Monarch Normandy v. Normandy Square

Decision Date16 March 1993
Docket Number88-1513-MLB.,Civ. A. No. 88-1338-MLB
Citation817 F. Supp. 899
PartiesMONARCH NORMANDY SQUARE PARTNERS, Plaintiff, v. NORMANDY SQUARE ASSOCIATES LIMITED PARTNERSHIP, et al., Defendants. NORMANDY SQUARE ASSOCIATES LIMITED PARTNERSHIP, et al., Plaintiffs and Counterclaim Defendants, v. MONARCH NORMANDY SQUARE PARTNERS, et al., Defendants and Counterclaim Plaintiffs.
CourtU.S. District Court — District of Kansas

COPYRIGHT MATERIAL OMITTED

James A. Walker, Triplett, Woolf & Garretson, Wichita, KS, T. Barry Kingham, Curtis, Mallet-Prevost, Colt & Mosle, New York, NY, Warren Dennis, Proskauer, Rose, Hoetz & Mendelsohn, Washington, DC, Marc Marmaro, Jeffery, Mangels & Butler, Los Angeles, CA, for plaintiffs.

Terry L. Malone, Martin, Pringle, Oliver, Wallace & Swartz, Wichita, KS, for defendants.

J. Michael Kennalley, Hershberger, Patterson, Jones & Roth, Wichita, KS, for Helsley, Mulcahy & Fesler, defendant.

Philip L. Bowman, Adams, Jones, Robinson & Malone, Wichita, KS, for William C. Grieger, defendant.

Steven C. Kiser, pro se.

MEMORANDUM AND ORDER

BELOT, District Judge.

This case comes before the court on defendant Helsley, Mulcahy & Fesler's (HMF) motion to dismiss for lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2), improper venue, pursuant to Fed.R.Civ.P. 12(b)(3), and failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(6). (Doc. 312)

These consolidated actions arise from the sale of an apartment complex in Wichita, Kansas, in October, 1985. Monarch Normandy Square Partnership (MNSP) sold the apartment complex to Richard Gleicher, who transferred the apartments to Normandy Square Associates Limited Partnership (NSALP).

HMF is an accounting firm organized as a California partnership. It is alleged to have performed accounting services for defendants Fenstermacher, Hoagland, Monarch Properties, Inc., Monarch Real Estate Co, Inc., Monarch Securities, Inc. and MNSP. The plaintiffs have made claims against HMF for fraud, negligent misrepresentation, civil conspiracy, and for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq.

12(b)(2) Motion

The plaintiffs bear the burden of establishing personal jurisdiction over HMF. Johnson v. Goodyear S.A. Colmar Berg, 716 F.Supp. 531, 532 (D.Kan.1989). For purposes of deciding a 12(b)(2) motion, the court resolves all factual disputes in favor of the plaintiffs. Id.

The plaintiffs base their argument that the court has personal jurisdiction over HMF on the nationwide service of process requirement of RICO found at 18 U.S.C. § 1965(d). The statute provides:

All other process in any action or proceeding under this chapter may be served on any person in any judicial district in which such person resides, is found, has an agent, or transacts his affairs.

The above section has been construed as a nationwide service of process provision. Dooley v. United Technologies Corp., 786 F.Supp. 65, 70 (D.D.C.1992) (Citations omitted). The majority of courts that have considered the scope of federal statutes that provide for nationwide service of process have held that a defendant need only have minimum contacts with the United States, not the forum state itself. Go-Video, Inc. v. Akai Electric Co., Ltd., 885 F.2d 1406, 1415 (9th Cir.1989); Lisak v. Mercantile Bancorp, Inc., 834 F.2d 668, 671 (7th Cir.1987), cert. denied 485 U.S. 1007, 108 S.Ct. 1472, 99 L.Ed.2d 700 (1988); Haile v. Henderson National Bank, 657 F.2d 816, 824-26 (6th Cir. 1981), cert. denied, 455 U.S. 949, 102 S.Ct. 1450, 71 L.Ed.2d 663 (1982); FTC v. Jim Walter Corp., 651 F.2d 251, 256 (5th Cir. 1981); U.S. v. International Broth. of Teamsters, 776 F.Supp. 144, 150 (S.D.N.Y.1991); Omni Video Games, Inc. v. Wing Co., Ltd., 754 F.Supp. 261, 263 (D.R.I.1991); US Telecom, Inc. v. Hubert, 678 F.Supp. 1500, 1508 (D.Kan.1987) (O'Connor, J.); Pioneer Properties, Inc. v. Martin, 557 F.Supp. 1354, 1358, n. 6 (D.Kan.1983) (Crow, J.); Contra Wichita Federal Savings and Loan Ass'n v. Landmark Group, Inc., 674 F.Supp. 321, 325 (D.Kan.1987) (Kelly, J.) (court holds that the defendant must have "minimum contacts" in the forum district itself rather than with the United States to allow the exercise of personal jurisdiction).

HMF, relying on Wichita Federal Savings and Loan Ass'n, supra, argues this court must analyze whether, under the Fifth Amendment's Due Process Clause, HMF has minimum contacts with Kansas. In the court's view, this analysis is unnecessary and misapprehends the nature of the due process inquiry. The liberty interest insured by the Fifth Amendment in these circumstances is that a defendant must have minimum contacts with the United States, not just Kansas. Contrary to the view expressed in Wichita Federal Savings and Loan Ass'n,1 this court believes that nationwide service does confer personal jurisdiction in these circumstances.

The plaintiffs have alleged that HMF is a California partnership. This allegation is sufficient to confer personal jurisdiction under § 1965(d). HMF's motion to dismiss for lack of personal jurisdiction is denied.

12(b)(3) Motion

The plaintiffs have the burden to establish proper venue. Shuman v. Computer Associates Intern., Inc., 762 F.Supp. 114, 115 (E.D.Pa.1991). As a general rule, venue must be proper as to each claim. Beattie v. United States, 756 F.2d 91, 100 (D.D.C. 1984);2 See Wilson v. Wilson-Cook Medical, Inc., 720 F.Supp. 533, 539-40 (M.D.N.C. 1989).

The plaintiffs argue that venue is proper under either the general venue statute, 28 U.S.C. § 1391(b),3 or the RICO special venue statute, 18 U.S.C. § 1965. The court will address § 1391(b) first.

The plaintiffs correctly point out that Congress amended § 1391(b) in the Judicial Improvements Act of 1990, Pub.L. No. 101-650, § 311, 104 Stat. 5114 (1990). The plaintiffs filed suit in April, 1988, prior to the amendments. Because the Judicial Improvements Act does not specify when the 1990 amendments to § 1391(b) take effect, the court must determine whether to apply the amendments to a case pending on the effective date of the Act, which was December 1, 1990.

In Arnold v. Maynard, 942 F.2d 761 (10th Cir.1991), the Tenth Circuit addressed this question in a footnote to its opinion. The court noted the conflicting lines of Supreme Court precedent regarding the retroactive application of newly enacted federal statutes where congressional intent is unclear. Id. at 762, n. 2. In DeVargas v. Mason & Hanger-Silas Mason Co., 911 F.2d 1377, 1388 (10th Cir.1990), cert. denied 498 U.S. 1074, 111 S.Ct. 799, 112 L.Ed.2d 860 (1991), the court elected to follow the presumption that a statute is to be given only prospective application unless a contrary legislative intent appears. However, DeVargas concerned a statute affecting substantive rights and liabilities. The court noted that a presumption in favor of retroactive application usually applied to statutes dealing with procedure and jurisdiction. In light of its conclusion that venue was proper in the case before it under 28 U.S.C. § 1392(a), the court found it unnecessary to decide the retroactive effect of the § 1391(b) amendments. Id.

The court believes the DeVargas holding applies only to statutory amendments that affect substantive rights and liabilities. The amendments to § 1391(b) are procedural. Thus, the court will apply the amended version of § 1391(b) to pending cases. The version of § 1391(b) applicable to this case reads:

A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, be brought only if (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought.

The fraud, negligence, and civil conspiracy claims against HMF are set forth in paragraphs 14, 21, 22, 23, and 24 of the pretrial order. The plaintiffs' RICO claim against HMF is detailed in paragraphs 32 through 45 of the pretrial order. The plaintiffs allege HMF knowingly disseminated false financial statements which were provided to plaintiffs; failed to disclose to plaintiffs HMF's lack of independence; knew or recklessly failed to determine that two financial statements prepared by "the Monarch Group" were false; recklessly failed to require "the Monarch Group" and "Monarch Partners" to amend their financial statements; willfully decided to understate expenses, eliminate certain expense categories, overstate operating income and conceal contingent liabilities; furnished a false financial statement to defendant Hoagland; and prepared a false financial statement which defendant Rayl sent to New York Life, a mortgagee of the apartment complex in Wichita, to procure its consent to the sale. As for the RICO claim, the plaintiffs allege HMF failed to disclose to the purchasers of an apartment complex in Lenexa, Kansas, the use of concessions granted to tenants and falsely represented the amounts of rent being collected in the apartment complex. (¶¶ 33-35 of Pretrial Order)

Section 1391(b)(1) is clearly inapplicable because not all defendants reside in the same state. As for (2), the plaintiffs have made no allegation in the pretrial order as to where any of the events or omissions underlying their claims against HMF occurred. Although the apartment complex whose sale precipitated this litigation is located in Kansas, HMF's acts or omissions did not occur within Kansas. HMF has submitted an affidavit stating that it never had any contact with the plaintiffs, and that all of the accounting services it provided to MNSP, the owners of the apartment complex, were performed entirely in the State of California. In their...

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