UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
No. 99-20389
MICHAEL P. LEWIS,
Plaintiff-Appellant versus
DAVID M. FRESNE; ET AL
Defendants
LOWELL FARKAS; ROBERT A. YOUNG; ROSENFELD, BERNSTEIN & TANNENHAUSER LLP; ERIC P. ROSENFELD
Defendants-Appellees
Appeal from the United States District Court for the Southern District of Texas
May 14, 2001
Before GARWOOD, HALL,1 and BARKSDALE, Circuit Judges.
CYNTHIA HOLCOMB HALL, Circuit Judge:
This case requires us to determine whether the Securities Act
of 1933 (“the 1933 Act”) applies to a 90-day “bridge” loan and
whether a single phone call and the mailing of allegedly fraudulent
information can be sufficient to establish personal jurisdiction
over non-resident defendants. Plaintiff alleges violations of the
1933 Act and Texas state law. The district court granted
defendants’ motion to dismiss, holding that the plaintiff failed to
1 Circuit Judge of the Ninth Circuit, sitting by designation. state a claim under the 1933 Act and that the evidence was
insufficient to establish personal jurisdiction over the
defendants. We agree with the district court as to the reach of
the 1933 Act, but we find that sufficient minimum contacts exist as
to all but one of the appellees and reverse the district court’s
dismissal as to the state law claims.
I. Facts and Proceedings Below
Appellant Michael Lewis was a customer of the Bear Stearns
brokerage house from April 1992 to April 1996. David Fresne was
his stockbroker. In 1995, Fresne tried to convince Lewis to buy
stock through a private placement in Mad Martha’s Ice Cream, Inc.
(“Mad Martha’s”), a Delaware corporation with business locations in
Massachusetts. Fresne sent Lewis a private placement memorandum on
a Mad Martha’s stock offering, but Lewis refused to buy.
Lewis did agree to Fresne’s second suggestion: making a 90-day
“bridge loan” to Mad Martha’s pending the closing of a private
placement of the company’s stock. In June 1995, Lewis loaned
$650,000 to Mad Martha’s. In return, Lewis received a promissory
note for $650,000 (the “Note”), which was never repaid, and a
pledge of 615,675 shares of Mad Martha’s stock, which became
worthless when Mad Martha’s filed for bankruptcy eight months
later. The Note was supposedly secured by, among other things, a
first lien on the assets of a Mad Martha’s store in Nantucket,
Massachusetts. It was to bear interest at a rate of 15 percent per
2 annum, or $97,500, and that amount was not tied to the performance
of Mad Martha’s stock.
Lewis claims that the defendants misrepresented the facts
surrounding the Nantucket store when he agreed to loan the
$650,000. Apparently, the former president of Mad Martha’s, Thomas
Quinn, entered into the lease for Mad Martha’s Nantucket store in
his own name instead of Mad Martha’s. Even after he was removed by
the board of directors, Quinn continued to retain possession of the
Nantucket store and operate it as if it were his own store and not
Mad Martha’s. Mad Martha’s unsuccessfully filed suit in an effort
to regain control of the Nantucket store. Lewis alleges that the
defendants sent him letters and documents falsely stating that Mad
Martha’s was providing him with a first lien on the Nantucket store
when they knew that Quinn was the store’s true owner.
The efforts to sell Mad Martha’s stock in a private placement
failed. On February 27, 1996, Mad Martha’s filed for bankruptcy.
Lewis filed a complaint in Texas state court alleging breach of
fiduciary duty (by Fresne), securities fraud under the Texas
Securities Act, violations of the Securities Act of 1933, common
law fraud, and civil conspiracy. The case was then removed to the
United States district court for the Southern District of Texas.
In an August 14, 1996 order, the district court denied Lewis’s
motion to remand the case to state court and dismissed several
defendants from the case on the basis that personal jurisdiction
was lacking. This appeal only concerns those defendants: Eric
3 Rosenfeld; Lowell Farkas; Eric Young; and Rosenfeld, Bernstein &
Tannenhauser, LLP.2
In an October 6, 1997 opinion, the district court reaffirmed
that: 1) Lewis failed to state a claim under the 1933 Act; and 2)
the evidence was insufficient to establish personal jurisdiction
over the defendants in this appeal. The district court denied
Lewis’s request to file an amended complaint alleging violations of
the Securities Act of 1934. Meanwhile, Lewis eventually settled
with the defendants that had not been dismissed in the August 14
order, including Fresne. Following his settlement with Fresne (the
last remaining non-dismissed defendant), Lewis submitted an agreed
final judgment that was approved by the court on April 19, 1999.
Lewis then filed a motion for a new trial as to the defendants
dismissed in the August 14, 1996 order. He attached to this motion
a statement from Fresne who claimed that he had been acting as an
intermediary between Lewis and Rosenfeld. The district court
denied the motion citing the prejudice to the defendants (who had
been out of the case for three years) and the lack of probative
value in Fresne’s statement.
II. Standard of Review
2 Lewis’s petition also stated a claim against Robert Bernstein and Robert Tannenhauser in their individual capacities. Along with the other defendants in this case, they were dismissed for lack of personal jurisdiction. This Court dismissed the appeal against Tannenhauser and Bernstein in a January 13, 2000 order.
4 This court reviews both the district court’s denial of Lewis’s
motion to remand the case back to state court and its dismissal for
want of personal jurisdiction de novo. See Frank v. Bear Stearns
& Co., 128 F.3d 919, 921 (5th Cir. 1997) (motion to remand); Jobe
v. ATR Mktg., Inc., 87 F.3d 751, 753 (5th Cir. 1996) (dismissal for
want of personal jurisdiction). When a trial court rules on a
motion to dismiss for lack of personal jurisdiction without holding
an evidentiary hearing, as the trial court did in this case, it
must resolve any factual conflicts in favor of the plaintiff. See
Stripling v. Jordan Production Co., 234 F.3d 863, 869 (5th Cir.
2000).
The district court’s denial of leave to amend the complaint is
reviewed for abuse of discretion. See Patterson v. P.H.P.
Healthcare Corp., 90 F.3d 927 (5th Cir. 1996).
III. Failure to State a Claim Under the 1933 Securities Act
The 1933 Act states: “No case arising under this title and
brought in any State court of competent jurisdiction shall be
removed to any court of the United States.” 15 U.S.C. § 77v. The
district court acknowledged this language, but explained that in
limited circumstances the defendant may pierce the pleadings to
show that claims otherwise not removable have been pled solely to
prevent removal. In its August 14 order, the district court held
that the Note was not a “security,” and, therefore, Lewis did not
have a valid claim under the 1933 Act. In its subsequent opinion,
5 the district court explained that Lewis also failed to state a
claim because Lewis only sued under § 12 of the 1933 Act and that
portion of the 1933 Act does not apply to non-public transactions.
The burden is on the defendants to show that Lewis’s federal
Securities Act claim is baseless. This is a heavy burden.
Defendants “must show that there is no possibility that plaintiff
would be able to establish a cause of action.” Lackey v. Atlantic
Richfield Co., 990 F.2d 202, 207 (5th Cir. 1993). All questions of
fact and any ambiguities in the current controlling substantive law
must be resolved in the plaintiff’s favor. See Burchett v.
Cargill, Inc., 48 F.3d 173, 176 (5th Cir. 1995).
We decline to address the issue of whether the Note was a
“security” under the 1933 Act because we agree with the district
court that this was a private transaction. For his 1933 Act
claims, Lewis alleged only violations of § 12(1), § 12(2), and
derivative liability under § 15.3 (These correspond to 15 U.S.C.
§§ 77l(1), 77l(2), and 77o in the U.S. Code.) Section 12(1)
provides liability or recission for the offer or sale of a security
without a registration statement. Section 12(2) imposes liability
on any person who “offers or sells a security . . . by means of a
prospectus or oral communication, which includes an untrue
statement of a material fact or omits to state a material fact.”
3 Section 15 of the 1933 Act imposes derivative liability on “controlling persons” for violations of § 12. Without a violation of § 12, there is no claim under § 15.
6 Section 12 of the 1933 Act does not apply to private transactions.
See Gustafson v. Alloyd Co., 513 U.S. 561, 584 (1995). In
Gustafson, the Supreme Court analyzed the legislative history of
the 1933 Act to determine that Congress meant for § 12 to apply
only to public offerings.4
The evidence shows that this was a private transaction. Lewis
only agreed to make the loan after receiving and rejecting a
private placement memorandum. He entered the deal through his own
private broker. The $650,000 was designed to keep Mad Martha’s
running until a private placement sale of stock could be completed.
See Whirlpool Financial Corp. v. GN Holdings, Inc., 67 F.3d 605,
609 n.2 (7th Cir. 1995) (holding that § 12 did not apply to a
transaction involving a private placement memorandum); Vannest &
Sage, Rutty & Co., 960 F. Supp. 651, 654-55 (W.D.N.Y. 1997) (same).
Lewis contends that the district court ignored the “public”
aspects of his transaction. He cites to a decision from the
Southern District of New York that allowed a plaintiff to sue under
§ 12 even though his purchase of stock was made pursuant to a
private placement memorandum. See Fisk v. Superannuities, Inc.,
927 F. Supp. 718 (S.D.N.Y. 1996). The plaintiff in Fisk, however,
alleged in his complaint that he had purchased 50,000 shares out of
4 Although the Gustafson case was brought under § 12(2) and not § 12(1), the language of the majority opinion encompasses all of § 12. See, e.g., id. at 581 (“The House Report thus states with clarity and specific reference to § 12 that § 12 liability is imposed only as to a document soliciting the public.”).
7 an offering of up to 4 million shares of common stock. Id. at 722.
In contrast, Lewis’s complaint contends that his 615,676 shares
were represented to be 29% of the outstanding shares of stock.
Thus, Lewis’s purchase involved a major stake in Mad Martha’s while
the plaintiff in Fisk only bought himself a relatively small stake
in the company. Two of the criteria for determining if a
transaction is public are the size of the offering and the number
of offerees. See Koehler v. Pulvers, 614 F. Supp. 829, 842 (S.D.
Cal. 1985). Accordingly, Lewis fails to state a claim under the
1933 Act because the transaction at issue was a private one that is
not governed by § 12.5 We affirm the district court’s decision to
deny Lewis’s motion for remand and to dismiss his 1933 Act claims.
IV. Personal Jurisdiction
In addition to his claim under the 1933 Act, Lewis alleges
claims under the Texas Securities Act and common law. The district
court dismissed these claims for lack of personal jurisdiction
against the defendants.
5 Lewis also contends that a pledge of stock is an offer or sale of a security covered by § 12. He cites this circuit’s decision in Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014 (5th Cir. 1991). The Haralson court held that a plaintiff could assert a claim under § 12(2) even if the transaction at issue was an isolated one made pursuant to a private offer. The 1991 Haralson decision is not persuasive, however, because it has been overruled by the Supreme Court’s 1995 decision in Gustafson.
8 The burden is on Lewis to establish the district court’s
jurisdiction over non-residents. None of the defendants are
residents of Texas. Obtaining personal jurisdiction over a non-
resident is constitutionally permissible if: 1) the non-resident
purposely availed himself of the benefits and protections of the
forum state by establishing minimum contacts with the state; and 2)
the exercise of jurisdiction does not offend “traditional notions
of fair play and substantial justice.” Wien Air Alaska, Inc. v.
Brandt, 195 F.3d 208, 211 (5th Cir. 1999). There are two types of
“minimum contacts”: those that give rise to specific personal
jurisdiction and those that give rise to general personal
jurisdiction. General jurisdiction attaches when the defendant’s
contacts with the forum state are “continuous and systematic.”
Wilson v. Belin, 20 F.3d 644, 647 (5th Cir. 1994). Lewis does not
argue that any of the defendants had continuous contacts with
Texas. Instead, he contends that specific jurisdiction is
warranted because the defendants’ contacts with Texas “arise from,
or are directly related to, the cause of action.” Id.
Fresne and Rosenfeld were co-chairs of Mad Martha’s board of
directors. In his petition, Lewis alleges that Rosenfeld
participated in a telephone conversation between himself and Fresne
that was designed to convince Lewis to make the $650,000 loan.
Lewis contends that Rosenfeld failed to correct allegedly false
statements made by Fresne during that phone call. He also contends
that Rosenfeld prepared and sent loan documents and stock
9 certificates to him in Texas that contained fraudulent
misstatements regarding the Nantucket store. Similarly, the
petition alleges that Farkas, Mad Martha’s president, signed and
sent security agreements to Lewis in Texas that fraudulently
represented that Lewis would receive a first lien on the Nantucket
store as security for his loan.
We believe that this is sufficient evidence of minimum
contacts to justify personal jurisdiction. A single act by a
defendant can be enough to confer personal jurisdiction if that act
gives rise to the claim being asserted. See Brown v. Flowers
Indus., 688 F.2d 328, 332-33 (5th Cir. 1982) (holding that a single
telephone call initiated by the defendant was sufficient to confer
personal jurisdiction). There have been other cases where mere
communications or negotiations with a resident of the forum state
were not enough to subject non-resident defendants to the forum
state’s jurisdiction. See, e.g., Aviles v. Kunkle, 978 F.2d 201,
205 (5th Cir. 1992) (per curiam) (one telephone call and one letter
not enough to confer personal jurisdiction).6 These cases did not,
6 Farkas contends that he is immune from suit under the “fiduciary shield” doctrine because all of his allegedly fraudulent acts were performed when he was acting as a corporate officer of Mad Martha’s. This is not a case where plaintiff’s claim rests on nothing more than Farkas’s status as a corporate officer. Instead, Lewis contends that Farkas deliberately misled him so that Mad Martha’s and Farkas would get the money needed to keep Mad Martha’s afloat until the private placement. Therefore, the fiduciary shield doctrine should not apply. “[T]he shield is removed if the individual’s personal interests motivate his actions . . . .” Darovec Marketing Group, Inc. v. Bio-Genics, Inc., 42 F. Supp.2d 810, 819 (N.D. Ill. 1999).
10 however, involve an intentional tort. Lewis contends that all of
the defendants intentionally defrauded him by lying about the
ownership of the Nantucket Mad Martha’s store. Recently, this
Court explained that “[w]hen the actual content of communications
with a forum gives rise to intentional tort causes of action, this
alone constitutes purposeful availment.” Wien Air Alaska, Inc. v.
Brandt, 195 F.3d 208, 213 (5th Cir. 1999). The “actual content” of
Rosenfeld’s and Farkas’s communications to Lewis shows purposeful
availment of the benefits and protections of Texas law. See
Collins v. Gospocentric Records, 2001 WL 194985, *2 (N.D. Tex.,
Feb. 22, 2001) (citing Wien for proposition that communications to
plaintiff in Texas giving rise to intentional tort are sufficient
to satisfy minimum contacts standard).
Moreover, we find minimum contacts between Rosenfeld’s law
firm, Rosenfeld, Bernstein & Tannenhauser LLP, and the forum state.
“[A] partner’s actions may be imputed to the partnership for the
purpose of establishing minimum contacts . . . .” Sher v. Johnson,
911 F.2d 1357, 1366 (9th Cir. 1990).
We also conclude that maintenance of this action against
Rosenfeld, Farkas, and Rosenfeld, Bernstein & Tannenhauser, LLP in
Texas will not offend traditional notions of fair play and
substantial justice. Texas has a significant interest in providing
a forum for this action because the injured party, Lewis, is a
Texas resident. See Wien Air, 195 F.3d at 215; Holt Oil & Gas
Corp. v. Harvey, 801 F.2d 773, 779-80 (5th Cir. 1986).
11 We agree with the district court, however, that there is
insufficient evidence of minimum contacts between defendant Young
and the forum state. Young was the president and sole shareholder
of Vineyard Shops, Ltd. (“VSL”). In 1993, he sold the Mad Martha’s
Ice Cream Stores to Mad Martha’s in return for a down payment and
a note for the balance of the purchase price. Mad Martha’s still
owed VSL money when Lewis made his loan in 1995. Neither VSL nor
Young was a party to the transaction between Lewis and Mad
Martha’s. Lewis’s only allegation against Young is that he signed
a letter that was forwarded to him in Texas stating that VSL’s lien
on the Nantucket store was being assigned to Lewis. Young neither
prepared the letter nor sent it to Lewis. This conduct is not
enough for Young to reasonably anticipate that he would be haled
into court in Texas. See World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286, 296 (1980).
V. Leave to Amend
The district court rejected Lewis’s motion for leave to file
an amended complaint. Lewis sought to assert an additional claim
under § 10(b) of the Securities Exchange Act of 1934 (“the 1934
Act”) and to allege additional facts learned during discovery.
Leave to amend “shall be freely given when justice so requires.”
F.R.C.P. 15(a). The district court denied Lewis’s motion because
12 it was “untimely and would unduly prejudice Defendants,
particularly those who were dismissed . . . in 1996.”7
Federal Rule of Civil Procedure 15(a) allows a plaintiff to
file one amended complaint as a matter of right when the defendants
have not filed a responsive pleading. Although the appellees have
filed motions to dismiss, “[t]his court follows the prevailing view
that a motion to dismiss is not a responsive pleading.” Whitaker
v. City of Houston, 963 F.2d 831, 834-35 (5th Cir. 1992).
The Whitaker court explained that the Fifth Circuit had
adopted the Eleventh Circuit’s approach to reviewing motions for
leave to amend a complaint after a dismissal. Under this approach,
“a plaintiff is allowed to amend under Rule 15(a) with leave of the
court–but not as of course–if the district court dismissed only the
plaintiff’s complaint, not his or her action.” Id. at 835. In
August 1996, the district court dismissed Lewis’s complaint.
According to Whitaker, Lewis cannot amend his complaint as a matter
of right; he should only be granted leave to amend if the district
court’s decision to deny such leave was an abuse of discretion.
7 The district court also denied Lewis’s motion to file an amended complaint because it held that the Note was not a “security” under the 1934 Act. Leave to amend does not need to be granted when the amended complaint would not withstand a motion to dismiss for failure to state a claim. See Siray v. Lamson & Sessions Co., 948 F.2d 1037, 1042 (5th Cir. 1991). Because we hold that the district court’s decision was justified by Lewis’s undue delay in requesting leave to amend, we need not address whether the Note constitutes a “security” under the 1934 Act.
13 Undue delay justifies a district court’s decision to deny
leave to amend. See Las Vegas Ice & Cold Storage Co. v. Far West
Bank, 893 F.2d 1182, 1185 (10th Cir. 1990). Lewis waited more than
one year after the district court had dismissed the various
defendants for lack of personal jurisdiction. He offers no
explanation for his failure to include a claim under the 1934 Act
in his original complaint. Therefore, we hold that there was no
abuse of discretion.
CONCLUSION
The decision of the district court is affirmed in part and
reversed in part. Plaintiff failed to state a claim under the 1933
Act. Plaintiff did establish that defendants Rosenfeld, Farkas,
and Rosenfeld, Bernstein & Tannenhauser, LLP had sufficient minimum
contacts with the state of Texas. Accordingly, the district court
has personal jurisdiction to hear plaintiff’s state law claims
against these three defendants. We agree with the district court
that there is insufficient evidence for it to assert personal
jurisdiction over defendant Young. It was not an abuse of
discretion for the district court to refuse to permit Lewis to
amend his complaint. The parties shall bear their own costs on
appeal.