Opinion
CIVIL ACTION NO. 3:02-CV-0641-G
October 4, 2002
MEMORANDUM ORDER
Before the court are the following motions: (1) the motion of the defendants Hamilton Lane Advisors, Inc. ("HLA") and HLA's chairman Leslie A. Brun ("Brun") to dismiss for lack of personal jurisdiction; and (2) the motions of HLA, Brun, and the defendant Paul Bagley ("Bagley") (collectively, "the defendants") to dismiss or, in the alternative, for a more definite statement. For the reasons discussed below, the motion of HLA and Brun to dismiss for lack of personal jurisdiction is granted. Bagley's motion for a more definite statement is granted. The motion of HLA and Brun to dismiss or, in the alternative, for a more definite statement is denied as moot.
I. BACKGROUND
In the fall of 1999, the plaintiffs American Realty Trust, Inc. ("ART") and Basic Capital Management ("BCM") (collectively, "the plaintiffs") began negotiations with Bagley and Jack Takacs ("Takacs") to obtain refinancing assistance from Matisse Capital Partners, LLC. ("Matisse"). Plaintiff's Original Complaint ("Complaint") ¶ 8; Memorandum of Law of Defendants Hamilton Lane Advisors, Inc. and :Leslie A. Brun in Support of Their Motion to Dismiss the Complaint Pursuit to Fed.R.Civ. 12(b)(2) for Lack of Personal Jurisdiction ("12(b)(2) Motion") at 2. By early 2000, no agreement had been reached and the plaintiffs doubted whether Matisse could accomplish ART's [refinancing] objectives." Complaint ¶ 9; 12(b)(2) Motion at 2.
On April 5, 2000, Bagley and Takacs arranged a meeting in New York City attended by ART, BCM and HLA. Complaint ¶ 12; 12(b)(2) Motion at 3. During that meeting, the plaintiffs allege, HLA expressed its willingness to assist ART with its refinancing objectives. Complaint ¶ 13; 12(b)(2) Motion at 3. However, the plaintiffs understood that securing any assistance from HLA first required the plaintiffs to enter into a consulting agreement with the Matisse. Complaint ¶ 14; 12(b)(2) Motion at 3-4. On April 13, 2000, ART, BCM, NRLP (an affiliate of ART), and Matisse executed a consulting agreement. Complaint ¶ 14; 12(b)(2) Motion at 4. However, no agreement was reached between the plaintiffs and HLA or Brun. See Complaint ¶¶ 12-15; 12(b)(2) Motion at 6. Shortly after the execution of the consulting agreement, the plaintiffs allegedly learned that HLA never intended to assist ART but had expressed its willingness to do so for the sole purpose of inducing ART and BCM to enter into a consulting agreement with Matisse. Complaint ¶¶ 15-19. On March 27, 2002, the plaintiffs filed this suit against the defendants, alleging fraud, negligent misrepresentation, and civil conspiracy. Complaint ¶ 16-21.
II. ANALYSIS A. Motion of HLA and Brun to Dismiss of Lack of Personal Jurisdiction 1. Factual Standard: Prima Facie Case
When a nonresident defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing the district court's jurisdiction over the nonresident. Wilson v. Belin, 20 F.3d 644, 648 (5th Cir.), cert. denied, 513 U.S. 930 (1994); Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). If the district court chooses to decide the matter without an evidentiary hearing, the plaintiff may meet its burden by presenting a prima facie case for personal jurisdiction. Wilson, 20 F.3d at 648; Thompson v. Chrysler Motors Corporation, 755 F.2d 1162, 1165 (5th Cir. 1985). The court will take the allegations of the complaint as true, except where they are controverted by opposing affidavits, and all conflicts in the facts are resolved in favor of the plaintiff. Wilson, 20 F.3d at 648. In making its determination, the court may consider affidavits, interrogatories, depositions, oral testimony, or any combination of recognized discovery methods. Thompson, 755 F.2d at 1165; Stuart, 772 F.2d at 1192.
2. Legal Standard
A court determines the existence of personal jurisdiction over a nonresident defendant by examining the "(1) assertion of jurisdiction by the law of the forum;" and "(2) conformity of the law with the Constitution." Pedelahore v. Astropark, Inc., 745 F.2d 346, 347 (5th Cir. 1984). A defendant is amenable to the personal jurisdiction of a federal court sitting in diversity to the same extent that it would be amenable to the jurisdiction of a state court in the same forum. Id. Applying state law, this court must first determine whether Texas, the forum state, could assert long-arm jurisdiction. Id. Because the Texas long-arm statute confers jurisdiction to the limits of the federal constitution, Hall v. Helicopteros Nacionales de Colombia, S.A., 638 S.W.2d 870, 872 (Tex. 1982), rev'd on other grounds, 466 U.S. 408 (1984), the court need only concern itself with the federal due process inquiry. Bullion v. Gillespie, 895 F.2d 213, 215-16 (5th Cir. 1990).
3. Due Process Requirements
Due process requires the satisfaction of two elements to exercise personal jurisdiction over a nonresident: (a) the nonresident must have some minimum contact with the forum which results from an affirmative act on his part; and (b) it must be fair and reasonable to require the nonresident to defend the suit in the forum state. Stuart, 772 F.2d at 1189. The due process clause ensures that persons have "fair warning that a particular activity may subject [them] to the jurisdiction of a foreign sovereign." Burger King Corporation v. Rudzewicz, 471 U.S. 462, 472 (1985).
To establish minimum contacts, a nonresident defendant must do some act or acts by which he "purposefully avails [him]self of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws." Hanson v. Denckla, 357 U.S. 235, 253 (1958). In determining whether the exercise of jurisdiction is appropriate, the Supreme Court has focused less on presence in the forum state as a means to establish jurisdiction and looked increasingly to whether a defendant's contacts with the forum make it reasonable to require the defendant to defend the particular suit in that forum. Shaffer v. Heitner, 433 U.S. 186, 203 (1977).
Two types of in personam jurisdiction may be exercised over a nonresident defendant: specific and general. Specific jurisdiction exists if the cause of action is related to, or arises out of, the defendant's contacts with the forum, and those contacts meet the due process standard. Holt Oil Gas Corporation v. Harvey, 801 F.2d 773, 777 (5th Cir. 1986), cert. denied, 481 U.S. 1015 (1987); Wilson, 20 F.3d at 647; Stuart, 772 F.2d at 1190. General jurisdiction, on the other hand, may be found when a claim is unrelated to the nonresident's contacts with the forum but where those contacts are "continuous and systematic." Helicopteros, 466 U.S. at 415; Wilson, 20 F.3d at 647. In this case, the claims relate to the defendants' contacts with Texas and the plaintiffs have not alleged that those contacts are continuous and systematic. Plaintiffs' Brief in Support of their Response to Defendants' FRCP 12(b)(2) Motion to Dismiss for Lack of Personal Jurisdiction ("12(b)(2) Response") at 2-3. Therefore, this court will address only the question of specific jurisdiction.
4. Specific Jurisdiction
When specific jurisdiction is at issue, the minimum contacts inquiry focuses on whether the nonresident defendant has `purposefully directed' his activities at residents of the forum" state. Stuart, 772 F.2d at 1190 (quoting Burger King, above, 471 U.S. at 472). The purposeful availment requirement "ensures that a defendant will not be haled into a jurisdiction solely as a result of `random, ' `fortuitous, ' or attenuated' contacts . . . or of the "`unilateral activity of another party or a third person.'" Stuart, 772 F.2d at 1191. A plaintiff must establish a substantial connection between the nonresident defendant and the forum state. Jones v. Petty-Ray Geophysical, Geosource, Inc., 954 F.2d 1061, 1068 n. 9 (5th Cir.), cert. denied, 506 U.S. 867 (1992); Bearry v. Beech Aircraft Corporation, 818 F.2d 370, 374 (5th Cir. 1987) (citing Burger King, 471 U.S. at 475 n. 18); McGee v. International Life Insurance Company, 355 U.S. 220, 223 (1957)).
A court must consider all factors when making the purposeful availment inquiry — "no single factor, particularly the number of contacts, is determinative." Stuart, 772 F.2d at 1192. "[W]hether the minimum contacts are sufficient to justify subjection of the non-resident to suit in the forum is determined not on a mechanical and quantitative test, but rather under the particular facts upon the quality and nature of the activity with relation to the forum state." Mississippi Interstate Express, Inc. v. Transpo, Inc., 681 F.2d 1003, 1006 (5th Cir. 1982); see also D.J. Investments, Inc. v. Metzeler Motorcycle Tire Agent Gregg, Inc., 754 F.2d 542, 547 (5th Cir. 1985).
The plaintiffs maintain that HLA and Brun are subject to the jurisdiction of this court because they committed "intentional torts" in Texas. 12(b)(2) Response at
2. The plaintiffs assert that the defendants and Takacs conspired to misrepresent HLA's intentions to induce ART and BCM to execute a consulting agreement with Matisse. 12(b)(2) Response at 11. However, the plaintiffs acknowledge that their claims against HLA and Brun arise from the meeting on April 5, 2000, in New York City. See Complaint ¶¶ 12-15; 12(b)(2) Response at 6-8. Furthermore, the plaintiffs allege no facts that would directly establish jurisdiction over HLA or Brun in Texas. The plaintiffs instead contend that Bagley and Takacs' conduct, as the "agents and co-conspirators" of HLA and Brun, subjects HLA and Brun to the jurisdiction of this court. 12(b)(2) Response at 11.
The alleged conspiracy begins with Bagley and Takacs, on behalf of Matisse, seeking to enter into a consulting agreement with ART and BCM. 12(b)(2) Response at 5-6. Unable to persuade ART of the advantages of such an agreement, Bagley and Takacs allegedly solicited the aid of Brun, who as chairman of HLA, could "provide virtually limitless financing and equity funding." 12(b)(2) Response at 6. However, the plaintiffs assert that Brun's sole motivation for participating was to "induce ART and BCM to enter into the [c]onsulting [a]greement with Matisse." 12(b)(2) Response at 8. Dazzled by the prospects of possibly obtaining financing from HLA, yet blind to the alleged conspiracy, ART and BCM executed an agreement with Matisse. 12(b)(2) Response at 6-7. Once this agreement was consummated, ART and BCM learned that HLA was unable to "move forward with financing transactions for ART." 12(b)(2) Response at 8. According to the plaintiffs, these circumstances demonstrate HLA and Brun's fraudulent intent and the existence of a conspiracy between Bagley, Takacs, HLA and Brun. 12(b)(2) Response at 8.
The court is unpersuaded. To establish a prima facie case for personal jurisdiction over HLA and Brun, the plaintiffs must provide some factual basis. See Bullion, 895 F.2d at 2 16-17; Thomas v. Kadish, 748 F.2d 276, 282 (5th Cir. 1984) (affirming dismissal of claims against California defendants for lack of personal jurisdiction where the plaintiff stated only conclusory allegations of conspiracy based upon their acts in California and the alleged effects of the conspiracy in Texas). However, the plaintiffs fail to direct the court to any facts that would support the theory that Bagley and Takacs were agents or co-conspirators of HLA and Brun. Rather, the plaintiffs merely repeat ad nauseam bare allegations of fraud and conspiracy. See, e.g., Complaint ¶ 15; 12(b)(2) Response at 8, 11, 16; Appendix in Support of Plaintiffs' Response to Defendants' FRCP 12(b)(2) Motion to Dismiss for Lack of Personal Jurisdiction and Brief in Support ("Plaintiffs' 12(b)(2) Appendix") at 13. Therefore, because these unsupported, conclusory allegations do not establish a prima facie case that HLA, Brun or their agents have committed a tort in Texas, the court concludes that the plaintiffs have failed to satisfy their burden of proving that HLA and Brun have the requisite minimum contacts with Texas to permit this court to exercise personal jurisdiction over them. See Jefferson v. Lead Industries Association, Inc., 106 F.3d 1245, 1250 (5th Cir. 1997) ("conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss"); Guidry v. United States Tobacco Company, 188 F.3d 619, 63 1-32 (5th Cir. 1999) ("a general allegation of conspiracy without a statement of the facts constituting that conspiracy is only an allegation of a legal conclusion"); cf. Hale v. Harney, 786 F.2d 688, 690 (5th Cir. 1986) ("Mere conclusory allegations of conspiracy cannot, absent reference to material facts, state a substantial claim of federal conspiracy under 42 U.S.C. § 1983.") (internal quotation marks omitted). Accordingly, HLA and Brun's motion to dismiss for lack of personal jurisdiction is granted.
Because the plaintiffs have not shown that HLA or Brun have purposefully established the necessary minimum contacts with Texas, the court need not consider whether assertion of jurisdiction over those defendants comports with the principles of fair play and substantial justice. See Burger King, 471 U.S. at 476; Ham v. La Cienega Music Company, 4 F.3d 413, 416 n. 15 (5th Cir. 1993).
B. Bagley's Motion to Dismiss or, Alternatively, For a More Definite Statement 1. Motion to Dismiss
Federal Rule of Civil Procedure 9(b) requires a plaintiff to make averments of fraud with particularity. See FED. R. Civ. P. 9(b). The purpose of Rule 9(b) is to facilitate a defendant's ability to respond to and prepare a defense to a charge of fraud. See Guidry v. Bank of LaPlace, 740 F. Supp. 1208, 1216 (E.D. La. 1990) (stating that one purpose of Rule 9(b) is "to provide adequate notice to defendants so that they can respond to the plaintiff's claims"), aff'd, 954 F.2d 278 (5th Cir. 1992); see also Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994), cert. denied, 516 U.S. 810 (1995); Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir. 1982), cert. denied, 464 U.S. 1008 (1983).
What constitutes particularity will "necessarily differ with the facts of each case." Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir. 1992). Generally, courts have interpreted Rule 9(b) to require plaintiffs to specifically state the time, place, and contents of the alleged false representations, as well as the identity of the person making the alleged misrepresentation and what that person obtained thereby. See Williams v. WMX Technologies, Inc., 112 F.3d 175, 177 (5th Cir.) (citing Tuchman v. DSC Communications Corporation, 14 F.3d 1061, 1068 (5th Cir. 1994)), cert. denied, 522 U.S. 966 (1997); see also United States ex rel. Johnson v. Shell Oil Company, 183 F.R.D. 204, 206 (E.D. Tex. 1998) (explaining that, under Rule 9(b), the complaint must contain the "who, what, when, where, and how" of the false representation).
Bagley argues that the plaintiffs fail to satisfy the heightened pleading requirement imposed by Rule 9(b). Motion of Paul Bagley to Dismiss or for More Definite Statement and Brief in Support Thereof ("9(b) Motion") ¶¶ 6-8. The court agrees. The plaintiffs simply repeat almost verbatim the fraud and conspiracy theory discussed above. Plaintiffs' Response to Defendant Paul Bagley's Motion to Dismiss or for More Definite Statement and Brief in Support ("9(b) Response") ¶¶ 3-13; see also 12(b)(2) Response at 4-9. And, despite the plaintiffs' masterful command of the cut-and-paste function, their allegations fail to satisfy the Rule 9(b) requirement for particularity in pleading fraud, thereby establishing a basis for dismissal. Williams, 112 F.3d at 180. However, when a plaintiff fails to plead fraud with particularity, the court may grant leave to amend the complaint rather than dismiss it. See Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977); Mills v. Injury Benefits Plan of Schepps-Foremost, Inc., 851 F. Supp.2d 804, 806 (N.D. Tex. 1993).
2. Motion for a More Definite Statement
When a party moves under Federal Rule of Civil Procedure 12(e) for a more definite statement, the court is afforded discretion to determine whether the complaint is such that a party cannot reasonably be required to frame a responsive pleading. Mitchell v. E-Z Way Towers, Inc., 269 F.2d 126, 130 (5th Cir. 1959). Here, because the plaintiffs have failed to plead fraud with particularity as required by Rule 9(b), the court finds Bagley cannot adequately respond and begin to prepare a defense. Guidry, 740 F. Supp. at 1216. However, the court is mindful of the well settled principle that dismissal should be avoided until the plaintiffs have been afforded an opportunity to file an amended complaint. Hitt, 561 F.2d at 608; cf DeLoach v. Woodley, 405 F.2d 496, 497 (5th Cir. 1968). The plaintiffs have not filed an amended complaint. Therefore, Bagley's motion to dismiss must be denied and his motion for a more definite statement granted. The plaintiffs shall have leave to replead their claims against Bagley — if they can — to satisfy the heightened pleading standard required under Rule 9(b).
III. CONCLUSION
For the reasons discussed above, the motion of HLA and Brun to dismiss for lack of personal jurisdiction is GRANTED. Bagley's motion to dismiss is DENIED but his motion for a more definite statement is GRANTED. The plaintiffs shall have leave to file and serve, not later that November 14, 2002, an amended complaint to remedy the Rule 9(b) deficiencies in their claims against Bagley; otherwise, those claims will be deemed dismissed without further notice. If the plaintiffs duly amend their complaint, Bagley may renew his motion to dismiss if he believes the amended complaint fails to cure the defects in the plaintiffs' original complaint. The defendants' motions to dismiss under Rule 9(b), as well as the motion of HLA and Brun for a more definite statement, are DENIED as moot.