Opinion
Consolidated With Civil Action 00-11589-pbs, Civil Action 01-10725-PBS, Civil Action 02-10302-PBS, Civil Action 02-10303-PBS, Consolidated With Civil Action 02-10304-PBS.
May 3, 2004
REPORT AND RECOMMENDATION ON MERCATOR NOORDSTAR'S MOTION TO DISMISS (#177 IN 00-11589, #100 IN 02-CV-10302, #80 IN 02-CV-10303, #95 IN 02-CV-10304)
I. Introduction
Defendant Mercator Noordstar ("Mercator") has filed a Motion to Dismiss for Lack of Personal Jurisdiction (#177), along with a supporting brief (#178). After conducting some limited discovery, the Class Plaintiffs filed a Memorandum of Law in Opposition to Defendant Mercator Noordstar's Motion to Dismiss for Lack of Personal Jurisdiction (#694) along with a supporting Declaration of Patrick T. Egan (#697). In response, Mercator filed a Reply Brief in Support of Its Motion to Dismiss Class Action Plaintiffs' Complaint for Lack of Personal Jurisdiction (#716) and an attached Appendix of Documents to Defendant Mercator's Reply Briefs. On February 27, 2004, the Court held a hearing on Mercator's motion to dismiss. The motion is now in a posture for resolution. For the reasons discussed below, I will recommend that Mercator's motion to dismiss be allowed.
Mercator is named as a defendant in In re: Lernout Hauspie Securities Litigation (00-C V-11589), Filler v. Lernout, (00-C V-10302), Stonington Partners, Inc. et al. v. Dammekens et al. (02-CV-10303), Roth et al. v. KPMG LLP et al. (02-CV-10304), Baker et al. v. KPMG LLP et al. (02-CV-10305, which has been consolidated with 02-CV-10304) and Quakk v. Bastiaens (01-CV-10725). Although the caption of Mercator's Motion to Dismiss includes the 01-10725 case, the motion does not appear to have been docketed in that case, probably because that action was consolidated with 00-CV-11589 on September 10, 2001 by Judge Saris. The term "Complaint" herein is used to refer to all the Complaints against Mercator, unless otherwise noted. Specific citations to the "Complaint" are to the Complaint filed in 00-11589 (Docket entry #96).
The Class Plaintiffs will be referred to herein simply as the plaintiffs, unless otherwise noted.
II. Factual Background
Because the facts underlying this litigation have been extensively recounted in several different opinions, I do not restate them again here. I will include only those facts necessary for resolution of the instant motion.
Mercator has moved to dismiss the complaints against it on the grounds that inter alia the Court lacks personal jurisdiction over Mercator. In short, Mercator, a Belgian insurance company, argues that it "does no business, and is not alleged to have done business, in the United States." (#178, pp. 1-2) In addition, Mercator "has no offices, no employees, no real estate, no personal property, no mailing address, and no bank accounts in the United States." (#716, p. 5)
Because I will recommend that the complaint against Mercator be dismissed due to lack of personal jurisdiction, I need not address the other purported grounds for dismissal raised by Mercator.
The Complaint, however, alleges in pertinent part that Mercator owned sixteen companies called Language Development Companies ("LDCs") or Cross Language Development Companies ("CLDCs") that Lernout Hauspie ("LH") licensed to develop speech recognition software, the so-called "license transactions." (#178, p. 4) The Complaint further alleges that Mercator indirectly owned the LDCs and CLDCs through two intermediary companies — Language Development Fund ("LDF") and Velstra. ( Id. at p. 5) LH allegedly licensed the LDCs and CLDCs to use LH's proprietary software to develop speech recognition software. ( Id.) The LDCs and CLDCs paid licensing fees to LH until the software was developed and LH had the option to purchase the LDCs and CLDCs. ( Id.) The plaintiffs allege that Mercator violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j ("Section 10(b)) and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 ("Rule 10b-5) because LH reported the license transactions improperly and thus artificially inflated the price of LH's stock. (#178, p. 4) In other words, according to the plaintiffs, Mercator was involved in the questionable license transactions by financing the LDCs and CLDCs and thus, Mercator had some responsibility when LH improperly reported the license transactions in order to "prop up" the price of LH's stock.
As anyone with even a passing know ledge of this case is aware, LH is the entity at the center of this litigation.
While not specifically alleged in the Complaint, there are statements in the plaintiffs' memorandum of law that "Mercator had numerous and significant contacts with the U.S. related to the LH fraud." (#694, p. 1) The plaintiffs assert that "Mercator was a direct and willing participant in funding Illinois based Vasco Data Systems, Inc. ("Vasco"), a LH `customer.' Mercator was part of a consortium of LH-related investors that provided key funding to Vasco around the same time that LH was improperly recording revenue from contracts with Vasco and when Vasco had outstanding debt obligations to LH." ( Id. at p. 2) With regards to Vasco, the plaintiffs assert that Mercator invested "approximately $1 million in the private placement conducted to provide further funding to Vasco." ( Id. at p. 6) Such funds "from the private placement allowed LH to consummate its fraudulent transactions with Vasco." (#694, p. 6)
Mercator's participation with Vasco involved, according to the plaintiffs, substantial contacts with the U.S., including executing a subscription agreement and a stockholder's agreement, both of which were delivered to the U.S. and are governed by U.S. law as well as faxing other deal documents from Belgium to the U.S. ( Id.) Mercator may also have sent its proxy to the U.S. to be voted at Vasco's annual shareholder meeting, and Mercator registered its shares of Vasco with the SEC so they could be sold in an offering. ( Id.)
Although the plaintiffs rely heavily in arguing for jurisdiction over Mercator that Mercator's relationship with Vasco satisfies the test for jurisdiction, at a hearing on the plaintiffs' motion for jurisdictional discovery, counsel for the plaintiffs essentially conceded that the Complaint does not include any claim against Mercator relating to Vasco. Indeed, the only mention of Vasco in the Complaint is at ¶¶ 114-117 (of a 529 paragraph complaint) and the only allegation regarding Mercator and Vasco is that Mercator was a "top investor" in Vasco. ( See #96, ¶ 115)
Moreover, say the plaintiffs, with regards to Mercator's contacts with the U.S., "it cannot be seriously disputed that Mercator was aware that LH would disseminate its false financial statements in the U.S., where LH stock was actively traded and where its financial statements were regularly filed with the SEC." (#694, p. 3) And, it cannot be "seriously disputed that Mercator knew that the fraudulently inflated revenues that were the objective of the scheme in which Mercator participated would deceive thousands of investors in the U.S. because the U.S. market relied upon those LH SEC filings." (#694, p. 3) Finally, the plaintiffs allege that Mercator invested millions in at least eight U.S. companies and that Mercator's former CEO was present at a telephone or video conference between LH in Belgium and LH's office in Burlington, Massachusetts in February, 2000. ( Id. at p. 7)
III. Standard of Review
"On a motion to dismiss for want of in personam jurisdiction, . . . the plaintiff ultimately bears the burden of persuading the court that jurisdiction exists." Massachusetts School of Law at Andover, Inc. v. American Bar Assoc., 142 F.3d 26, 34 (1 Cir., 1998). "When a district court rules on a motion to dismiss for lack of personal jurisdiction without holding an evidentiary hearing, . . . the `prima facie' standard governs. . . ." United States v. Swiss American Bank, Ltd., 274 F.3d 610, 618 (1 Cir., 2001). "The prima facie showing must be based upon evidence of specific facts set forth in the record." Id. at 619 (internal quotations omitted). A plaintiff cannot rely only on allegations in its complaint but must rely on "properly supported proffers of evidence." Boit v. Gar-Tec Products, Inc., 967 F.2d 671, 675 (1 Cir., 1992). "[I]n evaluating whether the prima facie standard has been satisfied, the district court is not acting as a factfinder; rather it accepts properly supported proffers of evidence by a plaintiff as true and makes its ruling as a matter of law." Swiss American Bank, 274 F.3d at 619 (internal citations and quotations omitted).
IV. Analysis
In this case, the plaintiffs have brought claims against Mercator under the federal securities laws, specifically Section 10(b) and Rule 10b-5. Thus, the jurisdictional inquiry focuses on whether Mercator had sufficient contacts with the United States as a whole, rather than with just Massachusetts, such that this Court can exercise jurisdiction over Mercator. Under this so-called nationwide contacts test, the question is "whether the party has sufficient contacts with the United States, not any particular state." United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1330 (6 Cir., 1993) (quoting Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1315 (9 Cir., 1985), rev'd on other grounds, Holmes v. Securities Investors Protection Corp. 112 S.Ct. 1311 (1992)); see also United Electrical, Radio and Machine Workers of America v. 163 Pleasant Street Corp., 960 F.2d 1080, 1085 (1 Cir., 1992) (Under the nationwide contacts test, "the Constitution requires only that the defendant have the requisite `minimum contacts' with the United States, rather than with the particular forum state. . . .").
That is not to say that jurisdiction would not be proper if Mercator had sufficient contacts with Massachusetts such that the Massachusetts Long Arm statute would be satisfied. However, in this case, because the claims are brought pursuant to the federal securities laws, jurisdiction still would be proper if Mercator had sufficient contacts with the United States as a whole.
Thus, all of Mercator's contacts with the United States as a whole must be taken into consideration in determining whether this Court may exercise in personam jurisdiction over Mercator. However, for the reasons discussed below, I find that Mercator simply did not have sufficient contacts with the United States to support a finding of personal jurisdiction.
The plaintiffs contend that this Court has specific jurisdiction over Mercator. For specific jurisdiction to exist, the cause of action must arise from the defendant's contacts with the forum. That is, specific jurisdiction is appropriate when "(1) the claim `directly relates to or arises from the defendant's contacts with the forum'; and (2) `the contacts constitute purposeful availment of the benefits and protections afforded by the forum's laws.'" Levin v. Harned, 292 F. Supp.2d 220, 225 (D. Mass, 2003) (quoting Swiss American Bank, 274 F.3d at 623).
If the plaintiffs were at one time arguing that this Court could exercise general (as opposed to specific) jurisdiction over Mercator, they do not press such a theory in their recently filed pleadings. Thus, the Court will not address the general jurisdiction doctrine, other than to say it seems highly unlikely that it could exercise general jurisdiction over Mercator given that Mercator does no business in the United States, has no offices, employees, or address here and does no banking here. ( See #692, Ex. A, Nos. 4, 7, 14, 15)
a. Mercator and Vasco
As discussed above, the plaintiffs posit that Mercator's involvement with Vasco and its investment therein is enough for the Court to exercise jurisdiction over Mercator. ( See #694, p. 13) The elemental problem with such an argument, however, is that for the first part of the specific jurisdiction test to be met the plaintiffs' claim against Mercator must "directly relate to or arise from" Mercator's contact with the forum, here the U.S. And, put simply, there is no claim in the Complaint against Mercator related to Vasco. Indeed, as mentioned above, the only mention of Vasco in the Complaint is at ¶¶ 114-117 and the only allegation regarding Mercator and Vasco is that Mercator was a "top investor" in Vasco. ( See #96, ¶ 115)
Despite the plaintiffs' creative argument in their papers that Mercator's investment in Vasco "allowed Vasco to consummate a fraudulent transaction with LH that was intended to and did falsely inflate LH's financial statements," (#694, p. 13), there is no claim in the Complaint against Mercator relating to Vasco. And, indeed, the plaintiffs' counsel essentially conceded this point at the November 25, 2003 hearing before this Court. In short, the only claims against Mercator in the Complaint have to do with LDF and Velstra, claims that do not involve any contacts with the U.S. Thus, there can be no way that the plaintiffs' claims against Mercator "arise from" Mercator's contacts with the U.S. because Mercator's only purported contacts with the U.S. involved Vasco and there are no claims in the Complaint regarding Mercator and Vasco.
The plaintiffs do not argue that Mercator had any contact with the U.S. in connection with its involvement with LDF. That is, the plaintiffs' only allegations against Mercator in the Complaint (other than that Mercator invested in Vasco) are in sum: that Mercator owned certain start-up companies (the LDCs) through Velstra, a Singapore-based company, that Velstra was owned by LDF and that Mercator owned 96% of Velstra (#96, ¶ 219); that Mercator invested $2 million in LDF, loaned LDF an additional $10 million and that such funds were used by the LDCs to pay LH, thus inflating LH's purported revenues ( Id. at ¶ 221); that the 16 start-ups owned by Mercator paid $53 million in licensing fees to LH ( Id. at ¶ 222); that Mercator is the ultimate owner of at least 16 LDCs, none of which are in the U.S. ( Id.); and, that Mercator had a direct financial interest in participating in the fraud because it had an ownership interest in LH stock ( Id. at ¶¶ 224-225). Clearly, none of these allegations concern any contact that Mercator or LDF or Velstra had with the U.S., either directly or indirectly. Thus, the plaintiffs are left to argue that Mercator's contacts with the U.S. are sufficient by virtue of Mercator's involvement with Vasco or that personal jurisdiction is appropriate under the "effects test" or the "conspiracy theory." None of these arguments convince the Court that it can exercise jurisdiction over Mercator, as will be discussed, infra.
b. The "Effects Test"
Likely realizing that their argument regarding Vasco is a losing one, the plaintiffs turn to the so-called "effects test" to support their position that this Court should exercise jurisdiction over Mercator. Specifically, relying on the effects test, the plaintiffs assert that the first prong of the specific jurisdiction test — the so-called relatedness prong — is satisfied because Mercator's co-participant in the fraud — LH — had sufficient contacts with the United States and the "fraud was aimed at the forum [i.e., the U.S.] and injury occurred there." (#694, p. 10)
There is an initial problem with this analysis. In Swiss American Bank, the Court wrote that the effects test "is a gauge for purposeful availment and is to be applied only after the relatedness prong has already been satisfied." 274 F.3d at 623. Thus, it appears that the plaintiffs' argument that the relatedness prong can be fulfilled using the effects test likely should fail on its face. However, even assuming that the effects test can be used to satisfy the relatedness prong, the plaintiffs' position still is unavailing, as will be addressed.
In support of the argument using the effects test, the plaintiffs rely on Calder v. Jones, 465 U.S. 783 (1984). In Calder, the National Enquirer, a national newspaper, contained an allegedly defamatory article about the entertainer Shirley Jones. The National Enquirer, the reporter who wrote the story and the editor, Calder, were all based in Florida but the article (and the paper itself) was distributed in California, where Jones resided. The Supreme Court ultimately held that the California court properly exercised personal jurisdiction over Calder even though he had no contacts with California relating to plaintiff's defamation claims because the defendants' "intentional, and allegedly tortious, actions were expressly aimed at California." 465 U.S. at 789. Moreover, said the Court, they knew that the article "would have a potentially devastating impact upon [plaintiff]. And they knew that the brunt of that injury would be felt by [plaintiff] in the State in which she lives and works and in which the National Enquirer has its largest circulation." Id. at 789-90.
The plaintiffs attempt to liken Mercator's situation to that of the defendants in Calder. They make a somewhat tortured argument that "Mercator intentionally participated in the [fraud] by funding and participating in sham transactions with the LDCs and CLDCs for the purpose of inflating LH's financial statements" and that it was "evident that Mercator knew that the false financial statements" filed by LH with the SEC "would be disseminated to and relied upon by U.S. investors and that those investors would suffer harm here." (#694, p. 11) They further assert that "like the editor defendant in Calder", Mercator was a "primary participant in an alleged wrongdoing intentionally directed at [forum] resident[s], and jurisdiction over [it] is proper on that basis."( Id., quoting Calder, 465 U.S. at 790).
The plaintiffs also look to Levin v. Harned to support their effects test theory. In Levin, the out-of-state defendants were selling fake antiques to Massachusetts residents. Plaintiff's agent directed and delivered the fake antiques and the fraudulent descriptions and pictures of the antiques into Massachusetts. The Court exercised jurisdiction over the New York defendant on the basis that "numerous courts have upheld a court's exercise of personal jurisdiction over non-resident defendants with no direct contact with the forum when the intentional tort was individually targeted at the resident of the forum state, and the brunt of the harm was felt there." 292 F. Supp.2d at 227. The Court based its decision in part on the fact that the New York defendant made substantial sales to the plaintiffs in Massachusetts and that "defendants deliberately solicited the sales by a forum resident. . . ." Id. at 229.
Not surprisingly, Mercator disagrees with the plaintiffs' contention that personal jurisdiction over Mercator is proper under the effects test, arguing that "[i]n this case, there is no direct, obvious or undisputed connection between Mercator's investment in and loan to LDF and the United States, so the effects test is inapplicable." (#716, p. 13) Moreover, Mercator distinguishes the Calder and Levin cases from the instant case on the basis that in those two cases, the "defendants directly, obviously and undisputedly engaged in conduct that had an effect in forum in which the suit was filed. . . . In contrast, there is no direct, obvious or undisputed connection between the alleged Mercator conduct (investing $2 million in LDF, loaning LDF an additional $10 million) and the alleged eventual harm in the United States." (#716, pp. 13-14)
Mercator has pinpointed the fatal flaw in the plaintiffs' effects test argument: despite the fact that one of the requirements of the effects test is that the defendant knew that the "brunt" of the injury would be felt by the plaintiff in the forum ( see Levin, 292 F. Supp.2d at 228), here, there is no evidence that Mercator even knew of the LH fraud or any connection between its investment in LDF and the U.S. Put another way, the plaintiffs have provided this Court with no evidence that Mercator had any knowledge that the LH fraudulent scheme was directed at the U.S. or that any injury would be felt here. The plaintiffs' argument on this point is purely speculative: "the tort itself occurred in this forum when LH filed its false financial statements with the SEC, . . . [t]hus, it is evident that Mercator knew that the false financial statements . . . would be disseminated to and relied upon by U.S. investors and that those investors would suffer harm here." (#694, p. 11) Such a theory requires too great a leap of logic — just because LH's fraud ultimately occurred here does not mean, without any supporting evidence, that Mercator knew that the fraud was directed here or that injury would be felt here.
Mercator's situation is in sharp contrast to that of the defendants in Calder and Levin. In Calder, the editor of the National Enquirer, a nationally distributed journal, knew that approximately 600,000 copies of the paper were sold in California each week and that the allegedly defamatory article would appear in those papers distributed in California. Likewise, in Levin, the Court specifically found that jurisdiction over the defendant was proper because the defendant had solicited business from and engaged in a number of fraudulent transactions with the plaintiffs, whom the defendant knew were Massachusetts residents. In comparison, in the case at bar, there is no evidence to suggest that Mercator, by investing in and loaning money to LDF, knew that LH would falsely report revenue from the LDCs, that LH's fraud would be directed at the U.S. or that any injury would occur here. Quite simply, the effects test fails here as a means for this Court to exercise jurisdiction over Mercator.
As mentioned above, the court in Swiss American Bank said that the effects test did not even apply to the relatedness prong, but applied only to the purposeful availment prong of the specific jurisdiction test. 274 F.3d at 623. That court stated moreover that the Calder case "focused on the defendants' intent to cause injury in the forum by aiming their article at a forum resident and then publishing the article there, knowing that the injury would be felt in the forum." 274 F.3d at 624. Whether the effects test can be used to satisfy the relatedness prong, as the plaintiffs contend, or whether it is only to be utilized to satisfy the purposeful availment prong, the fact remains here that there has been no evidence presented of Mercator's intent to cause injury in the U.S., Mercator's knowledge that LH's fraud was directed here or even knowledge that LH intended to cause injury here. Thus, the effects test cannot suffice to satisfy the test for personal jurisdiction over Mercator.
c. Merits Discovery
When questioned at the February 27, 2004 hearing about the notable lack of evidence to support Mercator's purported knowledge that the fraud was directed at the U.S. or that injury was to occur here, the plaintiffs' counsel suggested that the reason that the plaintiffs had not been able to present such evidence was that, despite the plaintiffs' request, the Court had denied them the full discovery to which they were entitled. The plaintiffs' counsel at the hearing, relying on Foster-Miller, Inc. v. Babcock Wilcox Canada, 46 F.3d 138 (1 Cir., 1995), argued further that under the effects test standard, they were entitled to what amounts to discovery on the merits.
On July 24, 2003, this Court issued an order allowing the plaintiffs to take discovery of Mercator (and another defendant, FLV Fund) limited to the issue of personal jurisdiction. On or about October 17, 2003, the plaintiffs moved this Court to allow them to take additional depositions on the grounds that the Mercator witness that had been deposed had insufficient knowledge about Mercator's contacts with the U.S. (#609) On December 1, 2003, this Court allowed the plaintiffs' motion only to the extent that the plaintiffs could depose one Hubert Libert "on his knowledge of the contacts which he and any other person in the private equity department of Mercator . . . had with the United States in connection with the investments set forth" in one paragraph of the plaintiffs' 30(b)(6) deposition notice. (# 638) The plaintiffs at that time did not move this Court for full-scale merits discovery but requested only that Mercator provide an adequate 30(b)(6) witness and three other witnesses to testify on the issue of Mercator's "contacts with the U.S., particularly its investment activities here." (Declaration of Patrick L. Rocco in Support of Plaintiffs' Motion to Compel Discovery from Defendant Mercator #612, ¶¶ 6-8).
The plaintiffs' reliance on Foster-Miller is somewhat misplaced. In that case, the First Circuit elucidated the three standards of analysis for decision on a motion to dismiss for lack of personal jurisdiction, options that had been mentioned first in Boit v. Gar-Tec Prods., Inc., 967 F.2d 671 (1 Cir., 1992):
The most conventional of these methods permits the district court to consider only whether the plaintiff has proffered evidence that, if credited, is enough to support findings of all facts essential to personal jurisdiction. To make a prima facie showing of this calibre, the plaintiff ordinarily cannot rest upon the pleadings, but is obliged to adduce evidence of specific facts. . . . A second option open to the court is to embark on a factfinding mission in the traditional way, taking evidence and measuring the plaintiff's jurisdictional showing against a preponderance-of-the-evidence standard. . . . [T]his standard may appropriately be invoked when a court determines that in the circumstances of a particular case it is unfair to force an out-of-state defendant to incur the expense and burden of a trial on the merits in the local forum without first requiring more of the plaintiff than a prima facie showing of facts essential to in personam jurisdiction. A court may so determine, for example, when the proffered evidence is conflicting and the record is rife with contradictions. . . . [Thirdly], [i]n the special circumstance in which the assertion of jurisdiction is bound up with the claim on the merits, the possibility of preclusion renders use of the preponderance standard troubling, while the possibility of permitting a dubious case to proceed beyond the pleading stage, and even to trial . . . renders use of the prima facie standard undesirable. . . . Utilizing this intermediate standard, a district court, even though allowing an evidentiary hearing and weighing evidence to make findings may merely find whether the plaintiff has shown a likelihood of the existence of each fact necessary to support personal jurisdiction. . . . It is precisely because of the incidence of . . . situations in which the issue of jurisdiction is factually enmeshed with the merits of the suit — that we recognized . . . the need for an intermediate standard of proof and, correspondingly, an intermediate standard of judicial analysis.Foster-Miller, 46 F.3d at 145-147 (internal citations and quotations omitted).
The Foster-Miller court ultimately held that the district court had erred because it shifted from applying a prima facie standard to a likelihood standard [i.e., the intermediate standard] without allowing the plaintiffs discovery as to anything other than the jurisdictional issue and then held that the plaintiffs' suit did not arise from defendant's activities in the forum state. Foster-Miller, 46 F.3d at 149.
I do not believe Foster-Miller stands for the proposition that when a Court determines to use the intermediate standard, it must allow full merits discovery. However, I need not decide the quantum of discovery which is to be allowed when a Court announces that it will employ the intermediate standard. The plain fact is that plaintiffs' invocation of Foster-Miller at the oral argument comes much too late. In all of the litigation regarding the issue of personal jurisdiction, the Court has never been asked to apply an intermediate standard of review and always has intended to apply a prima facie standard, as set forth in Section III, supra. Despite the plaintiffs' belated assertion that they should be entitled to merits discovery of Mercator in order to make out their case of personal jurisdiction, the Court finds no reason to allow such discovery at this juncture, especially since Mercator's motion to dismiss has been pending for over two years.
d. The Conspiracy Theory
The plaintiffs argue in the alternative that this Court can exercise jurisdiction over Mercator based on the conspiracy theory: "the many acts of Mercator's co-conspirators in this securities fraud were conducted in furtherance of the conspiracy from LH's Massachusetts offices and throughout the U.S. These acts provide yet another basis for the proper exercise of personal jurisdiction over Mercator." (#694, p. 2) Moreover, say the plaintiffs, the requirement of the conspiracy theory that substantial acts occur in Massachusetts is satisfied because "LH's primary headquarters was in Burlington, Massachusetts and one of Mercator's co-conspirators, defendant FLV Fund CVA rented space from LH in Massachusetts." ( Id. at p. 20) Interestingly, Mercator does not even address the conspiracy theory in its papers, perhaps because Mercator realizes that it is a rarely used doctrine, particularly in this Circuit.
The conspiracy theory "require[s] something more than the presence of a co-conspirator within the forum state, such as substantial acts performed there in furtherance of the conspiracy and of which the out-of-state co-conspirator was or should have been aware." Glaros v. Perse, 628 F.2d 679, 682 (1 Cir., 1980). In Glaros, apparently the first case in this circuit to address the conspiracy theory of jurisdiction, the court held that it could not exercise jurisdiction over the out-of-state defendants under the conspiracy theory of jurisdiction and moreover cast doubt on whether such a theory is even viable in the First Circuit: "[e]ven if we were to recognize a conspiracy theory of personal jurisdiction under the Massachusetts long-arm statute, we could not regard [plaintiff's] conspiracy allegations as sufficient to warrant the exercise of personal jurisdiction over the out-of-state governmental defendants." 628 F.2d at 682.
This Court discussed the conspiracy theory at length in its Report and Recommendation on Louis-H. Verbeke's Motion to Dismiss, issued on October 14, 2003 ( See #325 in 02-CV-10304) and adopted by Judge Saris on March 14, 2004. There is no need to restate the whole analysis regarding the conspiracy theory contained in the prior Report and Recommendation, especially because as expressed therein, it is eminently clear that the conspiracy theory of jurisdiction does not have a lot of support in this Circuit.
Even assuming that the conspiracy theory of jurisdiction is cognizable in this Circuit, which as this Court stated in its previous Report and Recommendation is highly questionable, the plaintiffs here have a very high hurdle to clear in order to convince this Court that it should exercise jurisdiction over Mercator under the conspiracy theory. Based on their pleadings, the plaintiffs are unable to satisfy their burden. See In re: Lupron Marketing and Sales Practices Litigation, 245 F. Supp.2d 280, 294 (D. Mass., 2003) (holding that plaintiffs' allegations of conspiracy were too vague to support personal jurisdiction under the conspiracy theory).
I decline to make any finding that the conspiracy theory of jurisdiction is indeed valid in this jurisdiction, but I will analyze the plaintiffs' case as if the theory were cognizable.
The plaintiffs quite simply have not shown that Mercator would be subject to personal jurisdiction in Massachusetts under the conspiracy theory. Even assuming the existence of a conspiracy (among Mercator, FLV Fund, LH and others), the plaintiffs have put forth no affirmative proof that Mercator was aware, or should have been aware, that acts in furtherance of the conspiracy were taking place in Massachusetts. The plaintiffs make only broad, general allegations and conclusory arguments, which are not sufficient to satisfy the conspiracy theory of jurisdiction. See Salvador v. Meese, 641 F. Supp. 1409, 1413 (D. Mass., 1986) ("Other than broad, general and conclusory allegations of conspiracy, the complaint sets forth no facts indicating that the Florida defendants . . . had any awareness of the Massachusetts investors let alone that they conspired to defraud these investors. . . . or should have known that [alleged co-conspirators] were making misrepresentations to them in Massachusetts."). The plaintiffs' bare-bones allegations and unsupported arguments are not sufficient to make out a case of jurisdiction over Mercator under the conspiracy theory. Therefore, I find that the plaintiffs have not established that this Court can exercise personal jurisdiction under either the effects theory or the conspiracy theory of jurisdiction.
For example, the plaintiffs allege that Mercator acted "in concert with defendants Lernout, Hauspie, Dammekens, Bastiaens, Willaert, Vanderhoydonck and Seo" (#96, ¶ 512) and contend that "Mercator's knowledge that acts in furtherance of the conspiracy were taking place in the U.S. is . . . obvious" and that "[i]t is inconceivable th at Mercator was unaware that . . . acts of the conspiracy were being carried out in both Massachusetts and elsewhere in the U.S." (#694, p. 20)
I note that the main case relied upon by the plaintiffs in support of their conspiracy theory argument is Greater Newburyport Clamshell Alliance v. Public Svc. Co. of New Hampshire, N. 83-0066-MA, 1983 U.S. Dist. Ct. LEXIS 16694 (D. Mass., May 25, 1983), a case that this Court, in its Report and Recommendation on Verbeke's Motion to Dismiss, stated was of questionable validity. Other than the Greater Newburyport case, no District of Massachusetts or First Circuit case has ever relied on, or explicitly adopted, the conspiracy theory of personal jurisdiction.
Since I find that the relatedness prong of the specific jurisdiction test has not been met, I need not address the purposeful availment argument. See, e.g., Swiss American Bank, 274 F.3d at 624 ("Since the government has failed to satisfy the first prong of the jurisdictional test, its argument for specific jurisdiction must fail. . . . [O]ur jurisdictional analysis need proceed no further.").
III. Recommendations
For the reasons stated, I RECOMMEND that the Mercator Noordstar's Motions to Dismiss (#177 in 00-CV-111589; #100 in 02-CV-10302; #80 in 02-CV-10303; #95 in 02-CV-10304) be ALLOWED.IV. Review by the District Judge
The parties are hereby advised that pursuant to Rule 72, Fed.R.Civ.P., any party who objects to these recommendations must file a specific written objection thereto with the Clerk of this Court within 10 days of the party's receipt of this Report and Recommendation. The written objections must specifically identify the portion of the recommendations, or report to which objection is made and the basis for such objections. The parties are further advised that the United States Court of Appeals for this Circuit has repeatedly indicated that failure to comply with Rule 72(b), Fed.R.Civ.P., shall preclude further appellate review. See Keating v. Secretary of Health and Human Services, 848 F.2d 271 (1 Cir., 1988); United States v. Emiliano Valencia-Copete, 792 F.2d 4 (1 Cir., 1986); Scott v. Schweiker, 702 F.2d 13, 14 (1 Cir., 1983); United States v. Vega, 678 F.2d 376, 378-379 (1 Cir., 1982); Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603 (1 Cir., 1980); see also Thomas v. Arn, 474 U.S. 140 (1985).