State v. Mcgraw-Hill Cos.

• Decision Date: 26 November 2014
• Docket Number: Docket No.: BCD-CV-14-49
• Citation: State v. McGraw-Hill Cos., Docket No.: BCD-CV-14-49 (Me. Super. Nov 26, 2014)
• Court: Maine Superior Court
• Parties: STATE OF MAINE Plaintiff, v. THE MCGRAW-HILL COMPANIES INC, and STANDARD & POOR'S FINANCIAL SERVICES, LLC, Defendants.

STATE OF MAINE Plaintiff, v. THE MCGRAW-HILL COMPANIES INC,and STANDARD & POOR'S FINANCIAL SERVICES, LLC, Defendants.

Docket No.: BCD-CV-14-49

Superior Court of Maine

November 26, 2014

STATE OF MAINE

KENNEBEC, ss.

BUSINESS AND CONSUMER COURT

Location; Portland

ORDER ON DEFENDANTS' RULE 12(b)(2) MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION

I. INTRODUCTION

Defendants, McGraw-Hill Companies, Inc., n/k/a/ McGraw-Hill Financial, Inc. ("McGraw-Hill") and Standard & Poor's Financial Services, LLC ("S&P") fcolkctivdy "Defendants") move this court (0 dismiss the Stole of Maine's ("State of Maine" or "Plaintiff") Complaint for lack of personal jurisdiction. The Defendants argue that the State of Maine has no specific jurisdiction over the Defendants, as the State's cause of action does not arise from the Defendants' conduct within the forum state.

The State alleges in its Complaint that the Defendants directed misleading statement about S&P's independence and objectivity over a period of time that began In 2001 and continued through 2011 to Maine consumers in violation of the Maine Unfair. Trade Practices Act. The State further avers that the allegations in the Complaint fulfill the State's prima facie burden of establishing that this court has personal jurisdiction over the parties and asks that if this court fails to find personal jurisdiction, the State, in the alternative, be allowed to conduct, discovery relevant to the Defendants' motion and file an amended Complaint.

II. STATEMENT OF FACTS

Plaintiff, State of Maine, filed the subject Complaint on February 5, 2013, in Kennebec County Superior Court, pursuant to 5 M.R.S.A § 307 ("UTPA"). (Compl. ¶ 1.) Defendant McGraw-Hill is a New York corporation with its principal place of business at 122 Avenue of the Americas, New York, NY 10020. McGraw-Hill is registered with the Maine Secretary of State to conduct business within the State of Maine. (Compl. ¶ 2.) Defendant S&P is a Delaware limited liability company and a wholly owned subsidiary or McGraw-Hill. (Compl. ¶ 3) Within the S&P business unit is Standard & Poor's Rating Services ("SPRS"). SPPS operates as a credit rating agency that assigns credit rail tigs on a braid range of securities. Id.

In 2001, S&P ruled various structured finance products. (Compl. ¶ 5.) Said products included various Residential Mortgage Backed Securities ("RMBS") and Collateralized Debt Obligations ("CDO") which comprised many mutual funds and pension funds of Maine residents, retirees, and workers. (Compl. ¶ 18.) Objectivity and independence are material to the services provided by S&P. (Compl. ¶ 23.) As a result, S&P advertised its objectivity and independence and vowed to such behavior in its Code of Conduct. (Compl. ¶ 26.) However, the Plaintiff believes that the Defendants' use of the "Issuer Pays Model" compromised S&P's independence and integrity.¹ (Compl. ¶ 34.) This established a conflict of interest because the revenues earned came from banks and other entities whose securities it rated. (Compl. ¶ 36.) Said conflict was not disc lose d to the public. (Compl. ¶ 37.) The State further alleges that S&P knew that its- analytical models could not assess certain complex securities with the requisite accuracy, yet it continued to rale these products. (Compl. ¶ 40.)

III. STANDARD OF REVIEW

The question of jurisdiction is always fundamental, and is a question of law. See Lindner v. Barry, 2002 WL 1974091, at *2 (Me. Super. Aug. 9, 2002) (citing 20 Am Jur. 2d Courts § 54). "The proper exercise of personal jurisdiction in Maine hinges on the satisfaction of two requirements: first . . . the Maine Long-Arm statute, 14 M.R.S.A, § 704-A . . . [must confer] personal jurisdiction on lite court; and second . . . the exercise of jurisdiction pursuant to the long-arm statute [must comply] with constitutional duo process requirements." Jackson v. Weaver, 678 A.2d 1036, 1038 (Me. 1996).

"Maine's jurisdictional reach is coextensive with the Due Process Clause of the Constitution." Murphy v. Keenan, 667 A.2d 591, 593 (Me. 1995) (citing U.S. Const. amend, XIV, § 1; Interstate Food Processing Corp. v. Pellerlto Foods, Inc., 622 A.2d 1189, 1191 (Me. 1993); Frozier v. Bankamertea Int'l, 593 A.2d 661, 662 (Me. 1991); Calurt v. Rypkemo, 570 A.2d 830, 831 (Me. 1990), cert. denied, 498 U.S. 818 (1990); Tyson v. Whitaker & Son, Inc., 407 A.2d 1, 2-3 (Me. 1979)). Due process in the exercise of jurisdiction over an out-of-state defendant requires the satisfaction of |he folio whig three-pronged lest: (1) Does the forum state have a legitimate interest in the subject matter of the action? (2) Should the defendant by his conduct reasonably have anticipated litigation in the forum state? and (3) Would the exercise of jurisdiction comport with "traditional notions of fair play and substantial justice[?]" Murphy, 667 A.2d at 593 (citations omitted); see also Foreside Common Dev. Corp. v. Bleisch, 463 A.2d 767, 769 (Me. 1983). "The burden of establishing that jurisdiction is proper under the first two prongs falls on the plaintiff; once the plaintiff has met that burden, it is up to the defendant to show that jurisdiction is improper under the third prong." Eiec. Media Int'l v. Pioneer commc'ns of Am., 586 A.2d 1256, 1258-59 (1991) (citing Rypksma, 570 A.2d at S31 n.2) (emphasis in original).

"Facts regarding jurisdictional questions may be determined by reference to affidavits, by a pretrial evidentiary bearing, or at trial when the jurisdictional issue is dependent upon a decision on the merits," Dorf v. Complastik Corp., 1999 ME 133, ¶ 6, 735 A.2d 984 (citing Federal Deposit Ins. Corp. v. Oaklawn Apartments, 959 F.2d 170, 174 (10th Cir.1902)). The Method chosen by the trial court in determining said motion dictates the evidentiary showing necessary for the a plaintiff to survive a defendant's Motion to Dismiss. Id. (citing Doll v. Gar-Tec Prods., Inc., 967 F.2d 673, 675 (1st Cir.1992)). When the court determines a motion to dismiss for lack of personal jurisdiction prior to trial, without holding an evidentiary hearing, "[t]he plaintiff's showing in opposition to the motion 'must be made on specific frets set forth in the record . . . .'" Id. ¶ 13 (citing Suttle v. Sloan Salas, Inc. 1998 ME 121, ¶ 5, 711 A.2d at 1286). This means the Plaintiff 'must go beyond the pleadings and make affirmative proof.'" United Elec. Radio and Mach. Workers of Am. v. 163 Pleasant St. Corp. 987 F.2d 39, 44 (1st Cir.1993) (quoting Bolt, 967 F.2d at 675). This showing may be made by affidavit or otherwise, See Serras v. First Tennessee Bank Nat'l Assoc., 875 F.2d 1212, 1214 (6th Cir.1989).

However, when:

The court proceeds only upon the pleadings and affidavits of the parties, the plaintiff 'need only make a prima facie showing that jurisdiction exisis,' and the plaintiffs written allegations of jurisdictional facts should be construed in its favor." Determining personal jurisdiction based on initial affidavits alone, without additional evidence, is a "useful means of screening out cases in which personal jurisdiction is obviously tacking, and those in which the jurisdictional challenge is patently bogus." Moreover, if prevents defendants from defeating personal jurisdiction merely by filing a written affidavit opposing the jurisdictional facts alleged by the plaintiff.

Dorf v. Complastik Corp., 1999 ME 133, ¶¶ 14-16, 735 A.2d 984 (citations omitted). In this case, the hearing is non-testimonial, meaning the court proceeds only upon the pleadings and affidavits of the parties, and the plaintiff "need only make a prima facie showing that jurisdiction exists . . ." Ryphema, 570 A.2d at 832 (quoting Kowalski v. Doherly, Wallace, Pillsbury & Murphy, 787 F.2d 7, 8 (1st Cir. 1986)).

IV. DISCUSSION

The Parties make no claim thai general jurisdiction exisls in this case, thus the court has reserved its analysis for determining whether specific jurisdiction exists in order to subject the Defendants to suit in l]lis Court,

Specific Jurisdiction and Due Process Requirements

Maine's long-arm statute, 14 M.R.S. § 704-A, applies to the fullest extent permitted by the Due Process Clause of the United States Constitution. As mentioned above, due process is satisfied when: (1) Maine has a legitimate interest in the subject matter of live litigation; (2) the defendant, by his or her conduct, reasonably could anticipate litigation in Maine; and (3) the exercise of jurisdiction would not offend traditional no lions of fair pi ay and substantial justice. Fore, LLC v. Denolt, 2012 ME I, ¶ 7, 34 A.2d 1125, The court analyzes each prong of (he test below.

a. The State's Legltlntate Interest in the Subject Matter of This Litigation

The question the Court must answer here is whether "Maine lias 'a minimal governmental interest in the litigation, and consequent power to decide if it is fair to assert it,'" Tyson v. Whitaker & Son, Inc., 407 A.2d 1, 4 (Me. 1979) (citing Woods, Pennoyer's Demise; Personal Jurisdiction after Shaffer and Kulko and a Modest Prediction Regarding World-Wide Volkswagen Corp. v. Woodson, 20 Ariz. L. Rev. 861, 881-82 (1978)). "To demonstrate that Maine has a legitimate interest in the subject matter of the litigation, a plaintiff must assert more than a mere interest 'in providing a Maine resident with a forum tor redress against a nonresident."² Grimm v. Allen, 2006 WL 3707S95, at *2 (Me. Super. Oct, 16, 2006) (citing Murphy v. Keenan, 667 A.2d 591, 594 (Me.1995)). The State has "an interest in regulating and/or sanctioning parties who reach out beyond one slate and create continuing relationships and obligations with Maine- citizens for the consequences of inch activities." Id. (citing Elec. Media Int'l, 586 A.2d at 1259 (citations omitted)).

The State argues that this action was brought by the Maine Attorney Generals office in the interest of the public to protect Maine citizens from the Defendants' unfair and misleading business practices. (Pl.'s Opp. Mot 5.) Specifically, the State...