Bond Leather Co., Inc. v. Q.T. Shoe Mfg. Co., Inc., s. 84-1344

• Decision Date: 18 June 1985
• Docket Number: 84-1345,Nos. 84-1344,s. 84-1344
• Parties: BOND LEATHER CO., INC., Plaintiff, Appellee, v. Q.T. SHOE MFG. CO., INC. and Martin S. Nadler, Defendants, Appellants. BOND LEATHER CO., INC., Plaintiff, Appellee, v. Q.T. SHOE MFG. CO., INC., et al., Defendants, Appellees, Melvin Nadler, Inc., Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 928

764 F.2d 928

BOND LEATHER CO., INC., Plaintiff, Appellee, v. Q.T. SHOE MFG. CO., INC. and Martin S. Nadler, Defendants,

Appellants.

BOND LEATHER CO., INC., Plaintiff, Appellee, v. Q.T. SHOE MFG. CO., INC., et al., Defendants, Appellees, Melvin Nadler, Inc., Defendant, Appellant.

Nos. 84-1344, 84-1345.

United States Court of Appeals, First Circuit.

Argued Feb. 7, 1985.

Decided June 18, 1985.

Lee H. Kozol, Boston, Mass., with whom Sharon L. Sorokin and Friedman & Atherton, Boston, Mass., were on brief for Melvin Nadler, Inc.

Burton Nadler, Boston, Mass., for Q.T. Shoe Mfg. Co., Inc.

Peter J. Arvanites, Boston, Mass., with whom Ankeles, Harmon & Bonfanti, Peabody, Mass., was on brief for plaintiff, appellee.

Before BREYER and TORRUELLA, Circuit Judges, and PETTINE, ^* Senior District Judge.

PETTINE, Senior District Judge.

Plaintiff, Bond Leather, Inc. ("Bond"), appellee here, brought this action against Martin S. Nadler ("Martin") and Melvin Nadler ("Melvin"), brothers; Q-T Shoe Manufacturing, Inc. ("Q-T"), a corporation of which Martin is president; and Melvin Nadler, Inc. ("M.N., Inc."), a corporation of which Melvin is president and sole stockholder. The gist of Bond's claim was that Q-T owed it money for goods purchased on credit and that, shortly before Q-T failed as a corporation, Martin fraudulently induced Bond to release M.N., Inc. from an agreement under which M.N., Inc. had guaranteed payment to Bond for Q-T's purchases. Following a bench trial, the district court entered judgment in Bond's favor against all defendants, except Melvin Nadler individually, against whom all claims were dismissed. This consolidated appeal followed. Appellant M.N., Inc. now argues that it was not properly subject to the jurisdiction of the court below; appellants Martin Nadler and Q-T allege a number of legal errors in the district court's findings as to their liability. We reverse as to M.N., Inc. and affirm as to Martin and Q-T.

BACKGROUND

The record supports the following factual findings. For many years preceding the events at issue here, Q-T, a New Jersey shoe manufacturing corporation, purchased raw leather from Bond, a Massachusetts corporation. In 1978, Martin, Q-T's president and majority stockholder, was injured in an accident that prevented him for over a year from playing an active role in the company's affairs. During this period, Q-T experienced severe business losses. In the summer of 1979, Q-T negotiated an agreement with its creditors, including Bond, that enabled it to tender twenty cents on each dollar it owed in full satisfaction of its debts. Together with securing a large federally insured loan, this compromise agreement enabled Q-T to continue in business. In view of Q-T's precarious financial condition, however, Bond was willing to continue to extend it credit only upon receipt of assurances that it would be fully paid. Martin proposed that his brother Melvin's Ohio corporation guarantee Q-T's debts. Bond agreed, telephoned Melvin in Cincinnati, and discussed terms for the guaranty. Shortly thereafter, on January 28, 1980, Melvin sent Bond a letter setting forth the terms of M.N., Inc.'s guaranty. Over the next three months, the terms of the guaranty were modified until a final version was executed in an April 7, 1980 letter from Melvin to Bond. That letter agreed to guarantee payment for all Q-T's purchases, without limitation as to time or amount. The record reflects that the negotiations which produced the final document took place in conversations between Martin and William Salloway, Bond's sales manager. Martin would then relay the modified terms to Melvin, who would then send a letter embodying the terms to Bond. Four such letters were sent in all, including the first and final versions.

Q-T purchased leather from Bond under the terms of this agreement until July, 1981, when Martin told Bond that he wanted his own line of credit and wanted Bond to release M.N., Inc. from its agreement. Martin told Bond vice-president Barry Lerner that Melvin needed the release "immediately" because M.N., Inc. was "in the process of 'going public' " with its stock and that the outstanding, open-ended guaranty was an obstacle to moving forward in that process. Lerner discussed Martin's proposal with others at Bond and later indicated that Bond would give the release if Q-T would pay its credit balance of $58,046.63 down to zero. Martin then told Bond that Q-T could not pay that sum quickly enough to meet his brother's needs. It was finally agreed that Q-T would pay half the balance, or $29,026.52, and that Bond would unconditionally release M.N., Inc. from its guaranty. On July 17, 1981, Martin sent Bond a letter of release along with the promised half payment. Bond returned the release to Q-T, signed, on July 27, 1981.

Approximately one and a half months later, in late August, 1981, Q-T failed and its assets were seized. Bond separately notified both Melvin and Martin that it believed Bond had been deceived into granting the release by Martin's representation that M.N., Inc. was in the process of making a public offering of its stock. Melvin responded by letter, indicating that while he had made some attempts to take his company public, he had no knowledge that those plans had any connection to Bond's release. Rather, he said that he understood the only consideration for the release to have been Q-T's payment of half its debt and noted that the release itself made reference only to the partial payment. No further payments were made to Bond by any of the defendants.

Prior to trial, Melvin and M.N., Inc. twice sought to be dismissed for lack of in personam jurisdiction. The court denied both motions pending further development of the facts. In denying the second motion, the court indicated that if the evidence failed to show an agency relationship between Martin and either Melvin or M.N., Inc., it would dismiss the claims against both on jurisdictional grounds. At the close of the plaintiff's case at trial, the court determined that no such agency relationship existed; it therefore dismissed Melvin, individually, and dismissed all counts against M.N., Inc. alleging wrongdoing. The court declined, however, to dismiss the claim that M.N., Inc. owed Bond money under the guaranty because it believed that, if the release was proven to have been induced by fraud, that release would be ineffective. The court thought that, independent of agency relationship, M.N., Inc. had sufficient contacts with Massachusetts--the four letters of guaranty and the release itself--to support jurisdiction.

The district court proceeded to find that Martin's representations to Bond as to M.N., Inc.'s going public were fraudulent and that Bond would not have released M.N., Inc. from its guaranty had it known that the company was not in the immediate process of going public. This finding proved central to the case. On the basis of this fraud, the court found (1) that Martin had committed the tort of misrepresentation and had violated Mass.Gen.Laws Ann. ch. 93A, Sec. 2 by engaging in an unfair, deceptive trade practice and (2) that, by virtue of the fraud, the release was ineffective and M.N., Inc. was liable to Bond under the term of its guaranty. Having rejected Martin's counterclaim, the court, therefore, ruled that Bond was entitled to recover the sum it alleged it was owed--$29,013.26--plus statutory interest from either Martin or M.N., Inc., under any of the above counts. In addition, the court had previously entered a default judgment against Q-T, which had failed to answer or otherwise defend the action. The court also awarded attorneys' fees to Bond, under the provisions of M.G.L.A. ch. 93A, Sec. 11.

THE APPEAL BY M.N., INC.

Massachusetts law governs our approach to the question whether M.N., Inc. was amenable to the jurisdiction of the district court. Hahn v. Vermont Law School, 698 F.2d 48, 49 (1st Cir.1983) (citations omitted). The Supreme Judicial Court has held, and we have recognized, that two questions must be answered affirmatively in order for a Massachusetts court properly to exercise in personam jurisdiction over a nonresident defendant: "(1) is the assertion of jurisdiction authorized by the [Massachusetts long arm] statute, and (2) if authorized, is the exercise of jurisdiction under State law consistent with basic due process requirements mandated by the United States Constitution?" Good Hope Industries, Inc. v. Ryder Scott Co., 378 Mass. 1, 5-6, 389 N.E.2d 76 (1979) (quoted in Hahn v. Vermont Law School, supra, 698 F.2d at 50).

We turn first to the statutory inquiry. The parties agree that only one section of the Massachusetts long arm statute is relevant to this appeal. Section 3(a) provides that:

A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action in law or equity arising from the person's

(a) transacting any business in this commonwealth....

Mass.Gen.Laws Ann. ch. 223A, Sec. 3(a).

The language "transacting any business" is to be construed broadly, Hahn v. Vermont Law School, 698 F.2d 48, 50 (1st Cir.1983); Nova Biomedical Corp. v. Moller, 629 F.2d 190, 193-94 (1st Cir.1980), and reaches any "purposeful acts by an individual, whether personal, private or commercial." Ross v. Ross, 371 Mass. 439, 441, 358 N.E.2d 437 (1976). ¹

There is no question that M.N., Inc. engaged in the purposeful act of guaranteeing Bond, a Massachusetts corporation, payment for goods sold to Q-T. There is likewise no question that M.N., Inc. mailed four letters to Bond in Massachusetts, and received at least one telephone call from Bond, in the course of negotiating this guaranty. ² Because Sec. 3(a) does not require that the business transacted have taken place within the physical bounds of the commonwealth, Good Hope Industries, supra, 378 Mass. at 10, 389 N.E.2d 76, we believe that M.N., Inc.'s activities are within the reach of Sec. 3(a). Cf. ...