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COA: Court has personal jurisdiction over CIDs

Jennifer Nelson
January 1, 2008
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Indiana trial courts can assert personal jurisdiction over out-of-state companies for the purposes of enforcing an Indiana Attorney General's petition to enforce a civil investigative demand, ruled the Indiana Court of Appeals today.

In a case of first impression, the appellate court was asked to determine whether a trial court lacked personal jurisdiction over an Ohio company that had franchises located in but not registered in Indiana, and thus erred by granting the Attorney General's petition to enforce a civil investigative demand (CID).

"As the issue before us is one of jurisdiction, we leave it to the trial court to address the issue of scope pursuant to its powers as outlined in the statute. The trial court committed no error in asserting personal jurisdiction over Everdry," wrote Judge Terry Crone.

In Everdry Marketing and Management, Inc. v. Steve Carter, Attorney General of Indiana, No. 49A02-0706-CV-452, Everdry, an Ohio corporation that provides waterproofing services for homes, had franchises operating in Fort Wayne and Indianapolis. It had not filed a Uniform Franchise Registration Application with Indiana before franchising the company. After receiving complaints about the Indiana franchises failing to honor "lifetime warranties" on Everdry's waterproofing systems, the Attorney General's office found Everdry's Web site contained a very similar warranty statement as the one that appeared in the customer's contracts. Pursuant to Indiana Code Section 4-6-3-3, the Attorney General's office issued a CID upon Everdry at its Ohio office. CIDs are a pre-litigation tool to determine whether an Indiana law has been violated and address whether a subject has certain information relevant to the investigation.

The CID alleged the company may be in possession of documentary material or knowledge of fact relevant to an investigation being conducted by the Attorney General's Consumer Protection Division and an investigation sought to determine if Everdry misrepresented its warranty to customers.

A meeting took place between Everdry's counsel and the Attorney General's office. Afterwards, the company contacted customers to arrange service and revoked the franchise rights of the Indiana companies.

On June 2, 2006, the Attorney General's office filed a petition in Marion Superior Court to enforce the CID; five days later Everdry filed with Indiana a Uniform Franchise Registration Application. At the end of June, the company filed a petition to dismiss the petition to enforce the CID, claiming the trial court lacked personal jurisdiction over the Ohio company. In April 2007, the trial court heard evidence on the Attorney General's petition and entered an order in May summarily granting the petition.

The Court of Appeals unanimously agreed with the Attorney General that the Indiana trial court had personal jurisdiction over Everdry regarding the enforcement of the CID. After the Attorney General's office first sent the CID to Everdry, but before the trial court affirmed the petition to enforce it, Everdry filed its Indiana Uniform Franchise Registration Application. The Indiana registration contained specific language indicating Everdry's contractual consent to jurisdiction.

"Just as the general appearance, entered after the lawsuit is filed, constitutes consent to jurisdiction, a registration filed after the initial issuance of the CID and prior to an enforcement order constitutes consent to the court's jurisdiction," Judge Crone wrote.

Next, the appellate court examined Indiana Trial Rule 4.4(A) which names eight specific acts that can serve as a basis for an Indiana trial court's assertion of personal jurisdiction over a nonresident, including certain minimum contacts with the forum state by the nonresident defendant.

On top of the Indiana registration, Everdry engaged in significant interaction with its Indiana franchisees and their customers, the franchisees used Everdry's products, and the warranties used by their franchisees were the same as the warranty on Everdry's Web site, which is sufficient contact to establish jurisdiction.

The appellate court had to determine the operative date of inquiry as it applies to jurisdictional matters in the context of a CID; the court determined the operative date of inquiry regarding jurisdictional contacts should be the date the trial court orders the enforcement of the CID. Before the enforcement order, the CID is just a request from the Attorney General and not subject to penalties for noncompliance. Once the trial court orders enforcement, noncompliance can be enforced by a contempt citation, Judge Crone wrote.

Everdry also contended in its appeal that the scope of the CID was impermissibly broad because it sought privileged information. The section of Indiana Code dealing with CIDs does provide some safeguards to protect privileged information, such as allowing a company to not produce information for a CID that would be "privileged from disclosure if demanded by a subpoena duces tecum issued by a court in aid of a grand jury investigation," and the trial court is able to modify a CID to protect the respondent's right to confidentiality, he wrote.
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