Schwartz v. Frankenhoff

• Decision Date: 21 May 1999
• Docket Number: No. 98-154.,98-154.
• Citation: 733 A.2d 74
• Court: Vermont Supreme Court
• Parties: Jon P. SCHWARTZ v. Arvid and Karen FRANKENHOFF, Dover Foods, Inc., Trustee, Bernard Food Industries, Inc. and Shefsky & Froelich, Ltd.

733 A.2d 74

Jon P. SCHWARTZ v. Arvid and Karen FRANKENHOFF, Dover Foods, Inc., Trustee, Bernard Food Industries, Inc. and Shefsky & Froelich, Ltd.

No. 98-154.

Supreme Court of Vermont.

May 21, 1999.

Alan B. George of Keyser, Crowley, Carroll, George & Meub, P.C., Rutland, for Defendants-Appellants.

Stephen L. Saltonstall, Manchester Village, for Defendants-Appellees.

Present AMESTOY, C.J., DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

DOOLEY, J.

Arvid and Karen Frankenhoff appeal from an order of the superior court dismissing their tort claims against Bernard Food Industries, Inc. ("Bernard Foods") and Shefsky & Froelich, Ltd. Bernard Foods is an Illinois-based food wholesaler; Shefsky & Froelich is a Chicago law firm. The Frankenhoffs, who were originally named as defendants in this proceeding, impleaded Bernard Foods and Shefsky & Froelich as additional defendants in their counterclaims asserted against plaintiff Jon P. Schwartz, but the court concluded it lacked personal jurisdiction over either of the parties it dismissed. We agree and affirm.

In granting the two Illinois defendants' motion for dismissal under V.R.C.P. 12(b)(2), the trial court did not conduct an evidentiary hearing, relying instead on the pleadings and affidavits submitted by the parties. From those sources, we glean the following summary of the proceeding, claims and underlying facts of record.

Schwartz originally asserted claims against the Frankenhoffs for breach of contract and deceit. At issue was a food wholesaling entity known as American Quality Foods, Inc. (AQF), the stock of which Schwartz and the Frankenhoffs each owned 50 percent. According to the complaint, Schwartz and the Frankenhoffs entered into a settlement agreement in 1992 whereby Schwartz agreed to sell his shares in the company to the Frankenhoffs in exchange for the Frankenhoffs paying off a $40,000 bank note secured by Schwartz. Schwartz alleged that the Frankenhoffs breached the agreement by failing to pay off the note and then selling the company to an outside purchaser, misrepresenting themselves as sole owners.

The Frankenhoffs' counterclaim alleged that Schwartz and Arvid Frankenhoff had formerly been employed by Bernard Foods but that both eventually left that company's employ. According to the Frankenhoffs, they invited Schwartz to join them as co-owners of AQF in 1990 under a plan that called for the Frankenhoffs to remain in Vermont and Schwartz to service midwestern customers from his base in South Dakota. This business arrangement apparently did not thrive. According to the counterclaim, Schwartz resigned from his positions as director, vicepresident and employee of AQF in December 1991. The Frankenhoffs allege that, just prior to Schwartz's resignation, he had engaged in secret negotiations with Bernard Foods in order to rejoin its employ. Further, they allege that Schwartz and Bernard Foods conspired to destroy AQF, to ruin the Frankenhoffs financially and thereby to inflict emotional distress upon them.

Various conspiratorial acts are alleged in the counterclaim. They fall in two main groups. The first group of allegations involves actions related to AQF's finances. In order to finance its activities, AQF had two lines of credit from different banks. One of these lines of credit, according to the Frankenhoffs, was obtained at Schwartz's insistence after he began negotiations with Bernard Foods. According to the counterclaim, shortly before his resignation, Schwartz acquired blank AQF letterhead, a complete statement of its inventory and a list of its customers. Shortly after his resignation, Schwartz mailed a letter to AQF's midwestern and plains state customers, on AQF letterhead, requesting that they send all money owed AQF to one of the banks which had extended credit to AQF. The Frankenhoffs alleged that this act was done to show customers that AQF was in financial difficulty so that they would switch to Bernard Foods, and was effective to accomplish this purpose. They alleged that Schwartz also contacted the banks that had extended credit urging them to demand that customer payments be made directly to them. Although AQF was not in default, the Frankenhoffs complained that the contacts led the banks to refuse to extend further credit, causing AQF to fail. Eventually, AQF defaulted on its obligations to one of the banks, and the bank pursued collateral in the hands of Schwartz and the Frankenhoffs. The counterclaim alleges that Schwartz reacquired his collateral by a payment funded by Bernard Foods.

The counterclaim alleges that Shefsky & Froelich was counsel to Bernard Foods and was intimately involved in the above acts that the Frankenhoffs deem unlawful, ostensibly representing Schwartz in communications with AQF customers, the banks and the Frankenhoffs while acting for the conspiracy. It alleges that in interactions with the Frankenhoffs, the conduct of a firm lawyer was "outrageous and unprofessional" and "demeaning and intimidating" while also "misrepresent[ing] the true facts."

The second group of allegations relates to certain of AQF's products that, the Frankenhoffs alleged, were made from proprietary formulas and recipes that were trade secrets of AQF and the Frankenhoffs. According to the Frankenhoffs, Schwartz acquired samples of these products and gave them to Bernard Foods — which, based on laboratory analysis, was able to produce and sell them under the Bernard Foods label.

In support of their motion to dismiss, the Illinois defendants submitted affidavits executed by Steven Bernard and Gary Levenstein. Bernard identified himself as president of Bernard Foods; stated that Schwartz was, at the time Bernard executed his affidavit, the company's sales representative in North Dakota, South Dakota and parts of Minnesota; and averred that he had agreed to so employ Schwartz after Schwartz severed ties with the Frankenhoffs because both Schwartz and his father had previously worked for the company. According to Bernard's affidavit, at no time did he and Schwartz discuss, plan or carry out any efforts to compete with or harm either the Frankenhoffs or AQF. Bernard also stated that his company had never engaged in such an effort. He further averred that Vermont customers represented less than .05 percent of Bernard Foods' total sales; that the company has no offices, property or representatives in Vermont; and that the company's Vermont customers are serviced through representatives located in Massachusetts and New Hampshire.

Levenstein's affidavit identified him as a partner in the Shefsky & Froelich firm. He stated that Shefsky & Froelich represented Schwartz and not Bernard Foods in connection with disputes arising out of the failure of AQF, although Levenstein conceded his firm has represented Bernard Foods on other matters. Levenstein stated that the firm had conducted most of its negotiations with the Frankenhoffs through their attorney, based in Massachusetts. However, according to Levenstein, following the 1993 settlement agreement the Frankenhoffs ceased to be represented by counsel, and his firm therefore sent three letters directly to them in Vermont and spoke with them twice by telephone. Levenstein also alluded to telephone and written contact with AQF's Vermont lenders. According to Levenstein, this contact occurred "because our client, Mr. Schwartz, was personally liable for [AQF's] obligations" and "did not relate to the claims raised by the Frankenhoffs." Levenstein noted that his firm had no lawyers licensed to practice in Vermont, maintained no offices in the state, and had neither clients nor property in Vermont.

Both Arvid and Karen Frankenhoff submitted affidavits in opposition to the dismissal motion. In support of his contention that Shefsky & Froelich was "really working as an agent of Bernard," Arvid Frankenhoff appended to his affidavit a facsimile cover sheet from the law firm, dated July 23, 1993 and addressed to Karen Frankenhoff, which lists "Bernard Foods" in the space designated for "client name." Arvid Frankenhoff noted that the firm's client number as it appears on the form is the same client number that appears on other documents the Frankenhoffs have received from the firm. His affidavit also includes a copy of a letter from the firm, dated September 8, 1993 and addressed to Karen Frankenhoff, indicating that copies of the letter were sent both to Schwartz and to Steven Bernard.

The superior court granted the motions to dismiss of both counterclaim defendants. In an entry order made before the filing of the Frankenhoff affidavits, the court determined that it was the Frankenhoffs' burden to make a prima facie showing of jurisdiction and gave them twenty days to submit additional evidence to support the counterclaims, specifically "a verified statement of jurisdictional facts, based on personal knowledge, showing specific tortious or unlawful acts by each of the additional defendants, sufficient to demonstrate... minimum contacts." Following the submission of the affidavits, the court dismissed the counterclaim as to the Illinois defendants, concluding that the counterclaim and affidavits were "too vague to support a conclusion that any wrongdoing has occurred" and that the claims were not supported by evidence.

On appeal, the Frankenhoffs argue that the affidavits, and the counterclaim which was verified in an affidavit, made out a conspiracy that committed a number of torts: intentional interference with contractual relationships, defamation and disparagement, theft of trade secrets and unfair competition. They argue that they demonstrated sufficient jurisdictional facts to show personal jurisdiction on the theory that counterclaim defendants committed torts within the state. Further, they argue that if their showing was inadequate, they should have been allowed additional time for discovery.

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