Futureselect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc.

• Citation: 180 Wash.2d 954,331 P.3d 29
• Decision Date: 17 July 2014
• Docket Number: No. 89303–9.,89303–9.
• Court: United States State Supreme Court of Washington
• Parties: FUTURESELECT PORTFOLIO MANAGEMENT, INC.; FutureSelect Prime Advisor II LLC; The Merriwell Fund, LP; and Telesis IIW, LLC, Respondents, v. TREMONT GROUP HOLDINGS, INC.; Tremont Partners, Inc.; Oppenheimer Acquisition Corporation; Massachusetts Mutual Life Insurance Co.; and Ernst & Young LLP, Petitioners, and Goldstein Golub Kessler LLP and KPMG LLP, Defendants.

180 Wash.2d 954

331 P.3d 29

FUTURESELECT PORTFOLIO MANAGEMENT, INC.; FutureSelect Prime Advisor II LLC; The Merriwell Fund, LP; and Telesis IIW, LLC, Respondents,

v.TREMONT GROUP HOLDINGS, INC.; Tremont Partners, Inc.; Oppenheimer Acquisition Corporation; Massachusetts Mutual Life Insurance Co.; and Ernst & Young LLP, Petitioners,andGoldstein Golub Kessler LLP and KPMG LLP, Defendants.

No. 89303–9.

Supreme Court of Washington,

En Banc.

July 17, 2014.

Timothy J. Filer, Foster Pepper PLLC, David F. Taylor, Cori Gordon Moore, Perkins Coie LLP, Christopher Holm Howard, Averil Budge Rothrock, Claire Louise Rootjes, Schwabe Williamson & Wyatt PC, Stephen Michael Rummage, Roger Ashley Leishman, Davis Wright Tremaine LLP, Seattle, WA, Seth M. Schwartz, Jason C. Vigna, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, David A. Kotler, Dechert LLP, Princeton, NJ, Robert B. Hubbell, Morrison Foerster, LLP, Los Angeles, CA, for Petitioner.

Jeffrey M. Thomas, Jeffrey Iver Tilden, Gordon Tilden Thomas & Cordell LLP, Seattle, WA, Emily Alexander, Steven W. Thomas, Thomas Alexander Forrester LLP, Venice, CA, for Respondents.

GONZÁLEZ, J.

¶ 1 Between 1997 and 2008, FutureSelect, a Redmond based financial company, invested nearly $200 million in Tremont's Rye Funds, which pooled and fed money into Bernie Madoff's fraudulent securities investment scheme. These investments were lost when Madoff's fraud unraveled. FutureSelect sued Tremont, Oppenheimer Acquisition Corp. and MassMutual (Tremont's parent companies), and Ernst & Young and Tremont's other auditors for their failure to conduct due diligence on Madoff's operations. FutureSelect alleged violations of the Washington state securities act (WSSA), chapter 21.20 RCW; negligence; and negligent misrepresentation.

¶ 2 The trial court dismissed on the pleadings, finding Washington's security law did not apply and that Washington courts did not have jurisdiction over Oppenheimer. The Court of Appeals reversed. Defendants seek to reinstate the trial court's findings. Oppenheimer argues that it lacks the requisite minimum contacts with Washington for personal jurisdiction. The defendants collectively argue that dismissing for failure to state a claim is appropriate because New York law—which does not provide for a private cause of action under its state securities act, rather than Washington law, which does—applies. Ernst and Young also contends that it is not a “seller” under the WSSA. We affirm the Court of Appeals.

FACTS

¶ 3 The lead plaintiff, FutureSelect Portfolio Management Inc., is headquartered in Washington and manages a number of investment funds. The first named defendant, Tremont Partners Inc., is headquartered in New York and serves as the general partner to the Rye Funds,¹ whose status as feeder funds to Bernard L. Madoff Investment Securities LLC (Madoff) is at the heart of this dispute.

¶ 4 The relationship between FutureSelect and Tremont began when a Tremont representative visited FutureSelect's Redmond offices in 1997 to solicit FutureSelect's investment in the Rye Funds. This initiated a series of discussions between FutureSelect and Tremont regarding the Rye Funds. Tremont claimed that it was offering FutureSelect a rare, and potentially fleeting, opportunity to invest with Madoff. Tremont also made assurances about its oversight and understanding of Madoff's operation. Relying on these assurances and the audit opinions of the accounting firm hired by Tremont, FutureSelect decided to invest in the Rye Funds in 1998. FutureSelect and Tremont had monthly ongoing communications about Madoff and the performance of the Rye Funds. Tremont claimed that its ongoing oversight and testing of Madoff proved satisfactory. Tremont also provided FutureSelect with purported facts proving the health of the Rye Funds.

¶ 5 Between 1998 and late 2008, when Madoff's Ponzi scheme finally came to light, FutureSelect continued to invest more funds in the Rye Funds as a result of the representations it regularly received from Tremont and its auditors. In all, FutureSelect invested $195 million with Tremont. But, Madoff never invested any of the capital he received through the Rye Funds or any other feeder. FutureSelect lost its entire investment. Believing that Tremont had significantly misled it, FutureSelect sued Tremont; MassMutual and Oppenheimer (Tremont's parent companies); and Ernst & Young, KPMG, ² and Goldstein Golub Kessler (Tremont's auditors).³

¶ 6 In its complaint, FutureSelect alleged that the defendants are liable for (1) violating RCW 21.20.010⁴ and RCW 21.20.430, (2) negligence,⁵ and (3) negligent misrepresentation.⁶ According to the complaint, Tremont's liability is based on the direct misrepresentations made by Tremont to FutureSelect that FutureSelect relied on in making, maintaining, and adding to its investment in the Rye Funds. It alleged that Tremont acted as MassMutual and Oppenheimer's agent or apparent agent. ⁷ It alleged Ernst & Young made direct misrepresentations ⁸ that FutureSelect relied on in maintaining and adding to its investment in the Rye Funds. The defendants filed separate motions to dismiss on the pleadings. Without stating the specific grounds for dismissal, the trial court granted these motions in full after conducting a hearing and considering a number of pleadings, declarations, and briefs. FutureSelect obtained a CR 54(b) order granting final judgment on the dismissals, allowing this appeal.

¶ 7 The Court of Appeals reversed in part and affirmed in part, finding that (1) Washington has the most significant relationship to the state securities act claims, negligent misrepresentation claims, and agency claims; (2) the complaint sufficiently alleged personal jurisdiction over Oppenheimer; and (3) the trial court properly dismissed the apparent agency claim against Oppenheimer and negligence claim against Tremont. FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 175 Wash.App. 840, 890–95, 309 P.3d 555 (2013). We granted review and now affirm the Court of Appeals.

ANALYSIS

I. Standard of review

¶ 8 We review CR 12(b)(6) dismissals de novo. Kinney v. Cook, 159 Wash.2d 837, 842, 154 P.3d 206 (2007) (citing Tenore v. AT & T Wireless Servs., 136 Wash.2d 322, 329–30, 962 P.2d 104 (1998)). “Dismissal is warranted only if the court concludes, beyond a reasonable doubt, the plaintiff cannot prove ‘any set of facts which would justify recovery.’ ” Id. (quoting Tenore, 136 Wash.2d at 330, 962 P.2d 104). All facts alleged in the complaint are taken as true, and we may consider hypothetical facts supporting the plaintiff's claim. Id. “Therefore, a complaint survives a CR 12(b)(6) motion if any set of facts could exist that would justify recovery.” Hoffer v. State, 110 Wash.2d 415, 420, 755 P.2d 781 (1988) (citing Lawson v. State, 107 Wash.2d 444, 448, 730 P.2d 1308 (1986); Bowman v. John Doe Two, 104 Wash.2d 181, 183, 704 P.2d 140 (1985)). But, “[i]f a plaintiff's claim remains legally insufficient even under his or her proffered hypothetical facts, dismissal pursuant to CR 12(b)(6) is appropriate.” Gorman v. Garlock, Inc., 155 Wash.2d 198, 215, 118 P.3d 311 (2005). Similarly, we review a CR 12(b)(2) dismissal de novo. In re Estate of Kordon, 157 Wash.2d 206, 209, 137 P.3d 16 (2006) (citing State v. Squally, 132 Wash.2d 333, 340, 937 P.2d 1069 (1997)).

II. Personal jurisdiction

¶ 9 Oppenheimer argues that it lacks the requisite minimum contacts with Washington and our courts' exercise of personal jurisdiction would offend due process. See Suppl. Br. of Oppenheimer at 7. It is mistaken. At this stage of litigation, the allegations of the complaint establish sufficient minimum contacts to survive a CR 12(b)(2) motion. However, Oppenheimer may renew its jurisdictional challenge after appropriate discovery has been conducted.

A. Specific jurisdiction

¶ 10 For the exercise of specific jurisdiction under Washington's long arm statute to be proper, the defendant's conduct must fall under RCW 4.28.185 and the exercise of jurisdiction must not violate constitutional principles. Grange Ins. Ass'n v. State, 110 Wash.2d 752, 756, 757 P.2d 933 (1988) (citing Werner v. Werner, 84 Wash.2d 360, 364, 526 P.2d 370 (1974)). “In order to subject nonresident defendants and foreign corporations to the in personam jurisdiction of this state under RCW 4.28.185(1)(a),” Washington's long arm statute, we must find the following factors:

“(1) The nonresident defendant or foreign corporation must purposefully do some act or consummate some transaction in the forum state; (2) the cause of action must arise from, or be connected with, such act or transaction; and (3) the assumption of jurisdiction by the forum state must not offend traditional notions of fair play and substantial justice, consideration being given to the quality, nature, and extent of the activity in the forum state, the relative convenience of the parties, the benefits and protection of the laws of the forum state afforded the respective parties, and the basic equities of the situation.”

Shute v. Carnival Cruise Lines, 113 Wash.2d 763, 767, 783 P.2d 78 (1989) (quoting Deutsch v. W. Coast Mach. Co., 80 Wash.2d 707, 711, 497 P.2d 1311 (1972)). This inquiry encompasses both the statutory and due process concerns of exercising personal jurisdiction.

¶ 11 FutureSelect alleges jurisdiction is proper under RCW 4.28.185(1)(a), which extends jurisdiction arising out of “[t]he transaction of any business within this state,” on the theory that Oppenheimer transacted business in Washington through Tremont, its agent. RCW 4.28.185(1) explicitly permits Washington courts to exercise jurisdiction over a principal based on the actions of its agent.⁹ We apply the Shute factors to the allegations contained in FutureSelect's complaint, which we accept as true given the procedural posture of this case.

B. Shute factors

¶ 12 First, we find the complaint sufficiently establishes that Tremont acted as...