First Horizon Merchant v. Wellspring Capital, 05CA2370.

• Decision Date: 19 April 2007
• Docket Number: No. 05CA2370.,05CA2370.
• Parties: FIRST HORIZON MERCHANT SERVICES, INC., a Tennessee corporation, Plaintiff-Appellant, v. WELLSPRING CAPITAL MANAGEMENT, LLC, a Delaware limited liability company; Wellspring Capital Partners II, LP, a Delaware limited partnership; Loan Capital Funding, LLC, a Delaware limited liability company; Philip Bakes, Greg Feldman, Jason Fortin, George Gremse, Barry Kaplan, David Mariano, Andrew McKey, Carl Stanton, and Craig Toll, individually, Defendants-Appellees.
• Court: Colorado Court of Appeals

166 P.3d 166

FIRST HORIZON MERCHANT SERVICES, INC., a Tennessee corporation, Plaintiff-Appellant, v. WELLSPRING CAPITAL MANAGEMENT, LLC, a Delaware limited liability company; Wellspring Capital Partners II, LP, a Delaware limited partnership; Loan Capital Funding, LLC, a Delaware limited liability company; Philip Bakes, Greg Feldman, Jason Fortin, George Gremse, Barry Kaplan, David Mariano, Andrew McKey, Carl Stanton, and Craig Toll, individually, Defendants-Appellees.

No. 05CA2370.

Colorado Court of Appeals, Div. II.

April 19, 2007.

As Modified on Denial of Rehearing June 14, 2007.

Ireland, Stapleton, Pryor & Pascoe, P.C., Richard L. Shearer, Timothy G. Atkinson, J. Alan Call, Laura J. Hazen, Denver, Colorado, for Plaintiff-Appellant.

Boies, Schiller & Flexner, LLP, Kenneth F. Rossman, IV, Oakland, California; Boies, Schiller & Flexner, LLP, Jonathan D. Schiller, Nicholas A. Gravante, Jr., Christopher E. Duffy, New York, New York, for Defendants-Appellees.

Opinion by Judge LOEB.

In this litigation between a creditor of a bankrupt company and the company's officers, directors, and majority stockholders, plaintiff, First Horizon Merchant Services, Inc., appeals the judgment dismissing its complaint against defendants, Wellspring Capital Management LLC, Wellspring Capital Partners II, LP, Loan Capital Funding, LLC, Philip Bakes, Greg Feldman, Jason Fortin, George Gremse, Barry Kaplan, David Mariano, Andrew McKey, Carl Stanton, and Craig Toll. The district court dismissed the complaint pursuant to C.R.C.P. 12, concluding that it lacks personal jurisdiction over defendants or, alternatively, First Horizon lacks standing to sue them. We affirm in part, reverse in part, vacate in part, and remand for further proceedings.

First Horizon, a wholly owned subsidiary of First Tennessee Bank, is a Tennessee corporation with its principal place of business in Englewood, Colorado. In 1998, First Horizon entered into a Merchant Agreement with Travel Industry Partners Corporation, now known as Far & Wide, a large international leisure tour operator based in Florida. Under the Merchant Agreement, First Horizon processed credit card transactions between Far & Wide and its customers.

When a customer purchased a tour from Far & Wide, the customer paid an advance deposit. When the advance was paid by credit card, First Horizon transmitted the charge information to the customer's card issuer bank, which would pay the amount of the charge to First Horizon. First Horizon would then pay Far & Wide. If the customer later disputed the charge to Far & Wide, First Horizon was responsible for refunding the amount received from the card issuer bank. First Horizon was then entitled to a corresponding refund from Far & Wide for that chargeback.

On September 24, 2003, Far & Wide ceased operating and filed for Chapter 11 bankruptcy protection in Florida. Customers who had made advance deposits, but had not received the travel services for which they had paid, disputed the charges and received their money back from their credit card issuers. The credit card issuers in turn charged back and received their money from First Horizon, which did not get refunds from Far & Wide. The amount of the chargebacks received and paid by First Horizon was close to $10 million. First Horizon filed a proof of claim in the Far & Wide bankruptcy proceeding for these funds.

In July 2004, First Horizon filed this action against defendants. The corporate defendants (collectively, Wellspring) were majority stockholders in Far & Wide; the individual defendants were officers and directors of Far & Wide, and partners and directors of Wellspring. In its amended complaint, First Horizon asserts claims for tortious interference with contract, unjust enrichment, fraud on creditors, civil conspiracy, and fraudulent or negligent misrepresentation against all individual and corporate defendants, as well as for breach of fiduciary duty against the individual defendants.

Defendants filed a motion to dismiss pursuant to C.R.C.P. 12 on a variety of grounds, including lack of personal jurisdiction and standing. First Horizon opposed the motion to dismiss and also filed a motion for leave to conduct discovery on the issue of personal jurisdiction. The district court granted the motion to dismiss on the grounds that it lacks personal jurisdiction over defendants or, alternatively, that First Horizon lacks standing to prosecute its claims for relief. The court also denied First Horizon's motion for jurisdictional discovery. This appeal followed.

We review a district court's ruling on a motion to dismiss de novo. In conducting that review, we accept as true all averments of material fact contained in the complaint and view the allegations of the complaint in the light most favorable to the claimant. Kaercher v. Sater, 155 P.3d 437 (Colo.App. 2006); Brossia v. Rick Constr., L.T.D. Liab. Co., 81 P.3d 1126, 1129 (Colo.App.2003).

I. Personal Jurisdiction

First Horizon contends the district court erred as a matter of law in granting the motion to dismiss for lack of personal jurisdiction, because the requirements of the Colorado long-arm statute and traditional notions of due process were satisfied with regard to each defendant. We agree with First Horizon that the court erred in granting the motion to dismiss on personal jurisdiction grounds as to defendants Craig Toll and Andrew McKey, but reject the remainder of First Horizon's personal jurisdiction contentions. We also reject First Horizon's related contention that the district court abused its discretion in not allowing jurisdictional discovery.

Whether a court may exercise personal jurisdiction over a nonresident defendant is a question of law, which we review de novo. In re Marriage of Malwitz, 99 P.3d 56, 59 (Colo.2004).

A plaintiff must establish a prima facie case of personal jurisdiction to overcome a C.R.C.P. 12(b)(2) motion to dismiss. A prima facie showing exists where the plaintiff raises a reasonable inference that the court has jurisdiction over the defendant. Where the court decides a C.R.C.P. 12(b)(2) motion based only on documentary evidence, such evidence consists of the allegations in the complaint, as well as affidavits and any other evidence submitted by the parties. The district court may not decide material issues of jurisdictional fact against a plaintiff without an evidentiary hearing. Archangel Diamond Corp. v. Lukoil, 123 P.3d 1187, 1190 (Colo.2005).

A plaintiff seeking to invoke a Colorado court's jurisdiction over a nonresident defendant must comply with the requirements of our long-arm statute and constitutional due process. "Because the General Assembly intended for our long-arm statute to confer the maximum jurisdiction permitted by the due process clauses of the United States and Colorado [C]onstitutions, we necessarily address the requirements of the long-arm statute when we engage in constitutional due process analysis." Archangel Diamond Corp. v. Lukoil, supra, 123 P.3d at 1193.

Due process requires that a defendant have certain minimum contacts with the forum state so that he or she may foresee being answerable in court there. The quantity and nature of the minimum contacts required depends on whether the plaintiff alleges specific or general jurisdiction. Archangel Diamond Corp. v. Lukoil, supra, 123 P.3d at 1194.

General jurisdiction exists when the activities of a nonresident defendant in the forum state are "continuous and systematic, of a general business nature." Keefe v. Kirschenbaum & Kirschenbaum, P.C., 40 P.3d 1267, 1271 (Colo.2002).

"Specific jurisdiction is properly exercised where the injuries triggering litigation arise out of and are related to `activities that are significant and purposefully directed by the defendant at residents of the forum.'" Archangel Diamond Corp. v. Lukoil, supra, 123 P.3d at 1194 (quoting Keefe v. Kirschenbaum & Kirschenbaum, P.C., supra, 40 P.3d at 1271); see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 2182, 85 L.Ed.2d 528 (1985).

At oral argument, counsel for First Horizon stated that its contentions here were based on both general and specific jurisdiction. However, contrary to counsel's assertion, First Horizon's arguments, both in the district court and in its appellate briefs, were based exclusively on principles of specific jurisdiction. Thus, we limit our discussion to that concept.

The minimum contacts inquiry in regard to specific jurisdiction is essentially a two-part test assessing (1) whether the defendant purposefully availed himself or herself of the privilege of conducting business in the forum state, and (2) whether the litigation arises out of the defendant's forum-related contacts. With respect to the "arising out of" prong of the specific jurisdiction test, the actions of the defendant giving rise to the litigation must have created a "substantial connection" with the forum state. Archangel Diamond Corp. v. Lukoil, supra, 123 P.3d at 1194 (quoting OMI Holdings, Inc. v. Royal Ins. Co., 149 F.3d 1086, 1091 (10th Cir.1998)).

Even a single act can sometimes support specific jurisdiction. Keefe v. Kirschenbaum & Kirschenbaum, P.C., supra, 40 P.3d at 1271; In re Parental Responsibilities of H.Z.G., 77 P.3d 848, 852 (Colo.App.2003).

"Once it has been decided that a defendant purposefully established minimum contacts within the forum State, these contacts may be considered in light of other factors to determine whether the assertion of personal jurisdiction would comport with `fair play and substantial justice.'" Burger King Corp. v. Rudzewicz, supra, 471 U.S. at 476, 105 S.Ct. at 2184 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 320, 66 S.Ct. 154, 160, 90 L.Ed. 95 (1945)); see Keefe v. Kirschenbaum & Kirschenbaum, P.C., supra, 40 P.3d at 1271. Considerations like the burden on the defendant, the forum state's interest in adjudicating the dispute, and the plaintiff's interest in...