurisdiction over SMC, and not over SMC Promotions or EMC, pursuant to R.C. 2307.382(A)(1). We will proceed to analyze the second step of personal jurisdiction analysis for SMC.

         B. ...

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