Bankers' Bank Northeast v. Ayer

• Decision Date: 30 March 2012
• Docket Number: Civil No. 3:11cv262(JBA)
• Court: U.S. District Court — District of Connecticut
• Parties: Bankers' Bank Northeast, Plaintiff, v. Everett Ayer, et al., Defendants.

Bankers' Bank Northeast, Plaintiff,

v.Everett Ayer, et al., Defendants.

Civil No. 3:11cv262(JBA)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

DATED: March 30, 2012

RULING ON DEFENDANT ARTHUR MARKOS' MOTION TO DISMISS

Plaintiff Banker's Bank Northeast ("BBN") brought this action against certain former directors and officers of the Savings Bank of Maine Bancorp ("SBM"), and SBM's accountant and auditor, Berry, Dunn, McNeil & Parker ("Berry Dunn"), for negligent misrepresentation and professional malpractice in connection with BBN's $18 million loan to SBM on September 16, 2008. Defendant Arthur Markos ("Markos"), the former President and CEO of SBM, moves to dismiss all counts against him for lack of personal jurisdiction and failure to state a claim upon which relief may be granted. (See Markos Mot. to Dismiss [Doc. # 66].) Oral argument on Markos' motion to dismiss was held on March 20, 2012. For the reasons that follow, this Court finds that it does not have personal jurisdiction over Markos. Rather than dismissing Markos, the entire action shall be transferred to the District Court of Maine pursuant to 28 U.S.C. § 1404(a).

I. BACKGROUND

Plaintiff BBN is a bank chartered in Connecticut. The individual defendants, Arthur Markos, Everett Ayer, Richard Goodwin, Al Graceffa, George Heselton, Daniel Hollingdale, Robert Lacasse, Paul McClay, and John Rizzo, are residents of Maine. Subject matter jurisdiction is based on diversity jurisdiction pursuant to 28 U.S.C. §1332.

II. FACTUAL ALLEGATIONS¹

A BBN's Loan to SBM

SBM was a federally chartered bank holding company headquartered in Maine. (Compl. ¶ 2.) SBM's principal asset was the Savings Bank of Maine.² (Id. ¶ 2.) During the relevant period, Defendants Everett Ayer, Richard L. Goodwin, Al Graceffa, George Heselton, Daniel Hollingdale, Arthur Markos, Robert Lacasse, Paul McClay, and John Rizzo were directors of SBM.³ (Id. ¶ 19.) Defendant Arthur Markos was also the president and CEO of SBM in addition to being a director. (Id. ¶ 21.)

In 2008, SBM sought to raise capital for use by the Savings Bank of Maine, (id. ¶ 24), so Anita Nored, SBM's treasurer, initiated discussions with Peter Garland, BBN's chief credit officer, regarding a loan from BBN. (Garland Decl. [Doc. # 72-1] ¶ 2.) BBN is a Connecticut-chartered bank that provides banking services to community banks and credit unions. As a bank that provides services to other banks, BBN offered a type of bank loan that could meet SBM's needs. (Compl. ¶ 25.) Accordingly, SBM and BBN entered into negotiations regarding a potential loan. (Id.)

In response to BBN's due diligence requests, Ms. Nored provided BBN with SBM's consolidated financial statements for the year ending December 31, 2007 ("2007 AuditedFinancial Statements"). (See id. ¶ 3; Garland Decl. ¶ 3.) SBM also provided its June 2008 Monthly Profit Summary and the 2007 Loan Review Report. (Compl. ¶ 27.) The reports indicated that SBM had a $700 million loan portfolio and that SBM's probable loan losses on the portfolio were limited to $2.3 million. (Id. ¶ 6.) The 2007 Audited Financial Statements were audited by Berry Dunn and included an "Independent Auditor's Report" in which Berry Dunn represented that it had obtained "reasonable assurance" that the 2007 Audited Financial Statements were free of misstatement and presented in accordance with Generally Accepted Accounting Principles ("GAAP"). (See id. ¶¶ 3, 28.)

Acting as a representative of a consortium of community banks, BBN agreed to extend a loan to SBM. In September 2008, the directors of SBM authorized Ms. Nored to borrow up to $20 million from BBN and to sign any and all documents with respect to such a transaction. (Laughlin Decl., Ex. D [Doc. # 72-6].) On September 16, 2008, BBN and SBM entered into a loan agreement (the Original Loan Agreement) providing that BBN would loan SBM $18 million. (Compl. ¶ 9.) The Original Loan Agreement was signed by Ms. Nored for SBM and Mr. Garland for BBN. (Laughlin Decl., Ex. F [Doc. # 72-8].)

After it received the loan from BBN, SBM encountered severe financial difficulties. By early 2010, SBM was on the verge of insolvency and agreed to a restructuring plan led by Yorkshire Capital LLC ("Yorkshire") in order to avoid the bank's closure by the Federal Deposit Insurance Corporation ("FDIC"). (See Compl. ¶ 58) As part of the restructuring and takeover, Yorkshire demanded that the original loan from BBN be revised, and on May 26, 2010, Mr. Garland and Mr. Everets, the Chairman and CEO of the restructured SBM, signed an Amended Loan Agreement that reduced the principal of the loan between BBN and SBM from $18 to $9million. (Id., Allentuch Decl., Ex. 1 [Doc. # 66-1].)

B. BBN's Allegations of Misrepresentation

BBN now alleges that SBM's Directors made material misrepresentations of fact regarding SBM's financial condition in the Original Loan Agreement and in three earlier documents: SBM's 2007 Audited Financial Statements, the June 2008 Monthly Profit Summary, and the 2007 Loan Review Report. (Compl. ¶ 62.) The Original Loan Agreement represented that the 2007 Audited Financial Statement and the June 2008 Monthly Profit Summary fairly represented the financial positions of the Bank, were prepared in accordance with GAAP, did not contain any untrue statements of material fact, did not "omit a material fact necessary to make the statements contained therein or [in the Original Loan Agreement] not misleading," and that SBM had disclosed to BBN in writing any facts that had a material adverse effect on SBM and its ability to perform on the Loan Agreement. (Id. ¶¶ 9, 42). BBN claims these representations were false for two reasons: (1) SBM's process for collecting and analyzing data on its loan portfolio was in violation of GAAP; and (2) SBM's financial statements understated SBM's loan losses. (See id. ¶ 10.)

BBN's chief claim of misrepresentation is that SBM grossly understated the anticipated losses of its loan portfolio and, accordingly, required substantially larger loan loss provisions. BBN alleges that SBM's directors had a duty to ensure that the 2007 Audited Financial Statements reasonably presented SBM's financial status and that they failed to discharge this duty because SBM was not collecting required information on their loan portfolio that would have allowed them to assess SBM's probable losses. (Id. ¶ 8.)

BBN now seeks to recover the $9 million it lost when the loan was restructured, alongwith interest owed, from the SBM Defendants and Berry Dunn because BBN relied on their misrepresentations in extending the loan to SBM.

III. DISCUSSION

A. Personal Jurisdiction over Markos

Defendant Arthur Markos ("Markos") claims that this Court cannot properly exercise jurisdiction over him. Plaintiff alleges that jurisdiction is proper in Connecticut because Markos: (1) transacted business in Connecticut; (2) committed a tortious acts within Connecticut; and (3) committed a tortious act outside of Connecticut that caused injury to BBN within Connecticut. (Pl. Opp. [Doc. # 72] 10-13.) Plaintiff also alleges that the exercise of personal jurisdiction over Markos comports with due process. (Id. at 15.) In response, Markos argues that he did not individually conduct business in Connecticut, contending that the facts alleged are insufficient to confer jurisdiction because they relate to conduct undertaken in his role as an agent for SBM. Moreover, Markos asserts that the exercise of jurisdiction over him individually would violate constitutional due process principles.

I. Jurisdictional Facts⁴

Plaintiff is a Connecticut-chartered bank with its principal office in Glastonbury, Connecticut. Markos is a resident of the state of Maine. (See Compl. ¶ 21, Markos Decl. [Doc. # 66-2] ¶ 2.)

During 2008 and part of 2009, Markos was the President and CEO of SBM, which is headquartered in Gardiner, Maine. (See Markos Decl. ¶ 3.) In his capacity as Director and CEOof SBM, Markos signed, along with the other SBM directors, a form that authorized SBM to borrow up to $20 million from BBN and authorized Ms. Nored to sign any and all documents with respect to the transaction (the "Authorization Form"). (Laughlin Decl., Ex. D.) After the Original Loan Agreement was executed on September 16, 2008, Markos personally sent dozens of emails to BBN personnel located in Connecticut and frequently spoke with Peter Garland on the phone in connection with the loan between BBN and SBM. (See Laughlin Decl., Ex. A [Doc. # 72-3]; Garland Decl. ¶ 4.) Markos was also copied on several other emails from SBM personnel to BBN personnel located in Connecticut. (Garland Decl. ¶ 5.) On January 6, 2010, Markos traveled to Connecticut to discuss the repayment schedule of the loan with BBN personnel. (See Markos Decl. ¶ 6; Laughlin Decl., Ex. E [Doc. # 72-7].)

2. Legal Standard

Whether Markos, a non-resident individual, is subject to personal jurisdiction in this Court is determined by the law of the state in which the district court sits, i.e., Connecticut. Fed. R. Civ. P. 4(k)(1)(A). The determination of personal jurisdiction involves a two-part analysis. Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 124 (2d Cir. 2002). First, the Court applies Connecticut's long-arm statute. Id. If the Court finds that the long-arm statute applies, the Court must then decide whether the exercise of jurisdiction over the defendant comports with due process. Id.

"When responding to a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing that the court has jurisdiction over the defendant." Bank Brussels Lambert, 171 F.3d at 784. When a court does not conduct a "full-blown evidentiary hearing" on the motion, the plaintiff need only make out "a prima facie showing thatthe court possesses personal jurisdiction over the defendant." DiStefano v. Carozzi North America, Inc., 286 F.3d 81, 84 (2d Cir. 2001) (quoting Marine Midland Bank, N.A. v. Miller...