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No. 102,582 IN THE COURT OF APPEALS OF THE STATE OF KANSAS MARTIN-MANATEE POWER PARTNERS, LLC, Plaintiff, v. PEERLESS MANUFACTURING CO., Appellant, v. CONTROLS INTERNATIONAL, INC., Appellee.

SYLLABUS BY THE COURT 1. Whether jurisdiction exists is a question of law which an appellate court reviews de novo. The plaintiff bears the burden of establishing jurisdiction over the defendant. However, the plaintiff need only make a prima facie showing of jurisdiction to withstand a dispositive motion. When the district court's pretrial ruling on the jurisdiction issue is based on the pleadings, affidavits, and other written materials, any factual dispute must be resolved in favor of the plaintiff.

2 When the plaintiff seeks to assert personal jurisdiction over a nonresident defendant, Kansas courts liberally construe the Kansas long-arm statute, K.S.A. 2009 Supp. 60-308(b), to the full extent permitted by the Due Process Clause of the United States Constitution.

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3. The Kansas long-arm statute, K.S.A. 2009 Supp. 60-308(b), was amended in 2006. Prior to the 2006 amendments, the statute only expressly allowed personal jurisdiction in actions arising from the defendant's contacts with Kansas, such as transacting business in Kansas, committing a tort in Kansas, or entering into a contract with a Kansas resident to be performed at least in part in Kansas. The 2006 amendments to K.S.A. 60-308(b) added section (b)(2) which provides express authority for extending personal jurisdiction to a defendant for acts committed elsewhere when the defendant has established substantial, continuous, and systematic contact with this state which supports jurisdiction consistent with the Constitutions of the United States and of Kansas. The statute now allows Kansas courts to assert in personam jurisdiction consistent with the breadth of federal due process.

4. Under the facts presented, the district court did not err in finding that the defendant, who is not registered as a foreign corporation doing business in Kansas, is not obligated to pay taxes in Kansas, does not maintain a bank account in Kansas, does not have an office or registered agent in Kansas, does not own or lease any real property in Kansas, and who engaged in only 28 transactions over a 5-year period in which one of its products was shipped into Kansas, does not have a substantial, continuous, and systematic contact with Kansas to warrant our courts exercising personal jurisdiction over it pursuant to K.S.A. 2009 Supp. 60-308(b)(2).

5. A party claiming the district court erred in an order relating to discovery bears a heavy burden because the district court's control over discovery is a matter within its sound discretion. Appellate courts do not disturb a district court's order regarding 2

discovery absent a showing of a clear abuse of discretion. Judicial discretion is abused when no reasonable person would take the position adopted by the district court.

6. Whether discovery is warranted to resolve a dispute over jurisdiction is an issue of fact to be resolved on a case-by-case basis. Leave for jurisdictional discovery is properly denied when the plaintiff fails to show that facts exists which would warrant the denial of the defendant's motion to dismiss for lack of personal jurisdiction.

7. Under the facts presented, the district court did not abuse its discretion in limiting discovery on the issue of in personam jurisdiction.

Appeal from Johnson District Court; KEVIN P. MORIARTY, judge. Opinion filed June 18, 2010. Affirmed.

Christopher J. Lang, of Rabbitt Pitzer & Snodgrass, P.C., of St. Louis, Missouri, and Nikki Cannezzaro, of Franke Schultz & Mullen, P.C., of Kansas City, Missouri, for appellant.

Steven B. Befera, of Miami, Florida, Barry W. McCormick and Edward M. Boyle, of McCormick, Adam & McDonald, P.A., of Overland Park, and Jenifer Svancara, of Law Offices of Donald B. Balfour, of Kansas City, Missouri, for appellee.

Before MCANANY, P.J., MALONE and STANDRIDGE, JJ.

MCANANY, J.: Peerless Manufacturing Co. (Peerless) challenges the district court's dismissal of its third-party action against Controls International, Inc. on jurisdictional grounds. It also contends that the district court erred in not permitting it to conduct discovery on the jurisdiction question. 3

This case arises out of a fire at a power plant in Florida. Martin-Manatee Power Partners, LLC (MMPP), contracted with Florida Power & Light Company to design and construct a natural gas-fired power plant in Martin County, Florida. Peerless supplied and installed four gas heater skids in the plant. The purchase order for the skids specified that any litigation regarding the skids would occur in Kansas and be governed by Kansas law.

In September 2005, one of the gas heater skids supplied by Peerless allegedly overheated, ruptured, and caused a fire at the plant. MMPP claimed that components in a gas valve in the skid were incorrectly installed, thereby causing the release of gas and the resulting fire. MMPP claimed it cost over $5.7 million to repair the damage to the plant. MMPP sued Peerless in Johnson County on various legal theories.

Jurisdiction

In May 2008, Peerless asserted a third-party claim against Controls International, Inc. (Controls), a Texas corporation, asserting that Peerless purchased the claimed defective valve from Controls. Peerless sought indemnity from Controls for the claims asserted by MMPP. While the transaction was an intra-Texas sale (Controls shipped the valve from its Texas office to Peerless' Texas office), Peerless claims that Kansas courts can exercise jurisdiction over Controls because of its business activities in Kansas.

Controls responded with its motion to dismiss, asserting that the court lacked jurisdiction under Kansas' long-arm statute, K.S.A. 2009 Supp. 60-308(b). Further, it contended, extending in personam jurisdiction over Controls would deny it due process because Controls has not purposefully availed itself of the privileges and benefits of Kansas law, because the claim does not arise out of forum-related activities, and because jurisdiction over Controls would be unreasonable. Controls attached to its motion an affidavit from its chief financial officer, Ed Watkins. Watkins stated in his affidavit that 4

Controls is not registered to do business in Kansas, does not have an authorized agent in Kansas, is not obligated to pay taxes in Kansas, does not have any offices in Kansas, and does not lease or own any real property in Kansas.

Discovery

In June 2008, Peerless moved for leave to conduct limited discovery on the personal jurisdiction issue. Without any ruling on its motion, Peerless proceeded with discovery on the jurisdiction issue. When the parties were at loggerheads over discovery issues, the court conducted a hearing in September 2008. No journal entry was prepared to memorialize the court's ruling. It is difficult to determine exactly what was ordered by the court from the colloquy between court and counsel at the hearing. However, we have the benefit of the court's bench note which provides in part:

"1. Jurisdiction issue taken under advisement. "2. 3rd party def discovery limited to: A. How many times this particular gauge was produced & delivered within the U.S. from September 2003 to present. B. does the 3rd party defendant do business in all 50 states & to what extent."

It is unclear how discovery on these two points would help resolve the issue of whether Controls had transacted business in Kansas to the extent necessary to justify the Kansas court exercising jurisdiction over it. In any event, Controls responded to Peerless' outstanding discovery by stating that it had not produced or shipped any orders of the particular valve in question to Kansas during the relevant time period. Peerless objected, claiming that Controls' answers were inadequate because it limited its response to transactions involving the type of valve involved in the Florida fire.

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In October 2008, the court held a conference call hearing on the ongoing discovery dispute. The court stated that it was expecting discovery on the number (but not dollar volume) of sales of, and orders for, all products in Kansas, but not service calls in Kansas, for the period beginning September 2003.

In December 2008, Controls filed its responses to Peerless' discovery requests. The invoices in the record produced by Controls show the following for the relevant 5year period:  Three direct sales by Controls to customers located in Kansas (two in 2004 and one in 2005).  Seven sales by Controls to customers outside of Kansas for delivery to entities located in Kansas (one in 2004, one in 2005, one in 2006, three in 2007, and one in 2008).  Twelve sales to Power Specialties in Missouri for delivery to entities in Kansas (one in 2004, six in 2005, three in 2006, one in 2007, and one in 2008).  One sale by Type K to a Kansas customer (2004).  One sale by Type K to Power Specialties in Missouri for delivery to an entity in Kansas (2006).  Four sales by K-Tork to Kansas customers (three in 2007and one in 2008).

Ruling on Motion to Dismiss

On February 2, 2009, the district court held a telephone conference hearing on Controls' motion to dismiss for lack of personal jurisdiction. Peerless renewed its objections to Controls' discovery responses and the limitations placed on discovery regarding the jurisdiction issue. Peerless complained that Controls failed to provide information on business in other states in order to gauge whether the Kansas transactions 6

represent a significant or insignificant portion of its overall business. It renewed its request for additional discovery on the issue of jurisdiction. Controls argued that this additional information is irrelevant under the jurisdictional analysis set forth in Merriman v. Crompton Corp., 282 Kan. 433, 146 P.3d 162 (2006).

The district court refused to permit any further discovery on the issue and ruled that it lacked personal jurisdiction over Controls. In reaching this determination, the district court relied on the relative paucity of sales transactions during the relevant 5-year period, as well as the fact that Controls had no office, registered agent, designated employee, or property within Kansas. Based on these facts, the court applied Merriman to determine that Kansas lacked personal jurisdiction. The court concluded that Peerless failed to establish that Controls has had continuous and systematic contacts with Kansas. The district court further noted that no amount of additional discovery would change the information already provided or result in a different legal conclusion.

Peerless appeals, claiming the district court erred in denying its motion for limited discovery and in granting Controls' motion to dismiss.

Discussion

I. Jurisdiction

On appeal, Peerless first argues that the district court erred in granting Controls' motion to dismiss for lack of personal jurisdiction. The statute by which Peerless seeks to invoke jurisdiction is K.S.A. 2009 Supp. 60-308(b)(2). It argues in its brief: "The facts and reasonable inferences to be drawn therefrom demonstrate Controls' substantial, continuous and systematic contact with the state of Kansas under K.S.A. 60-308(b)(2) supporting jurisdiction consistent with due process." 7

Whether jurisdiction exists is a question of law which we review de novo. Merriman, 282 Kan. at 439 (citing Mid-Continent Specialists, Inc. v. Capital Homes, 279 Kan. 178, 185, 106 P.3d 483 [2005]). Peerless bears the burden of establishing jurisdiction over Controls. Merriman, 282 Kan. at 439. However, Peerless need only make a prima facie showing of jurisdiction. Because the district court's ruling on the jurisdiction issue was based on the pleadings, affidavits, and other written materials, any factual dispute must be resolved in favor of Peerless. See 282 Kan. at 439.

Peerless claims that Controls is subject to the jurisdiction of the courts in Kansas by reason of our long-arm statute, K.S.A. 2009 Supp. 60-308(b). Kansas courts liberally construe the long-arm statute to the full extent permitted by the Due Process Clause of the United States Constitution when asserting personal jurisdiction over a nonresident defendant. If the statutory predicate for extending personal jurisdiction to Controls is established, we must then determine whether the exercise of personal jurisdiction complies with the due process requirements of the Fourteenth Amendment to the United States Constitution. Kluin v. American Suzuki Motor Corp., 274 Kan. 888, 894, 56 P.3d 829 (2002).

The Kansas long-arm statute, K.S.A. 2009 Supp. 60-308(b), was amended in 2006. L. 2006, ch. 49, sec. 1-3. Prior to the 2006 amendments, the statute only expressly allowed personal jurisdiction in actions arising from the defendant's contacts with Kansas, such as transacting business in Kansas, committing a tort in Kansas, or entering into a contract with a Kansas resident to be performed at least in part in Kansas. K.S.A 60-308(b).

The 2006 amendments to K.S.A. 60-308(b) added section (b)(2), which provides express authority for extending personal jurisdiction to defendants for acts committed elsewhere: 8

"A person may be considered to have submitted to the jurisdiction of the courts of this state for a cause of action which did not arise in this state if substantial, continuous and systematic contact with this state is established that would support jurisdiction consistent with the constitutions of the United States and of this state." K.S.A. 2009 Supp. 60-308(b)(2).

The statute as amended borrows language from the United States Supreme Court's minimum contacts test for general jurisdiction expressed in Helicopteros Nacionales de Columbia v. Hall, 466 U.S. 408, 416, 80 L. Ed. 2d 404, 104 S. Ct. 1868 (1984), which requires "continuous and systematic general business contacts" with the forum state. The statute now allows Kansas courts to assert in personam jurisdiction consistent with the breadth of federal due process. See 4 Gard and Casad, Kansas C. Civ. Proc. 4th Annot.

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