American Realty Trust, Inc. v. Hamilton Lane Advisors, Inc. ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit July 7, 2004
Charles R. Fulbruge III
No. 03-10179 Clerk
AMERICAN REALTY TRUST, INC.,
BASIC CAPITAL MANAGEMENT, INC.,
Plaintiffs - Appellants,
VERSUS
HAMILTON LANE ADVISORS, INC., LESLIE A. BRUN, PAUL BAGLEY,
Defendants - Appellees.
Appeal from the United States District Court
For the Northern District of Texas
(3:02-CV-00641)
Before DUHE’, BARKSDALE, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:*
American Realty Trust, Inc. (“ART”) and Basic Capital
Management, Inc. (“BCM”) brought suit against Hamilton Lane
Advisors, Inc. (“HLA”), Leslie A. Brun, and Paul Bagley, alleging
claims of fraud, conspiracy to defraud, and negligent
misrepresentation. The district court granted HLA and Brun’s
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
1
motion to dismiss for lack of personal jurisdiction and Bagley’s
motion to dismiss for failure to satisfy the pleading requirements
of Federal Rule of Civil Procedure 9(b).1 The district court
dismissed all claims with prejudice. For the reasons described
herein, we AFFIRM in part, REVERSE in part, and REMAND for
proceedings consistent with this opinion.
I.
Plaintiff ART is a Georgia corporation with its principal
place of business in Texas. Plaintiff BCM is a Texas corporation
with its principal place of business in Texas. ART and BCM are
affiliated companies engaged in the business of buying and selling
real estate. In the fall of 1999, they began negotiations with
defendant Paul Bagley, a resident of New Jersey, to discuss
obtaining refinancing assistance from Mattise Capital Partners, a
company affiliated with Bagley. By early 2000, plaintiffs still
1
In addition to his claims involving Rule 9(b), Bagley also
argues that plaintiffs’ claims in this case should be barred by
the res judicata effect of another district court decision in
which plaintiffs were involved, American Realty Trust, Inc. v.
Matisse, 2002 U.S. Dist. LEXIS 17472 (N.D. Tex., Sept. 16, 2002).
We decline to address that issue now because it is premature.
Res judicata is an affirmative defense that should not be raised
as part of a 12(b)(6) motion, but should instead be addressed at
summary judgment or at trial. See Moch v. East Baton Rouge
Parish School Bd., 548 F.2d 594, 596 n.3 (5th Cir. 1977)
(“Generally, a party cannot base a 12(b)(6) motion on res
judicata.”); see also Clark v. Amoco Prod. Co., 794 F.2d 967, 970
(5th Cir. 1986) (noting that Rule 12(b)(6) only applies to
affirmative defenses that appear on the face of the plaintiffs’
complaint).
2
had not reached an agreement with Bagley, and questioned whether a
relationship with Bagley and his associates made business sense.
In April 2000, Bagley set up a meeting in New York with ART,
BCM, and defendant Leslie Brun, an individual residing in the state
of New York, and HLA, a Pennsylvania corporation owned by Brun with
its principal place of business in New York. Plaintiffs had one
meeting with HLA and Brun in New York on April 5, 2000, in which
plaintiffs allege that they were led to believe that HLA would
provide them with financing if they entered into a separate
consulting agreement with Mattise.
Less than two weeks later, plaintiffs entered into a
consulting agreement with Mattise. Later, plaintiffs learned that
HLA was not in a position to help them with financing. Plaintiffs
then filed suit in March 2002 in federal district court in Texas
against defendants alleging fraud, conspiracy to defraud, and
negligent misrepresentation. Plaintiffs asserted that HLA, Brun,
and Bagley all conspired to fraudulently convince plaintiffs to
enter into a contract with Matisse by promising financing from HLA
if plaintiffs entered into such a contract and that they would not
have entered into the consulting agreement but for the fraudulent
representations of defendants. In response, defendants HLA and Brun
moved to dismiss for lack of personal jurisdiction, which the
district court granted. All of the claims against HLA and Brun
were dismissed with prejudice.
3
Bagley moved to dismiss plaintiffs’ fraud complaint because
plaintiffs did not plead fraud with particularity as required by
Rule 9(b). The district court agreed, granted Bagley’s motion, and
dismissed all claims against Bagley with prejudice, including
plaintiffs’ negligent misrepresentation claims which had not been
previously discussed by the district court. Plaintiffs timely
appealed.
II.
A.
Plaintiffs initially argue that the district court erred in
holding that the court lacked personal jurisdiction over HLA and
Brun. Alternatively, plaintiffs contend that even if the court
lacked personal jurisdiction over those defendants, the district
court erred in dismissing the claims with prejudice.
The plaintiff bears the burden of establishing the district
court’s personal jurisdiction over a nonresident who moves for
dismissal.1 When, as here, the district court does not hold a full
evidentiary hearing on personal jurisdiction, the district court
can consider affidavits and other properly obtained evidentiary
materials when making its determination.2 The district court
1
Wilson v. Belin, 20 F.3d 644, 648 (5th Cir. 1994).
2
Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1165 (5th
Cir. 1985).
4
shall, however, accept the uncontroverted allegations in the
complaint as true and shall resolve all factual conflicts in favor
of the plaintiff.3
The federal court sitting in diversity in Texas has personal
jurisdiction over a defendant to the same extent as the Texas state
courts.4 “[I]t is well-established that the Texas long-arm statute
authorizes the exercise of personal jurisdiction to the full extent
allowed by the Due Process Clause of the Fourteenth Amendment,” so
our inquiry collapses into whether Texas can exercise personal
jurisdiction over HLA and Brun consistent with Due Process.5
According to the long-established Due Process standard, a
court can constitutionally exercise personal jurisdiction over a
defendant if (1) the defendant has “minimum contacts” with the
forum state and (2) the exercise of such jurisdiction does not
“offend traditional notions of fair play and substantial justice.”6
“The ‘minimum contacts’ prong of the inquiry may be further
subdivided into contacts that give rise to ‘specific’ personal
jurisdiction and those that give rise to ‘general’ personal
3
Wilson, 20 F.3d at 648.
4
Central Freight Lines Inc. v. APA Transp. Corp., 322 F.3d
376, 380 (5th Cir. 2003).
5
Id.
6
Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
5
jurisdiction.”7 When the cause of action is related to or arises
from the defendant’s contacts with the forum state, then the court
has specific jurisdiction over the defendant for that cause of
action.8 If the defendant has “continuious and systematic”
contacts with the forum state, then the court can exercise
jurisdiction over the defendant generally.9 The parties in this
case concede that Texas does not have general jurisdiction over HLA
or Brun, so our inquiry narrows into whether Texas has specific
jurisdiction over HLA and Brun for this cause of action.
For specific jurisdiction purposes, “whether the minimum
contacts are sufficient to justify subjection of the non-resident
to suit in the forum is determined not on a mechanical and
quantitative test, but rather under the particular facts upon the
quality and nature of the activity with relation to the forum
state.”10 In making this case-by-case determination, courts focus
on whether the defendant’s contacts with the forum state should
cause the defendant to “reasonably anticipate” being subject to
jurisdiction in that state.11 In addition, courts examine whether
7
Wilson, 20 F.3d at 647.
8
Id.
9
Id.
10
Mississippi Interstate Express, Inc. v. Transpo, Inc., 681
F.2d 1003, 1006 (5th Cir. 1982).
11
Wilson, 20 F.3d at 648-49.
6
the defendant has “purposefully directed” its activities toward the
forum state or whether, in contrast, the defendant’s contacts with
the forum state are simply “random” or “fortuitous.”12 “[M]erely
contracting with a resident of the forum state is insufficient to
subject the nonresident to the forum’s jurisdiction.”13 In
addition, communications or contractual payments directed to a
forum, standing alone, do not constitute purposeful availment of
the forum, but simply reflect “the mere fortuity that [the
plaintiff] happens to be a resident of the forum.”14
The district court found that HLA and Brun did not have
sufficient minimum contacts with Texas to subject them to personal
jurisdiction there. We agree. HLA and Brun’s sole connection to
this case involves the April 5, 2000, meeting in New York in which
Brun, on behalf of HLA, allegedly made fraudulent statements to
plaintiffs on which plaintiffs allegedly relied. HLA and Brun did
not sign a contract with plaintiffs nor did they enter into any
other sort of business relationship with plaintiffs. HLA and Brun
also did not direct any communications toward Texas or even lead
plaintiffs to believe that they would direct any communications
12
Id.; see also Stuart v. Spademan, 772 F.2d 1185, 1190 (5th
Cir. 1985).
13
Hold Oil & Gas Corporation v. Harvey, 801 F.2d 773, 778
(5th Cir 1986) (citing Burger King Corp. v. Rudzewicz, 471 U.S.
462 (1985)).
14
Id. (internal citations and quotations omitted.).
7
toward Texas. One meeting in New York City between Brun and
plaintiffs does not create minimum contacts sufficient to cause HLA
and Brun to “reasonably anticipate” being subject to suit in Texas.
To the extent this case relates to Texas at all, it does so only
through “the mere fortuity that [the plaintiffs] happen to be []
resident[s] of [Texas].”15
The district court, however, erred in dismissing HLA and Brun
with prejudice. The district court’s ruling on personal
jurisdiction did not address the merits of plaintiff’s allegations
as to HLA and Brun, and, as a result, the claim against them should
have been dismissed without prejudice for filing in an appropriate
forum.16 Rule 41(b) of the Federal Rules of Civil Procedure
15
Plaintiffs also argue that Texas should have personal
jurisdiction over HLA and Brun because Bagley was in a conspiracy
with HLA and Brun to defraud plaintiffs and, therefore, that
Bagley’s actions can be imputed to HLA and Brun for personal
jurisdiction purposes. We disagree. Plaintiffs have presented
no facts supporting a conspiracy among the defendants, alleging
only that Brun and HLA made false statements to plaintiffs “only
to induce [plaintiffs] to enter into the contract that Bagley
desired,” without any factual support for the assertion. As the
district court correctly noted, bare allegations of conspiracy
without factual support do not suffice to establish minimum
contacts for personal jurisdiction purposes. See
Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th
Cir. 1993) (“[C]onclusory allegations or legal conclusions
masquerading as factual conclusions will not suffice to prevent a
motion to dismiss.”); Guidry v. United States Tobacco Co., 188
F.3d 619, 631-32 (5th Cir. 1999) (“[A] general allegation of
conspiracy without a statement of the facts constituting that
conspiracy is only an allegation of a legal conclusion.”).
16
Hollander v. Sandoz Pharmaceuticals Corp., 289 F.3d 1193,
1216-17 (10th Cir. 2002); see also Posner v. Essex Ins. Co., 178
F.3d 1209, 1221 (11th Cir. 1999); Arrowsmith v. United Press,
8
“specifically exempts dismissals for lack of jurisdiction . . .
from the presumption that the dismissal is with prejudice.”17
Accordingly, we AFFIRM the district court’s dismissal of HLA
and Brun for lack of personal jurisdiction. However, we REVERSE
the district court’s judgment to the extent that the dismissal is
with prejudice.
B.
Plaintiffs also argue that the district court erred by
dismissing their fraud and negligent misrepresentation claims
against defendant Bagley. The district court dismissed these
claims because plaintiffs did not plead fraud with particularity as
required by Federal Rule of Civil Procedure 9(b).
Rule 9(b) states that “[i]n all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be stated
with particularity.”18 Rule 9(b) serves several purposes, including
protecting a defendant’s reputation from the harm that general,
unsubstantiated fraud accusations will cause,19 and preventing a
Int’l, 320 F.2d 219 (2nd Cir. 1963).
17
8 Moore’s Federal Practice § 41.50[7][c] (Matthew Bender 3d
ed.) (citing Costello v. United States, 365 U.S. 265, 285 (1961)
(discussing “lack of jurisdiction over the person or subject
matter” as examples of dismissals that should be without
prejudice pursuant to Rule 41)); Fed R. Civ. P. 41.
18
Fed. R. Civ. P. 9(b).
19
Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir.
1992).
9
claimant from searching for a valid particular claim after filing
suit.20
What constitutes particularity for purposes of Rule 9(b)
“necessarily differ[s] with the facts of each case and hence the
5th Circuit has never articulated the requirements of Rule 9(b) in
great detail.”21 However, this Court has established that “Rule
9(b) requires the plaintiff to allege the particulars of time,
place, and contents of the false representations, as well as the
identity of the person making the misrepresentation and what that
person obtained thereby."22 In addition, “[a]lthough scienter may
be averred generally, case law amply demonstrates that pleading
scienter requires more than a simple allegation that a defendant
had fraudulent intent. To plead scienter adequately, a plaintiff
must set forth specific facts that support an inference of fraud.”23
This Court reviews a district court’s Rule 9(b) dismissal de novo.24
On October 24th, 2002, the district court held that
plaintiffs’ original complaint did not plead fraud with the
20
2 Moore’s Federal Practice § 9.03[1][a] (Matthew Bender 3d
ed.) (citing Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985).
21
Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir.
1992).
22
Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068
(5th Cir. 1994).
23
Id. (emphasis added).
24
See Melder v. Morris, 27 F.3d 1097, 1099, n. 4 (5th Cir.
1994).
10
particularity required by Rule 9(b) but allowed plaintiffs “leave
to replead their claims against Bagley” because it was “mindful of
the well-settled principle that dismissal should be avoided until
the plaintiffs have been afforded an opportunity to file an amended
complaint.”25 Plaintiffs filed an amended complaint on November 14,
2002. Bagley again moved for dismissal of the complaint under Rule
9(b). On January 16th, 2003, the district court granted Bagley’s
motion and dismissed all of plaintiffs’ claims with prejudice.
Reviewing plaintiffs’ amended complaint de novo, we agree with
the district court that plaintiffs’ fraud claims should be
dismissed under Rule 9(b) for failure to plead fraud with
particularity. With regards to defendant Bagley, plaintiffs allege
that “[i]n the negotiations leading up to the signing of the
Consulting Agreement on April 13, 2002, Bagley represented that he
had contacts and business relationships with individual financing
institutions that would assist [plaintiffs] . . . Bagley made
the[se] statements for the sole purpose of inducing [plaintiffs]
into signing a contract with him and his company.” This statement
does not meet Rule 9(b)’s enhanced pleading requirements.
Specifically, alleging that a defendant made false statements
during “negotiations leading up to” an event for the purpose of
inducing someone to enter into a contract with him–without any
additional factual support–does not allege the particular time and
25
October 24, 2002 Memorandum Order (Civil Action 3:02-CV-
0641-G) (N.D. Tx.).
11
place of the false representations, nor does it set forth any
“specific facts” to support the inference of fraud. In short, it
does not satisfy Rule 9(b), and we affirm the district court’s
decision dismissing it.26
C.
However, in addition to dismissing the fraud claim, the
district court, without analysis or discussion, dismissed
plaintiffs’ claims of negligent misrepresentation against Bagley
sua sponte for failure to plead the claims with particularity.
This dismissal was in error and we reverse. Rule 9(b) is an
exception to the liberal federal court pleading requirements
embodied in Rule 8(a).27 Rule 9(b)’s stringent pleading
requirements should not be extended to causes of actions not
enumerated therein.28 Accordingly, plaintiffs’ negligent
26
All of plaintiffs’ other allegations of fraud involve
allegations of conspiracy among Bagley and Brun and HLA to
defraud plaintiffs. As explained above, vague allegations of
conspiracy, without factual support do not suffice to overcome a
motion to dismiss. See footnote 15, supra, and the cases cited
therein.
27
See Fed. R. Civ. P. 8(a) (requiring “a short and plain
statement of the claim showing that the pleader is entitled to
relief”).
28
Swierkiewicz v. Sorema N.A, 534 U.S. 506, 513 (2002) (“This
Court, however, has declined to extend [Rule 9(b)’s] exceptions
to other contexts.); Leatherman v. Tarrant County, 507 U.S. 163,
168 (1993) (indicating that the doctrine of expressio unius est
exclusio alterius operates to prevent courts from expanding Rule
9(b)’s stringent pleading requirements to other causes of
action); see also Wright & Miller, Federal Practice and
Procedure: Civil 2d § 1297 (“Since [Rule 9(b)] is a special
pleading requirement and contrary to the general approach of
12
misrepresentation claims are only subject to the liberal pleading
requirements of Rule 8(a), which Bagley does not contest that they
satisfy. Therefore, it was error for the district court to dismiss
plaintiffs’ negligent misrepresentation claims for failure to plead
with particularity.
III.
We REVERSE in part the district court’s dismissal of HLA and
Brun for lack of personal jurisdiction with prejudice. We AFFIRM
the dismissal of plaintiffs’ fraud claims against Bagley. We
VACATE the district court’s dismissal of plaintiffs’ negligent
misrepresentation claims with prejudice. We REMAND with
instructions to convert the dismissal of HLA and Brun into a
dismissal without prejudice, to consider plaintiffs’ negligent
misrepresentation claims against defendant Bagley, and for any
other proceedings consistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART; REMANDED.
simplified pleading adopted by the federal rules, its scope of
application should be construed narrowly and not extended to
other legal theories or defenses.”).
13