CERBERUS PARTNERS v. Gadsby & Hannah, LLP

• Decision Date: 19 December 2003
• Docket Number: No. 2002-196-Appeal.,2002-196-Appeal.
• Parties: CERBERUS PARTNERS, L.P., et. al. v. GADSBY & HANNAH, LLP, Schatz & Schatz, Ribicoff & Kotkin v. Adam C. Harris and O'Melveny & Myers, LLP.
• Court: Rhode Island Supreme Court

836 A.2d 1113

CERBERUS PARTNERS, L.P., et. al. v. GADSBY & HANNAH, LLP, Schatz & Schatz, Ribicoff & Kotkin v. Adam C. Harris and O'Melveny & Myers, LLP.

No. 2002-196-Appeal.

Supreme Court of Rhode Island.

December 19, 2003.

Matthew F. Medeiros, Providence, for Plaintiffs.

John Tarantino, Melissa M. Horne, Providence, for Defendants.

Present: WILLIAMS, C.J., FLANDERS, GOLDBERG, FLAHERTY, and SUTTELL, JJ:

OPINION

SUTTELL, Justice.

May Rhode Island courts exercise personal jurisdiction, either specific or general, over an out-of-state law firm on a claim for contribution and indemnity arising out of a legal malpractice action that is governed by the laws of this state?

In this case third-party plaintiffs, Schatz & Schatz, Ribicoff & Kotkin (Schatz) and its former partners, appeal from a judgment of the Superior Court granting third-party defendants', Adam C. Harris (Harris) and O'Melveny & Myers, LLP (O'Melveny), motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2) of the Superior Court Rules of Civil Procedure. In his decision, the motion justice said: "This Court does not believe in the disposition of this case that there is a sufficient, continuing pervasive presence in the state of Rhode Island by the third-party defendant law firm. * * * This court does not believe that this matter is close." We agree and accordingly affirm the judgment.

Facts and Travel

The facts underlying this case are well established from an earlier decision of this Court, and need only be summarized here. See Cerberus Partners, L.P. v. Gadsby & Hannah, 728 A.2d 1057 (R.I.1999) (Cerberus I)

.

"The plaintiffs * * * are all financial institutions that purchased loans given by a group of lenders (collectively, the Lenders) to SLM International, Inc. (SLM). The loans given to SLM and bought by the plaintiffs totaled $134 million. The defendants in [the original action] are two law firms, Gadsby & Hannah (Gadsby) and Schatz & Schatz, Ribicoff & Kotkin, * * * and their current and former partners (collectively, the defendants). The defendants represented the Lenders in the loan transactions with SLM." Cerberus I, 728 A.2d at 1057.

"On December 3, 1992, SLM entered into a loan and security agreement with Fleet Credit Corporation (Fleet), which, in addition to being a lender itself, was acting as an agent for all of the Lenders. Gadsby was retained by Fleet as counsel for the transaction with SLM. In 1994, the loan and security agreement was amended to include a business acquisition in New Hampshire by an SLM subsidiary, Masca, USA (Masca). Although Gadsby filed financing statements in New Hampshire with respect to the acquired company's assets and inventory, it did not file a financing statement in New Hampshire with respect to Masca's assets and inventory. Therefore, when Masca moved its inventory from Vermont to New Hampshire, Fleet and the Lenders' security interest in those assets and inventory became unperfected.

"In late 1994, SLM began experiencing financial difficulties. Gadsby was replaced by Schatz as counsel for Fleet and the Lenders. On March 2, 1995, some of SLM's creditors filed petitions against SLM in the bankruptcy courts of Delaware and Canada. Those petitions were eventually dismissed. However, on October 24, 1995, SLM filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. Also on October 24, Masca commenced an action against Fleet to avoid the lien from the Lenders' security interest in Masca's inventory in New Hampshire. That action between Fleet and Masca later settled pursuant to a court-approved settlement agreement.

"After the creditors of SLM commenced bankruptcy proceedings against SLM in March 1995, certain of the Lenders, including Fleet, began selling their SLM loans, including all of their rights and obligations connected with those loans, to other financial institutions. Those financial institutions are the plaintiffs in [the original] action.

"Because the security interest arising from the loans was not perfected in New Hampshire, the plaintiffs were unable to receive the full value of the purchased loans and were forced to settle with SLM for an amount less than the total original value of the loans. The plaintiffs claim that it was Gadsby's negligence that caused their security interests to not be perfected and that Schatz was negligent in not discovering Gadsby's error and failing to notice the defect in the security interest even though they were aware of SLM's financial difficulties and SLM's imminent bankruptcy." Cerberus I, 728 A.2d at 1058.

The plaintiffs, as the successors in interest to the original Lenders, brought an action alleging "legal malpractice, negligent representation and omissions, breach of a third-party beneficiary contract, and breach of contract against [the defendants]." Id.

In Cerberus I, 728 A.2d at 1059, we held that Rhode Island law applies to the legal malpractice action arising from the loan agreements pursuant to the choice of law provisions in those agreements designating Rhode Island law as the controlling law. We further held that the Lenders' malpractice actions against Gadsby and Schatz arising from the original loan transactions were assignable to plaintiffs. Id. at 1061.

On or about April 9, 2001, Schatz filed a third-party complaint seeking contribution and indemnification from O'Melveny and Harris, asserting that third-party defendants have "sufficient contacts with the State of Rhode Island as to subject them to the personal jurisdiction of this Court, pursuant to G.L. [1956] § 9-5-33, the Rhode Island Long Arm Statute." O'Melveny & Harris thereupon filed a motion to dismiss the third-party complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2). After reviewing various affidavits and memoranda submitted by the parties, the motion justice in a bench decision granted the motion to dismiss. Judgment was duly entered under Rule 54(b) of the Superior Court Rules of Civil Procedure, and Schatz timely appealed.

Standard of Review

In reviewing a lower court's dismissal of an action for failure to make a prima facie showing of personal jurisdiction, we draw the facts from the pleadings and the parties' supplementary filings, taking facts affirmatively alleged by plaintiff as true and viewing disputed facts in the light most advantageous to plaintiff. 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). Our review is de novo. See Zarrella v. Minnesota Mutual Life Insurance Co., 824 A.2d 1249, 1256 (R.I.2003)

(reviewing attack on subject matter jurisdiction de novo).

Discussion

It is well established that to withstand a defendant's Rule 12(b)(2) motion to dismiss a complaint for lack of in personam jurisdiction, a plaintiff must allege sufficient facts to make out a prima facie case of jurisdiction. Ben's Marine Sales v. Sleek Craft Boats, 502 A.2d 808, 809 (R.I.1985). A prima facie case of jurisdiction is established when the requirements of Rhode Island's long-arm statute are satisfied. Id. General Laws 1956 § 9-5-33(a) provides in part that

"[e]very foreign corporation, every individual not a resident of this state * * * and every partnership or association, composed of any person or persons not such residents, that shall have the necessary minimum contacts with the state of Rhode Island, shall be subject to the jurisdiction of the state of Rhode Island * * * in every case not contrary to the provisions of the constitution or laws of the United States."

"As interpreted by this Court, § 9-5-33(a) permits the exercise of jurisdiction over nonresident defendants to the fullest extent allowed by the United States Constitution." Rose v. Firstar Bank, 819 A.2d 1247, 1250 (R.I.2003) (citing McKenney v. Kenyon Piece Dye Works, Inc., 582 A.2d 107, 108 (R.I.1990)).

"To ensure constitutional due process to a nonresident defendant, certain minimum contacts with the forum state are required `such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice."'" Kalooski v. Albert-Frankenthal AG, 770 A.2d 831, 832-33 (R.I.2001) (per curiam) (quoting Ben's Marine Sales, 502 A.2d at 809 and International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). The minimum contacts requirement protects defendants from the burden of having to litigate in an inconvenient forum and it ensures that states "do not reach out beyond [their] limits * * * as coequal sovereigns in a federal system." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980).

"Obviously, a determination as to the minimum contacts that will satisfy the requirements of due process will depend upon the facts of each particular case." Ben's Marine Sales, 502 A.2d at 810. "The fundamental question here is, thus, whether `the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.'" Bendick v. Picillo, 525 A.2d 1310, 1312 (R.I.1987) (quoting Violet v. Picillo, 613 F.Supp. 1563, 1574 (D.R.I.1985) and World-Wide Volkswagen Corp., 444 U.S. at 297, 100 S.Ct. 559).

The forum court possesses personal jurisdiction over a nonresident defendant when a plaintiff alleges and proves the existence of either general or specific personal jurisdiction. "When its contacts with a state are continuous, purposeful, and systematic, a nonresident defendant will subject itself to the general jurisdiction of that forum's courts with respect to all claims, regardless of whether they relate to or arise out of the nonresident's contacts with the forum." Rose, 819 A.2d at 1250 (citing International Shoe Co., 326 U.S. at 318, 66 S.Ct. 154). "Thus, if a nonresident's contacts with a forum are sufficient for general personal jurisdiction to exist, then such a party may be sued in that forum for `causes of action...