437 F.3d 118 (1st Cir. 2006), 05-1832, Platten v. HG Bermuda Exempted Ltd.

Docket Nº:05-1832.
Citation:437 F.3d 118
Party Name:Paul E. PLATTEN; Thomas P. Flannery; Bruce N. Pfau, Plaintiffs, Appellants, v. HG BERMUDA EXEMPTED LIMITED; HG (Bermuda) Exempted Partnership; Hay Group Investment Holding B.V.; Hay Acquisition Company I, Inc.; Hay Group, Inc., Defendants, Appellees, Chris R. Matthews, Defendant, PNC Bank, N.A., Trustee.
Case Date:February 06, 2006
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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437 F.3d 118 (1st Cir. 2006)

Paul E. PLATTEN; Thomas P. Flannery; Bruce N. Pfau, Plaintiffs, Appellants,

v.

HG BERMUDA EXEMPTED LIMITED; HG (Bermuda) Exempted Partnership; Hay Group Investment Holding B.V.; Hay Acquisition Company I, Inc.; Hay Group, Inc., Defendants, Appellees,

Chris R. Matthews, Defendant,

PNC Bank, N.A., Trustee.

No. 05-1832.

United States Court of Appeals, First Circuit.

February 6, 2006

Heard Nov. 9, 2005.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, Hon. Reginald C. Lindsay, U.S. District Judge

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Robert D. Cohan, with whom Cohan Rasnick Myerson LLP was on brief, for appellants.

Michael I. Verde, with whom Ruth Dowling, Palmer & Dodge LLP, Michael F. Gallagher, and Katten Muchin Rosenman LLP were on brief, for appellees HG Bermuda Exempted Limited, HG (Bermuda) Exempted Partnership, and Hay Group Investment Holding B.V.

W. Allen Woolley, with whom Foley Hoag LLP, Michael P. Boudett, P. Renée Wicklund, and Kirkland & Ellis LLP were on brief, for appellees Hay Acquisition Company I, Inc. and Hay Group Inc.

Before Selya and Lynch, Circuit Judges, and Smith, [*] District Judge.

LYNCH, Circuit Judge.

This multi-issue appeal arose out of what ought to have been a straightforward contract dispute brought in a court of appropriate jurisdiction.

Plaintiffs Paul Platten, Thomas Flannery, and Bruce Pfau, who are former partners of HG (Bermuda) Exempted Partnership ("Partnership"), allege that the Partnership illegitimately withheld termination distributions the three men believed they were owed by falsely claiming that they had violated their non-competition

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obligations. In seeking redress for this alleged wrong, plaintiffs could have brought their contract claims against the Partnership's successor-in-interest, HG (Bermuda) Limited ("HG Limited"), 1 in Bermuda, where HG Limited was organized and has its usual place of business and in accordance with whose laws the parties agreed to settle their contract disputes. Instead, they sought to reach HG Limited in Massachusetts. To do so, they had to bring in a number of other defendants -- who were not parties to the agreement -- under close to a dozen tenuous legal theories. As a result, we discuss the Massachusetts law of breach of contract, civil conspiracy, and negligent misrepresentation, as well as seven other state and federal claims.

The district court dismissed plaintiffs' action on various grounds: for some claims, failure to establish personal jurisdiction, see Fed.R.Civ.P. 12 (b)(2), and for others, failure to state a claim upon which relief can be granted, see Fed.R.Civ.P. 12(b)(6) . We affirm, concluding that plaintiffs have stated no claims against the corporate parties as to whom there may be personal jurisdiction in Massachusetts. As to the one other entity against which plaintiffs do state claims, plaintiffs did not meet their burden of proving that there is personal jurisdiction over the relevant defendant in Massachusetts, as there would have been in Bermuda.

I.

We recite the facts as they appear in plaintiffs' original verified complaint and in their subsequent affidavits that were admitted into the record by the district court. See Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 45 (1st Cir. 2002); Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass'n, 142 F.3d 26, 34 (1st Cir. 1998). We also describe briefly, where relevant, defendants' competing factual allegations, but rely on them only to the extent that they are uncontradicted. Mass. Sch. of Law, 142 F.3d at 34.

A. Background

Plaintiffs Platten, Flannery, and Pfau are former employees of Hay Group Inc. ("HGI"), an international consulting business incorporated in Pennsylvania.2 HGI is a wholly owned subsidiary of Hay Acquisition Company I, Inc. ("Hay Acquisition"), a Delaware corporation. In turn, Hay Acquisition is a wholly owned subsidiary of Hay Group Investment Holding B.V. ("Hay BV"), a Netherlands corporation, which itself is a wholly owned subsidiary of HG Limited, a Bermudan corporation.

Plaintiffs allege that the five corporations, together with Chris Matthews, operated as an "association-in-fact" known as the "Hay Group," in which the operations of the corporations and the Partnership were intermingled and controlled by Matthews. Matthews was the Chief Executive Partner of the Partnership and became the Chief Executive Officer of HG Limited when the Partnership was reconstituted as such in 2000. At all times relevant to the litigation, Matthews was also the sole stockholder of Hay BV, the Chairman of the Board and President of HGI, and the Chairman of the Board and Chief Executive Officer of Hay Acquisition.

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Platten was hired in 1989 as a Senior Executive Compensation Consultant in HGI's Boston office. He was promoted in 1990 to Manager of that office and in 1998 to East Operations Director, a position that he held until it was eliminated, and his employment with HGI terminated, in 1999. In 1997, Platten also became a member of the Partnership Management Committee. During the entirety of his tenure at HGI, Platten worked out of the Boston office, where he received, often by phone and at least twice in person, directions from Matthews about both HGI and Partnership business.

Co-plaintiff Flannery was hired in 1981 as an Associate in the Chicago office of HGI. He subsequently transferred to other HGI offices, including those in Kansas City, St. Louis, and Singapore, where he served in various capacities, including as General Manager. He was based in HGI's Dallas office at the time he left the consulting practice voluntarily in 1999.

The third plaintiff, Pfau, was hired in 1990 as a Senior Consultant in HGI's New York office and was eventually promoted to Managing Director of the Research for Management division. His employment with HGI, which was based solely in New York, terminated voluntarily by agreement in 1999.

During the course of their employment with HGI, plaintiffs were each required to enter into a partnership agreement ("Agreement") with the Partnership. Neither HGI nor Hay Acquisition was a party to the Agreement; the Agreement itself says that it was made "by and among" the initial and continuing partners of the Partnership. The Agreement specifies that Bermuda law governs its interpretation and enforcement.

By the terms of the Agreement, all partners, including the plaintiffs, were required to make periodic capital contributions to the Partnership. Upon termination of employment and absent some other agreement between the parties, a partner was entitled, on the third anniversary of withdrawal from the Partnership, to a termination distribution comprised of the sum of the partner's capital contributions and his share of Partnership assets. The distribution did not have to be paid in full, however, if Matthews and the Partnership Management Committee determined that the partner had been terminated for cause or (most relevant here) that the partner's termination was "accompanied by" the violation of the Agreement's non-competition clause. In that event, the partner's termination distribution could be reduced to the amount of his capital contributions and paid out over a five-year period from the date of termination. It is this provision of the Agreement that is at the center of this dispute.

After leaving HGI, plaintiffs accepted employment with other consulting groups -- Platten with the Boston office of PricewaterhouseCoopers, LLC, and then with the Boston office of Watson Wyatt & Company; Flannery with the Boston office of Arthur Anderson, LLP; and Pfau with the New York office of Watson Wyatt & Company. Each plaintiff maintains that his actions after leaving HGI were consistent with the Agreement's non-competition obligations.

In 2002, each plaintiff made written inquiries to HG Limited, the Partnership's successor, about his termination distribution. In turn, each received, among other correspondence from HG Limited, a September 4, 2002 letter signed by Matthews. The letter stated that a former partner's termination distribution was tethered to his non-competition obligations and asked each recipient to prove that he was not in violation of those obligations. Each plaintiff responded by letter that he had not

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broken the non-competition clause. On September 26, 2002, counsel for HG Limited informed each plaintiff in writing that he was not entitled to the immediate and full payment of his termination distribution because he had failed to respect the non-competition clause.

Plaintiffs allege that except with regard to termination distributions, merely working for another consulting group was generally not considered by the "Hay Group" to be a violation of a partner's non-competition agreement. They further allege that accusing them of violating their non-competition obligations was merely a tactic the Partnership used to wrongfully deny them their termination distributions. Matthews, they maintain, orchestrated this scheme to the benefit of the existing partners, whose partnership bonuses would increase as less money was being paid out to their former colleagues. Plaintiffs allege that the benefits would also trickle down to the "Hay Group" entities, including HGI and Hay Acquisition, which would have more available cash and a reduced need for borrowing to fund their operations.

B. Relevant Procedural History

Plaintiffs brought suit in the Superior Court for Suffolk County, Massachusetts, on June 19, 2003. In addition to the Partnership and its successor-in-interest, HG...

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