John Henderson, et al. Appellants
SMC Productions, Inc., et al. Appellees
Court No. 2009-CV-0576
Jeffery Rengel and Thomas R. Lucas, for appellants.
Jeffrey M. Stopar, for appellees.
DECISION AND JUDGMENT
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,
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
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
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
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
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
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
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.
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)
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
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?
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
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
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.