11 F.3d 1255 (5th Cir. 1994), 92-2366, Busch v. Buchman, Buchman & O'Brien, Law Firm
|Citation:||11 F.3d 1255|
|Party Name:||Eldon A. BUSCH, Plaintiff-Appellant, v. BUCHMAN, BUCHMAN & O'BRIEN, LAW FIRM, et al., Defendants-Appellees.|
|Case Date:||January 19, 1994|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
James E. Bachman, Bachman & Blunk, Omaha, NE, Robert Albright, Dallas, TX, for plaintiff-appellant.
Rachel J. Stroud, Guy M. Hohmann, Norton & Blair, Austin, TX, for defendants-appellees.
Appeal from the United States District Court for the Southern District of Texas.
Before POLITZ, Chief Judge, REAVLEY and EMILIO M. GARZA, Circuit Judges.
REAVLEY, Circuit Judge:
Personal jurisdiction over the defendants was predicated on 15 U.S.C. Sec. 78aa, which grants nationwide service of process to any federal court where "any act or transaction constituting the violation occurred." The district court, sitting in the Southern District of Texas, held that it lacked jurisdiction under Sec. 78aa because no act constituting a violation of the 1934 Securities Exchange Act occurred in Texas. Furthermore, the court concluded that, under the Due Process Clause of the Fifth Amendment, it could not exercise personal jurisdiction over the defendants because they lacked minimum contacts with Texas. We reverse.
As part of a nationwide marketing strategy, Barrister Associates, a New York promoter, sent a prospectus to Eldon Busch, a Texas resident, in an effort to sell limited partnership interests as a tax-sheltered investment. 1 Included within the prospectus was a tax opinion and a confidential offering memorandum, drafted by Buchman, Buchman, & O'Brien (a now-dissolved New York law firm), discussing the tax advantages offered by the securities.
Relying on the tax opinion and offering memorandum in the prospectus, Busch invested in the limited partnership interests. When the tax shelter did not pan out as expected, Busch filed suit in the Southern District of Texas against Buchman, Buchman & O'Brien 2 (Buchman), Barrister Associates, and other defendants; Busch later dismissed Barrister Associates and the other defendants, leaving only Buchman. In Busch's complaint, he alleged that Buchman violated Rule 10b-5 because the opinion letter and the offering memorandum misrepresented information and failed to disclose material information about the limited partnership interests.
Buchman filed a Rule 12(b) Motion, arguing that the law firm was not subject to personal jurisdiction in Texas because (1) no act constituting a violation under the 1934 Securities Exchange Act occurred in Texas and (2) it did not have minimum contacts with Texas. The district court agreed. Busch appeals the dismissal of his complaint.
Subject Matter Jurisdiction
Section 27 of the 1934 Securities Exchange Act, as amended, grants subject
matter jurisdiction to a district court where "any act or transaction constituting the violation occurred." 15 U.S.C. Sec. 78aa (West Supp.1993). 3 In an effort to dodge the jurisdiction of the Southern District of Texas, Buchman tries to distance itself from Barrister's nationwide marketing of the limited partnership interests. Buchman argues that because it drafted the documents in New York for a promoter in New York, it is not responsible for Barrister's subsequent nationwide mailing of the prospectus. But this parochial view of the facts belies the realities of the business transaction.
Buchman drafted the tax opinion and the confidential memorandum, knowing that both would be included in the prospectus. And Buchman knew that Barrister intended to market the securities nationwide, which it did. Given that the only attractive feature of the limited partnership investment was its tax-sheltering effect, Buchman had to know that investors would rely on its tax opinion. While Buchman ostensibly made representations about the tax effects of the partnership interests to Barrister (both documents were addressed to Barrister), in reality, Buchman was representing the tax advantages of the investments to all potential investors. True, Barrister mailed the prospectus, but Buchman's tax opinion and offering memorandum were the crux of the sales pitch; the investors were actually relying on Buchman's representations about the tax-sheltering effects of the securities.
Buchman knew that the prospectus would be marketed nationwide, and Busch received the prospectus in Houston and relied upon Buchman's representations when he purchased the securities. Therefore, the Southern District of Texas has jurisdiction under Sec. 78aa.
Once a case is filed in an appropriate district under Sec. 78aa, the statute gives the district court the authority to serve defendants nationwide. Congress' grant of this power under Sec. 78aa is limited only by the constraints of constitutional due process.
This is not the first time we have dealt with a federal court's ability to get personal jurisdiction over a defendant when the suit is based upon a federal statute providing nationwide service of process. In Federal Trade Comm'n v. Jim Walters Corp., we held that "due process requires only that a defendant in a federal suit have...
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