Litle v. Worldwide Collectibles CV-95-126-B 02/26/96 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Litle & Company, Inc.
v. Civil No. 95-126-B
Worldwide Collectibles Network, Inc., Richard Adeline, and August L. Blevins
O R D E R
Pending before me is defendant Richard Adeline's motion to
dismiss Litle's complaint against him for lack of personal
jurisdiction and, in the alternative, to dismiss the
misrepresentation count for failure to plead fraud with
sufficient particularity. In response, Litle contends that
personal jurisdiction exists based on Adeline's business activity
with Litle in New Hampshire and that its allegations are
sufficient to meet the particularity reguirement of Federal Rules
of Civil Procedure 9 (b). Litle also reguests an opportunity to
amend its complaint before the claim is dismissed for lack of
particularity. For the following reasons, I deny the motion to
dismiss and grant title's reguest to amend. I. BACKGROUND1
Litle & Company, Inc. operates its business in Salem, New
Hampshire, processing credit card deposit transactions for direct
marketing merchandisers. Litle entered into a business agreement
with Worldwide Collectibles Network, Inc. ("WCN") in September
1994 to process W C N 's credit card transactions generated by its
television home shopping network. WCN is located in Florida and
its president, Richard Adeline, is a Florida resident. August
Blevins, an owner of WCN and a signatory on the agreement between
WCN and Litle, is a resident of Ohio.
The Litle-WCN agreement reguired WCN and Blevins to
reimburse Litle for "chargebacks" which occur when customers'
charges are reversed after WCN has received credit from Litle for
the sale. Their agreement obligated WCN to maintain a reserve
fund with Litle to prepay the chargebacks and to refund amounts
in excess of the reserve within one business day of notification
of the deficit. Blevins and WCN represented to Litle that WCN
would not submit credit card transactions to Litle for processing
until the purchased products were shipped to the customers.
1 The facts are taken from the complaint consonant with the standard for a motion to dismiss.
2 On December 19, 1994, Litle became aware of problems with
the WCN account including an excessive number of chargebacks and
complaints from customers that they were being charged for
products that WCN never shipped. WCN and Adeline represented to
Litle that WCN was not charging customers for unshipped products.
Because the irregularities in the WCN account continued and WCN
failed to pay its reserve deficit as reguired by the agreement,
Litle terminated the agreement on January 17, 1995.2 Since then,
WCN and Blevins have failed to pay the outstanding deficit.
Litle filed suit against WCN, Blevins, and Adeline on March
13, 1995, alleging counts of breach of contract against WCN and
Blevins, and counts of misrepresentation and unfair or deceptive
trade practices against Adeline and Blevins. Adeline, appearing
pro se, moves to dismiss the complaint as to him for lack of
personal jurisdiction, or in the alternative, to dismiss the
misrepresentation claim against him for failure to comply with
the particularity reguirement of Federal Rule of Civil Procedure
9(b). I turn to the merits of his motion.
2 Although the complaint says 1994, in context the date was clearly intended to be 1995.
3 II. DISCUSSION
Following logical seguence, I first address Adeline's
challenge to this court's exercise of personal jurisdiction, and
then resolve the guestion of the sufficiency of title's
allegations of fraud.
A. Personal Jurisdiction
When personal jurisdiction over a defendant is contested,
the plaintiff has the burden of showing that such jurisdiction
exists. Sawtelle v. Farrell, 70 F.3d 1381, 1387 (1st Cir. 1995).
To carry the burden of proof when there has been no evidentiary
hearing, the plaintiff must make a prima facie showing by
submitting "evidence that, if credited, is enough to support
findings of all facts essential to personal jurisdiction." Boit
v. Gar-Tec Products, Inc., 967 F.2d 671, 675 (1st Cir. 1992). As
in the standard for summary judgment, the plaintiff "ordinarily
cannot rest upon the pleadings, but is obliged to adduce evidence
of specific facts," and the court "must accept the plaintiff's
(properly documented) evidentiary proffers as true" making its
ruling as a matter of law. Foster-Miller, Inc. v. Babcock &
Wilcox Canada, 46 F.3d 138, 145 (1st Cir. 1995), United Elec.
Workers v. 163 Pleasant St. Corp., 987 F.2d 39, 44 (1st Cir.
4 1993). An evidentiary hearing is necessary only if the court
determines that it would be unfair to the defendant to resolve
the issue without requiring more of the plaintiff than a prima
facie showing of jurisdiction. Foster-Miller, 46 F.3d at 145-46
(explaining the "trio of standards, each corresponding to a level
of analysis, that might usefully be employed" in deciding a
motion to dismiss for lack of personal jurisdiction). A court
may assert personal jurisdiction over a nonresident defendant in
a diversity of citizenship case only if the plaintiff establishes
both that: (1) the forum state's long-arm statute confers
jurisdiction over the defendant, and (2) the defendant has
sufficient "minimum contacts" with the forum state to ensure that
the court's jurisdiction comports with the requirements of
constitutional due process. Sawtelle, 70 F.3d at 1387; Kowalski
v. Doherty, Wallace, Pillsburv & Murphy, Attorneys at La w , 7 87
F.2d 7, 8 (1st Cir. 1986). I begin with the New Hampshire
jurisdiction statute.
1. New Hampshire's Long-Arm Statute.
The applicable New Hampshire statute provides long-arm
jurisdiction over nonresident individual defendants as follows:
Any person who is not an inhabitant of this state who, in person or through an agent, transacts any business within this state, commits a tortious act within this
5 state, or has the ownership, use, or possession of any real or personal property situated in 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.
N.H. Rev. Stat. Ann. 510:4, I (1983). The New Hampshire Supreme
Court construes the statute "to provide jurisdiction over foreign
defendants to the full extent that the statutory language and due
process will allow." Phelps v. Kingston, 130 N.H. 166, 171
(1987) .
Litle submits the affidavit of August Blevins, one of
Adeline's co-defendants, an owner of WCN, and the signatory of
the agreement with Litle on behalf of WCN. In his affidavit,
Blevins states that Adeline has been the president and chief
executive officer of WCN since the agreement was signed in
September 1994, and was the person responsible for monitoring
W C N 's obligations under the agreement and for submitting the
sales records by wire transfer from Florida to Litle in New
Hampshire for processing. Blevins's affidavit is sufficient to
support a prima facie case that Adeline was transacting business
in New Hampshire and may have been committing a tortious act
6 through his representations and involvement in W C N 's business.3
Accordingly, Litle has established that jurisdiction is
authorized under the New Hampshire long-arm statute.
2. Constitutional Analysis: Due Process
The Due Process Clause of the Fourteenth Amendment limits a
state's power to assert personal jurisdiction over nonresident
defendants. Helicopteros Nacionales De Colombia, S.A. v. Hall,
466 U.S. 408, 413-14 (1984) (citing Pennover v. Nef f , 95 U.S. 714
(1877)). For the court to properly assert personal jurisdiction
over an absent nonresident defendant, the defendant must have had
"certain minimum contacts with [the forum] such that the
maintenance of the suit does not offend 'traditional notions of
fair play and substantial justice.'" Helicopteros, 466 U.S. at
414 (guoting International Shoe Co. v. Washington, 326 U.S. 310,
316 (1945)); accord Burnham v. Superior Court of California, 495
U.S. 604, 618 (1990). To satisfy this reguirement, the
3 Adeline's argument that any activities were conducted by WCN and not by him personally is unavailing given the factual context of his actions. According to Blevins's affidavit, Adeline was personally involved both in the operation of WCN and also in the specific transactions related to Litle. Therefore, jurisdiction is based on his direct personal involvement not merely W C N 's corporate activities. See Villa Marina Yacht Sales v. Hatteras Yachts, 915 F.2d 7, 10 (1st Cir. 1990).
7 defendant's conduct should bear such a "substantial connection
with the forum [s]tate" that the defendant "should reasonably
anticipate being haled into court there." Burger King Corp. v.
Rudzewicz, 471 U.S. 462, 473-75 (1985) (internal quotations
omitted).
Due process may be satisfied through general or specific
contacts providing jurisdiction over a defendant. Foster-Miller,
Inc., 46 F.3d at 144. Litle argues that Adeline's contacts with
New Hampshire satisfy the requirements of specific jurisdiction.
Accordingly, Litle must make a prima facie case that Adeline's
contacts meet the constitutional standard in three distinct
components:
First, the claim underlying the litigation must directly arise out of, or relate to, the defendant's forum-state activities. Second, the defendant's in state contacts must represent a purposeful availment of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state's laws and making the defendant's involuntary presence before the state's courts foreseeable. Third, the exercise of jurisdiction must, in light of the Gestalt factors, be reasonable.
United Elec. Workers, 960 F.2d at 1089; accord Sawtelle, 70 F.3d
at 1388.
The first element, relatedness, requires an examination of
title's claims against Adeline, misrepresentation and violation of New Hampshire's fair business practices statute. For both
claims, Litle charges Adeline with misrepresenting W C N 's intent
to ship products to customers before transmitting the charges for
processing to Litle, and instead, as a result of wrongful
conduct, causing Litle to incur excessive chargebacks on W C N 's
account. Blevins's unrefuted affidavit supports title's
allegations by establishing that Adeline was the person at WCN
responsible for monitoring W C N 's obligations under its agreement
with Litle and was also responsible for the submissions of sales
transactions to Litle. Because the actions that form the basis
for title's claims against Adeline were directed at title's
business activities in New Hampshire, the relatedness element is
satisfied.
Second, Litle must show that Adeline's contacts with New
Hampshire were purposeful rather than fortuitous. Sawtelle, 70
F.3d at 1391. The "purposeful availment" element itself consists
of two parts: (1) foreseeability--the defendant's "'contact and
connection with the forum [s]tate [must be] such that he should
reasonably anticipate being haled into court there,'" and (2)
voluntariness--the defendant's contacts must be voluntary rather
than the result of the "'unilateral activity of another party or
a third person.'" Ticketmaster-New York, Inc. v. Alioto, 26 F.3d 201, 207 (1st Cir. 1994) (first quoting Worldwide Volkswagen
Corp. v. Woodson, 444 U.S. 286, 297 (1980) second quoting Burger
King Corp., 471 U.S. at 475)).
Adeline's transactions with Litle in New Hampshire were
pursuant to the Litle-WCN agreement. The agreement provides a
choice of law clause at paragraph twenty-one stating that the
agreement will be governed by and construed in accordance with
New Hampshire law, and WCN agreed that jurisdiction for all
actions to enforce agreement obligations would be in New
Hampshire. Although Adeline was not a signatory to the
agreement, according to Blevins's affidavit, Adeline was CEO and
president of WCN when the agreement was signed and was
responsible for transactions with Litle. Thus, Adeline
presumably was aware of the likelihood of a suit in New
Hampshire.
Litle alleges that Adeline made representations to it about
W C N 's performance under the agreement. The wire transfers and
fax transmissions of sales charges, which allegedly were not in
compliance with the agreement and which caused substantial loss
to Litle, were aimed at title's business operation and were
received and processed in New Hampshire. The alleged intent and
the effect of the contacts were to injure Litle in New Hampshire.
10 Thus, Adeline could reasonably anticipate that problems arising
under the agreement and as a result of misrepresentation to Litle
in New Hampshire would be adjudicated in New Hampshire, and he
acted voluntarily under the terms of the agreement.
Finally, the five Gestalt factors support this court's
assertion of personal jurisdiction over Adeline:
'(1) the defendant's burden of appearing, (2) the forum state's interest in adjudicating the dispute, (3) the plaintiff's interest in obtaining convenient and effective relief, (4) the judicial system's interest in obtaining the most effective resolution of the controversy, and (5) the common interests of all sovereigns in promoting substantive social policies.'
Foster-Miller, 46 F.3d at 150 (guoting United Elec. Workers, 960
F.2d at 1088). Despite the obvious inconvenience to Adeline to
defend himself in a suit in New Hampshire, the weight of the
Gestalt factors tips the balance in favor of asserting
jurisdiction here. It is most convenient for Litle to adjudicate
the dispute in the state where the business is located, and it is
most efficient to continue the action already begun here,
particularly because it involves defendants Blevins and WCN as
well as Adeline. Also, New Hampshire has an interest in
resolving a dispute concerning an alleged harm to a New Hampshire
business that occurred in New Hampshire.
In sum, it is reasonable and constitutionally fair to assert
11 personal jurisdiction over Adeline in New Hampshire.
Accordingly, his motion to dismiss on jurisdictional grounds is
denied.
B. Sufficiency of the Pleadings of Fraud
Adeline moves to dismiss count three, the misrepresentation
claim, on the grounds that Litle has failed to state a cause of
action because the allegations of fraud do not satisfy the
particularity reguirement of Rule 9(b) .4 A motion to dismiss for
failure to state a claim, pursuant to Federal Rule of Civil
Procedure 12(b)(6), reguires the court to review the allegations
of the complaint in the light most favorable to the plaintiff,
accepting all material allegations as true, with dismissal
granted only if no set of facts entitles plaintiff to relief.
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Conley v. Gibson,
355 U.S. 41, 45-46 (1957) .
In the context of a motion to dismiss a claim of fraud or
misrepresentation, however, the claim must also meet the special
pleading reguirements of Federal Rule of Civil Procedure 9 (b).
4 I do not construe Adeline's motion to challenge the sufficiency of the complaint as to the legal elements of a fraud claim under New Hampshire law. Also, Adeline addresses only the claim for misrepresentation, not Litle's claim of violations of New Hampshire's unfair trade practices statute.
12 Romani v. Shearson Lehman Hutton, 929 F.2d 875, 878 (1st Cir.
1991); Havduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985) (in
diversity actions, although state law governs proof of fraud at
trial, procedure for pleading fraud is governed by Rule 9). Rule
9(b) provides: "In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with
particularity. Malice, intent, knowledge, and other conditions
of mind of a person may be averred generally." While the term
"fraud" need not appear in the complaint. Rule 9(b) reguires that
the circumstances indicating fraud be stated with particularity.
See Simcox v. San Juan Shipyard, Inc., 754 F.2d 430, 439 (1st
C i r . 1985).
The purpose of Rule 9(b)'s particularity reguirement is "to
apprise the defendant of fraudulent claims and of the acts that
form the basis for the claim [sic]." Havduk, 775 F.2d at 443
(emphasis added). To fulfill Rule 9(b)'s purpose, the plaintiff
must specify "particular times, dates, places or other details of
the alleged fraudulent involvement of the actors." Serabian v.
Amoskeag Bank Shares, Inc., 24 F.3d 357, 361 (1st Cir. 1994);
accord Havduk, 775 F.2d at 444 (conclusory allegations of fraud
insufficient even if repeated several times). Further, the
complaint must "set forth specific facts that make it reasonable
13 to believe that defendants knew that a statement was materially
false or misleading" when it was made. Lucia v. Prospect St.
High Income Portfolio, Inc., 36 F.3d 170, 174 (1st Cir. 1994)
(quoting Serabian, 24 F.3d at 361).
The bulk of the misrepresentation allegations in the
complaint target WCN rather than Adeline. The gist of the
allegations is that WCN agreed to ship products ordered by its
customers before transmitting the sales charges for processing to
Litle, but instead sent Litle the charges, which Litle credited
to WCN, without ever sending the products to the customers. The
result, Litle contends, was that WCN amassed an excessively large
debt due to chargebacks from sales credited to WCN, but cancelled
by customers, who did not receive the ordered products. The
allegations in the complaint5 that Litle relies on to satisfy its
pleading obligation are as follows:
8. On or about September 9, 1994, Litle entered into a written agreement ("Member Agreement") with [WCN] pursuant to which Litle agreed to process [WCN]'s credit card transactions in exchange for certain fees. A true and accurate copy of the Member Agreement is
5 Unlike a motion to dismiss for lack of personal jurisdiction brought under Federal Rule of Civil Procedure 12(b) (2), a motion to dismiss pursuant to Rule 12(b) (6) focuses on the sufficiency of the pleading without reference to outside facts or proof.
14 attached hereto as Exhibit A and is incorporated herein by reference. [WCN] and its officers represented to Litle that they would be operating a home shopping television network and soliciting credit card purchases by telephone.
15. On or about December 19 , 1994, Litle became aware of significant irregularities in the [WCN] account, including but not limited to an excessive number of chargebacks involving transactions processed by WCN.
16. At this time, Litle also became aware of complaints that customers of [WCN] were being charged for merchandise that had never been shipped by [WCN]. [WCN] and Adeline again represented to Litle that this was not the case.
23. Throughout the time of the activities described above, from the signing of the Member Agreement to the present, Blevins and Adeline have been aware of and personally involved in the acts of [WCN]. Upon information and belief, Blevins and Adeline are active in the business of [WCN] and act as the Chief Executive Officer and President of [WCN], respectively.
38. The representations made by Blevins, Adeline, [WCN], and [WCN]'s agents, servants and employees, concerning their promise not to submit charges to Litle for credit transactions until the time they shipped the products involved in those transactions were false when made.
39. Blevins, Adeline, and [WCN] knew that these representations were false.
The First Circuit has not held, as have other circuits, that
the reguirements of Rule 9 (b) are less stringent with respect to
fraud claims against corporate officers who have allegedly
engaged in collective action on behalf of the corporation. See,
15 e.g.. In re Glenfed, Inc. Securities Litigation, 60 F.3d 591, 592
(9th Cir. 1995) ("A plaintiff may satisfy Fed. R. Civ. P. 9(b)
through reliance upon a presumption that the allegedly false and
misleading group published information complained of is the
collective action of officers and directors." (guotations
omitted)); F.D.I.C. v. Bathgate, 27 F.3d 850, 876 (3d Cir. 1994)
(corporate fraud doctrine may not apply when plaintiff alleges
individual fraud by defendants and, in any case, "plaintiffs must
accompany their allegations with facts indicating why the charges
against defendants are not baseless and why additional
information lies exclusively within defendants' control."
(guotation omitted)); see also Arenson v. Whitehall Convalescent
and Nursing Home, Inc., 880 F. Supp. 1202, 1207 (N.D. 111. 1995) .
Nor does the circuit provide a relaxed standard when specific
facts relate "'to matters peculiarly within the knowledge of the
opposing party.'" Havduk, 775 F.2d at 444 (guoting Wavne
Investment, Inc. v. Gulf Oil Corp., 739 F.2d 11, 13-14 (1st Cir.
1984)). Therefore, in this circuit, a plaintiff must allege
claims of fraud against each individual defendant with
particularity. See Goebel v. Schmid Bros., Inc., 871 F. Supp.
68, 73 (D. Mass. 1994). Litle's allegations do not provide
sufficient detail about Adeline's individual actions to meet the
16 Rule 9(b) standard.
Litle has asked for an opportunity to amend its complaint to
meet the particularity requirement of Rule 9 (b) if I were
"inclined" to grant Adeline's motion. Therefore, rather than
dismiss the misrepresentation claim, I grant Litle's request to
amend its complaint to provide greater detail as to the
misrepresentation allegations against Adeline. I deny Adeline's
motion to dismiss without prejudice to his right to raise the
same issue if Litle fails to amend within a reasonable time.
III. CONCLUSION
For the foregoing reasons, defendant's motion to dismiss,
(document no. 9) is denied, and plaintiff's request to amend is
granted.
SO ORDERED.
Paul Barbadoro United States District Judge
February 26, 1996
cc: Donald Williamson, Esq. Richard Adeline, Esq. Rupert Deeming, Esq.