Barrett v. Lombardi, s. 00-1834

Citation239 F.3d 23
Decision Date05 December 2000
Docket Number00-1835,Nos. 00-1834,s. 00-1834
Parties(1st Cir. 2001) DONAL B. BARRETT, Plaintiff, Appellant, v. VICTOR J. LOMBARDI, JR., ET AL., Defendants, Appellees. Heard
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Rya W. Zobel, U.S. District Judge]

W.P. Colin Smith, Jr. for appellant.

Alan R. Curhan, with whom Burns & Levinson and Gadsby Hannah, LLP were on brief, for appellees.

Before Selya, Circuit Judge, Cyr, Senior Circuit Judge, and Boudin, Circuit Judge.

SELYA, Circuit Judge.

Smarting from the sting of a failed business relationship, plaintiff-appellant Donal B. Barrett sued his erstwhile co-venturer, Victor J. Lombardi, Jr., and one of Lombardi's companies, Veritas Offshore, Ltd. (Veritas). Acting on the defendants' joint dispositive motion, the district court determined (1) that it lacked in personam jurisdiction over Veritas, and (2) that, for jurisdictional and other reasons, the complaint stated no claim against Lombardi upon which relief could be granted. Barrett appeals from the order of dismissal. We affirm in part and reverse in part.

I. BACKGROUND

In order to place these appeals into perspective, we recount the facts as alleged by the appellant in the operative pleading (the first amended complaint), as supplemented by his affidavit in opposition to the joint motion to dismiss.

In November 1995, the appellant and Edward Dyman organized NetFax, Inc., a Delaware corporation, for the purpose of developing and commercially exploiting new technologies for Internet facsimile transmission conceived by Frederick Murphy (Dyman's brother-in-law). Murphy himself soon joined the enterprise. The company established a base of operations in Cambridge, Massachusetts, and installed the appellant as its chairman. All the "founder's stock" stood in Dyman's name (although the appellant maintains that Dyman held the shares as his nominee).

In short order, Lombardi tried to insinuate himself into the business, touting his expertise and connections. Gulled by Lombardi's rodomontade and eager to bring him into the fold, the appellant directed Dyman to transfer a substantial number of NetFax shares to Veritas. These transfers occurred in March 1996 and periodically thereafter, involving an aggregate of 4,046,666 shares (about 30% of the founder's stock). In the same general time frame, Dyman also transferred substantial amounts of stock to the appellant and to Murphy, retaining only a token amount for himself.

The marriage did not go well. In time, disputes over how to manage the affairs of the fledgling company led to the appellant's ouster as NetFax's chairman. Lombardi took his place. That change in command culminated in the execution of a separation agreement (the Agreement), dated July 31, 1998. In the Agreement, Lombardi promised, among other things, to grant the appellant a warrant, expiring July 31, 2000, for the purchase of 1,000,000 shares of NetFax stock at a price of $0.001 per share. The appellant never received the warrant.

Lombardi's ascension to the throne failed to improve NetFax's fortunes and the company suspended operations in September 1998. Six months later, the appellant went to court. Invoking diversity jurisdiction, 28 U.S.C. § 1332(a), he filed suit against Lombardi and Veritas in the United States District Court for the District of Massachusetts.

The appellant's first amended complaint contains five statements of claim. The first four charge federal securities fraud, deceptive trade practices, common law deceit, and common law misrepresentation, respectively. All of these counts derive from falsehoods attributed to Lombardi, including exaggerations about his supposed expertise and his failure to disclose his checkered financial past (a history that, as the appellant belatedly learned, involved a number of questionable stock deals and a personal bankruptcy). The fifth statement of claim, sounding in contract, concerns Lombardi's refusal to deliver the warrant.

The defendants denied the material averments of the complaint and, in due course, filed a motion to dismiss. The district court determined that it lacked in personam jurisdiction over Veritas; that, in all events, the appellant's first four counts were vulnerable because he was not the real party in interest (Dyman, after all, had transferred the shares); and that those counts also failed because of an insufficient showing of damages. These determinations left standing only the breach of contract claim (count five). As to that cause of action, the court focused on the price to be paid for the underlying stock -- 1,000,000 shares at $0.001 per share -- and, by a process of simple multiplication, ascertained that the dispute involved only $1,000. Starting from that premise, the court ruled that it lacked subject-matter jurisdiction by reason of an inadequate amount in controversy.

Having disposed of all the appellant's claims, the court granted the motion to dismiss and entered judgment in the defendants' favor. The appellant then moved unsuccessfully for relief from the judgment. The district court denied that motion out of hand. These appeals -- one taken upon the initial entry of judgment and the second upon the denial of reconsideration -- followed.

II. CLAIMS AGAINST VERITAS

In our view, efficient resolution of the claims against Veritas does not require us to go beyond the district court's determination that it lacked in personam jurisdiction over that defendant. We confine our discussion accordingly.

A. The Motion to Dismiss.

Veritas is a foreign corporation headquartered in the Cayman Islands. Since there is no evidence that it regularly conducts business in Massachusetts, the appellant must establish a basis for the exercise of specific jurisdiction. SeeDonatelli v. Nat'l Hockey League, 893 F.2d 459, 462-63 (1st Cir. 1990) (elucidating concepts of "general" and "specific" personal jurisdiction, and distinguishing between them). To achieve this goal, the appellant must present sufficient facts to satisfy two cornerstone conditions: "first, that the forum in which the federal district court sits has a long-arm statute that purports to grant jurisdiction over the defendant; and second, that the exercise of jurisdiction pursuant to that statute comports with the strictures of the Constitution." Pritzker v. Yari, 42 F.3d 53, 60 (1st Cir. 1994). In this case, then, the appellant cannot hale Veritas into the district court unless he can satisfy the rigors of both the Massachusetts long-arm statute and the United States Constitution.

Compliance with the state standard for personal jurisdiction necessitates a showing that the cause of action arises from the defendant's "transacting any business" in Massachusetts, Mass. Gen. Laws ch. 223A, § 3(a), or from a tortious in-state "act or omission," id. § 3(c). Compliance with the federal constitutional standard involves a somewhat more extensive showing. That showing has three aspects:

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 v. 163 Pleasant St. Corp., 960 F.2d 1080, 1089 (1st Cir. 1992).

We have developed a taxonomy that provides a variable set of guidelines, each corresponding to a particular level of analysis, for use when a trial court adjudicates a motion to dismiss for want of personal jurisdiction. See Foster-Miller, Inc. v. Babcock & Wilcox Can., 46 F.3d 138, 145-47 (1st Cir. 1995); Boit v. Gar-Tec Prods., Inc., 967 F.2d 671, 674-78 (1st Cir. 1992). The most conventional of these methods -- and the one that applies here -- authorizes the district court to restrict its inquiry to whether the plaintiff has proffered evidence which, if credited, suffices to support a finding of personal jurisdiction. Rodriguez v. Fullerton Tires Corp., 115 F.3d 81, 83-84 (1st Cir. 1997); Foster-Miller, 46 F.3d at 145.

To make this prima facie showing, the plaintiff cannot rest upon mere averments, but must adduce competent evidence of specific facts. Foster-Miller, 46 F.3d at 145; Boit, 967 F.2d at 675. When he does so, the court must accept the proffer at face value. Foster-Miller, 46 F.3d at 145. Determining the adequacy of this prima facie jurisdictional showing is a quintessentially legal determination -- a determination which, on appeal, engenders de novo review. Rodriguez, 115 F.3d at 84.

In the circumstances at bar, the district court correctly found the appellant's proffer wanting. The appellant failed even to allege -- let alone offer competent proof -- that Veritas had conducted any business in Massachusetts or that it had any significant ties to the state. Indeed, the appellant's only mention of Veritas in either his amended complaint or in his affidavit in opposition to the motion to dismiss indicated that Veritas was the transferee and holder of the NetFax shares, and that he believed it to be owned and managed by Lombardi. The mere acceptance of shares transferred from within the forum state, without more, does not constitute a minimum contact sufficient to subject a foreign corporation to jurisdiction in that state's courts. E.g., Shaffer v. Heitner, 433 U.S. 186, 216 (1977). Nor will the fact that the transferee is beneficially owned or controlled by a person or entity who does business in the forum state suffice to tip the jurisdictional balance. See Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n.13 (1984) ("[N]or does...

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