ATHR, Inc. v. Nolt

• Court: District Court, D. New Hampshire
• Decided: December 3, 1997
• Docket: CV-97-191-JD
• Status: Published

Opinion

ATHR, Inc. v. Nolt CV-97-191-JD 12/03/97 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

ATHR, Inc.

v. Civil No. 97-191-JD

Gregg A. Nolt, et al.

O R D E R

The plaintiff, ATHR, Inc., filed this action under the New

Hampshire Fraudulent Transfer Act, N.H. Rev. Stat. Ann. ("RSA")

§ 545-A (1997), and N.Y. Debt. & Cred. Law § 273-a, against the

defendants, Gregg Nolt, Karen Nolt, and Nolt and Associates,

Inc., to cancel various alleged fraudulent transfers and to reach

the transferred assets and proceeds. Before the court are the

motions to dismiss the case for lack of personal jurisdiction of

defendant Gregg Nolt (document no. 7), defendant Karen Nolt

(document no. 8), and defendant Nolt and Associates (document no.

9) .

Background1

In 1990, plaintiff ATHR, Inc. ("ATHR"), a New Hampshire

corporation with its principal place of business in South

Carolina, sold its assets to Hutchinson, Smith, Nolt and

'The facts relevant to the instant motion are either not in dispute or have been alleged by the plaintiff. Associates, Inc. ("HSNA"), a New York corporation, for $337,000

to be paid over a ten-year period. In 1992, HSNA contested its

debt and ceased its payments. ATHR then accelerated the debt and

brought the related case ATHR, Inc. v. Hutchinson, Smith, Nolt &

Associates, Inc., No. 93-467-M (D.N.H. filed Sept. 1, 1993).

Thereafter, HSNA was rendered insolvent. On October 12, 1995,

the court granted summary judgment to ATHR on the merits of the

case. On July 24, 1996, the court set the amount of damages at

$300,000.

ATHR asserts that the defendants in this case engaged in a

series of transactions through which they intended to defraud

ATHR and prevent it from collecting on ATHR's judgment against

HSNA. In particular, ATHR avers that a series of transactions

were fraudulent under RSA § 545-A. First, ATHR alleges that

between 1992 and 1996 HSNA fraudulently transferred $436,950 to

its sole owner, defendant Gregg Nolt, who was also an officer and

director, in the form of W-2 salary payments. Gregg Nolt is a

New York citizen, the transfers were made in New York, and New

York taxes were paid on the funds.

In the second transaction, ATHR alleges that Gregg Nolt

caused a letter of appointment to be fraudulently transferred

from HSNA to his wife Karen Nolt's company, defendant Nolt and

Associates, Inc. ("Nolt and Associates"). The letter designated

2 HSNA the exclusive factory representative in 12 states for the

Wisconsin company, Felker Brothers Corporation ("Felker"), and

was the principal asset of HSNA. Nolt and Associates is a New

York corporation with its place of business in New York. This

transfer was initiated on or about the day summary judgment was

entered against HSNA, and took place in New York or Wisconsin.

Finally, ATHR alleges that Gregg Nolt fraudulently

transferred his one-half share of his New York residence to his

wife, defendant Karen Nolt, a New York citizen, in April 1996.

One dollar was given in consideration for the interest in the

residence.2

ATHR brought this action pursuant to the court's diversity

jurisdiction. Each defendant has moved to dismiss ATHR's action,

alleging that the court lacks personal jurisdiction over them.

Discussion

The defendants argue that their contacts with New Hampshire

are an insufficient basis for the court to exercise personal

jurisdiction over them under both the New Hampshire long-arm

statutes and the Federal Constitution. ATHR must therefore

2Plaintiff alleges that no consideration was given to Gregg Nolt for his interest in the Nolt residence, although the record indicates that the transfer was made for one dollar.

3 demonstrate facts sufficient to establish the court's personal

jurisdiction over the defendants. See United Electrical Radio

and Mach. Workers of America v. 163 Pleasant St. Corp., 960 F.2d

1080, 1090 (1st Cir. 1992), rev'd on other grounds, 987 F.2d 39,

(1st Cir. 1993); Concord Labs., Inc. v. Ballard Med. Prods., 701

F. Supp. 272, 274 (D.N.H. 1988); Velcro Group Corp. v. Billarant,

692 F. Supp. 1443, 1446 (D.N.H. 1988); Lex Computer & M q m t . v.

Eslinqer & Pelton, P.C., 676 F. Supp. 399, 402 (D.N.H. 1987).

Where, as here, the essential jurisdictional facts are

undisputed, the plaintiff need only make a prima facie showing

that an adequate basis for jurisdiction exists to avoid

dismissal. See Nowak v. Tak How Invs., Ltd., 94 F.3d 708, 712

(1st Cir. 1996), cert, denied, 117 S. C t . 1333 (U.S. Mar. 31,

1997) (No. 96-1052). In its analysis, the court takes properly

pleaded facts as true and construes all reasonable inferences in

favor of the plaintiff. See Velcro Group, 692 F. Supp. at 1446.

The court may consider pleadings, affidavits, and other

evidentiary materials. See Lex Computer, 676 F. Supp at 402.

For a federal court to exercise personal jurisdiction over a

non-resident defendant in a diversity case, the plaintiff must

allege jurisdictional facts that satisfy both the long-arm

4 statute of the forum state3 and the Due Process Clause of the

Fourteenth Amendment. See Sawtelle v. Farrell, 70 F.3d 1381,

1387 (1st Cir. 1995). As a threshold matter, each of the

defendants has asserted that the relevant long arm statute does

not reach their conduct because the tortious acts of which they

are accused took place outside of New Hampshire.4 However, the

3RSA § 510:4, which provides for personal jurisdiction in New Hampshire over a non-resident individual defendant, states in relevant part:

Any person who is not an inhabitant of this state and who, in person or through an agent, transacts any business within this state, [or] commits a tortious act within this state . . . submits himself, or his personal representative, to the jurisdiction of the courts of this state as to any cause of action arising from or growing out of the acts enumerated above.

RSA § 510:4(I) (1997) .

RSA § 293-A:121, which provides for personal jurisdiction over a foreign corporate defendant, states in relevant part:

If a foreign corporation . . . commits a tort in whole or in part in New Hampshire, the acts shall be deemed to be doing business in New Hampshire by the foreign corporation . . . in any actions . . . arising from or growing out of the . . . tort.

RSA § 293-A:121 (1987).

41he defendants also assert that the plaintiff has failed to allege any wrongdoing on the part of Nolt and Associates or Karen Nolt. This contention is without merit.The plaintiff has labeled the transfers, in which Nolt and Associates and Karen Nolt were participants, as fraudulent. It has stated that its cause of action arises under the New Hampshire Fraudulent Transfer Act, RSA § 545-A and has named Nolt and Associates and

5 defendants have allegedly defrauded a New Hampshire corporation,

and "[i]t is settled New Hampshire law that a party commits, for

jurisdictional purposes, a tortious act within the state when

injury occurs in New Hampshire even if the injury is the result

of acts outside the state." Hugel v. McNeil, 886 F.2d 1, 3 (1st

Cir. 1989). Moreover, because the Supreme Court of New Hampshire

has interpreted the long arm statutes to afford jurisdiction over

non-resident defendants to the full extent that the Due Process

Clause of the Fourteenth Amendment will allow, the court's

jurisdictional analysis properly focuses not upon the statutes,

but upon the due process reguirements of the United States

Constitution. See Estabrook v. Wetmore, 129 N.H. 520, 523, 529

A.2d 956, 958 (1987) (asserting jurisdiction over a non-resident

individual defendant); Cove-Craft Indus. Inc. v. B.L. Armstrong

C o ., 120 N.H. 195, 198, 412 A. 2d 1028, 1030 (1980) (asserting

jurisdiction over a non-resident corporate defendant) ; Paoafagos

v. Fiat Auto, S.p.A., 568 F. Supp. 692, 694 (D.N.H. 1983)

(asserting jurisdiction over a non-resident corporate defendant).

The Due Process Clause protects a defendant from the

judgment of a state with which he has no meaningful ties,

contacts, or relations. See Burger King Corp. v. Rudzewicz, 471

Karen Nolt as defendants.

6 U.S. 462, 471-472 (1985). In International Shoe Co. v.

Washington, the United States Supreme Court stated:

due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'

326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S.

457, 463 (1940)). Jurisdiction is proper only when "'the

defendant's conduct and connection with the forum State are such

that he should reasonably anticipate being haled into court

there.'" Burger King, 471 U.S. at 474 (quoting World-Wide

Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).

In Calder v. Jones, the Supreme Court articulated the

"effects test" and found that due process requirements were

satisfied when out-of-state defendants were primary participants

in an alleged wrongdoing intentionally directed at a resident of

the forum state. See 465 U.S. 783, 790 (1984). When an

intentional tortfeasor acts with the knowledge that the brunt of

its injury would be felt in a particular state, the tortfeasor

has established purposeful contacts or substantial connections

with the state such that the tortfeasor could reasonably expect

to be haled into the state's courts. See i d . at 789-90. The

Court emphasized (1) the intentional nature of the alleged tort.

7 (2) the devastating impact it would likely have, and (3) the fact

that the defendants knew that the brunt of the injury would be

felt by the respondent in the forum state. See i d .

In Hugel v. McNeil, the First Circuit followed Calder by

adopting the effects test in a defamation case. See 886 F.2d 1.

In Hugel, out-of-state defendants allegedly defamed a New

Hampshire resident. See i d . at 2. The court found that the

complaint satisfied the reguirements for personal jurisdiction

where it alleged that the defendants committed an intentional

tort, directed their actions toward a New Hampshire resident, and

knew that their actions would have a devastating impact in New

Hampshire where the plaintiff resided and had an established

reputation. See i d . at 5.

The effects test is not, however, limited to cases involving

defamation. See, e.g., Anderson v. Century Prods. Co ., 943 F.

Supp. 137 (D.N.H. 1996) (applying effects test where plaintiff

sued for misappropriation of an idea); VDI Techs, v. Price, 781

F. Supp. 85 (D.N.H. 1991) (applying effects test where plaintiff

sought declaratory judgment on patent issues and claimed damages

for unfair competition and violations of federal anti-trust

laws); Concord Labs, Inc., v. Ballard Med. Prods., 701 F. Supp.

272 (D.N.H. 1988) (applying effects test where plaintiffs sued on

patent issues, unfair competition issues, violations of anti-

8 trust laws, and consumer protection statutes). Because the

defendants here are alleged to have committed intentional torts

against the plaintiff, the court will use the effects test to

analyze the exercise of personal jurisdiction over each of the

defendants seriatim.

I. Gregg Nolt

Gregg Nolt asserts that exercising jurisdiction over him

would violate the Due Process Clause because he has done nothing

to avail himself of the privilege of conducting activities in New

Hampshire, nor has he invoked the benefits and protections of New

Hampshire's laws. He is not registered to do business in New

Hampshire, does not own property in New Hampshire, does not

employ New Hampshire residents, and has not conducted business

with ATHR in New Hampshire or anywhere else. Finally, he is not

a resident of New Hampshire, nor has he committed a tort in New

Hampshire. He argues therefore that he has insufficient contacts

between himself and New Hampshire to support jurisdiction.

Additionally, he asserts that jurisdiction would offend

traditional notions of fair play and substantial justice because

he lives 250 miles from New Hampshire and has limited resources.

ATHR argues that jurisdiction is permissible under the Due

Process Clause because the defendant purposely directed his

9 actions at New Hampshire and knew or should have known that his

conduct would cause harm in New Hampshire.

Gregg Nolt's arguments that all of his actions took place

out of New Hampshire, or that he otherwise has little or no

contact with New Hampshire, are unavailing. In VDI Technologies,

personal jurisdiction was established over an out-of-state

defendant with no connections to New Hampshire other than letters

that were mailed from outside New Hampshire to the California

customers of VDI Technologies (VDI), a New Hampshire corporation.

See 781 F. Supp. at 88, 89. None of the defendant's physical

acts took place in New Hampshire. See i d . at 89. However, the

letters alleged that VDI had infringed on a patent and threatened

VDI's California customers with lawsuits. See i d . at 88. The

plaintiff sought, inter alia, damages for unfair competition and

violations of federal anti-trust laws. See i d . at 86. The court

in VDI Technologies exercised personal jurisdiction over the

defendants because the complaint sufficiently alleged that the

letters were intentional acts aimed at a New Hampshire

corporation and "could not have been construed to have conferred

a benefit or even benign impact on" the plaintiff. I d . at 92.

"If damage could have been done to VDI's business, it is not an

unfair inference that the brunt of such injury would surely be

felt most [in New Hampshire,] at VDI's sole corporate location."

10 Id. The court found it important that the defendant was "'not

charged with mere untargeted negligence.'" I d . (guoting Calder,

465 U.S. at 789). Instead, the defendant could "fairly be charged

with such knowledge regarding the effect of his intentional and

allegedly tortious actions," satisfying the dictates of due

process and making the exercise of jurisdiction proper. Id.

In the instant case, ATHR claims that defendant Gregg Nolt

engaged in fraudulent transfers of assets to prevent ATHR from

collecting on the debt HSNA owed to ATHR and to secure the assets

for himself. That these actions were intentionally aimed at New

Hampshire is reasonably inferable from the pleadings and exhibits

submitted. ATHR is incorporated in New Hampshire. It has had

ongoing relations with Gregg Nolt's closely-held company,

including a previous lawsuit in New Hampshire, such that it is

reasonable to infer that Gregg Nolt would know of ATHR's New

Hampshire citizenship. ATHR has therefore made a prima facie

showing that if Gregg Nolt transferred assets to defraud ATHR, he

did this with the knowledge that the plaintiff was a New

Hampshire corporation and that he therefore "committed an

intentional tort, direct[ing his] actions towards the forum

state." Hugel, 886 F.2d at 5.

It is also a reasonable inference that Gregg Nolt knew the

alleged actions would have a devastating impact on ATHR and its

11 ability to recover its debt. Gregg Nolt is the sole owner and

principal of HSNA. HSNA is allegedly insolvent and is indebted

to ATHR for $300,000. ATHR avers, inter alia, that Gregg Nolt

fraudulently took $439,950 in W-2 salary payments from HSNA

between 1992 and 1996 to prevent ATHR from reaching it. If Gregg

Nolt has thereby left HSNA without adeguate assets to satisfy the

debt owed ATHR, the injury to ATHR is great indeed.5 A

reasonable person in Gregg Nolt's position would have knowledge

of these facts. Intentionally removing assets from HSNA to

defraud ATHR "could not have . . . conferred a beneficial or even

benign impact" on the New Hampshire plaintiff. VDI Techs., 781

F. Supp. at 92. ATHR has therefore made a prima facie showing

that Gregg Nolt knew his actions would have the reguisite impact

on ATHR.

In addition, ATHR has made a prima facie showing that Gregg

Nolt knew the brunt of the injury would be felt in New Hampshire.

ATHR is incorporated in, and therefore is a citizen of. New

Hampshire. "[L]oss from fraud is deemed to be suffered where its

economic impact is felt, normally the plaintiff's residence."

5Thedefendants claim that ATHR is a shell corporation whose only purpose is to collect the judgment against HSNA. This assertion supports rather than undermines ATHR's position, because if it is true then the injury would deprive ATHR of its only asset.

12 Sack v. Low, 478 F.2d 360, 366 (2nd Cir. 1973) (discussing where

injury was suffered and cause of action for fraud arose in

context of New York borrowing statute). "For a corporation the

place where economic injury is felt is usually understood to be

its place of incorporation." Maslan v. American Airlines, Inc.,

885 F. Supp. 90, 94 (S.D.N.Y. 1995). "The economic loss may be

said to occur in a state other than the plaintiff's state of

residence only in the 'extremely rare' case . . . ." Farley v.

Baird, Patrick, & Co., 750 F. Supp. 1209, 1215 (S.D.N.Y. 1990)

(discussing locus of injury to individual plaintiff in securities

fraud claim).

The court therefore finds that ATHR has made a prima facie

showing of the elements necessary to satisfy the effects test:

the defendant intentionally directed his actions at ATHR, a New

Hampshire corporation, with knowledge of the devastating impact

it would have on ATHR in this state.

Finally, Gregg Nolt argues that the fiduciary shield

doctrine prevents the court from exercising jurisdiction over him

as an individual. The fiduciary shield doctrine provides that

the acts of a person in their corporate capacity usually do not

form a basis for jurisdiction over the person in their individual

capacity. See Estabrook, 129 N.H. at 523, 529 A. 2d at 958. The

rationale is that

13 it is unfair to force an individual to defend a suit brought against him personally in a forum with which his only relevant contacts are acts performed not for his own benefit but for the benefit of his employer.

I d . at 524, 529 A.2d at 959 (guoting Marine Midland Bank, N.A. v.

Miller, 664 F.2d 899, 902 (2d Cir. 1981)). In Calder, the

Supreme Court addressed the fiduciary shield doctrine in an

analogous context. See Estabrook, 129 N.H. at 524, 529 A. 2d at

959. It found that where parties "are primary participants in an

alleged wrongdoing intentionally directed at a [state's]

resident . . . jurisdiction over them is proper on that basis."

465 U.S. at 790. Here, Gregg Nolt is alleged to be a primary

participant in a scheme to defraud ATHR, and the fiduciary shield

doctrine is inapplicable.

For these reasons, the court may properly exercise personal

jurisdiction over Gregg Nolt as to the asserted fraudulent

transfers.6

6Because of the court's decision on this issue, it need not consider the parties' other arguments.

14 II. Nolt and Associates

Nolt and Associates asserts the same constitutional

arguments as both Gregg and Karen Nolt. As with defendant Gregg

Nolt, the effects test is applicable to defendant Nolt and

Associates. Jurisdiction is warranted when a tortfeasor

intentionally aims its actions at a forum state with knowledge

that a devastating impact on another party is likely, the brunt

of which would be felt in the forum state. See Hugel, 886 F.2d

at 4. In the instant case, ATHR alleges that a fraudulent

transfer of an asset was made from HSNA to Nolt and Associates.

Specifically, it contends that HSNA's principal asset, a letter

of appointment designating HSNA the representative of Felker, was

fraudulently transferred from HSNA to Nolt and Associates. It

avers that the transfer was intended to remove income from HSNA

to Nolt and Associates, to strip HSNA of its asset, to prevent

ATHR from reaching it, and to secure the asset for Gregg Nolt and

his wife Karen Nolt.

The record ATHR has adduced supports this contention with

the following: (1) the dates of the unfavorable summary judgment

correspond to the dates when HSNA's representation of Felker

terminated, (2) the termination was apparently on good terms,

despite the fact that the arrangement was the principal asset of

HSNA and its termination was without cause, (3) Nolt and

15 Associates began representation of Felker on January 1, 1996,

approximately one and one half months after HSNA's representation

terminated, (4) at all times during this transfer of HSNA's

principal asset, HSNA was insolvent and in debt to ATHR for

$300,000, and (5) the debtor/transferor, HSNA, was solely owned

by Gregg Nolt, and the transferee, Nolt and Associates, was

solely owned by his wife Karen Nolt. ATHR has therefore made a

prima facie showing that if Nolt and Associates participated in

the fraudulent transaction alleged, its conduct was intentionally

directed at the New Hampshire plaintiff with the knowledge that

HSNA's inability to satisfy the $300,000 judgment would

ultimately have its reguisite impact on ATHR in New Hampshire.

For these reasons, the court may properly exercise

jurisdiction over Nolt and Associates for alleged fraudulent

transfers.7

III. Karen Nolt

Defendant Karen Nolt argues that she has no contacts with

New Hampshire that should subject her to suit here. The court's

inguiry for purposes of the effects test is, as stated before,

whether Karen Nolt intentionally aimed actions at New Hampshire,

7In light of its conclusion, the court need not consider the parties' additional arguments.

16 whether she knew the acts would have a devastating effect on

ATHR, and whether she knew the impact would likely be felt in New

Hampshire. See Hugel, 886 F.2d at 4. Karen Nolt's knowing

participation in the allegedly fraudulent transfer of Gregg

Nolt's interest in the Nolt residence for one dollar can

reasonably be inferred by the lack of consideration given for the

transfer, the correlation between the dates of the judgment

against HSNA and the transfer, and the Nolts' marriage. See,

e.g., RSA § 545-A:4(II)(a),(h) (factors in discerning intent to

defraud include "inside" relationships of parties and adeguacy of

consideration given).

Given Karen Nolt's intertwined business and personal

relations with Gregg Nolt, the court finds it to be a reasonable

inference that if Karen Nolt participated in the alleged

fraudulent transactions, she knew that (1) a fraud on ATHR was a

fraud on a New Hampshire corporation, (2) the fraud could

undermine or destroy the value of ATHR's judgment, and (3) the

fraud would have its impact on ATHR in New Hampshire where ATHR

is a citizen. ATHR has therefore made a prima facie showing that

meets the reguirements of the effects test, justifying the

exercise of personal jurisdiction over Karen Nolt.

Karen Nolt also argues that the fiduciary shield doctrine

precludes the court from exercising jurisdiction over her.

17 However, as discussed in part I, supra, the fiduciary shield

doctrine does not protect an individual who is alleged to have

been a primary participant in an intentional wrongdoing directed

at the resident of another state. Therefore, Karen Nolt is

properly subject to the personal jurisdiction of this court.8

Conclusion

For the reasons stated above, the motions to dismiss the

case for lack of personal jurisdiction of defendant Gregg Nolt

(document no. 7), defendant Karen Nolt (document no. 8), and

defendant Nolt and Associates (document no. 9) are denied.

SO ORDERED.

Joseph A. DiClerico, Jr. District Judge

December 3, 1997

cc: William Edward Whittington IV, Esguire Charles P. Bauer, Esguire

8In light of its decision, the court need not inguire into the other arguments asserted by the parties.