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NTCH-West Tenn, Inc. v. ZTE Corp.

United States District Court, W.D. Tennessee, Eastern Division

November 9, 2017

NTCH-WEST TENN, INC., Plaintiff,
v.
ZTE CORPORATION, Defendant.

          ORDER DISMISSING AS MOOT DEFENDANT'S INITIAL MOTION TO DISMISS (D.E. 10), DISMISSING AS MOOT PLAINTIFF'S MOTION FOR LEAVE TO CONDUCT JURISDICTIONAL DISCOVERY (D.E. 13), GRANTING DEFENDANT'S RENEWED MOTION TO DISMISS PLAINTIFF'S COMPLAINT FOR LACK OF PERSONAL JURISDICTION (D.E. 90), AND DISMISSING CASE

          J. DANIEL BREEN UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         On August 2, 2012, the Plaintiff, NTCH-West Tenn, Inc. (“NTCH-TN”), brought this action against the Defendant, ZTE Corporation (“ZTE Corp.”), alleging state law claims of breach of contract, breach of covenant of good faith and fair dealing, breach of warranties, promissory estoppel, negligence, fraudulent misrepresentation, tortious interference with contract, and unjust enrichment, as well as violation of Tennessee Code Annotated § 47-18-101, et seq. On October 24, 2012, ZTE Corp. filed a motion to dismiss the complaint for lack of proper service and personal jurisdiction pursuant to Rules 12(b)(2), 12(b)(4), and 12(b)(5) of the Federal Rules of Civil Procedure. (Docket Entry (“D.E.”) 10.) On November 19, 2012, before a response was filed, the Defendant moved for a stay of this action pending the conclusion of arbitration involving NTCH-TN and Defendant's subsidiary, ZTE USA, Inc. (“ZTE USA”) (D.E.16), which was granted in an order entered by United States Magistrate Judge Edward G. Bryant on July 18, 2013 (D.E. 46), pursuant to an order of reference (D.E. 45). The arbitration, which occurred in August and September 2013, did not encompass Plaintiff's claims against ZTE Corp.

         On February 11, 2014, the arbitrator issued a Final Award, as corrected on March 11, 2014, denying the claims of NTCH-TN against ZTE USA. The Final Award was confirmed by the United States District Court for the Middle District of Florida on October 6, 2015. On December 15, 2016, the confirmation was affirmed by the Eleventh Circuit Court of Appeals. In proceedings before the undersigned on February 7, 2017, the parties were advised that the Court would continue the stay until after the March 15, 2017, deadline for appealing the Eleventh Circuit's determination to the United States Supreme Court. (D.E. 82.) Based on notification by Plaintiff's counsel in March 2017 that no petition for certiorari would be filed (D.E. 86) and that this matter would proceed (D.E. 87), the parties were granted permission to supplement previous motions or file new motions (id.). On May 11, 2017, the Defendant renewed its motion to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). (D.E. 90.) The Court assumes the previous motion to dismiss (D.E. 10) is now moot and it is DISMISSED on that basis.

         II. STANDARD OF REVIEW

         Dismissal of a complaint for lack of personal jurisdiction is permitted under Rule 12(b)(2) of the Federal Rules of Civil Procedure. The burden of establishing personal jurisdiction over a defendant is borne by the plaintiff. AlixPartners, LLP v. Brewington, 836 F.3d 543, 548 (6th Cir. 2016). "In deciding a motion to dismiss for lack of personal jurisdiction, the district court may rely upon the affidavits alone; it may permit discovery in aid of deciding the motion; or it may conduct an evidentiary hearing to resolve any apparent factual questions." MAG IAS Holdings, Inc. v. Schmuckle, 854 F.3d 894, 899 (6th Cir. 2017) (quoting Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991)) (internal quotation marks omitted).

         “When the district court resolves a Rule 12(b)(2) motion solely on written submissions, the plaintiff's burden is relatively slight, and the plaintiff must make only a prima facie showing that personal jurisdiction exists in order to defeat dismissal.”[1] AlixPartners, 836 F.3d at 548-49 (quoting Air Prods. & Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 549 (6th Cir. 2007)) (internal quotation marks omitted). Plaintiff must make this demonstration by a preponderance of the evidence. Conn v. Zakharov, 667 F.3d 705, 711 (6th Cir. 2012). Where a motion to dismiss is supported by affidavits, the plaintiff "may not rest upon allegations or denials in [its] pleadings but [its] response by affidavit or otherwise must set forth specific facts showing that the court has jurisdiction." Weller v. Cromwell Oil Co., 504 F.2d 927, 929-30 (6th Cir. 1974); see also Flake v. Schrader-Bridgeport Int'l, Inc., 538 Fed.Appx. 604, 616-17 (6th Cir. 2013) (same, citing Weller). “The pleadings and affidavits submitted must be viewed in a light most favorable to the plaintiff, and the district court should not weigh the controverting assertions of the party seeking dismissal.” AlixPartners, 836 F.3d at 549 (quoting Air Prods., 503 F.3d at 549) (internal quotation marks omitted). However, "mere conclusory allegations will not satisfy the 'specific facts' requirement." Preferred Care of Del., Inc. v. Konicov, Civil Action No. 5:15-cv-88-KKC-EBA, 2016 WL 2593924, at *4 (E.D. Ky. May 4, 2016).

         III. THE COMPLAINT

         The complaint contains the following allegations. ZTE Corp., incorporated under the laws of the People's Republic of China, is a manufacturer and supplier of telecommunications equipment, hardware, and related software licenses and support services. The equipment provided and that is the subject of the instant litigation was designed and manufactured by ZTE Corp. in China. In the United States, the Defendant sells its products through ZTE USA, a corporation organized under the laws of the State of New Jersey with its principal place of business in Richardson, Texas.

         On September 21, 2006, ZTE USA and PTA-FLA, Inc. (“PTA-FLA”), an affiliate of Plaintiff, entered into an agreement for the purchase of equipment manufactured by ZTE Corp. (the “ZTE Equipment”) and for related services in connection with the installation of a cellular telephone network in Jacksonville, Florida (the “Florida Agreement”).[2] This agreement included a switch, [3] modules for the switch such as multimedia messaging service (“MMS”), base stations, other necessary equipment, and installation and support services required to bring the equipment online. ZTE Corp. was a newcomer to the United States market and had no equipment in operation in this country. It was represented to PTA-FLA that the ZTE Equipment would be fully functional and compatible with United States standards and equipment and that personnel would be able to install and service the equipment in the United States. ZTE USA also proposed that PTA-FLA (as well as other entities related thereto) purchase remote switches for new markets to be developed, including initially Idaho and Tennessee, and take advantage of the primary switch in Jacksonville to operate cellular telephone networks in the developing markets.

         After the ZTE Equipment was delivered and installation began, PTA-FLA became aware that it did not in fact meet United States standards as promised or otherwise comply with the Florida Agreement. Specifically, the ZTE Equipment failed to comport with general standards required to provide a quality customer experience; government-mandated standards including those for the Commission on Accreditation of Law Enforcement, Local Number Portability, and E911; and manufacturing-quality certifications, as well as standards for specific platforms, including MMS and PTA-FLA's billing systems. Standard practices for installing such equipment were also not followed, causing network disruption.

         PTA-FLA notified ZTE Corp. of the issues surrounding the installation and was assured they would be remedied. In attempting to work with ZTE Corp. to ensure the equipment worked properly, PTA-FLA encountered numerous problems with Defendant's engineers, including missed appointments, limited English-speaking abilities, lack of product familiarity, failure to adhere to United States procedures such as attempting fixes during nighttime maintenance windows when customers would be least affected, and inability to identify and diagnose problems.

         In 2008, PTA-FLA sold its network to Metro PCS. Metro PCS refused, however, to purchase the ZTE Equipment and required its removal from the network. In an attempt to mitigate its damages and put the ZTE Equipment to some productive use, PTA-FLA sought to redeploy in alternative markets the ninety-seven base stations purchased from ZTE Corp. for the Florida market. To that end, PTA-FLA purchased two remote switches from ZTE Corp. for a cellular telephone network to be installed in Jackson, Tennessee, by the Plaintiff. However, ZTE Corp. failed to deliver the switches.

         At around the same time, PTA-FLA affiliate Daredevil, Inc. (“Daredevil”) was developing a cellular telephone network in St. Louis, Missouri. ZTE USA personnel suggested that the bulk of the primary switch equipment, which was then located in Jacksonville, be moved to Tennessee, and that Daredevil's network and NTCH-TN's Jackson network be configured and engineered to function together. This arrangement was in lieu of the necessity for NTCH-TN to have a remote switch in Tennessee that would operate off a primary switch in Jacksonville.

         To implement the arrangement, PTA-FLA assigned its right to the nonfunctioning ZTE Equipment to NTCH-TN. ZTE USA requested that NTCH-TN issue a separate purchase order in the amount of $150, 000 for a network “integration fee” to pay for the services of ZTE USA and ZTE Corp. in making the ZTE Equipment operational in Jackson.[4] NTCH-TN issued the purchase order, which was dated June 12, 2009. At that time, ZTE USA owed a credit to PTA-FLA and others affiliated with NTCH-TN in excess of $3.5 million. ZTE USA applied $150, 000 of that credit to satisfy NTCH-TN's obligations under the purchase order.

         ZTE USA had previously shared technical documents drafted by ZTE Corp. detailing the equipment's capabilities with personnel of PTA-FLA and NTCH-TN. Neither ZTE USA nor ZTE Corp. disclosed to NTCH-TN that the MMS platform previously sold to PTA-FLA and transferred to NTCH-TN was not intended for commercial use. ZTE Corp. promised NTCH-TN that it could fix problems with the ZTE Equipment and that it would ensure its proper functionality for Plaintiff's anticipated utilization. Based on the representations, installation of the ZTE Equipment in Jackson commenced.

         However, the ZTE Equipment caused for NTCH-TN the same problems experienced by PTA-FLA. New issues also arose, including improper configuration of Evolution-Data Optimized settings, resulting in significant network disruption and customer loss. Plaintiff was required to suspend all data device sales while this difficulty was being addressed. ZTE Corp. continued to assure NTCH-TN that it would remedy the problems. Nonetheless, the MMS still did not function and, after years of attempts to fix it, ZTE Corp. finally acknowledged the ZTE Equipment was merely a platform for experimentation in the American market.

         ZTE Corp. assigned China-based software teams and sent engineers from China to attempt repairs on the ZTE Equipment. NTCH-TN ultimately determined that these individuals were incompetent and unable to complete the work. At its own cost, NTCH-TN engaged the assistance of outside experts, who demonstrated to ZTE Corp. the deficiencies of the ZTE Equipment, spawning another wave of failed attempts at repair and missed deadlines.

         Plaintiff then informed ZTE Corp. that it would use a third-party vendor to provide MMS service. ZTE Corp. requested that NTCH-TN postpone this action in order to permit it to fix the problems, which it was again unable to remedy. NTCH-TN was forced to abandon use of the ZTE Equipment because it did not operate properly and the continued malfunctions damaged its reputation with customers. Plaintiff alleged in the complaint that it suffered a loss of some 12, 000 customers and months of lost revenues, and was required to replace the ZTE Equipment in its entirety at great expense.

         IV. ANALYSIS

         In a case based on diversity, whether a federal court in the forum state has personal jurisdiction over an out-of-state defendant is dependent upon whether the state's courts would have jurisdiction. Newberry v. Silverman, 789 F.3d 636, 641 (6th Cir. 2015). "This rule requires the court to determine whether both the state's long-arm statute and the Due Process Clause of the United States Constitution permit the exercise of jurisdiction." Id. (quoting Aristech Chem. Int'l Ltd. v. Acrylic Fabricators Ltd., 138 F.3d 624, 627 (6th Cir. 1998)). As Tennessee's long-arm statute extends to the limit of the Due Process Clause, this Court need only determine whether due process would permit a Tennessee court to exercise specific jurisdiction over ZTE Corp. See Harmer v. Colom, 650 F. App'x 267, 272 (6th Cir. 2016).

         The Due Process Clause permits two types of personal jurisdiction: general, or "all-purpose, " and specific, or "case-linked, " jurisdiction. Bristol-Myers Squibb Co. v. Super. Ct. of Cal., San Francisco Cty., 137 S.Ct. 1773, 1779-80 (2017). A court may assert general jurisdiction over foreign entities “to hear any and all claims against them when their affiliations with the State are so continuous and systematic as to render them essentially at home in the forum State.” Daimler AG v. Bauman, 134 S.Ct. 746, 754 (2014) (internal quotation marks omitted). Plaintiff concedes that this Court has no such jurisdiction over ZTE Corp.

         Consequently, the Defendant must be subject to this Court's specific jurisdiction, which requires that ZTE Corp. “have minimum contacts with the state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Maxitrate Tratamento Termico E Controles v. Super Sys., Inc., 617 F. App'x 406, 408 (6th Cir.), cert. denied, 136 S.Ct. 336 (2015) (internal quotation marks omitted). In considering whether personal jurisdiction exists, the court takes into account a variety of interests, including "the interests of the forum State and of the plaintiff in proceeding with the cause in the plaintiff's forum of choice." Bristol-Myers Squibb, 137 S.Ct. at 1780 (quoting Kulko v. Super. Ct. of Cal., City & Cty. of San Francisco, 436 U.S. 84, 92 (1978)). "But the primary concern is the burden on the defendant." Id. (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980)) (internal quotation marks omitted).

         Courts in this Circuit have been provided a three-pronged approach for determining whether minimum contacts exist, set forth in Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374 (6th Cir. 1968). See Means v. United States Conference of Catholic Bishops, 836 F.3d 643, 649 (6th Cir. 2016).

First, the defendant must purposefully avail [it]self 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 ...

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