Newman v. Comprehensive Care Corp., Civ. No. 91-759-JO.

CourtUnited States District Courts. 9th Circuit. United States District Court (Oregon)
Citation794 F. Supp. 1513
Docket NumberCiv. No. 91-759-JO.
PartiesGeorge B. NEWMAN, et al., Plaintiffs, v. COMPREHENSIVE CARE CORP., a Delaware corporation, et al., Defendants.
Decision Date22 April 1992

794 F. Supp. 1513

George B. NEWMAN, et al., Plaintiffs,
v.
COMPREHENSIVE CARE CORP., a Delaware corporation, et al., Defendants.

Civ. No. 91-759-JO.

United States District Court, D. Oregon.

April 22, 1992.


794 F. Supp. 1514
COPYRIGHT MATERIAL OMITTED
794 F. Supp. 1515
COPYRIGHT MATERIAL OMITTED
794 F. Supp. 1516
David A. Urman, Ball Janik & Novack, Bruce M. Hall, Bruce Mac Gregor Hall, P.C., Portland, Or., for plaintiffs

Mitchell E. Hornecker, Bernard M. Ryan, Schwabe Williamson & Wyatt, Portland, Or., for defendant Comprehensive Care Corp.

Carol A. Hewitt, Mark A. Turner, Ater Wynne Hewitt Dodson & Skerritt, Portland, Or., Michael W. Smith, Paul W. Jacobs, II, Orran Lee Brown, Laura B. Hernandez, Christian Barton Epps Brent & Chappell, Richmond, Va., for defendant Ronald I. Dozoretz First Hosp. Corp.

Bernard M. Ryan, Schwabe Williamson & Wyatt, Portland, Or., for defendants W. James Nicol, B. Lee Karns, Robert L. Kasselmann, Stanley Nelson and Thomas E. Nesbitt, Sr.

Thomas C. Sand, Miller Nash Wiener Hager & Carlsen, Portland, Or., for defendant Prudential-Bache Securities, Inc.

Richard M. Layne, Garvey Schubert & Barer, Portland, Or., for defendant Pettis Tester and Kruse.

Wayne D. Palmer, Kell Alterman & Runstein, Portland, Or., Edward L. Powers, Lawrence S. Kamerman, Richards & O'Neil, New York City, for defendant Bank of Tokyo Trust Co.

Michael H. Simon, Perkins Coie, Portland, Or., John F. Kay, Jr., Stephen A. Northrup, Donald R. Lee, Mary C. Hohman, Mays & Valentine, Richmond, Va., for defendant Sovran Bank, N.A.

OPINION AND ORDER

ROBERT E. JONES, District Judge:

George Newman ("Newman"), JGN Corporation ("JGN"), George Boldt, individually and as trustee of the George B. Boldt, Inc. Profit Sharing and Retirement Trust ("Boldt"), Donald Armstrong ("Armstrong"), and George Robinette, III ("Robinette"), collectively referred to as "plaintiffs," bring this action against Comprehensive Care Corp. ("CompCare"), Ronald Dozoretz ("Dozoretz")1, First Hospital Corporation ("FHC"), Pettis Tester and Kruse

794 F. Supp. 1517
("Pettis"), Prudential-Bache Securities, Inc. ("PBS"), Bank of Tokyo Trust Company ("BOTT"), Sovran Bank, N.A. ("Sovran"), W. James Nicol ("Nicol"), B. Lee Karns ("Karns"), Robert L. Kasselmann ("Kasselmann"), Stanley Nelson ("Nelson"), and Thomas E. Nesbitt, Sr. ("Nesbitt"), with Nicol, Karns, Kasselmann, Nelson, and Nesbitt collectively referred to as the "director defendants."

Plaintiffs allege jurisdiction under 15 U.S.C. § 78aa, federal securities law, 28 U.S.C. § 1331, federal question, 28 U.S.C. § 1332, diversity, and 28 U.S.C. § 1367, supplemental. Plaintiffs allege fifteen claims:

1. section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, against all defendants;
2. section 20(a) of the 1934 Act, 15 U.S.C. § 78t(a), against the director defendants, Dozoretz, and FHC;
3. section 11 of the 1933 Act, 15 U.S.C. § 77k, against CompCare, FHC, and the director defendants;
4. section 12(2) of the 1933 Act, 15 U.S.C. § 77l, against all defendants, except BOTT and Sovran;
5. section 15 of the 1933 Act, 15 U.S.C. § 77o, against Dozoretz, FHC, and the director defendants;
6. ORS 59.115(1) against all defendants, except BOTT and Sovran;
7. ORS 59.115(3) against Dozoretz, FHC, PBS, Pettis, Sovran, BOTT, and the director defendants;
8. the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, against PBS, FHC, Dozoretz, and Pettis;
9. ORICO, ORS 166.720, against PBS, FHC, Dozoretz, and Pettis;
10. common law fraud against all defendants, except BOTT and Sovran;
11. negligence against all defendants;
12. gross negligence against all defendants;
13. breach of fiduciary duty against the director defendants;
14. conspiracy to breach fiduciary duty against FHC and Dozoretz; and
15. breach of fiduciary duty against FHC and Dozoretz.

Plaintiffs request punitives on claims 10, 12, 13, 14, and 15.

This lawsuit arose out of the failed merger between Compcare and FHC. FHC was to buy out and acquire CompCare. FHC and CompCare executed a merger agreement on April 25, 1989. CompCare shareholders were to receive a combination of cash, subordinated debentures, and stock in FHC. A proxy statement was issued by FHC and CompCare on August 14, 1989. On September 13, 1989, the stockholders approved the merger agreement. Subsequently, on September 17, 1989, a meeting, attended by Dozoretz and Karns, a director defendant, was held in Portland for shareholders. A press release announced the merger's failure on October 27, 1989, when Sovran pulled out of the financing commitment.

Plaintiffs submit that the defendants failed to disclose and in fact actively concealed that the merger was contingent upon financing and failed to disclose Dozoretz controlled both FHC and CompCare, thus working on both sides of the negotiation.

Other lawsuits have similarly been filed (i.e., Gildon class action filed in California on October 31, 1989, Himler class action in Virginia and McGrath class action filed in New York — the three actions were consolidated and are collectively referred to as "Himler").

Standards

1. Motion to Dismiss

Dismissal for failure to state a claim is proper only when it appears to a certainty that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Gibson v. United States, 781 F.2d 1334, 1337 (9th Cir.1986), cert. denied, 479 U.S. 1054, 107 S.Ct. 928, 93 L.Ed.2d 979 (1987). For the purpose of a motion to dismiss, the complaint is liberally construed in favor of the plaintiff and its allegations are taken as true.

794 F. Supp. 1518
Schowengerdt v. General Dynamics Corp., 823 F.2d 1328, 1332 (9th Cir.1987)

2. Fraud Allegations

In all claims of fraud, plaintiffs are required to state the circumstances constituting the misconduct with particularity. Fed.R.Civ.P. 9(b). The fundamental purpose of this rule is to put defendants on notice of the particular conduct that is alleged to constitute the fraud charged "so that they can defend the charges and not just deny that they did anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir.1985). In a case that involves multiple defendants, a plaintiff must state the role of the individual defendants with particularity. Blake v. Dierdorff, 856 F.2d 1365, 1370 (9th Cir.1988).

Personal Jurisdiction

The gist of Sovran's and BOTT's motion is that they merely were to provide financing for the proposed transaction. BOTT and Sovran submit there was absolutely no connection between the proposed financing and the State of Oregon.

Title 15 U.S.C. § 78aa provides

the district courts ... shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder.... Any criminal proceeding may be brought in the district wherein any action or transaction constituting the violation occurred. Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder ... may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.

(emphasis added).

Notwithstanding the nationwide service of process, BOTT submits that § 78aa does not provide this court with personal jurisdiction because BOTT cannot be found in Oregon, because BOTT is not an inhabitant of Oregon, and because BOTT does not transact business in Oregon. See Kinsey v. Nestor Exploration Ltd., 604 F.Supp. 1365, 1373 (E.D.Wash.1985) ("Whatever may be the correct test ... § 78aa ... is to be limited and defined in terms of basic fairness as mandated by the Due Process Clause of the Fifth Amendment.").

BOTT appears to be confusing venue with personal jurisdiction. See Bourassa v. Desrochers, 938 F.2d 1056, 1057 (9th Cir.1991). Plaintiffs correctly counter that the standard for exercising personal jurisdiction on securities law claims under § 78aa is whether there are minimum contacts with the United States. Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1316 (9th Cir.1985); Bourassa v. Desrochers, 938 F.2d 1056, 1057 (9th Cir. 1991). Admittedly, BOTT and Sovran have minimum contacts with the United States.

Even if § 78aa provides this court with personal jurisdiction, BOTT and Sovran both claim that the claim premised upon jurisdiction under section 78aa must be dismissed for failure to state a claim. Then the other claims asserted against BOTT and Sovran must be dismissed because there is no independent basis for personal jurisdiction. See IUE AFL-CIO Pension Fund v. Locke Mach. Co., 726 F.Supp. 561, 571 (D.N.J.1989); Mirotznick v. Sensney, Davis & McCormick, 658 F.Supp. 932, 942 (W.D.Wash.1986).

On the contrary, argue plaintiffs, this court has personal jurisdiction over BOTT and Sovran under Oregon's long arm statute and under traditional personal jurisdiction notions.

"It is clear that the party seeking to invoke the jurisdiction of the federal court has the burden of establishing that jurisdiction exists." Data Disc, Inc. v. Systems Technology Assocs., Inc., 557 F.2d 1280, 1285 (9th Cir.1977).

Because Oregon "law confers jurisdiction coextensive with due process, this court need only analyze whether the exercise of jurisdiction comports with due process." Sinatra v. National Enquirer, Inc., 854 F.2d 1191, 1194 (9th Cir.1988); see Raffaele v. Compagnie Generale Maritime, 707

794 F. Supp. 1519
F.2d 395, 396 (9th Cir.1983) ("Oregon's long-arm statute, Rule 4, ... has been interpreted to confer jurisdiction `to the outer limits' of due process.").2

The court has personal jurisdiction over the banks if the banks "had certain `minimum contacts' with Oregon `such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'" Id...

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