Santa Fe Technologies v. Argus Networks

Decision Date13 December 2001
Docket Number No. 469, No. 382, No. 381, No. 21, No. 470.
PartiesSANTA FE TECHNOLOGIES, INC., Plaintiff-Appellee, v. ARGUS NETWORKS, INC., and David L. Jannetta, et al., Defendants-Appellants.
CourtCourt of Appeals of New Mexico

John B. Pound, Herrera, Long, Pound & Komer, P.A., Santa Fe, NM, Alan N. Salpeter, Harley Hutchins, Mayer, Brown & Platt, Chicago, IL, for Appellee.

Tim L. Fields, Michelle A. Martinez, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, Paul R. Rosen, Timothy C. Russell, Michael C. Wagner, Spector Gadon & Rosen, P.C., Philadelphia, PA, for Appellants TL Ventures LLC, Mark J. DeNino, and Michael D. Burns.

Tim L. Fields, Michelle A. Martinez, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, Alan K. Cotler, Andrew P. Hoppes, Klett Rooney Lieber & Schorling, Philadelphia, PA, for Appellants Argus Networks, Inc. and David L. Jannetta.

Certiorari denied, No. 27,285, February 28, 2002; No. 27,324, March 6, 2002.

OPINION

WECHSLER, Judge.

{1} We examine in this appeal the scope of personal jurisdiction over out-of-state Defendants in a business tort action, including the issue of conspiracy as a basis for personal jurisdiction. Defendants, Argus Networks, Inc. (Argus), David Jannetta (Jannetta), TL Ventures, LLC (TL), Michael Burns (Burns), and Mark DeNino (DeNino) appeal the district court's refusal to dismiss the complaint of Santa Fe Technologies, Inc. (SFT) for lack of personal jurisdiction, or, alternatively, to compel arbitration. All Defendants applied for interlocutory appeal as to the personal jurisdiction and arbitration rulings and filed notice of direct appeal of the denial of the arbitration motion pursuant to NMSA 1978, § 44-7-19(A) (1971). We granted the interlocutory appeals and consolidated the cases to review both the personal jurisdiction and arbitration issues as to all Defendants. We affirm the district court on all issues, concluding that the district court has personal jurisdiction over all Defendants and that the arbitration clause at issue does not compel arbitration in this case.

The Parties

{2} At its core, this case involves a failed business venture between SFT and Defendants. SFT sued Argus, its CEO, Jannetta, TL, two of its principals, Burns and DeNino, and three principals of Sensor Management Systems (SMS), the New Mexico corporation that replaced SFT in the venture. All of the parties are interrelated.

{3} SFT is a New Mexico corporation, with its principal place of business in New Mexico at the time of occurrence of the actions giving rise to this lawsuit and with additional offices in Virginia and Florida. Dwight Sangrey was SFT's CEO. Argus is a Delaware corporation with its principal place of business in Pennsylvania. Although Argus is now reincorporated under a new name, we will refer to it as Argus. Jannetta, a Pennsylvania resident, was president of Argus. TL is a limited liability company with its principal place of business in Pennsylvania. It manages private equity funds, one of which is a shareholder in Argus. TL argues that it "has never had any operating role or responsibility for the conduct" of Argus' business. However, Burns, a resident of Pennsylvania and employee of TL, is a stockholder, director, and officer of Argus. DeNino, also a resident of Pennsylvania, is managing director of TL as well as a director of Argus. Brian Malewicz is a shareholder in Argus and former schoolmate of Burns. The principals of SMS are Defendants Mark Nash, Jerry Musnitsky, and Harvey Dollar, who are residents of New Mexico, stockholders in SFT, and former employees of SFT. The SMS defendants are not party to this appeal.

Facts and Procedural Background

{4} In 1997, Jannetta first contacted SFT in New Mexico on behalf of Argus by telephone from Pennsylvania to participate in a bid for a traffic monitoring contract with the federal government to be performed in Pennsylvania. Throughout 1998, SFT discussed the structure of the companies' future business relationship with Jannetta, Burns, and DeNino. A merger was proposed, and stock ownership percentages in the new venture were decided among Argus, Jannetta, Burns, DeNino, and TL. The merger would occur if the federal government granted the contract to the Argus SFT venture. All in-person negotiations for the prospective merger occurred in Pennsylvania. SFT's lawyers drafted the Merger Plan Agreement (Agreement) in Utah, and Argus' lawyers negotiated revisions from Pennsylvania. The parties signed the Agreement in Pennsylvania in November 1998.

{5} The Agreement provided that each party had the right to terminate the Agreement for any reason if the merger was not closed by December 15, 1998. The Agreement also contained provisions requiring arbitration of "any breach, default, dispute, controversy, or claim arising out of or relating to this Agreement" and deeming arbitration the "sole and exclusive remedy . . . respecting any dispute, protest, controversy, or claim arising out of or relating to this Agreement."

{6} Between July 1998 and February 1999, Sangrey met with DeNino up to three times monthly in Philadelphia. The federal government issued the Request for Proposals for the traffic monitoring system in December 1998, and Argus and SFT began working on the bid. The Request for Proposals required that bidders employ a pre-qualified prime contractor under whose auspices the subcontractor proposal would be made. SFT and Jannetta chose SIGNAL Corporation as the prime contractor for the Argus bid. SIGNAL was incorporated and had its principal place of business in Virginia. Most of the subcontractors chosen to participate in the SIGNAL team were from Pennsylvania, Maryland, Virginia, and Washington, D.C. Although most of the bid preparation work took place in Virginia, and no one from Argus or TL came to New Mexico during this time, the administrative function of SFT and Argus was performed in Albuquerque, where some employee records of Jannetta, Malewicz, and TL were kept. According to SFT's CEO, Dwight Sangrey, Argus and SFT functioned "de facto as an integrated operating company."

{7} During bid preparations in December, Argus claimed to have learned that SFT was experiencing financial problems and it claimed that such problems made Argus suspect of SFT's ability to perform. Argus eventually concluded that SFT's references from the performance of other government contracts were suspect. Additionally, SFT had not reached its actual revenue goal for 1998. Argus thus extended a loan to SFT to cover its payroll in exchange for a lower equity percentage if the merger went through. At this time as well, Jannetta and another Argus employee were receiving their paychecks from the SFT payroll in New Mexico. Jannetta also had a cell phone with a New Mexico telephone number and was carried on SFT insurance and health plans. Argus reimbursed SFT for these payments and paid a portion of two SFT employees' salaries.

{8} In mid-February, Jannetta and Burns began discussing the replacement of SFT on the bidding team. Jannetta proposed that Argus consider another New Mexico corporation, SMS. On February 13, 1999, Burns relayed to DeNino that Argus and Jannetta were considering potential replacements for SFT. Joe Cal of Northern Transportation Systems, a subsidiary of SMS, contacted Jannetta by telephone on February 19, 1999. Sangrey had introduced Cal to Jannetta on December 30, 1998, when Sangrey had wanted to involve SMS in the installation of traffic sensors as part of the federal contract. From the TL conference room in Pennsylvania, Jannetta and Burns telephoned Nash and Musnitsky of SMS in Albuquerque and discussed collaborating on the federal contract. They set a meeting in San Francisco for the following week. Burns then notified DeNino of the talks with SMS. DeNino approved the discussions but expressed concern over potential legal action from SFT.

{9} Burns and SMS met in San Francisco where Burns identified himself as affiliated with TL and explained TL's ownership interest in Argus. He explained that he was authorized to speak for Argus and make an offer on their behalf. When Burns notified Jannetta and Malewicz that this meeting was unsuccessful, they decided that Malewicz would meet with SMS to facilitate a deal. Malewicz met with Nash, Musnitsky, and another SMS principal in Albuquerque on February 23, 1999. Malewicz maintained telephone contact with Jannetta and Burns throughout his talks with SMS. The parties agreed that Argus would purchase SMS and that SMS would replace SFT on the bidding team for the federal contract. On February 24, 1999, Argus notified SFT by facsimile transmission that it was terminating the Agreement. Later that same day, Argus and SMS signed a letter of intent in Pennsylvania and New Mexico, respectively. On February 26, 1999, Argus told SFT that it would not be included in the federal contract project.

{10} On March 1, 1999, Argus and SMS signed a stock purchase agreement, exchanging stock and cash, and SMS became a wholly owned subsidiary of Argus. Argus additionally arranged to replace SMS principals as guarantors on some SMS debts to New Mexico banks. Argus and SIGNAL submitted their bid for the traffic contract to the federal government with SMS in place of SFT. The federal government subsequently awarded the contract to Argus with SMS.

{11} SFT filed its complaint in July 1999 alleging that Defendants "combined and conspired to divert and steal . . . a corporate opportunity that Santa Fe identified, developed, owned and was ready to perform," and that it was entitled to monetary damages as result of its exclusion from the federal bid. SFT alleged interference with prospective contractual relations, usurpation of business opportunity, fraud, and conspiracy to commit the aforementioned torts, among other claims. Argus and Jannetta filed two motions to dismiss, alleging that (1) the...

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