C. W. Downer & Co. v. Bioriginal Food & Sci. Corp.

• Decision Date: 03 March 2014
• Docket Number: Civil Action No. 13-11788-DJC
• Court: U.S. District Court — District of Massachusetts
• Parties: C. W. DOWNER & CO., Plaintiff, v. BIORIGINAL FOOD & SCIENCE CORP., Defendant.

C. W. DOWNER & CO., Plaintiff, v. BIORIGINAL FOOD & SCIENCE CORP., Defendant.

Civil Action No. 13-11788-DJC

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

March 3, 2014

MEMORANDUM AND ORDER

CASPER, J.

I. Introduction

Plaintiff C.W. Downer & Co. ("Downer") has sued Bioriginal Food & Science Corp. ("Bioriginal") asserting claims of breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and violation of Mass. Gen. L. c. 93A in connection with Bioriginal's alleged nonpayment of investment banking fees for services to Downer. D. 8. Bioriginal has moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction, or alternatively, and only as to the c. 93A claim, for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). D. 9. For the reasons set forth below, Bioriginal's motion to dismiss for lack of personal jurisdiction is ALLOWED.

II. Burden of Proof and Standard of Review

On a motion to dismiss for lack of personal jurisdiction, Downer bears the burden of establishing that personal jurisdiction over Bioriginal. Mass. Sch. of Law at Andover, Inc. v.Am. Bar Ass'n, 142 F.3d 26, 34 (1st Cir. 1998). To meet its burden, Downer must "demonstrate the existence of every fact required to satisfy both the forum's long-arm statute and the Due Process Clause of the Constitution." United States v. Swiss Am. Bank, Ltd., 274 F.3d 610, 618 (1st Cir. 2001) (internal quotations and citation omitted). Under this standard, the court will look to the facts alleged in the pleadings and the parties' supplemental filings, including affidavits. Sawtelle v. Farrell, 70 F.3d 1381, 1385 (1st Cir. 1995); Ticketmaster-New York, Inc. v. Alioto, 26 F.3d 201, 203 (1st Cir. 1994). The court will "take specific facts affirmatively alleged by the plaintiff as true (whether or not disputed) and construe them in the light most congenial to the plaintiff's jurisdictional claim." Mass. Sch. of Law, 142 F.3d at 34. It will then "add to the mix facts put forward by the defendants, to the extent that they are uncontradicted." Id.

III. Factual Background

A. Factual Allegations and Proffer of Jurisdictional Evidence

Downer is Boston-based investment banking firm that provides business advice. Compl., D. 8 ¶ 6. Part of this advice includes identifying other business for clients that may present opportunities for mergers, acquisitions and divestitures. Id. Bioriginal is a Canadian corporation headquartered in Saskatoon, Saskatchewan, Canada which produces nutritional supplements. Id. ¶¶ 2, 7. Bioriginal has no office, phone number or employees in Massachusetts, is not registered to do business and does not have a registered agent here, does not do direct sales marketing to Massachusetts and has no ongoing relationships with customers or potential customers in the Commonwealth. Affidavit of Joseph Vidal, D. 10-1 ¶¶ 4-6.

In March 2009, Bioriginal retained Downer to assist it with the potential sale of thecompany. Id. ¶ 8. In September 2008, Crown Capital's Christopher Johnson informed Downer that Bioriginal was considering a sale of the company. Affidavit of Paul Colone, D. 13 ¶ 3. Crown Capital was an investor in Bioriginal, and according to Bioriginal CEO Joseph Vidal, Johnson was Bioriginal's "de facto" chairman. Affidavit of Joseph Vidal, D. 10-1 ¶ 11. Johnson met with Downer representatives in Boston, but subsequent negotiations were conducted via telephone and email. Id. ¶¶ 10, 12. The parties agreed (via the "Letter Agreement") that Downer would act as Bioriginal's "exclusive financial adviser in connection with the potential sale of Bioriginal." Compl. ¶ 9. The parties also agreed that Bioriginal would pay Downer four payments of $20,000 each for Downer's successful attainment of four "milestones:" (1) the execution of the parties' agreement; (2) Downer's completion of the "Information Memorandum;" the first presentation by Bioriginal's management to a prospective purchaser; and (4) "upon receipt of a final offer(s) . . . for a minimum of 50% of the equity of Bioriginal." Id. ¶ 11. The Letter Agreement included a transaction fee and a formula for determining Downer's total fee that established a minimum fee of $420,000. Id. ¶ 15. The Letter Agreement also stipulated that Downer "agree[s] submit to the jurisdiction of the Saskatchewan courts." D. 10-2 at 7.

Downer performed various services for Bioriginal including drafting a memorandum to the Bioriginal board providing an assessment of the divestiture prospects for Bioriginal and identifying a private equity group that was potentially interested in acquiring Bioriginal. Id. ¶¶ 18-19. Nevertheless, Bioriginal secured a purchaser through other channels. Id. ¶¶ 21-22. On April 5, 2013, Westbridge Capital, Ltd. ("Westbridge") announced its acquisition of Bioriginal. Id. ¶ 24. Although Bioriginal agreed to pay the first three milestone payments to Downer, itrefused to pay the final milestone payment or the $420,000 transaction fee. Id. ¶¶ 12, 25. Bioriginal has asserted that it terminated the Letter Agreement in 2009. Id. ¶ 28.

IV. Procedural History

Downer commenced this action in Suffolk Superior Court on July 1, 2013. D. 8. Bioriginal removed this action to this Court on July 26, 2013. D. 1.¹ Bioriginal filed a motion to dismiss on August 16, 2013. D. 9. The Court has now heard the parties on this matter and taken it under advisement. D. 19.

V. Discussion

A. Overview of Personal Jurisdiction

"In determining whether a non-resident defendant is subject to its jurisdiction, a federal court exercising diversity jurisdiction is the functional equivalent of a state court sitting in the forum state." Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 51 (1st Cir. 2002) (quoting Sawtelle, 70 F.3d at 1387 (internal quotation marks and citation omitted)). Accordingly, this Court may only exercise personal jurisdiction within the limits set by the Massachusetts long-arm statute and the Constitution. Lyle Richards Int'l, Ltd. v. Ashworth, Inc., 132 F.3d 111, 112 (1st Cir. 1997). Because courts construe "the Massachusetts long-arm statute as being coextensive with the limits permitted by the Constitution," this Court may "turn directly to the constitutional test for determining specific jurisdiction." Adelson v. Hananel, 652 F.3d 75, 80 (1st Cir. 2011).

A court may exercise two types of personal jurisdiction: general and specific.Cossaboon v. Me. Med. Ctr., 600 F.3d 25, 31 (1st Cir. 2010). Here, Downer asserts only that the Court has specific jurisdiction over Bioriginal. D. 12 at 10.

B. The Court Does Not Have Specific Jurisdiction Over Bioriginal

"The First Circuit employs a tripartite analysis to determine whether specific jurisdiction is appropriate: 1) whether the claims arise out of or are related to the defendant's in-state activities, 2) whether the defendant has purposefully availed itself of the laws of the forum state and 3) whether the exercise of jurisdiction is reasonable under the circumstances." Pesmel N. Am., LLC v. Caraustar Indus., Inc., 754 F. Supp. 2d 168, 172 (D. Mass. 2010).

1. Downer's Claims Are Not Sufficiently Related to Bioriginal's In-State Activities

The first prong, relatedness, focuses on whether "'the claim underlying the litigation . . . directly arise[s] out of, or relate[s] to, the defendant's forum-state activities.'" Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1, 9 (1st Cir. 2009) (quoting N. Laminate Sales, Inc. v. Davis, 403 F.3d 14, 25 (1st Cir. 2005)) (further citation omitted). It is a "flexible, relaxed standard." Id. (internal quotations and citations omitted).

"Questions of specific jurisdiction are always tied to the particular claims asserted." Phillips Exeter Academy v. Howard Phillips Fund, 196 F.3d 284, 299 (1^st Cir. 1999). "In contract cases, a court charged with determining the existence vel non of personal jurisdiction must look at the elements of the cause of action and ask whether the defendants' contacts with the forum were instrumental either in the formation of the contract or its breach." Id. All of Downer's claims—for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of c. 93A and unjust enrichment-- arise out of Bioriginal's alleged breach of its agreement to pay Downer for its services. With that said, the Court cannot conclude on thisrecord that Bioriginal's contacts with Massachusetts were instrumental to the formation of the contract or its alleged breach of that agreement.

Downer argues that its claims are directly related to Bioriginal's in-state contacts because its "de facto" chairman met with Downer in Boston to discuss the possible sale of Bioriginal, the parties had many e-mail and telephone discussions regarding the engagement, Downer performed all of the work under the Letter Agreement in Massachusetts and Bioriginal sent three separate milestone payments to Massachusetts. D. 12 at 10-11. However, at bottom, this lawsuit is arises out of Bioriginal's alleged failure to make payments due to Downer. Accordingly, it is Bioriginal's failure to act in Canada (namely, its failure to transfer funds from there to Massachusetts) that forms the basis of this lawsuit. See Platten v. HG Bermuda Exempted Ltd., 437 F.3d 118 (1^st Cir. 2006) (noting that "[e]vidence of a defendant's entry into a contractual relation with a plaintiff in another state is relevant to whether the defendant 'reached out' to that state[,] [b]ut the mere fact that a plaintiff entered into a contract with a defendant in the forum state is not in and of itself dispositive of the personal jurisdiction question"). Here, Bioriginal's conduct does not give rise to personal jurisdiction in the forum state. See Walker v. Smith, 257 F. Supp. 2d 691, 695 (S.D.N.Y. 2003) (citing Waldorf Assocs. v. Neville, 533 N.Y.S.2d 182, 185 (1988) (noting that failure to pay a debt payable in forum state...