North American Catholic Educ. Programming Foundation v. Cardinale

• Decision Date: 19 May 2009
• Docket Number: No. 08-1403.,08-1403.
• Citation: 567 F.3d 8
• Parties: NORTH AMERICAN CATHOLIC EDUCATIONAL PROGRAMMING FOUNDATION, INC., Plaintiff, Appellant, v. Gerry CARDINALE, Rob Gheewalla, Jack Daly; Goldman Sachs Group, Inc.; GS Capital Partners III, L.P.; GS Capital Partners III Offshore, L.P.; Goldman Sachs & Co. Verwaltungs GmbH, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

567 F.3d 8

NORTH AMERICAN CATHOLIC EDUCATIONAL PROGRAMMING FOUNDATION, INC., Plaintiff, Appellant, v. Gerry CARDINALE, Rob Gheewalla, Jack Daly; Goldman Sachs Group, Inc.; GS Capital Partners III, L.P.; GS Capital Partners III Offshore, L.P.; Goldman Sachs & Co. Verwaltungs GmbH, Defendants, Appellees.

No. 08-1403.

United States Court of Appeals, First Circuit.

Heard January 8, 2009.

Decided May 19, 2009.

Matthew T. Oliverio with whom Christine M. Curley and Oliverio & Marcaccio LLP were on brief for appellant.

Douglas H. Flaum with whom Shahzeb Lari, Fried, Frank, Harris, Shriver & Jacobson LLP, Wayne F. Dennison, Brian J. Lamoureux and Brown Rudnick LLP were on brief for appellees.

Before BOUDIN, SILER,^* and HOWARD, Circuit Judges.

BOUDIN, Circuit Judge.

North American Catholic Educational Programming Foundation, Inc. ("North American") appeals from the district court's judgment; the judgment dismissed its lawsuit — the fourth stemming from its failed business relationship with Clearwire Holdings, Inc. ("Clearwire") — for lack of personal jurisdiction. North American is a nonprofit organization, incorporated and having its principal place of business in Rhode Island, whose mission is to provide educational and religious programming.

We take the facts primarily from the complaint. Clearwire was formed in the 1990s as a for-profit company aiming to develop a national wireless data network providing internet access. It was principally financed by the investment bank Goldman Sachs, which initially controlled most of its voting stock. Clearwire in turn controlled a number of other entities that were expected to manage and operate the wireless data network that Clearwire aimed to develop starting in or around the year 2000.

At that time, the cellular telephone network could not handle the data transmitted by internet users. For this purpose carriers like Sprint and WorldCom were seeking to use spectrum, thought to be especially suitable, already allocated for use in the Instruction Television Fixed Service ("ITFS"); licenses for ITFS spectrum were held predominantly by educational entities, including North American. In March 2000, North American joined with two other holders of ITFS spectrum licenses to form the ITFS Spectrum Development Alliance ("the Alliance") to develop this opportunity.

As existing short term leases already granted by Alliance members to third parties expired, the Alliance members proposed to license their spectrum for use in a wireless data network; but they also aimed to own an equity interest in the new network. The Alliance began negotiations with Goldman Sachs, represented by Gerry Cardinale and Rob Gheewalla, later joined by Jack Daly. All three men were employed by affiliates of Goldman Sachs & Co., reside in New York and later served as directors of Clearwire.

On June 7, 2000, Cardinale sent a memorandum, addressed to the Alliance and the heads of its three members, on behalf of what he termed the "Goldman Sachs Team," setting out a proposal to use Alliance spectrum, allow the Alliance to retain an equity interest in the network and provide an up-front cash payment. Later in the year, Goldman's affiliate GS Capital Partners III sent a term sheet to the Alliance members outlining the terms of an agreement in principle, and a master agreement was signed by the Alliance members and Clearwire in March 2001.

Under the master agreement, Alliance members would, as their existing leases expired, lease their spectrum to Clearwire and the Goldman Sachs entities agreed to invest $47 million in Clearwire. In addition, Cardinale, Daly and Gheewalla were appointed to Clearwire's board where, under the agreement, Goldman Sachs representatives could cast a tie-breaking vote. The Alliance members obtained in turn an initial small stake in Clearwire.

In June 2002, WorldCom collapsed, which threatened to free up a large amount of WorldCom-owned spectrum. Soon after, Clearwire began to negotiate with members of the Alliance, seeking to be relieved of its obligations to use Alliance spectrum. The negotiations initially proved fruitless, and on September 11, 2002, Clearwire's board passed a resolution saying that it would breach the master agreement by failing to make promised payments to Alliance members.

On February 12, 2003, Clearwire's board discussed a reorganization plan which, North American alleges, would have eradicated Alliance members' claims against Clearwire. The other two Alliance partners then settled their claims against Clearwire in exchange for reduced payments. North American says that during this time, Daly, apparently acting on behalf of Clearwire, met with North American's President to discuss a possible settlement, but that North American refused.

All the while, Clearwire's financial position was growing more perilous as it spent money developing its network but lacked any meaningful source of revenue. In May 2003, Clearwire told its shareholders that it was running out of capital and, during the summer, it made an offer of preferred stock to its shareholders to obtain "bridge" financing, saying that it was negotiating either for more financing or a sale of the company. North American did not acquire more stock. In November 2003, Clearwire effectively sold itself to another company, headed by noted telecom investor Craig McCaw, on terms benefitting those shareholders who had bought additional preferred stock to supply bridge financing.

Since that time, North American has brought a succession of law suits against the various parties involved in its relationship with Clearwire. First, North American sued Clearwire itself in Delaware Superior Court, claiming breaches of the master agreement, but North American withdrew the action early in 2004. N. Am. Catholic Educ. Programming Found., Inc., v. Clearwire Holdings, Inc., C.A. No. 03C-11-172 (RRC) (Del.Super.Ct.).

Then, North American brought another suit in Delaware Superior Court against Cardinale, Gheewalla and Daly, asserting various counts of fraud and breach of fiduciary duty; after being withdrawn and then re-filed in Delaware Chancery Court, the complaint was dismissed, the fiduciary duty claim on substantive grounds and the others for lack of personal jurisdiction; and the dismissal was affirmed on appeal. N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del.2007).

Finally, on November 15, 2006, North American filed the present action in the federal district court in Rhode Island, again asserting wrongful conduct related to the master agreement and the bridge financing. The individual defendants were again Cardinale, Gheewalla and Daly; also named as defendants were Goldman Sachs Group, Inc. ("GS Group"), a Delaware corporation with its principal place of business in New York, and various affiliated entities.¹

Defendants moved to dismiss the suit under Rule 12(b)(2) for lack of personal jurisdiction, under Rule 12(b)(5) on statute of limitations grounds and under Rule 12(b)(6) for failure to state a claim. The district court dismissed the case on the first ground and North American has now appealed. The appellees defend the district court judgment but urge, in the alternative, other defects with the suit including failure to state a claim. The issues raised on appeal are primarily questions of law which we review de novo.

The central basis urged by North American for personal jurisdiction rests, as explained more fully below, upon specific rather than general jurisdiction. Thus, to affirm on the ground adopted by the district court, we would have to determine separately potential jurisdiction not only as to each defendant but also separately for each such entity under each count of the complaint. Phillips Exeter Acad. v. Howard Phillips Fund, 196 F.3d 284, 289 (1st Cir.1999).

However, "where an appeal presents a difficult jurisdictional issue, yet the substantive merits underlying the issue are facilely resolved in favor of the party challenging jurisdiction, the jurisdictional inquiry may be avoided." Kotler v. Am. Tobacco Co., 926 F.2d 1217, 1221 (1st Cir. 1990), vacated on other grounds, 505 U.S. 1215, 112 S.Ct. 3019, 120 L.Ed.2d 891 (1992). Here, we first sweep away the hopeless claims and then focus on personal jurisdiction only as to what remains. So examined, the complaint is fatally insufficient save as to one pair of related allegations that form only part of the final four counts.

The sufficiency of the claims stated is properly before us. The defendants' brief in this court argued that the dismissal should, in the alternative, be upheld under Rule 12(b)(6). North American has declined to respond to this alternative argument in its reply brief, saying that the district court did not resolve the issue under Rule 12(b)(6); instead, North American refers us to its opposition to the Rule 12(b)(6) motion below and asks to file a further brief if we propose to address the issue.

An appellee may defend "the judgment" below on any valid ground, McGuire v. Reilly, 260 F.3d 36, 50 (1st Cir.2001), cert. denied, 544 U.S. 974, 125 S.Ct. 1827, 161 L.Ed.2d 724 (2005), so it does not matter that the district court did not need to decide the Rule 12(b)(6) objection. Nor is a cross reference to a brief filed below an adequate response and forfeiture by North American could be urged. Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass'n, 142 F.3d 26, 43 (1st Cir.1998). Yet, North American's district court opposition is readily available, and we address its position on the merits.²

North American might have argued (but has not) that the Rule 12(b)(6) objection, if sustained, is not exactly an alternative ground because a dismissal for lack of personal jurisdiction is ordinarily without prejudice. But no practical difference may be present here: if the personal jurisdiction dismissal were upheld, the statute of limitations would arguably preclude a new filing in New York — seemingly the...