Sun Bank, N.A. v. E.F. Hutton & Co., Inc.

• Decision Date: 15 March 1991
• Docket Number: No. 89-3718,89-3718
• Citation: 926 F.2d 1030
• Parties: SUN BANK, N.A., Plaintiff-Appellee, v. E.F. HUTTON & COMPANY, INC., n/k/a Shearson Lehman Hutton, Inc., Richard Bunstein, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1030

926 F.2d 1030

19 Fed.R.Serv.3d 217

SUN BANK, N.A., Plaintiff-Appellee, v. E.F. HUTTON & COMPANY, INC., n/k/a Shearson Lehman Hutton Inc., Richard Bunstein, Defendants-Appellants.

No. 89-3718.

United States Court of Appeals Eleventh Circuit.

March 15, 1991.

John H. Pelzer, Ruden, Barnett, McClosky, Smith, Schuster & Russell, P.A., Fort Lauderdale, Fla., for E.F. Hutton.

Keith C. Long, Augustus F. Wagner, Jr., Nutter, McClennan & Fish, Hyannis, Mass., for Bunstein.

Joseph E. Foster, Margaret W. Hull, Akerman, Senterfitt & Eidson, Orlando, Fla., for Sun Bank.

Appeal from the United States District Court for the Middle District of Florida.

Before CLARK and COX, Circuit Judges, and TUTTLE, Senior Circuit Judge.

COX, Circuit Judge:

This case is an appeal by E.F. Hutton and one of its employees, Richard Bunstein, of the district court's decision, following a bench trial, that they are liable for fraudulent representations made to Sun Bank relative to the creditworthiness of one of Hutton's clients, Gary Stevens. The trial court found that Bunstein intentionally misrepresented to Sun Bank the size and nature of Stevens's Hutton accounts, and that Sun Bank had relied on those representations in lending Stevens's company almost $700,000. We hold that the district court lacked personal jurisdiction over Bunstein. We find no error in the trial court's decision concerning Hutton.

I. Facts

Bunstein was a vice president of sales at Hutton. He was based in Massachusetts, and Stevens was one of his customers. Stevens organized American Machine Technologies, Inc. ("AMTI"), whose objective was to procure and complete Navy contracts. AMTI set up shop in Florida.

To obtain the working capital necessary to acquire a Navy contract, Stevens approached Sun Bank. After receiving from them three smaller, unsecured loans for AMTI, Stevens submitted a personal financial statement and applied for a $100,000 line of credit. Although several items on the financial statement arguably were questionable, Sun Bank did not pursue them and provided Stevens credit. Stevens eventually got the Navy contract, and over the next eleven months Sun Bank lent AMTI, in at least nine transactions, over a million dollars more. Stevens personally guaranteed all the loans. In making those loans, Sun Bank apparently disregarded several of its internal lending procedures.

Sun Bank did, however, take several steps to assure itself that Stevens was creditworthy and to protect its interest. AMTI assigned to Sun Bank the right to contract payments from the Navy and Stevens signed a pledge not to encumber or deplete the securities listed on his personal financial statement, the value of which Sun Bank estimated at more than $700,000. In addition, Sun Bank took a security interest in the furniture and equipment purchased with the proceeds of one of the smaller loans made to AMTI. Finally, the loan officer handling Stevens's business, Charles Bantis, called a number of references that Stevens suggested could attest to his financial well-being.

One of the persons Bantis called was Bunstein, who Stevens said was the manager of the securities listed on his personal financial statement. In two telephone conversations (eight months apart) Bunstein told Bantis that Stevens's Hutton accounts averaged near one million dollars, that the accounts were in Stevens's name, and that Stevens owned the securities outright and was not subject to a margin call. The trial court found that Bunstein knew that the statements he made to Bantis were false.

Despite Sun Bank's precautions, AMTI defaulted on its loans. Sun Bank obtained a judgment against Stevens and attempted to satisfy the judgment with the securities in Stevens's Hutton accounts. When it did, it learned that, despite Bunstein's assurances, Stevens's accounts were actually corporate, not personal accounts, and that the total value of the stocks in all accounts controlled by Stevens never exceeded approximately $30,000.

Sun Bank sued both Bunstein and Hutton, alleging that it relied upon Bunstein's fraudulent representations in lending Stevens more than $670,000. After a bench trial, the district court found for Sun Bank and awarded it more than $735,000 in damages. Bunstein and Hutton appeal, contending, among other things, that the district court lacked jurisdiction over Bunstein, erred in refusing to allow them to amend their answers on the morning of trial to include a defense based on the Massachusetts Statute of Frauds, erred by finding that Bunstein was acting as Hutton's agent when he made the representations in question, and erred in finding that Sun Bank reasonably relied on Bunstein's representations.

II. Personal Jurisdiction

The district court denied Bunstein's Fed.R.Civ.P. 12(b)(2) motion to dismiss for lack of personal jurisdiction. We analyze questions of personal jurisdiction in diversity cases by first determining whether a defendant can properly be served with process under the applicable state long-arm statute, and then inquiring if such service comports with constitutional principles of due process. Madara v. Hall, 916 F.2d 1510, 1514 (11th Cir.1990); Alexander Proudfoot Co. World Headquarters L.P. v. Thayer, 877 F.2d 912, 919 (11th Cir.1989).

Sun Bank argues that Bunstein is subject to jurisdiction in Florida under two provisions of the Florida long-arm statute, sections 48.193(1)(b) and 48.193(1)(f)(1):

(1) Any person, whether or not a citizen or resident of this state, who personally or through an agent does any of the acts enumerated in this subsection thereby submits himself and, if he is a natural person, his personal representative to the jurisdiction of the courts of this state for any cause of action arising from the doing of any of the following acts:

. . . . .

(b) Committing a tortious act within this state.

. . . . .

(f) Causing injury to persons or property within this state arising out of an act or omission by the defendant outside this state, if, at or about the time of the injury ...:

1. The defendant was engaged in solicitation or service activities within this state;....

Fla.Stat.Ann. Secs. 48.193(1)(b) and 48.193(1)(f)(1) (West 1990).

The argument under the latter provision in the statute is easily dismissed. The Florida Supreme Court has decided that a purely economic injury of the sort alleged in this case is insufficient to confer jurisdiction over a defendant under Sec. 48.193(1)(f). Aetna Life & Casualty Co. v. Therm-O-Disc, Inc., 511 So.2d 992 (Fla.1987).

The question whether jurisdiction exists under Sec. 48.193(1)(b) is more difficult. On the question where a tort occurs for purposes of Sec. 48.193(1)(b), the Florida Supreme Court has not settled an apparent conflict between the district courts. Two district courts have held that commission of a tortious act in Florida does not require physical entry into the state; rather, the place of injury need only be in Florida. See International Harvester Co. v. Mann, 460 So.2d 580 (Fla. 1st Dist.Ct.App.1984); Carida v. Holy Cross Hospital, Inc., 424 So.2d 849 (Fla. 4th Dist.Ct.App.1982). However, one district court has held that the occurrence of injury in Florida is insufficient to establish jurisdiction under Sec. 48.193(1)(b), Phillips v. Orange Co., 522 So.2d 64 (Fla. 2d Dist.Ct.App.1988), and another district, in a case factually similar to this one, has held that the making of fraudulent representations over the telephone from another state to a person in Florida does not constitute the commission of a tortious act in Florida. McLean Financial Corp. v. Winslow Loudermilk Corp., 509 So.2d 1373 (Fla. 5th Dist.Ct.App.1987). Florida law interpreting the statute is therefore unclear.

However, in two cases decided shortly after the adoption of the current version of Florida's long-arm statute, this court's predecessor held that jurisdiction under Sec. 48.193(1)(b) "was not limited to a situation where an act in Florida caused an injury in Florida but also ... reached the situation where a foreign tortious act caused injury in Florida." Bangor Punta Operations, Inc. v. Universal Marine Co., 543 F.2d 1107, 1109 (5th Cir.1976) (citing Rebozo v. Washington Post Co., 515 F.2d 1208, 1212-13 (5th Cir.1975)). ¹ We therefore interpret Florida law to provide for jurisdiction over Bunstein pursuant to Sec. 48.193(1)(b).

We turn then to the question whether Florida may constitutionally exercise jurisdiction over Bunstein. Our analysis has two prongs: first, has Bunstein established sufficient minimum contacts with the forum to allow the forum constitutionally to assert jurisdiction over him? Second, would the assertion of such jurisdiction offend "traditional notions of fair play and substantial justice?" Madara, 916 F.2d at 1515-16 (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945)).

The key to any constitutional inquiry into personal jurisdiction is foreseeability. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528 (1985). To be subject to the jurisdiction of a foreign state, a defendant must purposefully establish sufficient minimum contacts with that state "that he should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980); Burger King, 471 U.S. at 474, 105 S.Ct. at 2183. The nature of the activities that can constitute such minimum contacts frequently has been explained in the language of Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239-40, 2 L.Ed.2d 1283 (1958): "it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." According to the Court in Burger King, "[t]his 'purposeful availment' requirement ensures that a defendant will not be...