1998 -NMCA- 131, Campos Enterprises, Inc. v. Edwin K. Williams and Co.

• Decision Date: 05 August 1998
• Docket Number: Nos. I-,No. 18570,D,s. I-,18570
• Citation: 1998 NMCA 131,964 P.2d 855,125 N.M. 691
• Parties: , 1998 -NMCA- 131 CAMPOS ENTERPRISES, INC., a New Mexico corporation, Gilbert Campos and Loretta Campos, Plaintiffs-Appellants, v. EDWIN K. WILLIAMS AND COMPANY, a/k/a New E.K.W., Inc., a foreign corporation, Defendant-Appellee, and Tax and Business Service, Inc., a New Mexico corporation, Van Edwards, Lou Feltz, Norman Fletcher and John Doeefendants.
• Court: Court of Appeals of New Mexico

Page 855

964 P.2d 855

125 N.M. 691, 1998 -NMCA- 131

CAMPOS ENTERPRISES, INC., a New Mexico corporation, Gilbert Campos and Loretta Campos, Plaintiffs-Appellants, v. EDWIN K. WILLIAMS AND COMPANY, a/k/a New E.K.W., Inc., a foreign corporation, Defendant-Appellee and Tax and Business Service, Inc., a New Mexico corporation Van Edwards, Lou Feltz, Norman Fletcher and John Doe Nos. I-X, Defendants.

No. 18570.

Court of Appeals of New Mexico.

Aug. 5, 1998.

Certiorari Denied Sept. 14, 1998.

Benjamin Silva, Jr., F. Barry McCabe, Silva, Rieder & Maestas, P.C., Albuquerque, for Plaintiffs-Appellants.

A. Drew Hoffman, Nickay B. Manning, Eastham, Johnson, Monnheimer & Jontz, P.C., Albuquerque, for Defendent-Appellee.

OPINION

WECHSLER, Judge.

¶1 This case poses the questions of what acts by an out-of-state franchisor are sufficient to support a basis for personal jurisdiction over it, and whether the acts of a franchisee located in this state can be imputed to the franchisor to sustain personal jurisdiction over the franchisor. We hold that the allegations of Campos Enterprises, Inc. and Gilbert and Loretta Campos (Plaintiffs) concerning misconduct involving the franchisor Edwin K. Williams and Company (Defendant) based principally upon actions by the franchisee are insufficient to sustain personal jurisdiction under NMSA 1978, § 38-1-16 (1971) (long-arm statute). Thus, we affirm the district court's dismissal of Defendant for lack of personal jurisdiction.

Facts and Procedural Posture

¶2 Plaintiffs employed Tax and Business Service, owned originally by Norman Fletcher and later by William Van Edwards, to prepare Plaintiffs' personal and business federal and state income tax returns. The business of Tax and Business Service included being a franchise of Defendant, an out-of-state national franchisor, which franchises "bookkeeping and business management systems and services to oil jobbers ..., retail petroleum marketing outlets and service station owners ... and other retail, wholesale and service business establishments." Tax and Business Service also operated its business under the names "Edwin K. Williams & Co." and "EKW Systems" with its letterhead indicating it was a licensed office.

¶3 Tax and Business Service prepared Plaintiffs' tax returns for the years 1980 to 1993. The Internal Revenue Service audited and assessed penalties and interest for both business and personal federal tax returns filed in 1991, 1992, and 1993. Plaintiffs filed a complaint against the franchisor, Tax and Business Service, and Tax and Business Service's past and current owners alleging professional negligence, breach of express and implied contract, negligent infliction of emotional distress, intentional infliction of emotional distress, intentional spoliation of evidence, negligent spoliation of evidence, and conversion arising from the incorrect preparation of Plaintiffs' tax returns. The district court granted Defendant's motion to dismiss Defendant for lack of personal jurisdiction on the basis of briefs, affidavits, and a motions hearing. Plaintiffs appeal.

Standard of Review

¶4 Relying on Mark V, Inc. v. Mellekas, 114 N.M. 778, 782, 845 P.2d 1232, 1236 (1993), Plaintiffs claim our standard of review is de novo. Mark V, Inc., however, was not a case involving the question of whether the trial court is invested with personal jurisdiction over Defendant. Rather, it involved a contract dispute decided on summary judgment, which our Supreme Court reversed and remanded for an evidentiary hearing because of factual ambiguities. See id. at 779, 845 P.2d at 1233. Defendant directs us to the federal case of Mylan Laboratories, Inc. v. Akzo, N.V., 2 F.3d 56 (4th Cir.1993). Since the language of Rule 1-012 NMRA 1998 mirrors the language of Rule 12 of the Federal Rules of Civil Procedure, we find federal law instructive. See Doe v. Roman Catholic Diocese of Boise, Inc., 1996-NMCA-057, 121 N.M. 738, 741, 918 P.2d 17, 20.

¶5 According to Mylan Laboratories, Inc., to the extent that a district court's conclusions concerning whether a plaintiff has proven personal jurisdiction rest upon legal precepts, those conclusions are reviewed on appeal de novo. See Mylan Lab., Inc., 2 F.3d at 60; see also Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1075 (10th Cir.1995) (applying de novo standard to legal conclusions on motion to dismiss based upon personal jurisdiction). On the other hand, a district court's conclusions based upon findings of fact are not disturbed on appeal unless clearly erroneous. See Mylan Lab., Inc., 2 F.3d at 60; see also Amoco Rocmount Co. v. Anschutz Corp., 7 F.3d 909, 917 (10th Cir.1993) (question of fact on diversity jurisdiction reviewed under clearly erroneous standard). We believe that Mylan Laboratories, Inc. represents the appropriate standard when reviewing the dismissal of a defendant for personal jurisdiction based upon pleadings and affidavits.

Plaintiffs' Burden

¶6 Plaintiffs raise an additional argument concerning their burden. They contend that as to factual issues the district court incorrectly read the conflicting affidavits in a light most favorable to Defendant instead of giving Plaintiffs the benefit of any doubt. A party asserting jurisdiction has the burden of establishing the existence of jurisdiction when faced with a timely motion to dismiss under Rule 1-012(B)(2). See Sanchez v. Church of Scientology, 115 N.M. 660, 663, 857 P.2d 771, 774 (1993); Smith v. Halliburton Co., 118 N.M. 179, 185, 879 P.2d 1198, 1204 (Ct.App.1994). The district court, within its discretion, may either "permit discovery to help decide the issue or resolve the issue either upon written affidavits or through a pretrial evidentiary hearing." Doe, 1996-NMCA-057, 121 N.M. at 742, 918 P.2d at 21. While Plaintiffs requested an evidentiary hearing, the district court decided the issue upon written affidavits, briefs, and oral argument. In the absence of an evidentiary hearing, the burden on a plaintiff "is somewhat lessened in that the trial court will consider the affidavits in the light most favorable to the plaintiff." Id. The plaintiff nonetheless continues to have the burden of coming forward with "specific facts demonstrating that the court has jurisdiction." Id. The district court did not misapply Plaintiffs' burden in this case. Plaintiffs failed to meet their burden because their complaint and affidavit did not set forth facts sufficient to bind the franchisor to the acts of the franchisee under the long-arm statute.

Assertion of Personal Jurisdiction

¶7 In order to assert personal jurisdiction over a non-resident defendant, Plaintiffs must establish that jurisdiction meets the three-part test articulated in Doe. Plaintiffs must show that (1) Defendant committed an act as defined in the long-arm statute, (2) Plaintiffs' cause of action arose out of and concerns such alleged act, and (3) Defendant has minimum contacts with New Mexico to satisfy due process concerns. See id.; see also § 38-1-16(A). The pertinent part of the long-arm statute states:

A. Any person, whether or not a citizen or resident of this state, who in person or through an agent does any of the acts enumerated in this subsection thereby submits himself or his personal representative to the jurisdiction of the courts of this state as to any cause of action arising from:

(1) the transaction of any business within this state ....

(3) the commission of a tortious act within this state.

Section 38-1-16(A)(1), (3).

¶1 Transaction of any Business

¶8 While we agree that entering into a franchise agreement with a New Mexico resident requiring payment of royalties outside the state may be the "transaction of any business" contemplated by the long-arm statute, that fact alone is insufficient to establish personal jurisdiction. The alleged claims must arise from that transaction of business. See id.; Doe, 1996-NMCA-057, 121 N.M. at 742, 918 P.2d at 21; see also Robinson-Vargo v. Funyak, 1997-NMCA-095, p 14, 123 N.M. 822, 945 P.2d 1040. Plaintiffs have not alleged that their causes of action arose from the franchise agreement Defendant had with Fletcher or Edwards or from Defendant's conduct in New Mexico. Their complaint states in pertinent part:

17. At all relevant times hereto, Defendants were in the business of preparing federal and state income tax returns in the course of their employment.

18. At all relevant times hereto, Defendants prepared Gilbert and Loretta Campos' personal income tax returns and the tax returns for Campos Enterprises, Inc.

....

20. Defendants prepared both the Campos' personal income tax returns and the corporate returns for the tax years 1980 through 1993.

21. Plaintiffs have been subject to federal income tax audits of their personal and corporate returns solely as a result of the negligence and/or intentional acts of Defendants in preparing the Campos' personal income tax returns and the corporate tax returns.

....

28. Defendants held themselves out to the public to be competent in the field of accounting and tax preparation.

....

34. Plaintiffs expressly and impliedly contracted with Defendants to provide competent and reasonable accounting services, including accounting advice.

35. Defendants breached their respective contracts with Plaintiffs by, among other things, failing to prepare individual and corporate tax returns free from accounting or other errors.

Additionally, Loretta Campos submitted an affidavit which stated in part:

4. Both my individual tax returns and Campos Enterprises, Inc.'s tax returns were prepared utilizing E.K.W.'s tax preparation materials.

5. From 1980 through 1993 E.K.W. has given tax advice regarding my individual tax returns and Campos Enterprises, Inc.'s tax returns, including inventory accounting methods.

¶9 Essentially, the pleadings and affidavit allegations rest on claims of faulty tax preparation. Neither the complaint nor the affidavit contains any allegations that...