Gerber Trade Finance v. Davis, Sita & Co.

• Decision Date: 09 January 2001
• Docket Number: No. 3:00CV578 GLG.,3:00CV578 GLG.
• Citation: 128 F.Supp.2d 86
• Court: U.S. District Court — District of Connecticut
• Parties: GERBER TRADE FINANCE, INC., Plaintiff, v. DAVIS, SITA & CO., P.A., Defendant.

128 F.Supp.2d 86

GERBER TRADE FINANCE, INC., Plaintiff, v. DAVIS, SITA & CO., P.A., Defendant.

No. 3:00CV578 GLG.

United States District Court, D. Connecticut.

January 9, 2001.

COPYRIGHT MATERIAL OMITTED

Jeffrey R. Hellman, Zeisler & Zeisler, P.C., Bridgeport, CT, Charles L. Rosenzweig, Geoffrey S. Pope, Rand, Rosenzweig, Smith, Radley, Gordon & Burnstein, New York, NY, for plaintiff.

Kerry R. Callahan, Shea S. Kinney, Updike, Kelly & Spellacy, P.C., Hartford, CT, John Gerard Stretton, Jennifer L. Groves, Updike, Kelly & Spellacy, P.C., New Haven, CT, Kevin M. Murphy, Carr, Goodson, Warner, Washington, DC, for defendant.

Opinion

GOETTEL, District Judge.

Plaintiff Gerber Trade Finance, Inc. ("Gerber") initiated this accounting malpractice action asserting a negligence claim against Defendant Davis, Sita & Company ("Davis, Sita"). Defendant now moves to dismiss [Doc. # 6] based on lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, and failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). The Court heard oral argument on October 4, 2000. For the reasons stated below, the Court DENIES the motion in part and DEFERS ruling in part. In addition, the Court certifies to the Connecticut Supreme Court two questions of law, set forth below, concerning the scope of accountants' liability to non-clients under Connecticut law.

BACKGROUND

Plaintiff's claim arises out of Defendant's 1997 audit report of the 1997 year-end financial statements of The Gourmet Source, Inc. ("Gourmet"), a company incorporated in Delaware and having its sole place of business in Connecticut. Gourmet, which is not a party in this action, filed a voluntary petition for bankruptcy on February 10, 1999.

Defendant is a professional association organized under the laws of Maryland and having its principal place of business in Maryland. Defendant is not licensed to do business in Connecticut and does not maintain an office or property in the State. Gourmet first retained the Defendant in June of 1997 to perform an audit and to report on its financial condition as of June 1, 1997. On March 31, 1998, Gourmet again retained Defendant to prepare an audit report of its 1997 year-end financial statements. Both agreements were executed in Defendant's Maryland office.

During the preparation of the audit reports, Defendant's vice president visited Gourmet's Connecticut offices on three days, once on or about July 30, 1997 for the first audit, and on April 1 and 2, 1998 for the second audit, in order to obtain information and to review Gourmet's files. Defendant claims that it performed the remainder and majority of the work required to prepare the audit report in its Maryland office.

Plaintiff is a trade finance company, based in New York and authorized to do business in Connecticut, which financed Gourmet's inventory purchases. Claiming to be one of Gourmet's principal secured creditors, Plaintiff alleges that it relied on the 1997 year-end audit report in its decision to make additional extensions of credit to Gourmet. Plaintiff claims losses of $682,500 due to misleading and false information in the 1997 year-end financial statements. Specifically, Plaintiff alleges that the financial statements overstated Gourmet's accounts receivable by more than $200,000 and stated that Gourmet had paid a liability of $167,500, when in fact it was in default. Plaintiff claims that Defendant was negligent in that it should have detected the errors in the financial statements, and that it knew or should have known that Plaintiff, as Gourmet's primary secured lender, would rely on the accuracy of the financial statements to its detriment.

DISCUSSION

Defendant moves to dismiss based on lack of personal jurisdiction pursuant to Rule 12(b)(2) and for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). We shall consider the jurisdictional issue first.

I. Rule 12(b)(2) claim—Lack of Personal Jurisdiction

Because the parties have not yet engaged in jurisdictional discovery and the Court, exercising its discretion, has not held an evidentiary hearing, the Plaintiff is required only to make a prima facie showing that personal jurisdiction exists. See A.I. Trade Finance, Inc. v. Petra Bank, 989 F.2d 76, 79 (2d Cir.1993). We decide the issue of personal jurisdiction based on the parties' pleadings, affidavits, and supporting materials, construed in the light most favorable to the plaintiff and with all doubts resolved in the plaintiff's favor. See Marine Midland Bank N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981); CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986). The Court must accept as true the facts alleged in the complaint to the extent they are uncontroverted by the defendant's affidavits. Where the plaintiff's complaint and the defendant's affidavits conflict, the Court may provisionally accept disputed factual allegations as true. Credit Lyonnais Sec. USA, Inc. v. Alcantara, 183 F.3d 151, 153 (2d Cir. 1999). At this preliminary stage of the proceedings, Plaintiff's prima facie burden may be met solely by good faith allegations in the pleadings. Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566-67 (2d Cir.1996). Eventually, however, Plaintiff must prove the jurisdictional facts by a preponderance of the evidence at either an evidentiary hearing or trial. Credit Lyonnais, 183 F.3d at 154; Marine Midland, 664 F.2d at 904.

In cases invoking diversity jurisdiction, a court applies the law of the forum in which it sits in order to determine whether it may exercise personal jurisdiction over a defendant. CutCo Indus., 806 F.2d at 365 (citing Arrowsmith v. United Press Int'l, 320 F.2d 219, 223 (2d Cir.1963)). Under Connecticut law, in determining whether a court has personal jurisdiction over a foreign corporation, the court must first determine whether the state's long-arm statute is satisfied; if so, the court must then decide whether that exercise of jurisdiction would offend the due process clause of the Fourteenth Amendment. Bensmiller v. E.I. Dupont de Nemours & Co., 47 F.3d 79, 81 (2d Cir.1995).

A. Connecticut's Corporation Long Arm Statute

Connecticut's long arm statute authorizing service of process on foreign corporations provides in pertinent part: "Every foreign corporation which transacts business in this state in violation of section 33-920, as amended by section 29 of this act, shall be subject to suit in this state upon any cause of action arising out of such business." Conn.Gen.Stat. § 33-929(e).¹ This provision thus authorizes personal jurisdiction over a foreign corporation if two conditions are met: (1) the corporation has transacted business within the state without having obtained a certificate of authority to do so from the Secretary of State, as required by section 33-920 of the General Statutes of Connecticut;² and (2) the cause of action arises out of that business activity.

1. Transacting Business

The term "transacting business" is not defined in the long-arm statute or in any relevant case law. Indeed, the term is so broad as to defy precise definition. A court must consider the particular facts of each case when determining whether a foreign corporation is transacting business in Connecticut. Eljam Mason Supply, Inc. v. Donnelly Brick Co., 152 Conn. 483, 485, 208 A.2d 544 (1965).

The term "transacting business" within the meaning of section 33-929(e) is not interpreted broadly, but rather is "limited by its terms to transactions which violate [the statute requiring a certificate of authority to do business within the State]." Hagar v. Zaidman, 797 F.Supp. 132, 135-36 (D.Conn.1992). The term is further limited, in the context of this subsection of the corporation long-arm statute, by certain statutory exclusions which provide that certain activities do not constitute transacting business and therefore do not necessitate a certificate of authority. See Conn.Gen.Stat. § 33-920(b). The excluded activities are generally those which are merely incidental to a corporation's main business purpose, such as maintaining bank accounts, soliciting orders, maintaining or defending lawsuits, and holding board meetings, to name a few. Id. Transactions in interstate commerce are also excluded, as are isolated transactions completed within thirty days. See id. § 33-920(b)(10)-(11); see also Hagar, 797 F.Supp. at 136 (holding that the defendant had not transacted business because its purchase of equipment from a Connecticut resident fell within the interstate commerce exclusion); Electric Regulator Corp. v. Sterling Extruder Corp., 280 F.Supp. 550, 554 (D.Conn.1968) (same). The list of excluded activities is not exhaustive, however, and courts have declined to strain the term "transacting business" to include activities merely incidental to the main business purpose of the corporation. See, e.g., Electric Regulator, 280 F.Supp. at 555 n. 4 (gathering cases); see also Surveyors, Inc. v. Berger Bros. Co., 9 Conn.Supp. 175 (Conn.Super.Ct.1941). Even so limited, though, the long-arm statute is a "far-reaching" one. Eutectic Corp. v. Curtis Noll Corp., 342 F.Supp. 761, 762 (D.Conn.1972).

Plaintiff argues that personal jurisdiction is proper under section 33-929(e) because Defendant's visits to Connecticut to obtain information and examine Gourmet's files constituted the transaction of business in the state, viz., the practice of public accountancy, without the requisite certificate of authority. Defendant counters that it did not transact business in the state and therefore was not required to obtain a certificate of authority. Without discussing its physical presence in the state for two days (for the second audit, the basis of this dispute) to review Gourmet's files and obtain the information necessary to perform the audit, Defendant asserts that the majority of the audit was performed in its office in Maryland. D...