Schneider v. Hardesty

• Decision Date: 23 February 2012
• Docket Number: No. 09–3892.,09–3892.
• Citation: 669 F.3d 693
• Parties: David M. SCHNEIDER, Plaintiff–Appellant, v. Michael HARDESTY et al., Defendants,Thomas Nelson, Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

669 F.3d 693

David M. SCHNEIDER, Plaintiff–Appellant,

v.Michael HARDESTY et al., Defendants,Thomas Nelson, Defendant–Appellee.

No. 09–3892.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 12, 2011.Decided and Filed: Feb. 23, 2012.

ARGUED: Brian S. Sullivan, Dinsmore & Shohl, Cincinnati, Ohio, for Appellant. Michelle Sheehan, Reminger, Cleveland, Ohio, for Appellee. ON BRIEF: Brian S. Sullivan, Seth A. Schwartz, Dinsmore & Shohl, Cincinnati, Ohio, for Appellant. Thomas E. Nelson, Salt Lake City, Utah, pro se.Before: MOORE and ROGERS, Circuit Judges; HOOD, District Judge. ^*

OPINION

KAREN NELSON MOORE, Circuit Judge.

Plaintiff David M. Schneider (“Schneider”) appeals the district court's dismissal of his claims against defendant Thomas Nelson (“Nelson”) for lack of personal jurisdiction. Schneider argues that the district court improperly applied the preponderance-of-the-evidence standard, as opposed to the prima facie standard, in determining whether Schneider pleaded facts sufficient to establish personal jurisdiction over Nelson. Schneider further argues that the district court erred in finding there is no personal jurisdiction over Nelson in Ohio. We conclude that the district court improperly granted the motion to dismiss. Because the exercise of jurisdiction comports with due process and is proper under Ohio's long-arm statute even under the more demanding preponderance-of-the-evidence standard, we REVERSE the district court's judgment and REMAND for further proceedings consistent with this opinion.

I. BACKGROUND

In 2001, Michael Hardesty (“Hardesty”), a resident of Utah, solicited Schneider, a resident of Ohio, to participate in an investment program. Pursuant to the program, Schneider, a medical physician practicing in Ohio, purchased medical-malpractice insurance from Hardesty's foreign-based company, Provincial Insurance.¹ A portion of the funds from Schneider's premiums were to be pooled with other premiums, invested with London Reinsurance to create a captive insurance company, and then reinvested with Vavasseur Corporation. The investment program was to provide Schneider with federal-tax benefits and make him a partial owner of London Reinsurance in proportion to the amount of his investment.

In December 2001, Schneider mailed a $550,000 insurance-premium payment to Provincial Insurance. Provincial Insurance pooled Schneider's premium with other premiums and transferred the funds to London Reinsurance. London Reinsurance then placed the funds in the Bank of Butterfield in Europe. When London Reinsurance attempted to transfer the funds to Vavasseur, it learned that the Bank of Butterfield had frozen the assets because of SEC proceedings against Vavasseur. Unbeknownst to Schneider, Vavasseur was in fact a Ponzi scheme that had received investments in excess of one-hundred million dollars. ²

In 2003, Hardesty hired Nelson, an attorney licensed to practice in Utah, to assist with the recovery of London Reinsurance's assets from the Bank of Butterfield. By virtue of this employment, Nelson became the “authorized agent ... [t]o sign on behalf of London Reinsurance.” R. 7 (Ex. A, Nelson SEC Dep. at 81:18–22).

In September 2003, at Hardesty's request, Nelson drafted a letter addressed “To Whom It May Concern” directed at the doctors and medical practices whose premiums were invested in London Reinsurance. R. 30 (Ex. C, Letter dated Sept. 29, 2003). The letter introduced Nelson as an attorney “retained by Mike Hardesty ... to assist in recovering the funds that were invested with and managed by Terry Dowdell,” id. at 1, and was drafted with Nelson's signature block, R. 30 (Ex. B, Nelson Dep. at 22:24–23:14). In the letter, Nelson summarized efforts to recover London Reinsurance's assets and stated that “the name, address, and contact information for each insured or medical practice” had been provided to the Bank of Butterfield in aid of return of the funds. R. 30 (Ex. C, Letter dated Sept. 29, 2003 at 2). Nelson acknowledged that Hardesty was under investigation by the SEC, but attested to Hardesty's “integrity and honesty.” Id. at 3. The letter concluded by stating that “every effort is being made to obtain a 100% return of your funds.” Id. Nelson gave the letter to Hardesty, but did not participate in mailing it to any of the investors.

In December 2003, at Hardesty's request, Nelson drafted a second “To Whom It May Concern” letter with Nelson's signature block. R. 30 (Ex. D, Letter dated Dec. 5, 2003). In that letter, Nelson requested that the investors provide Hardesty with a copy of their current medical license, confirmation or documentation of membership in any medical associations, a copy of their current passport or drivers license, and a current e-mail address, home address, and telephone number. Nelson concluded by stating “we are totally focused in our efforts to obtain a 100% return of all funds” and “foreign counsel has already been authorized to move forward with legal proceedings against the bank should negotiations fail to deliver the desired results.” Id. Nelson gave the letter to Hardesty, but did not participate in mailing it to any of the investors. Schneider maintains that he responded to Nelson's second letter by sending the information requested.³ Nelson testified that because investors were instructed to send the information to Hardesty, Nelson “did not review the contents of” the “package” that contained the information sent by investors. R. 30 (Ex. B, Nelson Dep. at 38:18–39:9).

On December 8, 2006, Schneider filed a lawsuit against multiple defendants, including Hardesty and Nelson, alleging fraud and misrepresentation, among other claims. Schneider alleged that the two letters written by Nelson contained false and misleading statements by which Nelson furthered the scheme to defraud Schneider. Schneider contended that Nelson's actions induced reliance thereby harming Schneider.

Nelson moved to dismiss Schneider's complaint for lack of personal jurisdiction. In response to Nelson's motion, Schneider requested leave to conduct limited discovery on the issue of jurisdiction.⁴ The district court granted Schneider's request and permitted Schneider to depose Nelson. During the deposition, Nelson stated that Hardesty had told him the names of some of the investors, but that he could not “recall” whether the names he was provided constituted “a complete list or not.” R. 30 (Ex. B, Nelson Dep. at 29:6–10). Nelson also stated that when he provided the letters to Hardesty, he was “[c]ertainly” aware that Hardesty might distribute them to investors. Id. at 35:20–24.

After the parties submitted additional briefing, the magistrate judge issued his report and recommendation. In finding personal jurisdiction lacking, the magistrate judge stated:

[w]hat's missing ... is any indication from plaintiff, who has not filed an affidavit or a verified complaint in this case, that he in [any way] relied upon the information or representations in either letter to either take action or refrain from taking action. There is no allegation that plaintiff understood the letters to mean that Nelson was his legal representative or that the letters otherwise had any effect on plaintiff's conduct. In other words, as far as the Court is aware at this time, the letters did not lead to any course of conduct between the parties. Without some modicum of proof that the letters caused or contributed to harm suffered by plaintiff, or that the plaintiff relied on the statements set forth in the letters, the Court is at a loss to understand how one can conclude that the letters created a connection with the forum state or caused a consequence in the forum state.

R. 28 (Report and Recommendation at 11). The district court adopted the report and recommendation in full, granted Nelson's motion to dismiss, and certified its order as final and appealable pursuant to Federal Rule of Civil Procedure 54(b). Schneider now appeals.

II. ANALYSIS

A. Standard of Review

“ ‘We review de novo a district court's dismissal of a complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure.’ ” Gerber v. Riordan, 649 F.3d 514, 517 (6th Cir.2011) (quoting Bird v. Parsons, 289 F.3d 865, 871 (6th Cir.2002)).

B. Standard of Proof for Personal Jurisdiction

“The party seeking to assert personal jurisdiction bears the burden of demonstrating that such jurisdiction exists.” Bird, 289 F.3d at 871. In Serras v. First Tennessee Bank National Association, this Circuit explained that “[t]he weight of [the] burden ... depends on whether the trial court chooses to rule on written submissions or to hear evidence on the personal-jurisdiction issue....” 875 F.2d 1212, 1214 (6th Cir.1989). When the district court “rules on written submissions alone” the burden consists of “a prima facie showing that personal jurisdiction exists.” Id. When a pretrial-evidentiary hearing is conducted, the preponderance-of-the-evidence standard applies. Id. We explained that this rule prevents a defendant from “defeat[ing] personal jurisdiction merely by filing a written affidavit contradicting jurisdictional facts alleged by a plaintiff” while simultaneously allowing a defendant to “invoke the court's discretion to order a pretrial evidentiary hearing” and thereafter apply the more-exacting standard when a plaintiff's jurisdictional allegations are wholly unfounded. Id.

Serras, however, did not speak to the scenario presented in this case where some discovery was conducted, but an evidentiary hearing was not held. Schneider argues that the district court improperly applied the preponderance-of-the-evidence standard, as opposed to the less-demanding prima facie standard, in the absence of an evidentiary hearing. Nelson counters that the district court properly applied the preponderance-of-the-evidence standard because Schneider received all of the discovery that he requested and there were no...