Northern Laminate v. Matthews CV-02-251-JM 03/07/03 P UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Northern Laminate Sales, Inc.
v. Civil No. 02-251-JM Opinion No. 2003 DNH 032 James F. Matthews
O R D E R
In its Complaint, the Plaintiff, Northern Laminate Sales,
Inc. ("NLS"), alleges that the Defendant, James F. Matthews,
violated provisions of N.H. RSA 545-A, the Uniform Fraudulent
Transfer Act, and N.H. RSA 358-A:l, et seq., which prohibits
unfair or deceptive acts or practices. Among the forms of relief
sought. Plaintiff asks the Court to pierce the corporate veils of
American Board Companies, Inc. ("ABC") and Mateo Electronics
Group, Inc. ("Mateo") to render Matthews personally liable for
$244,040.64, an amount that ABC owes Plaintiff pursuant to a
settlement agreement executed at the conclusion of a prior
litigation in this Court. Before the Court for consideration is
Defendant's Motion to Dismiss for Lack of Personal Jurisdiction
Pursuant to Rule 12(b)(2) and to Dismiss Plaintiff's RSA 358-A
Claim Pursuant to Rule 12(b)(6). For the reasons set for herein.
Defendant's motion to dismiss is granted because the Court finds that it does not have personal jurisdiction over Matthews.
STANDARD OF REVIEW
Since the Defendant has contested this Court's personal
jurisdiction over him, the Court must determine whether the
Plaintiff has shown that sufficient facts exist to support the
Court's exercise of jurisdiction over the Defendant under the New
Hampshire long-arm statute and the Due Process Clause of the
Fourteenth Amendment to the Constitution. See Lyle Richards
Int'l, Ltd. v. Ashworth, Inc, 132 F.3d 111, 112 (1st Cir. 1997);
Sawtelle v. Farrell, 70 F.3d 1381, 1387 (1st Cir. 1995);
Ticketmaster-New York, Inc. v. Alioto, 26 F.3d 201, 204 (1st Cir.
1994). In ruling on a motion to dismiss under Rule 12(b)(2), the
court need not hold an evidentiary hearing to determine the
jurisdictional facts. Davnard v. Ness, Motley, Loadholt,
Richardson & Poole, P.A., 290 F.3d 42, 45 (1st Cir. 2002);
Foster-Miller, Inc. v. Babcock & Wilcox Can., 46 F.3d 138, 145
(1st Cir. 1995); Bolt v. Gar-Tec Prods., Inc., 967 F.2d 671, 675-
676 (1st Cir. 1992). I accept the Plaintiff's evidentiary
proffers as true for the purpose of determining the adeguacy of
the prima facie jurisdictional showing. See Davnard, 290 F.3d at
45. Accordingly, I draw the facts from the pleadings and
2 filings, including affidavits, taking the facts affirmatively
alleged by the Plaintiff as true and construing disputed facts in
the light most hospitable to the Plaintiff. Lyle Richards, 132
F.3d at 112 n.l. I do not, however, credit conclusory
allegations or draw farfetched inferences. See Ticketmaster-New
York, 26 F.3d at 203. I also consider the facts alleged by
Defendant to the extent that they are uncontradicted. Davnard,
290 F.3d at 51. Applying this standard, the factual background
is set forth in the next section.
BACKGROUND
I. Relevant Parties
NLS is incorporated in the State of New Hampshire with a
principal place of business in Atkinson, New Hampshire. It
furnishes laminate components for printed circuit boards.
Matthews is an individual who resides in Binghamton, New York.
At all relevant times, Matthews was an officer, director and the
sole and controlling shareholder of ABC and Mateo. ABC was
incorporated in the State of New York in 1987. Mateo, an
electronics manufacturer, was incorporated in the State of
Delaware in 1996. Plaintiff alleges that Mateo operated in
combination with a number of affiliates, including ABC, and that
3 Mateo exercised control over those affiliates.1
II. Plaintiff's Relationship with ABC and Mateo
Plaintiff contracted with ABC for the sale of laminate
components. Plaintiff alleges that during the year 2000, ABC
placed hundreds of orders for products to be shipped F.O.B.
NLS's Atkinson, New Hampshire Facility.2 By letter dated
September 1, 2000, Miles Russell, NLS's President, wrote to
Matthews expressing concern about the lack of timely and regular
payments for product that NLS shipped to ABC. See Ap p . to NLS's
Verified Objection to Mot. to Dismiss ("App.") at Tab 6.
Plaintiff sent a copy of that letter to Larry Davis ("Davis"),
Secretary and Treasurer of ABC and Mateo.
Plaintiff alleges that Matthews delegated the responsibility
for responding to the September 1st letter to Davis. In a
1Plaintiff alleges that Mateo operated in combination with the following affiliates: ABC, U.S. Assemblies Hallstead, Inc., Carolina Assemblies, Inc., U.S. Assemblies Endicott, Inc., U.S. Assemblies Raleigh, Inc., U.S. Assemblies RTP, Inc., U.S. Assemblies in Florida, Inc., Mateo Precision, Inc., U.S. Assemblies San Diego, Inc., Visara, Inc., Eagle Technologies, Inc., U.S. Assemblies New England, Inc., and U.S. Assemblies Georgia, Inc. With the exception of ABC, all of these affiliates were wholly-owned subsidiaries of Mateo. See Compl. at 5 6.
2The term "F.O.B." is an abbreviation for "free on board" and means that the seller will deliver subject matter contracted for, on certain conveyance, without expense to buyer. Black's Law Dictionary 665 (16th ed. 1990).
4 deposition held after the instant lawsuit was filed, Matthews
testified that he had no recollection of ever receiving the
September 1st letter.3 App. at Tab 15, pp. 29-30. Both Matthews
and Davis testified, however, that Matthews delegated the
responsibility for handling matters such as those set forth in
Russell's September 1, 2000 letter to Davis. See App. at Tab 1,
pp. 143-145, and Tab 15, pp. 29-30. Davis testified that he did
not discuss the letter with Matthews, and that he took it upon
himself to respond. App. at Tab 1, pp. 143-144.
On September 14, 2000, Russell met with Davis in Vestal, New
York to discuss Plaintiff's concerns. Plaintiff alleges that
Davis made the following representations at that meeting: (1)
Mateo was committed to supporting ABC; (2) Mateo would guaranty
ABC's payment obligations; (3) ABC's payment delinguencies were
not cash-flow related, but rather were occasioned by logistical
problems; (4) Mateo and its affiliates, on a consolidated basis,
were profitable; (5) Mateo and its affiliates, on a consolidated
basis, were in a good financial position; (6) Mateo and its
affiliates, on a consolidated basis, were growing rapidly; (7)
Davis would provide consolidated financial statements to NLS
3Matthews and Davis testified at depositions held on September 13, 2002 by agreement between the parties.
5 within a few weeks of the meeting. See Compl. at 5 12-13,
Verified Objection to Def.'s Mot. to Dismiss ("Objection") at 3-
4, and App. at Tab 7. During his deposition, Davis denied having
made any of the foregoing representations with the exception of
stating that Mateo was committed to supporting ABC, and that he
would provide financial statements to NLS. App. at Tab 15, pp.
161-163. Davis admits that he did not send NLS any financial
statements. In a letter to Russell dated September 22, 2000,
Davis wrote:
I enjoyed meeting with you last week and I feel that NLS and ABC can continue a mutually successful partnership. This letter serves as my commitment to meet your payment terms and I have instructed our staff to remit to you each Friday payment for all invoices 53 days and older. Also I assure you that the Mateo Electronics Group, Inc. stands behind this commitment and all confirmed obligations of ABC to NLS.
As I mentioned if there is ever an issue with payment, simply send me an e-mail . . . .
App. at Tab 8.
Plaintiff contends that Davis willfully concealed and
misrepresented Mateo's and ABC's financial condition from
September 14, 2000 on for the purpose of inducing Plaintiff to
extend unwarranted credit to Plaintiff's detriment. According to
Plaintiff, contrary to Davis' representation, Mateo and its
6 affiliates, on a consolidated basis, were not profitable. On a
consolidated basis, Mateo and its affiliates lost $29,877,669 in
the year 2000. See App. at Tabs 3-4 (Exhibits 3, 11 to Davis'
Deposition).4 During 1999, Mateo and its affiliates lost
$9,652,115. Id. Contrary to Davis' alleged representation,
Mateo and its affiliates, on aconsolidated basis, were not in a
good financial position. Id. Rather, Mateo's and its
affiliates' then current liabilities vastly exceeded their then
current assets during the years 1999 and 2000. Id. In 1999, the
liabilities of Mateo and its affiliates were $155,688,503 while
its assets were $138,718,302. Id. In 2000, the liabilities of
Mateo and its affiliates were $104,247,445 while its assets were
$81,088,211. Id. Contrary to Davis' alleged representation,
Mateo and its affiliates, on aconsolidated basis, were not
rapidly growing, but rather were in decline. Id. Plaintiff
alleges that Davis made each representation with knowledge of its
falsity or with conscious indifference to its truth. And
throughout the Complaint and Objection, Plaintiff refers to the financial condition of Mateo and its affiliates "reporting on a consolidated basis." Davis testified at his deposition that the documents attached at Appendix Tabs 3-4 are consolidated balanced sheets that were prepared for the purpose of obtaining replacement financing for Mateo and its affiliates. App. at Tab 1, p. 71-72, 117.
7 Plaintiff alleges that it reasonably and justifiably relied upon
Davis' representations to its detriment. Between the September
14, 2000 meeting between Davis and Russell and November 2, 2000,
ABC's total indebtedness to Plaintiff grew from $337,445.60 to
$669,941.47.
On October 31, 2000, Russell sent an e-mail to Davis in
which he wrote:
During our [September 14th] meeting you had asked me to Email you anytime we had problems with payments.
Currently, we have not seen a check in three weeks and the last check we did receive has been returned to [NLS] with a 'return to maker' marking (our agreement calls for a weekly check paying all invoices 53 days old or older).
Currently $215,717.57 is due through next Monday, including the amount of the check that has been returned.
Your [Accounts Payable] staff has indicated that Mateo has encountered a problem with your [Line of Credit] facility and that this problem should be cleared up by the end of the week.
I would appreciate an update on this situation.
Also, Larry, I have not yet received the financial statements that you agreed to forward following our [September 14th] meeting.
Compl. $[17. On November 1, 2000, Davis sent a reply to
Russell's e-mail:
8 I apologize for not responding sooner. About two weeks ago, our Bank Group disallowed a substantial receivable, which backed us into an overadvance. They began returning checks and to date have only allowed us to fund payroll. We are working very hard to correct this situation through difficult circumstances. We are working with a consulting group to get our banking relationship back on track. We will try to keep you informed as to the availability of funding and payments. I assure you this situation was totally unexpected and we are doing everything posible (sic) to protect our suppliers.
Compl. at 5 18. On November 10, 2000, Russell sent another e-
mail to Davis in which he stated: "You've ignored numerous
telephone calls. I would appreciate an update on Mateo's
situation positive or negative." Id. at 5 19. Davis replied to
Russell's November 10th e-mail on November 11, 2000:
I have not been intentionally ignoring your calls. I have been working diligently on solutions. We have a consulting team now involved and our focus has been on our options, including eguity, refinancing etc. We will be presenting a cash plan to our current bank group next week. Hopefully they will free up advances to our vendors. Again, we are trying to do all posible (sic) to protect our supplier/partners exposure.
Id. at 5 2 0.
III. Prior Litigation
NLS subseguently filed a lawsuit against Mateo in New
Hampshire state court. Mateo removed the action to this Court on
9 December 8, 2000 .5 Matthews was not named as a defendant in that
action. On February 16, 2001, the parties entered into a
Stipulation for Judgment, which was endorsed by the Court
(Barbadoro, C.J.) on February 20, 2001. The relevant terms of
that stipulation are as follows:
Pursuant to Fed. R. Civ. P. 41(a) (1) (1), Northern Laminate Sales, Inc. ("NLS") gives notice of dismissal of this action, without prejudice, as to each of the named Trustee Defendants. American Board Companies, Inc. ("ABC"), an affiliate of Mateo Electronics Group, Inc. ("Mateo"), is added as a party defendant. [Counsel] appears on behalf of ABC. This case is dismissed, without prejudice, as to Mateo only. Judgment is entered in favor of NLS and against ABC in the sum of $669,946.46, plus interest from November 9, 2000 until December 31, 2000 . . . . The Court shall retain jurisdiction to enforce this judgment and the terms of the parties' contemporaneously executed "Settlement Agreement and General Release of All Claims."
Compl. at I 23. The settlement agreement referenced in the
Stipulation for Judgment reguired ABC to pay NLS $100,000 on or
before April 20, 2001. Compl. at I 24. ABC was then reguired to
pay NLS $50,000 on or before June 1, 2001, and "an egual sum of
money on or before the 1st day of each month thereafter until the
entire judgment amount, including interest, costs and [NLS's]
attorney's fees, is fully satisfied." Id. ABC paid NLS as
5See Northern Laminate Sales, Inc. v. Mateo Electronics Group, Inc. et al.. Civil Action No. 00-CV-573-B.
10 required under the settlement agreement from April 1, 2001
through November 1, 2001, but ceased making payments thereafter.
NLS commenced a second lawsuit against Mateo in this Court
on January 9, 2002.6 Matthews was not named as a defendant in
that action. Mateo failed to plead or otherwise defend the
second action as provided by the Federal Rules of Civil
Procedure. Pursuant to Fed. R. Civ. P. 55(a), the Clerk of Court
entered a default as to Mateo and set a damages hearing for March
29, 2002. Prior to the hearing, on February 13, 2002, other
Mateo creditors filed an involuntary bankruptcy petition against
Mateo in the United States Bankruptcy Court for the Northern
District of New York.7 Compl. at 5 27. On March 21, 2002, the
civil action in this Court was stayed and closed subject to being
reopened upon request of either party.
Plaintiff alleges that its efforts to collect any of the
remaining money due to NLS from Mateo have proved fruitless.
Compl. at 5 27. Plaintiff further alleges that representatives
of ABC have declared that ABC cannot pay the remaining
$244,040.64 owed to NLS. Id. Plaintiff was informed that ABC
6See Northern Laminate Sales, Inc. v. Mateo Electronics Group, Inc., Civil Action No. 02-CV-8-JD.
7See In re Mateo Electronics Group, Inc., No. 02-60835.
11 has ceased operations and that a bankruptcy filing is imminent.
Id.
IV. Additional Facts Alleged In Support of Fraudulent Transfer and Veil Piercing Theories
Plaintiff alleges in its Complaint that it has suffered
damages because Mateo systematically diverted money from ABC for
the ultimate benefit of Matthews. Compl. at 5 14. In order to
understand Plaintiff's allegation, it is necessary to discuss the
terms of a credit agreement, dated February 28, 1997, that Mateo
and ABC entered into with BSB Bank & Trust Company, Deutsche
Financial Services Corporation, and National Bank of Canada
(referred to collectively in the credit agreement as the
"Lenders"). See App. at Tab 9 and Def.'s Resp. to Pl.'s Verified
Objection to Def.'s Mot. to Dismiss ("Def.'s Response") at Tab 1.
The credit agreement provides for financing of up to $60,000,000
through, among other things, a revolving line of credit. As of
June 2000, the balance on the revolving line of credit was at
least $40, 000, 000.8
Mateo and ABC are referred to in the credit agreement as
8Plaintiff does not allege that Matthews received these proceeds in his individual capacity, and Davis stated affirmatively at his deposition that the proceeds of the financing did not go Matthews. App. at Tab 1, pp. 65-66.
12 "Borrowers". Pursuant to the terms of credit agreement, the
Borrowers are jointly and severally liable for any loans made
under the credit agreement. In addition, the Borrowers'
subsidiaries, and Matthews in his individual capacity, were also
reguired to guarantee the Borrowers' obligations under the credit
agreement. See Def.'s Resp. at Tab 1, p. 20.9 At all relevant
times, Matthews was an individual guarantor of the Borrowers'
obligations under the credit agreement.
9Relevant portions of the guaranties are included below:
4.1 Corporate. [E]ach Borrower shall execute a Guaranty for each Lender . . . guranteeing the payment and performance of the obligations of the other Borrower. Further, each Borrower will cause its current Subsidiaries to execute a Guaranty for each Lender and a Security Agreement for Lenders. Each Guaranty and Security Agreement shall be approved by the Board of Directors and the sole shareholder of each Borrower and Subsidiary.
4.2 Personal. All obligations of Borrowers to Lenders shall be personally guaranteed by James F. Matthews who shall execute a Guaranty for each Lender . . . . James F. Matthews shall execute this Agreement to acknowledge that it is understood and agreed that he is giving this guarantee to each Lender in order to induce the Lenders to make the Loans, that the Lenders are making the Loans in reliance on his Guaranty, and that his Guaranty is a prereguisite to the making of the Loans.
Def.'s Resp. at Tab 1, p. 20.
13 Plaintiff alleges that even though ABC is named as a
Borrower under the credit agreement, and jointly and severally
obligated thereunder, financial information prepared at the
direction of Mateo shows that ABC received little or none of the
proceeds of that financing. See Objection at 4-5. Plaintiff
alleges that through the exercise of its control, Mateo
"diverted" the assets of ABC to the credit agreement security
reguirements and transferred millions of dollars of ABC's cash to
Mateo and its other affiliates to service the payments due under
the credit agreement and reduce Matthew's personal exposure
thereunder. Id. at 5. Plaintiff alleges that at least
$8,997,225 of ABC's cash was diverted during the calendar years
2000 and 2001 to meet financing obligations of Mateo and its
subsidiaries.10 Plaintiff contends that this diversion of ABC's
cash hindered ABC's ability to pay its vendors including
Plaintiff.
Plaintiff further contends that Mateo did not intend to
perform its obligations to NLS under its guaranty of ABC's
obligations. Nearly four months prior to the September 14, 2002
10Plaintiff contends that this diversion of cash is confirmed by ABC's IRS 2000 Form 1120S, which was an Exhibit at Davis' deposition. See App. at Tab 12, p. 4, line 17.
14 meeting between Russell and Davis, Mateo and its affiliates had
defaulted on the credit agreement and entered into the first of a
series of forbearance agreements.11 Plaintiff alleges that
because of the default Mateo and its affiliates became subject to
a "lockbox agreement" with their principal secured lenders under
which they ceded control over their cash disbursements to their
principal secured lenders. Compl. at 5 11(C) .12 Davis testified
that he did not inform Russell that Mateo and its affiliates,
including ABC, were operating under a forbearance agreement
during the September 14, 2000 meeting. App. at pp. 155-158.
Davis further testified that he did not tell Russell at the
meeting that Mateo's and ABC's ability to pay Plaintiff's
invoices were limited "because at that point, I didn't believe
our ability to pay NLS or any other vendor was impacted by our
borrowing base arrangements that were in effect at that time."
App. at 158-159.
11The first forbearance agreement, dated May 18, 2000, is contained in the Plaintiff's Appendix at Tab 13.
12The credit agreement provides for the collection of the Borrowers' receivables after the occurrence of a default. See Def.'s Resp. at Tab 1, p. 15 (Section 2.10 Collection of Receivables); see also, App. at Tab 1, pp. 44-48, 104-107.
15 V. Defendant's Uncontradicted Jurisdictional Allegations
Matthews has alleged a number of facts in support of his
argument that there is no basis for this Court to exercise
personal jurisdiction over him. Matthews submitted an affidavit
in support of his motion to dismiss. See Aff. of James Matthews
Attached to Def. Resp. ("Matthews Aff."). He contends that he
has not visited New Hampshire in over ten years, nor has he
conducted business within New Hampshire. Matthews Aff., 5 2.
Matthews further states that he did not own, use, or possess any
real or personal property situated in New Hampshire during any
time relevant to this litigation. Id. , 5 4.
Davis submitted an affidavit in support of Matthews' motion
to dismiss alleging facts pertaining to ABC and Mateo in support
of Matthews' argument that the facts do not justify piercing the
corporate veil. Davis contends in his affidavit that Matthews
paid $758,764 for ABC stock at its inception in 1987, and paid in
additional capital of approximately $5,700,000 through the end of
the year 2000. Aff. of Lawrence E. Davis Attached to Def.'s
Response ("Davis Aff.") at I 5. Matthews provided additional
capital to ABC in the form of a loan in the amount of $490,000 in
2001. Id. Davis contends that Matthews paid approximately
16 $871,000 for Mateo stock and provided additional capital to Mateo
in the amount of approximately $7,500,000 through the year 2000.
Davis contends that ABC and Mateo have had separate books,
balance sheets and accounting since their inceptions. Davis Aff.
at I 8. ABC's and Mateo's accounting and record keeping are
completely separate and distinct from each other and that of
Matthews individually. Id. at I 9. Matthews' individual
obligations are not paid by either ABC or Mateo. Id. ABC and
Mateo have held corporate meetings and maintained corporate
minutes through ABC's and Mateo's corporate counsel. Id. at I
10. Davis contends that Plaintiff knew at all times that it was
dealing with ABC and that it was not dealing with Matthews
individually. Id. at I 11.
DISCUSSION
I. Waiver of Objection to Personal Jurisdiction
Plaintiff argues at the outset that Matthews waived any
objection to this Court's personal jurisdiction over him because
he included an alternative reguest that the Court dismiss
Plaintiff's N.H. RSA 358-A Claim pursuant to Fed. R. Civ. P.
12(b)(6). Plaintiff's argument is contrary to the plain language
of Rule 12(b): "No defense or objection is waived by being joined
17 with one or more other defenses or objections in a responsive
pleading or motion." See also. Fed. R. Civ. P. 12(g) ("A party
who makes a motion under this rule may join with it any other
motions herein provided for and then available to the party.").
As Defendant's motion to dismiss was the first responsive motion
filed after Plaintiff commenced this action, I find Plaintiff's
waiver argument to be without merit.
II. The New Hampshire Lonq-Arm Statute
"It is well established in diversity cases that 'the
district court's personal jurisdiction over a nonresident
defendant is governed by the forum's long-arm statute'" Sawtelle
v. Farrell, 70 F.3d 1381, 1387 (1st Cir. 1995); Goldman,
Antonetti, Ferraiuoli, Axtmaver & Hertell v. Medfit Int'l, Inc.,
982 F.2d 686, 690 (1st Cir. 1993); Pizarro v. Hoteles Concorde,
Int'1, C .A . , 907 F.2d 1256, 1258 (1st Cir. 1990) . The New
Hampshire long-arm statute, N.H. Rev. Stat. Ann. 510:4(1),
permits the exercise of personal jurisdiction over a nonresident
defendant who, among other things, "transacts any business within
this state." The statute has been interpreted by the New
Hampshire Supreme Court as affording jurisdiction over foreign
defendants "to the full extent that the statutory language and
18 due process will allow." Sawtelle, 70 F.3d at 1388, quoting
Phelps v. Kingston, 130 N.H. 166, 171, 536 A.2d 740 (1987); see
also, Staffing Network, Inc. v. Pietropaolo, 145 N.H. 456, 458,
764 A.2d 905 (2000). When the forum state's long-arm statute is
coextensive with the outer limits of due process, as here, "the
court's attention properly turns to the issue of whether the
exercise of personal jurisdiction comports with federal
constitutional standards." Sawtelle, 70 F.3d at 1388.
III. Due Process Clause Requirements
The Due Process Clause in the Fourteenth Amendment to the
Constitution bars a court from "imposing its will on persons
whose actions do not place them in a position where they
reasonably can foresee that they might be called to account in
that jurisdiction." Phillips Exeter Acad, v. Howard Phillips
Fund, Inc., 196 F.3d 284, 287 (1st Cir. 1999), citing World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). This
Court may only exercise personal jurisdiction over a defendant if
the defendant has had "certain minimum contacts with New
Hampshire such that maintenance of [a lawsuit] does not offend
traditional notions of fair play and substantial justice." Jet
Wine & Spirits, Inc. v. Bacardi & Co. Ltd., 298 F.3d 1, 7 (1st
19 Cir. 2002) (internal quotations and citations omitted).
If a defendant has continuous and systematic contacts with a
state, courts in the state may exercise general jurisdiction over
any action against the defendant even if those contacts are
unrelated to the suit. Phillips Exeter Acad., 196 F.3d at 288;
Mass. Sch. of Law at Andover, Inc. v. Am. Bar Assoc., 142 F.3d
26, 34 (1st Cir. 1998); United Elec., Radio & Mach. Workers of
Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1088 (1st Cir.
1992). Neither party contends that Matthews has had such
contacts with New Hampshire, nor does it appear so from the
record, so I do not address the issue of general jurisdiction
further.
"In the absence of general jurisdiction, a court's power
depends upon the existence of specific jurisdiction." Mass. Sch.
of Law, 142 F.3d at 34. As its name suggests, specific
jurisdiction is more narrow than general jurisdiction. A court
may exercise specific jurisdiction over a defendant if "the cause
of action arises directly out of, or relates to, the defendant's
forum-based contacts." United Elec., Radio & Mach. Workers, 960
F.2d at 1088-89; see also, Mass. Sch. of Law, 142 F.3d at 34
(court must find that there is a demonstrable nexus between a
20 plaintiff's claims and a defendant's forum-based activities).
Courts in the First Circuit use a three-part test to
determine whether exercising specific jurisdiction would comply
with the requirements of the Due Process Clause. Phillips Exeter
Acad., 196 F.3d at 288; Mass. Sch. of Law, 142 F.3d at 35; United
Elec., Radio & Mach. Workers, 960 F.2d at 1089. In announcing
the three-part test, the First Circuit summarized the analysis as
follows:
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., Radio & Mach. Workers, 960 F.2d at 1089. As
discussed below, I find that under the facts of the instant case,
this Court's exercise of specific jurisdiction over Matthews
would be contrary to the requirements of the Due Process Clause.
IV. Attribution of ABC's and Mateo's Forum-State Contacts to Matthews to Establish Personal Jurisdiction
Plaintiff does not contend that Matthews has direct contacts
with the State of New Hampshire that would enable this Court to
21 assert specific jurisdiction over him. Rather, Plaintiff
contends that ABC's and Mateo's New Hampshire contacts may be
attributed to Matthews for purposes of establishing personal
jurisdiction. Since there is no dispute that the Court would
have personal jurisdiction over ABC and Mateo, I do not further
address whether their contacts would be sufficient to permit the
Court to exercise personal jurisdiction over those entities.13 I
next consider whether it is appropriate for this Court to pierce
the corporate veils of ABC or Mateo for the purpose of
attributing their forum-based contacts to Matthews for purposes
of obtaining personal jurisdiction over him.
A. Piercing the Corporate Veil As a Basis for Exercising Personal Jurisdiction Over Matthews
"The general rule is that jurisdiction over the individual
officers of a corporation may not be based merely on jurisdiction
13Defendant does not dispute that this Court has personal jurisdiction over ABC and Mateo. Indeed, neither ABC nor Mateo contested the exercise of this Court's jurisdiction in the related prior proceedings against them. As further support for its allegation that the Court has personal jurisdiction over ABC and Mateo, however. Plaintiff alleges that its sent invoices to ABC that stated that "The laws of the State of New Hampshire apply to this document and all transactions hereunder." App. at Tab 5, 5 18. Plaintiff also alleges that its communications with Davis pertaining to the performance of the contracts between NLS and ABC support this Court's exercise of personal jurisdiction over those entities.
22 over the corporation." Escude Cruz v. Ortho Pharmaceutical
Corp., 619 F.2d 902, 906 (1st Cir. 1980); see also, Hahn v.
Vermont Law School, 698 F.2d 48, 52 (1st Cir. 1983) (same);
Velcro Group Corp. v. Billarant, 692 F. Supp. 1443, 1449 (D.N.H.
1988) (same). There is support in the First Circuit, however,
for the principle that the forum-state contacts of a corporation
may, under appropriate circumstances, be attributed to a
nonresident defendant in order to establish personal jurisdiction
over the defendant. See De Castro v. Sanifill, Inc., 198 F.3d
282, 283-284 (1st Cir. 1999) (evidence did not establish that the
court should pierce the corporate veils of two subsidiaries to
exercise jurisdiction over a foreign parent corporation and
unnamed individual defendants); United Elec., Radio and Machine
Workers of Am., 960 F.2d at 1091 (if a subsidiary is properly
subject to the court's jurisdiction and its corporate
independence may be disregarded, the parent is subject to the
court's jurisdiction), rev'd on other grounds, 987 F.2d 39 (1st
Cir. 1993); Snell v. Bob Fisher Enter., Inc., 106 F. Supp.2d 87,
90 (D. Me. 2000) ("Piercing the corporate veil has been
recognized, in some circumstances, as a viable means to establish
jurisdiction."). Although a corporation is treated as a separate
23 legal entity and its liabilities are not attributable to its
owners and officers, the corporate separateness that shields an
owner from liability may be disregarded under certain conditions.
Scully Signal Co. v. Joval, 881 F. Supp. 727, 736 (D.R.I. 1995).
The result of this corporate disregard is that if the corporation
is found liable or subject to the jurisdiction of the court, the
owner is likewise subject to liability and personal jurisdiction.
Id. Thus, the forum-state contacts of a corporation may be
attributed to an individual who is an officer, director, or
shareholder of the corporation when evidence is presented that
shows that the corporation is the alter ego of the individual, or
where other circumstances permit the court to pierce the
corporate veil. Id.
B. Choice of Law for Veil Piercing Analysis
Neither party analyzes which state's law shouldapply to the
guestion of whether ABC's and Mateo's corporate veils should be
pierced in the instant case. On the one hand, the Plaintiff
assumes that the Court will apply New Hampshire law. See
Objection at 14-15. On the other hand, the Defendant contests
this Court's authority to pierce the corporate veils of a New
York and Delaware corporation to establish jurisdiction over a
24 non-resident defendant. See Def.'s Mot. to Dismiss at 3.
Defendant's challenge to the Court's authority is unsupported,
and contrary to existing precedent in this Circuit. A review of
analogous cases shows that the court should engage in a choice of
law analysis to determine which state's law applies to the issue
of whether a corporate veil should be pierced. See Wadsworth,
Inc. v. Schwarz-Nin, 951 F. Supp. 314, 320-322 (D.P.R. 1996)
(refusing to assume that the law of the forum applies to the
guestion of whether to pierce the corporate veil and engaging in
a choice of law analysis); Scully Signal Co., 881 F. Supp. at 736
(finding that the laws of New York, Rhode Island and
Massachusetts all could potentially apply in the veil piercing
analysis under the facts of the case) ; see also, Gova Foods, Inc.
v. Unanue, 233 F.3d 38, 43 n.4 (1st Cir. 2000) (finding that the
law of the state of incorporation may supply the presumptively
applicable legal regime for veil piercing claims).14
14One district court has stated that "[i]n deciding whether to pierce the corporate veil in order to establish jurisdiction, the Court will apply the law of the forum state." Snell v. Bob Fisher Enterprises, 106 F. Supp.2d at 90 (citing De Castro v. Sanifill, Inc., 198 F.3d 282, 283 (1st Cir. 1999)). That conclusion appears to be based on a misreading of De Castro. In De Castro, the plaintiffs sought to pierce the corporate veils of two wholly-owned Puerto Rican subsidiaries to reach a Delaware parent corporation. 198 F.3d at 283-284. In that context, the district court, located in Puerto Rico, applied Puerto Rico law
25 When a court, sitting in diversity, considers a case in
which more than one state has an interest, the court must
determine which state's law to apply. To make this
determination, this Court applies New Hampshire's choice of law
rules. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
496 (1941) (holding that the forum state's choice of law doctrine
governs); American Title Ins. Co. v. East West Fin. Corp., 95 9
F.2d 345, 348 (1st Cir. 1992) (same). Under New Hampshire law,
the court resolves potential conflicts of law by first deciding
whether the relevant law is substantive or procedural. Keeton v.
Hustler Magazine, Inc., 131 N.H. 6, 13, 549 A.2d 1187, 1191
(1988). If the court finds the relevant law is substantive, it
then determines whether the New Hampshire law actually conflicts
with the law of another interested state. Id. If the laws are
in actual conflict, the court chooses which state's law to apply
by employing a balancing test composed of five choice-influencing
considerations: (1) the predictability of results; (2) the
maintenance of reasonable orderliness and good relationships
and found that sufficient facts did not exist to pierce the corporate veils of the Puerto Rican subsidiaries. Id. at 285. The De Castro court did not find, as a general matter, that the law of the forum state always applies to the guestion of whether to pierce the corporate veil.
26 among the states in the federal system; (3) simplification
of the judicial task; (4) the advancement of the governmental
interest of the forum; and (5) the court's preference for what it
regards as the sounder rule of law. Id. at 14, 549 A.2d at 1192
(citing LaBountv v. American Ins. Co., 122 N.H. 738, 741 451 A.2d
161, 163 (1982); Clark v. Clark, 107 N.H. 351, 353-55, 222 A.2d
205, 208-09 (1966)). The standard for piercing the corporate
veil is substantive law. Data General Corp. v. Grumman Data Svs.
Corp., 886 F. Supp. 927, 931 (D. Mass. 1994) (finding that the
law pertaining to piercing the corporate veil is a substantive
body of law). Although the standards do not vary widely in most
states, the standards may diverge enough to be outcome
determinative. Wadsworth v. Schwarz-Nin, 951 F. Supp. at 321 n.4
(citing Resolution Trust Corp. v. Chapman, 29 F.3d 1120 (7th Cir.
1994)). After reviewing the legal standards of all three
potentially relevant jurisdictions, it does not appear to the
Court that the Plaintiff has made a prima facie showing that
meets the reguirements to pierce the corporate veil under the law
of any of the jurisdictions. Therefore, I do not engage in a
balancing analysis.
27 C. Veil Piercing Standards
It appears that New Hampshire, New York and Delaware all
have sufficient contacts with this action that any of their veil
piercing standards might potentially apply. The alleged wrong to
the Plaintiff, a New Hampshire corporation, occurred in New
Hampshire. Mateo is a Delaware corporation with a principal
place of business in New York. ABC is a New York corporation
with a principal place of business in that state.
It is often repeated in New Hampshire cases that "New
Hampshire courts do not 'hesitate to disregard the fiction of the
corporation' when circumstances would lead to an ineguitable
result." Terren v. Butler, 134 N.H. 635, 639, 597 A.2d 69 (1991)
(brackets omitted), citing Ashland Lumber Co., Inc. v. Haves, 119
N.H. 440, 441, 402 A.2d 201 (1979) (guoting Peter R. Previte,
Inc. v. McAllister Florist, Inc., 113 N.H. 579, 581, 311 A.2d 121
(1973)). In Drudinq v. Allen, 122 N.H. 823, 451 A.2d 390 (1982),
the New Hampshire Supreme Court found that "a court may pierce
the corporate veil if a shareholder suppresses the fact of
incorporation, misleads his creditors as to the corporate assets,
or otherwise uses the corporate entity to promote injustice or
fraud." Id. at 827. "A lack of practical separation between the
28 shareholder and the corporation, so that the corporation is
merely the shareholder's 'alter-ego,' is an important sign that
the shareholder has abused the corporate form." Bartholomew v.
Delahave Group, Inc., Civ. No. 95-20-B, 1995 WL 907897 at *11
(D.N.H. Nov. 8, 1995), citing Terren, 134 N.H. at 640.
In direct contrast to New Hampshire law, "persuading a
Delaware Court to disregard the corporate entity is a difficult
task." Harco Nat. Ins. Co. v. Green Farms, C.A. No. 1131, 1989
WL 110537 at *4 (Del. Ch. Sept. 19, 1989) . To state a cognizable
claim for piercing the corporate veil under Delaware law, the
plaintiff must allege facts that, if taken as true, demonstrate
the defendant's complete domination and control over the
corporation. Wallace v. Wood, 752 A.2d 1175, 1183 (Del. Ch.
1999). This degree of control reguires "exclusive domination and
control . . . to the point that [the corporation] no longer ha[s]
legal or independent significance of [its] own." Id., citing
Hart Holding Co., Inc. v. Drexel Burnham Lambert, Inc., C.A. No.
11514, 1992 WL 127567 at *11 (Del. Ch. May 28, 1992). Piercing
the corporate veil under the alter ego theory "reguires that the
corporate structure cause fraud or similar injustice." Outokumpu
Enq'q Enter., Inc. v. Kvaerner Enviorpower, Inc., 685 A.2d 724,
29 729 (Del. Supr. 1996); see also, Gever v. Inqersoll Pub. Co., 621
A.2d 784, 793 (Del. Ch. 1992) (finding that commission of a fraud
and the existence of an alter ego relationship are the bases for
individual liability for corporate acts) .
New York law on piercing the corporate veil may fall
somewhere in between that of New Hampshire and Delaware. The New
York Court of Appeals has stated that, "[b]roadly speaking, the
courts will disregard the corporate form, or, to use accepted
terminology, pierce the corporate veil, whenever necessary to
prevent fraud or to achieve eguity." Walkovszky v. Carlton, 18
N .Y .2d 414, 417, 223 N.E.2d 6, 7-8, 276 N.Y.S.2d 585, 587 (N.Y.
1966) (internal guotations omitted). It is generally accepted
under New York law that in order to pierce the corporate veil the
plaintiff must show that: (1) the owners exercised complete
domination of the corporation with respect to the challenged
transaction, and (2) that such domination was used commit a fraud
or wrong against the plaintiff resulting in the plaintiff's
injury. Morris v. New York State Dep't of Taxation & Fin., 82
N.Y.2d 135, 141, 623 N.E.2d 1157, 1160-61, 603 N.Y.S.2d 807, 810-
11 (N.Y. 1993); Austin Powder Co. v. McCullough, 216 A.D.2d 825,
826, 628 N.Y.S.2d 855, 856 (N.Y. Ap p . Div. 1995).
30 D. The Facts of the Instant Case Weigh Against Veil Piercing
1. ABC and Mateo Were Not Matthews' Alter Egos
The facts alleged by the Plaintiff do not meet the standards
for veil piercing in part because they do not demonstrate that
ABC and Mateo were merely sham entities or Matthews' alter egos.
ABC and Mateo, were incorporated in 1987 and 1996 respectively.
Prior to 2001 both corporations had substantial operations
involving millions of dollars worth of business. Defendant's
uncontraverted allegations show that ABC and Mateo existed as
legally significant entities wholly apart from Matthews. ABC and
Mateo kept separate books, balance sheets and accounting records.
ABC's and Mateo's finances were separate and distinct from
Matthews' individual finances and Matthews' individual
obligations were not paid by either ABC or Mateo. ABC and Mateo
observed corporate formalities such as holding corporate meetings
and maintaining corporate minutes. And Plaintiff knew at all
times that it was contracting with ABC and not Matthews
individually. Indeed, Matthews was not named as a defendant in
either of the prior actions in this Court. In addition to
observing corporate formalities, ABC and Mateo had substantial
capital. Matthews, the sole shareholder, paid capital to Mateo
31 and ABC through the year 2000 of approximately $14,800,000.
Davis alleged that Matthews contributed $490,000 in capital to
ABC alone in 2001.
2. Plaintiff Has Not Alleged Facts That Show Injustice or Fraud
Plaintiff's factual allegations fall short in the veil
piercing analysis because the facts alleged do not show that
Matthews used ABC to promote injustice or fraud on the Plaintiff.
Plaintiff expressed concern about its relationship with ABC in a
September 1, 2000 after allegedly having conducted hundreds of
transactions with ABC. After Plaintiff sued to recover its
damages for ABC's breach of contract, ABC made payments to
Plaintiff pursuant to a settlement agreement between April 2001
and November 2001 reducing its outstanding debt to Plaintiff from
$669,946.46 to $244,040.64. ABC ceased operations sometime after
November 2001. It is undisputed that Mateo's other creditors
filed a petition for involuntary bankruptcy against Mateo shortly
thereafter in February 2002. These facts may show the existence
of two failed businesses, but they do not demonstrate that
Matthews directed a wrong at the Plaintiff.
Plaintiff's primary allegations in favor of piercing the
corporate veil are that ABC and Mateo were insolvent during the
32 time that ABC contracted with Plaintiff, and that Mateo diverted
ABC's cash to satisfy the obligations under the credit agreement
to the detriment of ABC's creditors. Plaintiff further alleges
that it was misled as to Mateo's and its affiliates' financial
conditions and induced to extend unwarranted credit to ABC.
Accepting Plaintiff's allegation that ABC was insolvent
during the period that ABC contracted with Plaintiff, that fact,
in an of itself, is insufficient to justify piercing the
corporate veil. Even in New Hampshire, which appears to have the
most liberal standard for piercing the corporate veil here, the
courts recognize that "one of the desirable and legitimate
attributes of the corporate form of doing business is the
limitation of the liability of the owners to the extent of their
investment." Peter R. Previte, Inc. v. McAllister Florist, Inc.,
113 N.H. at 584, 311 A.2d at 123. "Thus when a corporate
enterprise becomes insolvent a creditor may not look to the
individual stockholders for payment of his debt in the absence of
unusual circumstances." Id. At bottom. Plaintiff contends that
the "diversion" of cash from ABC to satisfy the obligations on
the credit agreement gualifies as an unusual circumstance
justifying Plaintiff's reguest to pierce the corporate veil to
33 render Matthews individually liable for debt owed by ABC. See
Objection at 15. The Court disagrees. At best. Plaintiff has
shown a possible justification for piercing the corporate veil of
ABC to render Mateo liable. See e.g., Williams v. Reifsteck, No.
Civ. A. 3:96CV2758D, 1997 WL 419554 at *3 (N.D. Tex. July 8,
1997) (plaintiff's evidence, which tended to show only that the
individual defendant was a participant in decisions regarding the
transfer of funds between related corporations, may suggest that
the relevant corporate entities should be disregarded to reach
other corporate entities, but does not demonstrate that the
corporations were a facade for the individual's activities).
There is no support for the further leap needed to render
Matthews liable. In particular, I note that there is no evidence
that shows that Matthews personally received any of the proceeds
from the revolving loan. Nor is there is any evidence that any
of the cash that Plaintiff alleges was diverted from ABC went to
Matthews individually or to satisfy any of Matthews' personal
obligations.
Plaintiff argues that Matthews, as an individual guarantor
of the credit agreement, ultimately benefitted from the diversion
of ABC's cash to satisfy the revolving loan because it reduced
34 Matthews' individual exposure. Though it could be said that
Matthews benefitted from ABC's joint obligation with Mateo under
the credit agreement since ABC contributed more of its cash to
satisfaction of the revolving loan than it drew from the line of
credit, the Court finds that this allegation does not demonstrate
an intent to injure Plaintiff. Following Plaintiff's reasoning
to its logical extension, any payment by Mateo or ABC that
reduced the obligation on the revolving loan should be considered
a personal benefit to Matthews because it reduced his potential
individual exposure.15 According to Plaintiff's theory, however,
Matthews would be personally liable to any of ABC's and Mateo's
unpaid creditors not just NLS. Plaintiff's argument goes too
far. Moreover, Plaintiff has not alleged any specific action
that Matthews took to reduce his exposure on the individual
guaranty.
Plaintiff's allegation that it was mislead as to Mateo's and
its affiliates' financial conditions, and therefore extended
unwarranted credit to ABC, does not show a basis for this Court's
assertion of personal jurisdiction over Matthews. Plaintiff has
not alleged any facts that show that the alleged fraudulent
15Matthews was not a borrower under the credit agreement, and therefore he was not directly obligated to the Lenders.
35 misrepresentations may be attributed to Matthews. Plaintiff
alleges that Matthews delegated the responsibility for responding
to Russell's September 1, 2000 letter to Davis, a claim disputed
by Matthews and Davis in their depositions. Even accepting
Plaintiff's allegations as true, there is no support for an
inference that Matthews directed Davis to mislead Plaintiff as to
the financial condition of Mateo and its affiliates. C f ., Escude
Cruz, 619 F.2d at 907 (finding that a corporate officer is liable
for torts in which he personally participated in). Personal
jurisdiction over Matthews may not be based merely on his status
as a corporate officer and shareholder. Id.
The Court finds no basis to pierce the corporate veils of
ABC and Mateo to render Matthews personally liable in this action
based on the facts alleged by the parties. And without a viable
veil piercing theory, it is clear that Matthews does not have
minimum contacts with the State of New Hampshire sufficient for
this Court to exercise personal jurisdiction over him. I find,
therefore. Defendant's motion to dismiss should be granted.
36 CONCLUSION
For the reasons set forth above, Matthews' Motion to Dismiss
for Lack of Personal Jurisdiction (document no. 6) is granted.
SO ORDERED.
James R. Muirhead United States Magistrate Judge
Date: March 7, 2003
cc: Lawrence M. Edelman, Esg. Paul B. Kleinman, Esg.