Bill v. Pullman

• Decision Date: 25 April 2013
• Docket Number: No. 1 CA–CV 12–0173.,1 CA–CV 12–0173.
• Citation: 232 Ariz. 414,659 Ariz. Adv. Rep. 8,306 P.3d 71
• Court: Arizona Court of Appeals
• Parties: Bill and Sue BEVERAGE, husband and wife, Plaintiffs/Appellants, v. PULLMAN & COMLEY, LLC; D. Robert Morris, an individual, Defendants/Appellees.

232 Ariz. 414

306 P.3d 71

659 Ariz. Adv. Rep. 8

Bill and Sue BEVERAGE, husband and wife, Plaintiffs/Appellants,

v.PULLMAN & COMLEY, LLC; D. Robert Morris, an individual, Defendants/Appellees.

No. 1 CA–CV 12–0173.

Court of Appeals of Arizona, Division 1, Department C.

April 25, 2013.

Beus Gilbert PLLC By Leo R. Beus, Abigail Terhune, Erin McGuinness, Scottsdale, Attorneys for Appellants.

Quarles & Brady LLP By Don P. Martin, Michael S. Catlett, D. Cody Huffaker, Phoenix, Attorneys for Appellees.

OPINION

JOHNSEN, Judge.

¶ 1 We hold in this case that a Connecticut law firm that accepted $50,000 in legal fees for issuing an opinion letter to an Arizona resident in connection with a tax shelter transaction is subject to suit in Arizona after the tax shelter failed. We accordingly reverse the superior court's dismissal for lack of personal jurisdiction and remand for further proceedings.

FACTS AND PROCEDURAL HISTORY

¶ 2 Bill Beverage, an Arizona resident, heard from his local accountant, Randy Fitzpatrick, of an opportunity to invest in a tax shelter promoted by Chenery Associates, a financial services firm.¹ In mid-December 2001, Fitzpatrick, as Beverage's agent, and Chenery employees telephoned D. Robert Morris, managing partner of Pullman & Comley, LLC, a Connecticut law firm, to discuss whether Pullman would issue an opinion letter to Beverage supporting the tax shelter.

¶ 3 Pullman is a law firm organized and located in Connecticut, without an office in Arizona or any attorneys licensed to practice in Arizona. By Morris's account, he told Fitzpatrick and the others on the December 2001 call that “Pullman would be interested in providing an opinion letter,” but could not commit without completing its research into the matter. One week later, Morris sent to Fitzpatrick in Arizona a letter enclosing Pullman's brochure and stating, “I look forward to working with you.”

¶ 4 Beverage completed the tax shelter transaction in late December 2001. In an affidavit, he averred he entered the transaction “in reliance on my understanding that [it] was a legal and legitimate business deal and that a favorable tax opinion letter would be forthcoming.” Morris spoke by telephone with Fitzpatrick twice in mid-March 2002 about “the factual assumptions underlying Pullman's opinion letter.” In early April, Morris sent Fitzpatrick a client representation letter for Beverage to sign. The letter formalized the attorney-client relationship between Pullman and Beverage for preparation of a tax opinion letter in consideration of a $50,000 fee. Beverage executed the representation letter and sent the law firm a check for $50,000.

¶ 5 The 58–page opinion letter was drafted in Connecticut by lawyers who are not admitted to practice in Arizona. Once Morris received Beverage's signed representation letter on April 12, he forwarded the opinion letter to Fitzpatrick. The opinion letter, addressed to Beverage, concluded the tax shelter was legal and legitimate under federal tax law. In reliance on the letter, Beverage and his wife declared substantial losses related to the tax shelter on their federal income tax return.

¶ 6 One year later, the Internal Revenue Service audited the Beverages; Morris spoke with Fitzpatrick twice by phone about the audit. The government ultimately disallowed the tax losses the Beverages had claimed. The Beverages incurred substantial legal fees during the audit and, in the end, were assessed deficiencies totaling more than $3,000,000. The Beverages filed suit in Arizona against Pullman and Morris (collectively, “Pullman Defendants”) and Fitzpatrick's firm, asserting claims of civil racketeering, fraud in various forms, breach of fiduciary duty, aiding and abetting fraud and breach of fiduciary duty, conspiracy, professional malpractice and negligent misrepresentation. The Pullman Defendants moved to dismiss for lack of personal jurisdiction. Over the Beverages' opposition, the superior court granted the motion.

¶ 7 The Beverages timely appealed the superior court's order of dismissal entered pursuant to Arizona Rule of Civil Procedure 54(b). We have jurisdiction under Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes (“A.R.S.”) section 12–2101(A)(1) (West 2013). ²

DISCUSSION

A. Legal Principles.

¶ 8 Arizona law permits “long-arm” exercise of personal jurisdiction to the greatest extent allowable under the United States Constitution. Ariz. R. Civ. P. 4.2(a); Planning Group of Scottsdale, L.L.C. v. Lake Mathews Mineral Props., Ltd., 226 Ariz. 262, 265, ¶ 12, 246 P.3d 343, 346 (2011). Personal jurisdiction may be either general or specific. Id. at 265, ¶ 13, 246 P.3d at 346. A state may exercise general jurisdiction over non-residents “whose activities in the state are ‘systematic and continuous' ” or specific jurisdiction “over a defendant who has sufficient contacts with the state to make the exercise of jurisdiction ‘reasonable and just’ with respect to that claim.” Id. (citation omitted). We deal here with specific personal jurisdiction; the parties agree the Pullman Defendants do not have such continuous and systematic contacts with Arizona to be subject to general personal jurisdiction in this state.

¶ 9 Arizona may exercise specific personal jurisdiction over an out-of-state defendant when the aggregate of the defendant's contacts with this state demonstrate (1) purposeful conduct by the defendant targeting the forum, rather than accidental or casual contacts or those brought about by the plaintiff's unilateral acts, (2) a nexus between those contacts and the claim asserted and (3) that exercise of jurisdiction would be reasonable. Id. at 266, 270, ¶¶ 16, 25, 37, 246 P.3d at 347, 351;Williams v. Lakeview Co., 199 Ariz. 1, 4, ¶ 11, 13 P.3d 280, 283 (2000).

¶ 10 To survive a motion to dismiss for lack of personal jurisdiction, the plaintiff must offer “facts establishing a prima facie showing of jurisdiction.” Arizona Tile, L.L.C. v. Berger, 223 Ariz. 491, 493, ¶ 8, 224 P.3d 988, 990 (App.2010). The burden then “shifts to the defendant to rebut the showing.” Id. We review de novo the superior court's ruling on personal jurisdiction. Id.

B. Purposeful Conduct Targeting Arizona.

¶ 11 The Pullman Defendants' contacts with Arizona are grounded in their attorney-client relationship with Beverage. They accepted a telephone call from Beverage's Arizona agent, sent promotional materials about the law firm to Beverage's agent in Arizona, then affirmatively agreed to represent Beverage, knowing he lived in Arizona. In connection with that representation, the Pullman Defendants accepted Beverage's request that they analyze the bona fides of the Chenery tax shelter, then drafted and issued an opinion letter to Beverage in Arizona, knowing that Beverage would rely on the letter in filing his federal income tax return from Arizona, all in exchange for a $50,000 fee. ³

¶ 12 Guided by the supreme court's analysis in Planning Group, we conclude Beverage offered sufficient evidence that the Pullman Defendants engaged in purposeful conduct for which they reasonably could expect to be haled into an Arizona court. In Planning Group, the defendant California company sent a solicitation document to the Arizona investor; “extensive [ ]” telephone calls, emails, letters and faxes then ensued between the California company and the Arizona investor. 226 Ariz. at 264, ¶ 4, 246 P.3d at 345. After an in-person meeting in Los Angeles, the California company sent a letter setting out the “basic propositions” on which a transaction could proceed, to which the Arizona investor agreed in writing. Id. at 265, ¶¶ 6–7, 246 P.3d at 346. Payments of $190,000 by the Arizona investor followed. Id. at ¶ 7.

¶ 13 The court directed that the defendant's various contacts with the state must “be analyzed not in isolation, but rather in totality.” Id. at 269, ¶ 29, 246 P.3d at 350. It concluded with “little difficulty” that the California defendant's communications with the Arizona investor, on which the Arizona investor's claims were based, demonstrated “purposeful direction” by the defendant sufficient to establish personal jurisdiction in Arizona. Id. at ¶ 31.⁴

¶ 14 The Pullman Defendants argue that an attorney-client relationship with an Arizona client, by itself, is not sufficient to establish personal jurisdiction. See Sher v. Johnson, 911 F.2d 1357, 1363 (9th Cir.1990). But in the cases the Pullman Defendants cite, jurisdiction arguably turned on the locus of the representation. That is, the cases hold that a client's home state does not necessarily acquire jurisdiction over an out-of-state law firm the client retains to represent him in the other state. See, e.g., id. at 1362–63 (Florida law firm represented California client in Florida criminal proceeding); Austad Co. v. Pennie & Edmonds, 823 F.2d 223, 226–27 (8th Cir.1987) (client's home state of South Dakota lacked jurisdiction over New York law firm in suit related to representation in Maryland litigation); Mayes v. Leipziger, 674 F.2d 178, 185 (2d Cir.1982) (client's home state of New York lacked jurisdiction over California law firm in suit related to California representation); Exponential Biotherapies, Inc. v. Houthoff Buruma N.V., 638 F.Supp.2d 1, 9 (D.D.C.2009) (no jurisdiction in client's home forum over Netherlands law firm in suit related to legal work and representation performed in the Netherlands).

¶ 15 The situation is different when, as here, the out-of-state law firm has provided representation or services directed toward the forum state. In Vig v. Indianapolis Life Insurance Co., 384 F.Supp.2d 975 (S.D.Miss.2005), a Pennsylvania law firm drafted an opinion letter addressed to a Mississippi investor and gave the letter to its California-based client for delivery to the investor in Mississippi. Id. at 980. Because the law firm knew that the letter was to be given to the Mississippi resident, jurisdiction was proper in that state. Id.

¶ 16 The...