Rice v. Karsch

154 F. App'x 454
CourtCourt of Appeals for the Sixth Circuit
DecidedFebruary 16, 2006
DocketNo. 03-6205
StatusPublished
Cited by26 cases

This text of 154 F. App'x 454 (Rice v. Karsch) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rice v. Karsch, 154 F. App'x 454 (6th Cir. 2006).

Opinions

FORESTER, District Judge.

The Plaintiffs-Appellants appeal the District Court’s order granting Defendant-Appellee Michael Karsch’s motion to dismiss and denying the Plaintiffs-Appellants’ motion to amend the complaint against Karsch. Specifically, the District Court found that it did not have personal jurisdiction over Karsch and that, as a result, amending the Complaint against him would be futile. For the reasons discussed herein, the District Court will be AFFIRMED.

I. OVERVIEW

This case originates as a breach of contract for the sponsorship of an Indy Racing League race-car team. The issue currently before this Court involves the personal jurisdiction of the District Court in Tennessee over the sponsor’s general counsel, Michael Karsch. Plaintiffs-Appellants, Paul Rice, as trustee for Pagan Lewis Motors, Pagan Lewis Motors, Jack Pagan, Allan Pagan, and Paul Rice, individually, brought suit in United States District Court for the Western District of Tennessee alleging diversity jurisdiction [456]*456against Merchantonline.com, Inc., its chief executive officer, Tarek Kirschen, its stock transfer agent, American Stock Transfer and Trust Company, and its general counsel, Michael Karseh. The suit claims that Merchantonline.com breached a sponsorship contract and that Karseh subsequently hampered Plaintiffs-Appellants’ efforts to sell the stock Plaintiffs-Appellants accepted as collateral.

Plaintiffs-Appellants appeal from the District Court’s dismissal of their claims against Karseh for a lack of personal jurisdiction and the denial of their motion to amend the Complaint. Plaintiffs-Appellants assert that by directing fraudulent and negligent statements toward Plaintiffs-Appellants and a third party in Tennessee over the telephone and by e-mail, Karseh, though located in Florida, availed himself of the laws of the state of Tennessee and is subject to personal jurisdiction therein. Karseh replies that his contacts with the state were insufficient to satisfy the requirements of due process.

II. ISSUES

The issues presented by this appeal are (1) whether the District Court erred in finding that Karseh lacked sufficient contacts with the state of Tennessee so that the exercise of personal jurisdiction within the state failed to satisfy the requirements of due process and (2) whether the District Court erred in denying Plaintiffs-Appellants leave to amend the Complaint against Karseh solely on the ground that the court contemporaneously dismissed the existing Complaint.

III. FACTUAL AND PROCEDURAL BACKGROUND

Merchantonline.com, a Florida-based company, contracted with Plaintiff-Appellant Pagan Lewis Motors, Inc., based in Tennessee, in May of 1999 to sponsor Pagan Lewis’s race-car team and pledged to pay Pagan Lewis $1.53 million over the next five months. In return, Pagan Lewis promised advertising rights to Merehantonline.com. To guarantee performance, Merchantonline.com granted Pagan Lewis a security interest in 200,000 shares of Merchantonline.com stock. Under the stock pledge agreement, the shares were placed in escrow with Paine Webber in its Jackson, Tennessee office; the chief executive officer of Merchantonline.com, defendant Tarek Kirschen, retained ownership of that stock and Plaintiff-Appellant Paul Rice of Tennessee became trustee. Less than one month later, Merchantonline.com notified Pagan Lewis that it would default on the agreement. The parties entered into a workout agreement, which rescheduled the payments by Merchantonline.com and placed 500,000 shares of Merchantonline.com stock in the names of Plaintiffs-Appellants Paul Rice, Allan Pagan, and Jack Pagan.2 Merchantonline.com breached the new agreement as well and failed to make the required payments.

Upon Merchantonline.com’s second breach, Rice took steps to liquidate the collateral stock and sell the forbearance stock and, on August 17, 2000, requested that Karseh, as general counsel, located in Merchantonline.com’s Florida office, issue a notice to the transfer agent authorizing transfer of the shares. Plaintiffs-Appellants assert that under a Securities and Exchange Commission regulation commonly known as Rule 144, the stock in question was restricted stock and could not be sold until Merchantonline.com filed notice with the transfer agent certifying that the shares had been held for one year, that the [457]*457amount to be sold did not exceed one percent of the outstanding shares, and that Merchantonline.com had complied with reporting requirements. [J.A. at 75, 170] See 17 C.F.R. § 230.144. In response to the August 17th letter from Rice inquiring about the Rule 144 letter, Karsch notified Rice by letter dated August 31, 2000 that Karsch would instruct the transfer agent to place a stop transfer on the shares. [J.A. at 193] Subsequently, on September 15, 2000, Karsch spoke with the Plaintiffs-Appellants’ broker at Paine Webber, Angela Lowery, and informed her that she was not authorized to sell any shares on behalf of Plaintiffs-Appellants. [J.A. at 194] He also sent a confirmation email to Ms. Lowery, who, it is alleged, was located in Jackson, Tennessee. [J.A. at 194]

Plaintiffs-Appellants brought this action against Karsch, Merchantonline.com, Kirschen, and American Stock Transfer and Trust Company seeking damages and equitable relief on December 12, 2000. Plaintiffs-Appellants filed claims against Karsch for tortious interference with contracts, civil conspiracy, legal malpractice, and breach of fiduciary duty and asked the District Court to enjoin Karsch and the other defendants from further hindering Rice’s efforts to liquidate and sell the stock. Through their initial and Amended Complaints, Plaintiffs-Appellants allege that Karsch also made misrepresentations to Rice, upon which Rice relied to his detriment, that the letter was forthcoming and that Karsch had issued the letter when he had not done so. They contend that Karsch continued to ignore requests for the letters by Rice and by Paine Webber on Rice’s behalf. Plaintiffs-Appellants allege that, as a result, Karsch tortiously interfered with the exercise of the contract and workout agreement by refusing to issue the Rule 144 letter, by instructing the transfer agent not to authorize sale of the stock, by making false statements to Rice regarding issue of the letter, and by instructing Rice’s broker that she was not authorized to sell the shares on Rice’s behalf. The Plaintiffs-Appellants further allege that between August 2000 and February 2001, the price of Merchantonline.com’s stock plummeted, substantially decreasing the value of Plaintiffs-Appellants’ shares and resulting in damage to them.

The District Court issued a Preliminary Injunction on January 2, 2001, ordering Karsch to provide the necessary Rule 144 letters allowing transfer of the collateral stock and of the stock personally owned by Rice and the Pagans. Eventually, in February of 2001, Karsch issued letters for two of Rice’s sales, but indicated that a third trade was “no good” because Merchantonline.com had failed to file its annual report in a timely manner. [J.A. at 75] Thereafter, Karsch sent emails to Rice and others on March 13, 2001, November 7, 2001, and November 8, 2001. [J.A. at 191, 195, and 196]

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
154 F. App'x 454, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rice-v-karsch-ca6-2006.