Fairfax Financial Holdings Limited v. S.A.C.

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0963-12T1
FAIRFAX FINANCIAL HOLDINGS
LIMITED and CRUM & FORSTER
HOLDINGS CORP., APPROVED FOR PUBLICATION
Plaintiffs-Appellants/ April 27, 2017
Cross-Respondents, APPELLATE DIVISION
v.
S.A.C. CAPITAL MANAGEMENT, L.L.C.,
S.A.C. CAPITAL ADVISORS, L.L.C.,
S.A.C. CAPITAL ASSOCIATES, L.L.C.,
SIGMA CAPITAL MANAGEMENT, L.L.C.,
STEVEN A. COHEN, ROCKER PARTNERS,
L.P., COPPER RIVER PARTNERS, L.P.,
DAVID ROCKER, THIRD POINT L.L.C.,
DANIEL S. LOEB, JEFFREY PERRY,
INSTITUTIONAL CREDIT PARTNERS, L.L.C.,
WILLIAM GAHAN,1 JAMES S. CHANOS, and
KYNIKOS ASSOCIATES, L.P.,
Defendants-Respondents,
and
EXIS CAPITAL MANAGEMENT, INC.,
EXIS CAPITAL, L.L.C., EXIS
DIFFERENTIAL PARTNERS, L.P., EXIS
INTEGRATED PARTNERS, L.P., ADAM D.
SENDER, ANDREW HELLER, and MORGAN
KEEGAN & COMPANY, INC.,
Defendants-Respondents/
Cross-Appellants,
1 Defendants Institutional Credit Partners, L.L.C. and William
Gahan entered into a stipulation of dismissal with plaintiffs
prior to oral argument.
and
SPYRO CONTOGOURIS, MAX BERNSTEIN,
MI4 INVESTORS, L.L.C., MI4
RECONNAISSANCE, L.L.C., MI4
LIMITED PARTNERSHIP, JOHN D. GWYNN,2
and CHRISTOPHER BRETT LAWLESS,
Defendants.
______________________________________________
Argued October 17, 2016 – Decided April 27, 2017
Before Judges Fisher, Ostrer and Leone.
On appeal from the Superior Court of New
Jersey, Law Division, Morris County, Docket
No. L-2032-06.
Michael J. Bowe (Kasowitz, Benson, Torres &
Friedman, L.L.P.) of the New York bar,
admitted pro hac vice, argued the cause for
appellants/cross-respondents (Nagel Rice,
L.L.P. and Kasowitz, Benson, Torres &
Friedman, L.L.P., attorneys; Bruce H. Nagel,
Jay J. Rice, Marc E. Kasowitz of the New
York bar, admitted pro hac vice, Daniel R.
Benson of the New York bar, admitted pro hac
vice, and Mr. Bowe, of counsel and on the
briefs).
2 Defendant John Gwynn passed away in 2009. He had filed a
counterclaim, which alleged defamation, and the absence of a
disposition of that claim generated inquiries about finality
from this court soon after the appeal was filed. We were advised
that a representative of Gwynn's estate had been substituted in
his place pursuant to Rule 4:34-1, but that the estate had not
appeared in response to the claims asserted against him or to
prosecute his counterclaim. A remand to the trial court resulted
in the filing of a stipulation of dismissal with prejudice of
Gwynn's counterclaim. Gwynn's estate has neither appeared nor
taken any part in this appeal.
2 A-0963-12T1
Benjamin P. McCallen (Willkie Farr &
Gallagher, L.L.P.) of the New York bar,
admitted pro hac vice, argued the cause for
respondents S.A.C. Capital Management,
L.L.C., S.A.C. Capital Advisors, L.L.C.,
S.A.C. Capital Associates, L.L.C., Sigma
Capital Management, L.L.C. and Steven A.
Cohen (Parker Ibrahim & Berg, L.L.C. and Mr.
McCallen, attorneys; Joseph T. Boccassini,
Martin B. Klotz of the New York bar,
admitted pro hac vice, and Scott S. Rose of
the New York bar, admitted pro hac vice, on
the brief).
Mark S. Werbner (Sayles Werbner, P.C.) of
the Texas bar, admitted pro hac vice, argued
the cause for respondents/cross-appellants
Exis Capital Management, Inc., Exis Capital,
L.L.C., Exis Differential Partners, L.P.,
Exis Integrated Partners, L.P., Adam D.
Sender and Andrew Heller (Walder Hayden &
Brogan, P.A., and Mr. Werbner, attorneys;
Richard A. Sayles of the Texas bar, admitted
pro hac vice, Mr. Werbner, Mark D. Strachan
of the Texas bar, admitted pro hac vice, and
Mark Torian, of the Texas bar, admitted pro
hac vice, of counsel; Rebekah R. Conroy and
Joseph A. Hayden, Jr., on the brief).
Gavin J. Rooney argued the cause for
respondents Copper River Partners, L.P.,
Rocker Partners, L.P. and David Rocker
(Lowenstein Sandler, L.L.P., attorneys; Mr.
Rooney, on the brief).
Tibor L. Nagy, Jr., argued the cause for
respondents Third Point L.L.C., Daniel S.
Loeb and Jeffrey Perry (Tompkins, McGuire,
Wachenfeld & Barry, L.L.P. and Matthew S.
Dontzin (Dontzin Nagy & Fleissig, L.L.P.) of
the New York bar, admitted pro hac vice,
attorneys; Mr. Dontzin, Mr. Nagy, and
William McGuire, on the brief).
Thomas F. Campion argued the cause for
respondent/cross-appellant Morgan Keegan &
3 A-0963-12T1
Company, Inc. (Greenberg, Traurig, L.L.P.,
Drinker Biddle & Reath, L.L.P., and Bruce W.
Collins (Carrington, Coleman, Sloman &
Blumenthal, L.L.P.) of the Texas bar,
admitted pro hac vice, attorneys; Philip R.
Sellinger, Roger B. Kaplan, Aaron Van
Nostrand, Mr. Collins, Diane M. Sumoski of
the Texas bar, admitted pro hac vice, Todd
A. Murray of the Texas bar, admitted pro hac
vice and Bryan A. Erman, of the Texas bar,
admitted pro hac vice, on the briefs).
Stewart D. Aaron (Arnold & Porter, L.L.P.)
of the New York bar, admitted pro hac vice,
argued the cause for respondents Kynikos
Associates, L.P. and James S. Chanos
(Gibbons, P.C., and Mr. Aaron, attorneys;
Mr. Aaron, Susan L. Shin of the New York
bar, admitted pro hac vice, Joel D. Rohlf of
the New York bar, admitted pro hac vice, and
Marco J. Martemucci of the New York bar,
admitted pro hac vice, of counsel; Brian J.
McMahon and Joshua R. Elias, on the brief).
The opinion of the court was delivered by
FISHER, P.J.A.D.
In describing the adjudication of ostensibly difficult
cases, Justice Holmes observed that "when you walk up to the
lion and lay hold the hide comes off and the same old donkey of
a question of law is underneath."3 This case's leonine demeanor
is well-deserved. Discovery generated millions of pages of
documents, the parties conducted more than 150 depositions, the
3 Letter of December 11, 1909 appearing in 1 Holmes-Pollock
Letters: The Correspondence of Mr. Justice Holmes and Sir
Frederick Pollock 1874-1932, at 156 (Mark DeWolfe Howe ed.,
1941).
4 A-0963-12T1
joint appendix consists of nearly 200,000 pages, and the
parties' excellent written submissions — succinct though they
are – total nearly 600 pages.4 Nevertheless, as predicted by
Holmes, after grappling with this lion's fearsome hide, we have
found not unfamiliar issues lurking beneath. The sheer size of
this case and the number of issues, however, has frustrated the
normal desire to succinctly describe the implements of decision
and, in the final analysis, overwhelmed our preference for
brevity. Consequently, we take the unusual step of presenting,
for the reader's ease, the following table of contents for this
overlength opinion:
TABLE OF CONTENTS
I. INTRODUCTION……………………………………………………………………………………………………… 8
II. PLAINTIFFS' STORY …………………………………………………………………………………… 9
A. The Plot Alleged …………………………………………………………………………… 10
B. The Suit At Hand …………………………………………………………………………… 21
III. A BRIEF HISTORY OF THE PROCEEDINGS …………………………………… 22
IV. THE ISSUES POSED ……………………………………………………………………………………… 25
A. The Viability of the
Racketeering Claims ……………………………………………………………… 26
1. Plaintiffs' Arguments ………………………………………………… 26
4 So numerous were the filings in the trial court that the clerk
was required to assign a second docket number because the
court's database was unable to accommodate more than 999 filings
within a single docket number.
5 A-0963-12T1
2. The Judge's Decision …………………………………………………… 29
3. Our Holding …………………………………………………………………………… 34
(a) Some General Principles …………………………… 35
(b) Ginsberg's Impact …………………………………………… 36
(c) New Jersey's
Racketeering Laws ……………………………………………………… 40
(d) New York's
Racketeering Laws ……………………………………………………… 46
(e) The Choice ……………………………………………………………… 48
(i) Legislative Directive ………………… 50
a. Is There an Express
Directive? ………………………………… 50
b. Is There an Implied
Directive? ………………………………… 52
(ii) Application of the
Second Restatement ……………………………………… 56
a. Section 6 ………………………………………… 56
b. Section 145 …………………………………… 61
c. Specific Tort
Principles ………………………………… 64
(iii) Conclusion …………………………………………… 72
B. The Maintainability of the
Common Law Claims …………………………………………………………………… 73
1. The Statute of Limitations
Applicable to Plaintiffs'
Disparagement Claim ……………………………………………… 73
2. Dismissal of Plaintiffs'
Disparagement and Tortious
6 A-0963-12T1
Interference With Prospective
Economic Advantage Claims Based
on the Absence of
Special Damages …………………………………………………………… 82
(a) Choice of Law ……………………………………………………… 82
(b) Common Law Requirements …………………………… 83
(i) Disparagement ………………………………………… 83
(ii) Tortious Interference
With Prospective
Economic Advantage ………………………… 85
(c) Damages Asserted ……………………………………………… 86
3. Summary ……………………………………………………………………………………… 88
C. The Personal Jurisdiction Rulings ……………………………… 89
1. General Jurisdiction ………………………………………………… 91
(a) Kynikos ……………………………………………………………………… 91
(b) Third Point …………………………………………………………… 92
2. Specific Jurisdiction ………………………………………………… 95
3. Conspiracy-Based Jurisdiction …………………………… 96
4. Summary ……………………………………………………………………………………… 112
D. The Summary Judgments In Favor of
the SAC Defendants and the
Rocker Defendants …………………………………………………………………………… 113
1. The SAC Defendants ………………………………………………………… 113
(a) The Parties' Arguments ……………………………… 113
(b) The Trial Judge's Ruling ………………………… 115
(c) Our Holding …………………………………………………………… 117
2. The Rocker Defendants ………………………………………………… 123
7 A-0963-12T1
(a) The Parties' Arguments ……………………………… 123
(b) The Trial Judge's Ruling ………………………… 125
(c) Our Holding …………………………………………………………… 128
E. Lost Profits and the Elson Reports …………………………… 129
1. General Principles ………………………………………………………… 132
2. The Judge's Disposition of
the In Limine Motion
Regarding Elson's
Expert Testimony ………………………………………………………… 133
3. Our Ruling ……………………………………………………………………………… 136
V. THE CROSS-APPEALS ……………………………………………………………………………………… 141
A. Standing ………………………………………………………………………………………………… 141
B. First Amendment Grounds ………………………………………………………… 145
1. The Parties' Arguments ……………………………………………… 145
2. The Trial Judge's Decision …………………………………… 147
3. Our Holding …………………………………………………………………………… 149
V. CONCLUSION ………………………………………………………………………………………………………… 155
APPENDIX ……………………………………………………………………………………………………………………… A-1
I
INTRODUCTION
In this complex litigation, which was summarily dismissed
in many stages over the course of six years, the Canadian and
New Jersey plaintiffs asserted, among other things, that
defendants – most of whom were located in New York – engaged in
8 A-0963-12T1
a racketeering enterprise that caused plaintiffs billions of
dollars in damages. That claim required a careful consideration
of choice-of-law principles because New Jersey recognizes that a
plaintiff may maintain a private civil RICO cause of action and
New York doesn't. We agree the trial court correctly chose and
applied New York law in dismissing the RICO claim. We reject,
however, the trial court's determination that plaintiffs' common
law causes of action were governed by a New York statute of
limitations and hold instead that our own statute of limitations
applies; any past uncertainty about that evaporated with the
illumination provided by our Supreme Court's recent decision in
McCarrell v. Hoffmann-La Roche, Inc., 227 N.J. 569 (2017). We
also conclude that New York substantive law applies and limits –
but does not eliminate – plaintiffs' common law causes of
action. Consequently, we affirm in part, reverse in part, and
remand for further proceedings.
II
PLAINTIFFS' STORY
Because our Brill5 standard governed the trial court's
disposition of the many issues presented, as it also guides our
review, Townsend v. Pierre, 221 N.J. 36, 59 (2015), we examine
5 Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540
(1995).
9 A-0963-12T1
the disposition of plaintiffs' claims by assuming the truth of
their allegations and by giving plaintiffs the benefit of all
reasonable inferences. Consequently, our description of the
occurrences that triggered this suit are based on plaintiffs'
allegations and should not be construed as our acceptance of
their truth; in short, we only assume their truth. "I cannot
tell how the truth may be; I say the tale as 't was said to me."
Sir Walter Scott, The Lay of the Last Minstrel, canto II, st. 22
(1805).
A. The Plot Alleged
We are told plaintiff Fairfax Financial Holdings Limited
(Fairfax) is a Canadian insurance holding company located in
Toronto, and Crum & Forster Holdings Corp. (C&F) is a New Jersey
corporation headquartered in Morristown. In 1998, Fairfax sought
to rescue C&F from failure by purchasing it for hundreds of
millions of dollars. C&F's turnaround, however, took longer and
proved more difficult than Fairfax originally anticipated. Chief
among its difficulties was what plaintiffs have claimed is a
"racketeering scheme" designed to "kill" them both.
Plaintiffs assert they were the victims of a "bear raid,"
by which short-sellers borrow securities, sell them, and then
drive the price of that stock down through lies and other forms
of market manipulation. See, e.g., Robert G. DeLaMater, Target
10 A-0963-12T1
Defensive Tactics As Manipulative Under Section 14(e), 84 Colum.
L. Rev. 228, 244 n.114 (1984). The short-seller then repurchases
the shares at the lower price – or not at all if the prey
becomes bankrupt and its shares are rendered worthless – and
profits from the difference between the higher price at which it
sold the borrowed shares and the lower price it pays for the
shares it returns to the lender. Because short-selling has its
risks – the short-seller must pay interest and post collateral
on the borrowed shares that may prove costly – a "short squeeze"6
quickly causes an increase in the losses suffered.
Plaintiffs claim the short-sellers here were shorted so
heavily that the way to a profit and the avoidance of massive
losses required that they cause Fairfax to fail. Plaintiffs
quote the statements of various defendants that they intended to
"kill this company," "crush this company," "drive a stake
through that pig Fairfax's heart," and "tak[e] this baby down
for the count." Plaintiffs also quote various defendants'
statements that the alleged plan involved "get[ting] them where
they eat, like the credit [analysts] and [stock] holders" and
"stop [their] being able to write biz"; in short, they claim the
short-sellers were intent on inflicting "death by a thousand
6 The profitability of a short position fluctuates with changes
in the values of the borrowed shares. A sudden increase in the
cost of borrowing shares is known as a "short squeeze."
11 A-0963-12T1
knives" by getting Fairfax's subsidiaries "downgraded" and
having C&F go into "runoff," causing a loss of rating and
rendering the company "pretty much worthless."
Plaintiffs claim that, so motivated, defendants engaged in
a RICO enterprise. See Boyle v. United States, 556 U.S. 938,
948, 129 S. Ct. 2237, 2245, 173 L. Ed. 2d 1265, 1277 (2009)
(defining such an enterprise as "a continuing unit that
functions with a common purpose" that "need not have a
hierarchical structure or a 'chain of command'"). Plaintiffs
allege that all defendants were associated in this RICO
enterprise, and they described in detail the involvement of the
dramatis personae, which we summarize in the following brief
way:
 defendant Morgan Keegan & Company,
Inc., a registered broker-dealer that
provides investment services to hedge
funds and others; defendant John Gwynn
was a Morgan Keegan analyst. According
to plaintiffs, Morgan Keegan dissemin-
ated more than sixty materially false
and misleading research reports on
Fairfax and C&F that were authored by
Gwynn, and Morgan Keegan and Gwynn also
uttered numerous disparaging communica-
tions;
 defendant S.A.C. Capital Management,
L.L.C., S.A.C. Capital Advisors,
L.L.C., S.A.C. Capital Associates,
L.L.C., and Sigma Capital Management,
L.L.C., are alleged to be hedge funds
controlled by defendant Steven A. Cohen
(collectively "the SAC defendants");
12 A-0963-12T1
according to plaintiffs, the SAC
defendants engaged defendant Spyro
Contogouris on a similar past bear raid
of a different company and, according
to plaintiffs, similarly engaged him to
do the same with plaintiffs. The SAC
defendants were the largest investors
in the Exis defendants7 and non-party
Bridger Capital Management, which both
possessed an economic interest in the
alleged scheme.
 Contogouris was, according to plain-
tiffs, an enterprise operative who
posed as an independent research
analyst and disseminated disinforma-
tion, instigated a Securities &
Exchange Commission investigation, and
generated negative news stories about
plaintiffs8 via the so-called "MI4"
reports.9
 The Exis defendants were alleged to be
hedge funds that secured a substantial
short position in Fairfax. They and
their chief executive and chief
operating officers, defendants Adam D.
Sender and Andrew Heller, respectively,
were alleged to have maintained the
closest relationship with Contogouris;
they allegedly provided him with office
7 Namely, Exis Capital Management, Inc., Exis Capital, L.L.C.,
Exis Differential Partners, L.P., and Exis Integrated Partners,
L.P.
8 Adding to the drama, plaintiffs allege Contogouris acted
through the use of aliases, such as "Monsieur Skaramanga," a
James Bond villain.
9 The names of these reports refer to defendants MI4 Limited
Partnership, MI4 Reconnaissance L.L.C., and MI4 Investors,
L.L.C. (the MI4 defendants), all entities controlled by
Contogouris.
13 A-0963-12T1
space, assistants and a most sub-
stantial compensation package.
 defendants Rocker Partners, L.P., and
Copper River Partners, L.P., are
alleged to be hedge funds based in
Millburn primarily owned and managed by
defendant David Rocker (collectively,
the Rocker defendants); according to
plaintiffs, the Rocker defendants
worked closely with defendant Kynikos
Associates, L.P., Morgan Keegan and
other members of the alleged enterprise
in shorting Fairfax at the scheme's
inception.
 defendant Institutional Credit Part-
ners, L.L.C. (ICP) is a financial firm
alleged to have paid and worked closely
with Contogouris, and to have traded in
advance of negative events allegedly
generated by Contogouris. According to
plaintiffs, ICP directly disseminated
false claims about them; ICP employees
are alleged to have worn surgical
gloves to avoid leaving fingerprints on
materials they transmitted, and William
Gahan, an ICP credit analyst, obtained
the bail bond that secured Conto-
gouris's release after he was arrested
by the Federal Bureau of Investigation
on an unrelated fraud charge months
after this suit was filed.
 defendant Kynikos Associates, L.P. – a
limited partnership organized in 1985
in Delaware with its principal place of
business in New York – is an investment
advisor and management company special-
izing in short-selling; it has managed
over $1 billion for its clients.
Plaintiffs alleged that Kynikos and its
founder and president, James S. Chanos,
participated in the enterprise in that
they worked closely with other defen-
dants, including Contogouris.
14 A-0963-12T1
 defendant Christopher Brett Lawless, a
New Jersey resident, worked as a
research analyst for Fitch Ratings in
New York City and for the Center for
Financial Research and Analysis in
Maryland. Lawless allegedly tutored
Contogouris to enable him to pose as a
research analyst and thereafter
continued to collaborate with Morgan
Keegan, Contogouris and those paying
Contogouris.
 defendants Third Point, L.L.C., is an
investment management firm created
under the laws of Delaware and
headquartered in New York. During the
times in question, Third Point provided
management services to several invest-
ment funds that traded in Fairfax
securities. Defendant Daniel S. Loeb is
the founder and managing member of
Third Point, and defendant Jeffrey
Perry was a senior analyst.
According to plaintiffs, in 2002, the SAC defendants,
Kynikos, the Rocker defendants, and others, were collaborating
and either aggressively shorting or preparing to short Fairfax.
Plaintiffs claim that C&F had begun to favorably turn its
position around at that time, so defendants' enterprise sought a
"negative catalyst" to drive down C&F's price, and the
enterprise began to "educate[] rating agencies and other
research analysts about their negative views."
On December 18, 2002, the day after deciding to cover their
position, the SAC defendants learned that Gwynn of Morgan Keegan
was about to issue a report that Fairfax and its subsidiaries
15 A-0963-12T1
were under-reserved by billions of dollars and effectively
insolvent. Gwynn tipped off Kynikos and faxed an outline of the
issues. Upon receiving this tip, the SAC defendants began
communicating directly with Gwynn, and Kynikos and Third Point
thereafter traded in advance of the report based on the tipped
information.10
Morgan Keegan published its report on January 17, 2003.
Plaintiffs allege that Morgan Keegan falsely claimed that
Fairfax had overstated its equity by more than $5 billion and
that Morgan Keegan's alleged false claim devastated Fairfax's
stock price, which fell thirteen percent in one day and further
in the days that followed. Two weeks later, Morgan Keegan issued
a second report acknowledging it "possibly" double-counted $2
billion in purported subsidiary liabilities, including at C&F.
As a result, the stock price recovered somewhat but remained
down.
10 Plaintiffs claim that Kynikos re-shorted over $5 million in
shares just before the first report. And, after not shorting for
four months, Third Point sold short $1,500,000 in shares the day
before publication. The SAC defendants did not cover its short
positions by year-end as originally planned but completed their
cover after the report was issued and the stock price dropped
sharply. Plaintiffs assert that many of the trades involving
these and other parties or accounts controlled by the enterprise
members violated insider-trading laws and support their RICO
claim.
16 A-0963-12T1
According to plaintiffs, enterprise members traded heavily
on Morgan Keegan's tips concerning its initial report. In
exchange, Morgan Keegan benefited from these tips by way of
commissions through referred trades, and with the expectation of
greater future benefits. According to plaintiffs, Morgan Keegan
understood their big payoff – what a Morgan analyist referred to
as "our 7-8 digit trade!!" – would come when Fairfax's "stock
goes to zero." Consequently, for the next four years, Morgan
Keegan published more than sixty research reports that portrayed
plaintiffs and their affiliates as "an insolvent, Enron-like
fraud[]"; this disinformation was, according to plaintiffs,
orchestrated, and Morgan Keegan was urged to make sure its
reports were "really negative." Morgan Keegan communicated in
other ways that Fairfax and its executives were "crook[s]" and
"felons" who manipulated financial information to "mak[e] it
look like they have a profit." Plaintiffs claim Morgan Keegan
knew of the falsity of its disseminated statements.
Plaintiffs allege that, despite the inflicted harm, their
turnaround was progressing, causing defendants' enterprise to
either quit its position at a loss or increase the short
position and intensify their efforts. Information amassed in the
joint appendix evokes scenes from Oliver Stone's 1987 film, Wall
Street. One hedge fund manager – defendant Adam Sender, who was
17 A-0963-12T1
affiliated with the Exis defendants – explained to Contogouris
that he "want[ed] [Prem Watsa's11] head in a box," and another
viewed the dissemination of negative reports as the equivalent
of needing to "keep . . . this gun loaded with bullets" and
"eventually this pig will roll over and die." Meanwhile, to add
content to the negative reports, Morgan Keegan allegedly fed
Contogouris with the false claims that: Fairfax was disguising
billions in debt as reinsurance; Fairfax was turning its
investment subsidiaries – with the use of "[s]moke and
[m]irrors" – into "an illegal enterprise"; and that Watsa was
"transferring his personal holdings into asset protection
schemes that he thinks will be safe from regulators."
Over the course of nearly two years, Contogouris –
allegedly at the direction and with the support of Morgan
Keegan, Lawless, the Exis defendants, Third Point and Kynikos –
disseminated false claims to the FBI, federal prosecutors, the
SEC, the media, ratings agencies, research analysts and
investors, that Fairfax was engaged in an Enron-like fraud.12 In
June 2005, the SAC defendants re-shorted Fairfax – a month after
11 Watsa is Fairfax's chairman and chief executive officer.
12 Contogouris anonymously created a website called
Premwatsa.com, which compared Fairfax to the disgraced Enron and
Watsa to Enron's CEO, Kenneth Lay. Much has been written about
the Enron debacle. See, e.g., Kurt Eichenwald, Conspiracy of
Fools: A True Story (2005).
18 A-0963-12T1
Contogouris's approach to the FBI that resulted in the service
of SEC subpoenas on Fairfax in September 2005. Three weeks
earlier, the investors of Exis, of which SAC was the largest,
were tipped off that "subpoenas from the regulators . . . should
be announced in the next three weeks." The Exis defendants and
the SAC defendants increased their short positions in advance of
the subpoenas.
Plaintiffs further allege, and refer to the voluminous
record in support, that Contogouris provided false and negative
information to various media and targeted as part of this
campaign: investors, institutions and research analysts; rating
agencies13; Fairfax executives and staff14; and even to Watsa's
parish pastor.15 Contogouris allegedly made harassing telephone
calls to Watsa's home and office at night to "rattle his cage."
Plaintiffs assert that Contogouris kept Morgan Keegan and
Lawless advised of his activities, and Morgan Keegan reported
these activities to other enterprise members.
13 Contogouris sent his FraudFacts report to Standard & Poor's
and A.M. Best.
14 Plaintiffs allege that Contogouris sent, through the use of
aliases, threatening emails to Watsa's staff in an effort to
find "a way in" via a staff member willing to be a mole.
15 Contogouris allegedly sent information to Watsa's parish
pastor, warning that Watsa, who handled the church's investment
fund, might defraud the church.
19 A-0963-12T1
According to plaintiffs, the enterprise members learned
during the Summer of 2006 that the FBI and federal prosecutors
intended to expand their investigation into Fairfax in light of
Contogouris' disseminations, and they also learned that The New
York Post was about to publish a series of negative stories.
Contogouris used code in communicating this information to
enterprise members, referring to the FBI as the "meteorologist,"
The New York Post reporter as the "Postman," and what he
expected to imminently occur as the "Hurricane," which was due
in August. Sender encouraged others to short the stock and the
SAC defendants, which allegedly were in contact with Sender and
Contogouris "all the time" during this period, increased their
short position in June 2006. To fuel the flames, rumors were
allegedly spread on June 22 and 23, 2006, that Watsa had
transferred his assets into his wife's name and that he fled the
country as the Royal Canadian Mounted Police raided Fairfax's
offices.
The day after these rumors started, the Exis defendants
rewarded Morgan Keegan with substantial trading business.
Fairfax's stock price plummeted for two days before Fairfax
issued a statement debunking the rumors.
20 A-0963-12T1
B. The Suit At Hand
Plaintiffs commenced this lawsuit on July 26, 2006. Their
complaint was filed just before what they allege were to be the
final steps in the enterprise's scheme but not before they
allegedly suffered significant monetary damages. Plaintiffs
claim Fairfax suffered damages to its assets and equity, as well
as those of its subsidiaries, in the billions of dollars.16
Particularly relevant in light of the issues on appeal,
plaintiffs claim C&F incurred a loss of nearly $1 billion,
including: (1) approximately $200,000,000 in capital costs and
interest incurred in and paid from New Jersey in the form of
having to raise capital not otherwise needed; (2) lost profits
estimated at $545,000,000; and (3) increased costs and expenses
in the form of higher directors and officers (D&O) insurance
premiums with far less coverage, and greater legal, accounting,
16 The parties even dispute the purpose of this suit. Morgan
Keegan contends that Fairfax has been a "troubled company for
years," and launched, as part of a "public relations campaign,"
this "sensational" RICO suit, claiming $6 billion in
compensatory damages, which, if trebled as permitted by New
Jersey law, would result in "a headline-grabbing $18 billion,"
caused by "a veritable cabal of short sellers and research
analysts bent on destroying the company" for their own profit.
The matter having come before us by way of summary rulings in
favor of all defendants, we place no reliance on Morgan Keegan's
argument about the motivation of this suit and assume, without
deciding, the bona fides of plaintiffs' claims.
21 A-0963-12T1
and administrative costs to deal with the enterprise's alleged
wrongful actions.
III
A BRIEF HISTORY
OF THE PROCEEDINGS
As mentioned, plaintiffs commenced this action in 2006. A
second amended complaint was filed in 2007 and a third in 2008.
Plaintiffs alleged defendants' manipulations violated New
Jersey's RICO statute and gave rise to several common law
claims, specifically commercial or product disparagement,
tortious interference with prospective economic advantage,
tortious interference with contractual relationships, and civil
conspiracy.
On July 11, 2008, the Rocker defendants moved for summary
judgment, asserting that insufficient evidence existed to
establish that it participated in the alleged conspiracy. The
judge then presiding over the matter17 granted, on September 25,
2008, the Rocker defendants' application, but did so without
prejudice.
17Numerous judges presided over this leviathan of a case during
its long life in the trial court. To avoid confusion, we make no
attempt to distinguish which of the able judges ruled on which
motion. Regardless of the outcome of the many issues raised, we
commend all these judges for their efforts.
22 A-0963-12T1
On May 5, 2011, the SAC defendants sought summary judgment
on grounds substantially similar to those that the Rocker
defendants had successfully advanced, namely, that there was
insufficient evidence to demonstrate the SAC defendants'
participation in the alleged scheme against plaintiffs. On
September 12, 2011, the court granted the SAC defendants' motion
for summary judgment.
Meanwhile, Kynikos moved for summary judgment, claiming our
courts could not assert personal jurisdiction over it. Third
Point and ICP also moved for summary judgment on the same or
similar grounds. Kynikos and Third Point also sought a choice-
of-law determination, arguing New York law both governed
plaintiffs' conspiracy claims and required a dismissal of
plaintiffs' RICO claims. And, in the same period of time, the
Rocker defendants sought a determination that the September 25,
2008 grant of summary judgment "without prejudice" be converted
to a dismissal "with prejudice."
On December 23, 2011, the court granted the Rocker
defendants' application to convert its prior determination to
summary judgment with prejudice and dismissed the third amended
complaint against Kynikos, Third Point and ICP for lack of
personal jurisdiction.
Many more motions followed.
23 A-0963-12T1
On April 13, 2012, Morgan Keegan, Lawless, the Exis
defendants and the MI4 defendants filed a consolidated motion
for summary judgment with respect to all the common law claims
plaintiffs had asserted against them.18 And, on April 20, 2012,
plaintiffs cross-moved for reconsideration of the court's prior
dismissal of the Rocker defendants with prejudice.
On May 11, 2012, the trial court granted partial summary
judgment in favor of Lawless. Finding New York law governed
plaintiffs' racketeering allegations, the trial court dismissed
plaintiffs' RICO claims. And plaintiffs' reconsideration motion
of the with-prejudice dismissal of the claims against the Rocker
defendants was denied.
In June 2012, the trial court heard and summarily dismissed
plaintiffs' claim of tortious interference with prospective
economic advantage but sustained plaintiffs' remaining common
law claims.
Also in June 2012, Morgan Keegan moved for partial summary
judgment, seeking dismissal of plaintiffs' disparagement claim
based on its alleged untimeliness; the motion was denied in
August 2012. Later that month, the judge denied plaintiffs'
request to reconsider its ruling that New York law controlled
18Namely, tortious interference with contractual relationships,
tortious interference with prospective economic advantage, and
civil conspiracy.
24 A-0963-12T1
plaintiffs' racketeering and conspiracy claims. The judge also
granted Morgan Keegan's application for reconsideration of the
denial of summary judgment on the tortious-interference-with-
contract claim but rejected Morgan Keegan's assertion that a
one-year statute of limitations applied to plaintiffs'
disparagement claim.
On September 5, 2012, plaintiffs stipulated to the
dismissal of Lawless without prejudice. On September 11, 2012,
in accordance with a partial settlement agreement, the judge
signed a consent order, which dismissed without prejudice
plaintiffs' claims against Contogouris and the MI4 defendants.
And, on September 12, 2012, the judge entered final judgment
dismissing the entirety of the remainder of plaintiffs' third
amended complaint, finding "a complete absence of proof" of
proximately-caused damages.
Plaintiffs filed a notice of appeal. Cross-appeals were
also asserted.
IV
THE ISSUES POSED
In appealing the summary dismissal of its causes of action,
plaintiffs argue the trial court erred: (a) in dismissing their
RICO claims by applying New York rather than New Jersey law; (b)
in dismissing certain of their common law claims by applying New
25 A-0963-12T1
York's statute of limitations rather than New Jersey's; (c) in
dismissing the claims against Kynikos, Third Point and the ICP
defendants19 for lack of personal jurisdiction; (d) in granting
summary judgment in favor of both the SAC defendants and the
Rocker defendants; and (e) in excluding the expert opinion of
Craig Elson on damages that plaintiffs intended to elicit at
trial, thereby shutting the door on any trial at all.
A. The Viability of
The Racketeering Claims
In reviewing the disposition based on the trial court's
application of choice-of-law principles, we describe (1) the
parties' arguments and (2) the judge's decision, and then
express (3) our agreement with the trial court's disposition of
the RICO claim.
1. Plaintiffs' Arguments
Plaintiffs claim the trial court erred by dismissing their
RICO claims through application of New York law. Indeed, they
argue that choice-of-law questions do not even arise when a
matter falls within the intended scope of a New Jersey statute;
that is, they claim our Legislature intended to provide a remedy
19As noted earlier, plaintiffs and the ICP defendants resolved
their differences shortly before oral argument took place in
this court.
26 A-0963-12T1
for every New Jersey domiciliary harmed by a RICO violation,
which the law defines as harm arising from conduct of a
prohibited kind that satisfies the enactment's territorial
predicates, with no distinction between criminal and private
prosecutions. And they argue there was sufficient conduct by
defendants that either occurred within or had a sufficient
effect in New Jersey to satisfy the statute, even apart from the
conspiracy, which by itself – in their view – involved enough
activity within New Jersey to satisfy the Criminal Code's
definition of such an offense.
Plaintiffs argue further that the court had no basis for
"inventing" or "importing" common law principles to impose the
territorial limitations on jurisdiction over traditional torts,
noting that the limitations were not included in either the RICO
statute or in the Criminal Code's general territoriality
statute. On the contrary, they claim the Legislature has
specified that the RICO provisions for civil remedies must be
liberally construed to affect that enactment's remedial purpose
and that all remedies be cumulative to one another and to other
remedies at law.
In addition, plaintiffs argue that the trial judge erred by
failing to recognize there was no policy conflict between New
Jersey and New York law because both states' enactments "provide
27 A-0963-12T1
civil remedies to deter and compensate for" the same proscribed
conduct. And they argue New Jersey's allowance of private civil
remedies does not constitute a different approach toward the
shared goal of deterring racketeering, "only a different
judgment about how best to use each state's judicial system to
do so." Although both states seek to vindicate the same
policies, plaintiffs argue New Jersey's broader remedies made it
the better vehicle for achieving that goal, and thus the correct
law to apply.
Plaintiffs contend further that, even if New Jersey and New
York law generated a true conflict, section 6 of the Restatement
(Second) of Conflict of Laws (1971) (Am. Law Inst., amended
1988),20 provided an independent basis for applying New Jersey
law to the RICO claims. They assert section 6 warranted
application of New Jersey law due to this State's interest in
protecting C&F, which sustained injuries at its New Jersey
headquarters, and because New Jersey had an interest in
protecting other in-state businesses, such as the rating
agencies and business news organizations that the enterprise is
20Our many references to the Restatement (Second) of Conflict of
Laws shall hereafter in the text be "Second Restatement" and in
citations be "Restatement (Second)," with reference to a
specific section or comment. To avoid confusion, we will provide
greater specificity when referring to the Restatements dealing
with torts and contracts that are cited as well.
28 A-0963-12T1
alleged to have deliberately misled in order to promote their
scheme. Plaintiffs contend they reasonably expected the
protection of New Jersey law to the extent of their business
affecting this State, whereas defendants had no expectation that
their misconduct would be any less violative of New York law
than it would of New Jersey law. In addition, they contend that
failing to apply New Jersey's RICO statute as intended would
inject an unanticipated and unneeded balancing test between New
Jersey law and out-of-state law.
Finally, plaintiffs argue that the Second Restatement's
section 145 standards favored application of New Jersey law due
to the predominance of this case's contacts with New Jersey.
They call New Jersey the situs of "the injury" because C&F had
its domicile and principal place of business here, and they note
that several enterprise members were New Jersey residents or
engaged in enterprise activity within the State.
2. The Judge's Decision
In May 2012, the trial judge determined that New York's
local law – that is, the law that applied within New York before
any consideration of choice-of-law principles21 – applied to the
21 The judge's definition of "the local law" accords with the
Second Restatement, which describes "the local law" as the law
that would apply if all parties and relevant events were within
(continued)
29 A-0963-12T1
RICO claims and, accordingly, compelled the entry of summary
judgment in defendants' favor. He first found an actual conflict
existed – because New Jersey recognizes a private civil RICO
action and New York doesn't – and observed that a statutory
mandate for New Jersey jurisdiction over private civil claims
would have precluded a choice-of-law analysis here, but then
found no such mandate existed. The judge explained that RICO's
own territoriality provision was expressly limited to criminal
cases, and that the Legislature did not intend civil RICO claims
to have the same jurisdictional reach or to be exempt from the
"accepted, traditional common law principles of jurisdiction"
for civil claims, which included application of choice-of-law
principles.
The trial judge recognized that the first step in a choice-
of-law analysis was to determine whether any state was presumed
to satisfy the Second Restatement's most fundamental touchstone
of being the state with "the most significant relationship" to
the matter and found that, though choice-of-law principles might
deem C&F's loss of customers to have been an injury sustained in
(continued)
one state, without application of that state's choice-of-law
rules. Restatement (Second), supra, § 145 cmt. h and § 4. In
this context, a reference to "state law" without qualification
means the entire body of a state's law, including its choice-of-
law rules. Ibid.
30 A-0963-12T1
New Jersey, it was "improper" to presume New Jersey jurisdiction
on that basis, because C&F was "a minor player in this matter,"
there was a "complex interrelationship between [the]
plaintiffs," and the RICO allegations here were broader and more
complex than a particular injury to one subsidiary.
According to the trial judge, the "most direct consequence"
of the alleged RICO enterprise was to decrease the market prices
of plaintiffs' securities, a claim for which Fairfax was the
"lead" plaintiff. All the other alleged injuries caused by the
enterprise, namely, the increase in "capital costs," the costs
of responding to the SEC investigation, and the increased legal
and accounting costs, "were a consequence of that deflation."
The "most direct" injury and its derivatives arose from the
alleged enterprise activity that involved the financial markets
and financial news media and, as the judge observed, "[t]he
financial markets, the news media and the parties are clearly
based predominantly in New York." Accordingly, the New Jersey
connections to the RICO claims – namely, the domiciles of C&F,
A.M. Best,22 and Lawless – did not suffice to give New Jersey the
"most significant relationships" to a RICO enterprise as broad
22 A.M. Best is a major rating company headquartered in New
Jersey.
31 A-0963-12T1
and complex as alleged. Consequently, the trial judge found that
New York's local law presumptively applied.
As for the other section 145 factors, the judge found that
the "vast majority" of the alleged misconduct manifestly
occurred in New York and only a fraction was committed by
Lawless, the one defendant located in New Jersey. The judge
determined that all other enterprise members were domiciled or
incorporated elsewhere and conducted their activities elsewhere,
and, also, that the enterprise members did not have a prior
relationship, much less one centered in New Jersey. Furthermore,
Fairfax and its other main United States operating Odyssey
subsidiaries,23 were domiciled or incorporated elsewhere and
operated outside New Jersey. Accordingly, even if the decrease
in the price of C&F securities was deemed a direct injury to
C&F, as opposed to a derivative injury largely arising from its
exposure to Fairfax's troubles, "the place where the injury
occurred," as defined by section 145(2)(a) of the Second
Restatement, was nonetheless in New York's financial markets,
and the enterprise members had "minimal contact with New Jersey"
in causing it.
23 What we refer to as Odyssey consists of: Odyssey Re Holding
Corp., which was incorporated in Delaware and had principal
executive offices in New York; wholly-owned Odyssey Re Group;
and Odyssey America Reinsurance Corp., which had its principal
offices in Connecticut.
32 A-0963-12T1
The trial judge then turned to the general choice-of-law
principles set out in section 6 of the Second Restatement. For
comity's sake, he explained that, although New York and New
Jersey had competing interests about whether private actors
should be able to enforce a RICO statute, the two states'
enactments were nonetheless similar and shared the "fundamental
policies" of preventing racketeering and other organized crime.
The two states' policies were therefore not in fundamental
conflict, so interstate comity required New Jersey to respect
New York's deliberate decision about how to serve that policy
that included a decision to withhold a private RICO cause of
action. The judge found that was also true from the perspective
of "[t]hose involved in the financial markets based in New York"
because they "should be able to depend on New York law" as the
law governing "their conduct."
As for the interests of the parties and the interests
underlying the field of tort law, the judge observed that the
parties knew New York law precluded exposure to private RICO
claims regardless of their conduct. And, because New York had
the "most significant relationship" to the matter, defendants
had "no reasonable expectation" that such exposure could arise
due to the application of another state's local law. The judge
reasoned the result should not change just because the conduct,
33 A-0963-12T1
which was focused on "the New York financial industry," also had
tangential connections outside that state, such as the
communications with A.M. Best, the one major rating agency
located in New Jersey.
The trial judge also observed that the only factor favoring
application of New Jersey law instead of New York law was the
greater involvement in this litigation of New Jersey's courts.
He noted, however, that this factor did not outweigh the need to
serve the choice-of-law "values," which were "certainty,
predictability and uniformity of results" in their application.
Consequently, the judge ruled that the "qualitative balance" of
all the section 145 and section 6 factors of the Second
Restatement compelled application of New York local law, which,
upon application, compelled dismissal of the RICO claims.
3. Our Holding
For the reasons that follow, we conclude that New York law,
which does not permit a private civil racketeering action,
applies in this case and, as held by the trial court, requires
the dismissal of plaintiffs' RICO claim.
We first consider (a) some general principles, as well as
(b) the impact of the Supreme Court's recent decision in
Ginsberg v. Quest Diagnostics, Inc., 227 N.J. 7, 18 (2016), on
the issues raised. Then, because an early but pivotal step in
34 A-0963-12T1
resolving a choice-of-law problem requires a determination that
a true conflict exists, we examine (c) New Jersey's racketeering
laws, and their intent and purposes, and we thereafter similarly
analyze (d) New York's racketeering laws. We then conclude this
part of the opinion with a description of (e) the choice of law
required in these circumstances.
(a) Some General Principles
In considering the propriety of the choice-of-law
determinations in question, we observe, first, that the trial
judge's interpretation of the RICO statutes is not entitled to
deference. ADS Assocs. Grp., Inc. v. Oritani Sav. Bank, 219 N.J.
496, 511 (2014). Choice-of-law determinations present legal
questions, which are subjected to de novo review. Bondi v.
Citigroup, Inc., 423 N.J. Super. 377, 418 (App. Div. 2011),
certif. denied, 210 N.J. 478 (2012); Arias v. Figueroa, 395 N.J.
Super. 623, 627 (App. Div.), certif. denied, 193 N.J. 223
(2007). And choice-of-law decisions are made not only issue-by-
issue, Cornett v. Johnson & Johnson, 211 N.J. 362, 374 (2012),
but also, at times, party-by-party, Ginsberg, supra, 227 N.J. at
18.
When New Jersey is the forum state, its choice-of-law rules
control. McCarrell, supra, 227 N.J. at 588; Erny v. Estate of
Merola, 171 N.J. 86, 94 (2002). For tort claims, our Supreme
35 A-0963-12T1
Court has expressly embraced the Second Restatement for choice-
of-law determinations. P.V. ex rel. T.V. v. Camp Jaycee, 197
N.J. 132, 139-43 (2008).
New Jersey courts have also recognized that a parent
corporation may have standing to participate in litigation over
wrongs sustained by its subsidiary if the parent itself has a
sufficient financial interest in the outcome. See, e.g., Bondi,
supra, 423 N.J. Super. at 436-39. See also Section V(A), infra.
Bondi did not declare a categorical rule that the same
jurisdiction's local law always applies to both the parent and
the subsidiary with regard to a particular claim, and, at the
time the trial judge ruled, neither Bondi nor any other reported
New Jersey opinion had suggested a general reason not to adopt
such a rule.
(b) Ginsberg's Impact
Recently, our Supreme Court recognized that, in multi-party
actions, choice-of-law principles may call for the application
of a different state's laws from party-to-party or claim-to-
claim. Ginsberg, supra, 227 N.J. at 18.24 But plaintiffs have
24 To be precise, Ginsberg specifically held that "in the
majority of cases, a defendant-by-defendant analysis furthers
the [Second] Restatement principles and provides the most
equitable method of resolving choice-of-law questions." 227 N.J.
at 18 (emphasis added). But, in explaining this aspect of its
(continued)
36 A-0963-12T1
never sought separate choice-of-law analyses. In fact,
plaintiffs have blurred the distinctions between them and their
subsidiaries, perhaps for strategic reasons,25 thereby
frustrating any attempt at rendering an informed,
individualized, choice-of-law analysis from each plaintiff's
standpoint.
That is, we recognize that in many instances in which
multiple claims are asserted by multiple plaintiffs against
multiple defendants, a court may be asked to make individualized
choice-of-law determinations that "exponentially" increase in
difficulty with every increase in the number of parties and
claims. See Georgine v. Amchem Products, Inc., 83 F.3d 610, 627
(3d Cir. 1996). We do not think, however, that where two or more
related corporate plaintiffs file a single action based on the
(continued)
holding, the Court observed that Second Restatement principles
"focus[] on the state's relationship to the parties," and
recognized that, in referring to "parties," the Second
Restatement was not limited and included plaintiffs, defendants,
and "any third party defendants." Ibid. (emphasis added).
Consequently, we do not view Ginsberg's particular holding,
which required in some instances a "defendant-by-defendant
analysis," as applying only in that circumstance. Instead, the
same principles may at times warrant plaintiff-by-plaintiff
analyses as well.
25 For example, if it had pursued its claims separately from
C&F's, Fairfax would have had no plausible argument for applying
New Jersey substantive law to a dispute between a Canadian
corporation based in Toronto and various New York-based
defendants.
37 A-0963-12T1
same operative set of facts, and assert causes of action and
demands for damages allegedly caused to their corporate family –
as if that family constituted a single entity – that a court
must nevertheless disentangle all the possibilities in
identifying the correct state law to be applied to each
plaintiff's claim or claims. Ginsberg does not require that a
court make such determinations when the court is deprived of the
parties' assistance. In short, since plaintiffs do not seek a
separate resolution of each choice-of-law problem from each of
their standpoints, we will not pursue that possibility further.
We would add that to the extent multiple plaintiffs would have a
court treat them differently for choice-of-law purposes, they
must come forward and make that argument26 and, moreover, be
26 We do not interpret our rules as requiring a plaintiff or
plaintiffs to affirmatively plead the application of another
jurisdiction's laws; indeed, we have shown particular liberality
in allowing defendants to assert another jurisdiction's laws in
moving for summary judgment even when not having first asserted
that other jurisdiction's law as an affirmative defense. See
Rowe v. Hoffman-La Roche Inc., 383 N.J. Super. 442, 450-51 (App.
Div. 2006), rev’d on other grounds, 189 N.J. 615 (2007); Erny v.
Russo, 333 N.J. Super. 88, 96 (App. Div. 2000), rev’d on other
grounds, 171 N.J. 86 (2002). But that liberality is stretched
beyond breaking if we were to allow a party to advocate on
appeal, for the first time, an entirely different approach to
already difficult choice-of-law questions. As we said in our
decision in Ginsberg, which the Supreme Court affirmed, "choice-
of-law determination[s] ideally should be made as early in a
case as possible." Ginsberg v. Quest Diagnostics, Inc., 441 N.J.
Super. 198, 223 (App. Div. 2015); see also Bailey v. Wyeth,
Inc., 422 N.J. Super. 343, 350 (Law Div. 2008), aff’d on other
(continued)
38 A-0963-12T1
willing to be treated separately for all other purposes as
well.27
In the final analysis, Ginsberg not only held that an
individualized assessment is "not feasible in every matter," 227
N.J. at 20, but also that, in each case, a court must ascertain
"the most equitable method of resolving choice-of-law
questions," Id. at 18. A sudden alteration in course – sought
by no one here, even now on appeal – that might arguably be
(continued)
grounds, 433 N.J. Super. 360 (App. Div. 2011), certif. denied,
211 N.J. 274 (2012). And it is well-established in the federal
courts that choice-of-law issues may be waived when not asserted
by the parties, Williams v. BASF Catalysts LLC, 765 F.3d 306,
316-17 (3d Cir. 2014), a concept that we hold should be applied
here as well. Having said all that, we do not mean to suggest
that plaintiffs have sought a sudden change in course; to the
contrary, even after both our decision and the Supreme Court's
decision in Ginsberg, plaintiffs have continued to pursue their
rights as if they were the same juridical creature and have not
sought an individualized choice-of-law assessment from each
plaintiff's standpoint. Consequently, we hold that in light of
the arguments plaintiffs have posed, and in consideration of
their suggestions as to how we are to exit this choice-of-law
labyrinth, we should not now pursue a wholly different path that
plaintiffs – even in the wake of Ginsberg – have never urged as
the proper or required course.
27 When multiple plaintiffs seek individualized choice-of-law
determinations, we would think concerns about standing, such as
those raised here, would warrant a less liberal approach than
suggested by Bondi, supra, 423 N.J. Super. at 436-39, which we
discussed above and again later in this opinion. In short, a
court should not be expected to choose the law appropriate for
each plaintiff as to each claim, only to have, for example,
plaintiff X lay claim to a right to pursue an award of damages
based on injuries sustained by plaintiff Y.
39 A-0963-12T1
permitted by Ginsberg, does not serve our chief, overarching
goal of seeking an equitable method for resolving the parties'
choice-of-law disputes.
(c) New Jersey's
Racketeering Laws
In enacting anti-racketeering legislation, N.J.S.A. 2C:41-1
to -6.2,28 the Legislature utilized federal statutes as its
model. Accordingly, federal case law provides a useful guide in
understanding our own RICO law. Cagno, supra, 211 N.J. at 508.
In this regard, it is noteworthy that the federal and New Jersey
enactments expressly afford a private civil cause of action, see
18 U.S.C.A. § 1964(c); N.J.S.A. 2C:41-4(c), whereas New York's
similar law, which we discuss in Section IV(A)(3)(d), infra,
does not. The New Jersey and federal enactments allow "[a]ny
person," who is injured "in his business or property by reason
of a violation" of the statute, to "sue therefore" and recover
treble damages, plus costs of suit including a reasonable
attorney's fee. 18 U.S.C.A. § 1964(c); N.J.S.A. 2C:41-4(c).
All remedies permitted by our RICO law are "cumulative with
each other and other remedies at law," N.J.S.A. 2C:41-6.1, and
28Better known as our RICO law. State v. Cagno, 211 N.J. 488,
508 (2012), cert. denied, ___ U.S. ___, 133 S. Ct. 877, 184 L.
Ed. 2d 687 (2013); State v. Ball, 268 N.J. Super. 72, 98 (App.
Div. 1993), aff'd, 141 N.J. 142 (1995), cert. denied, 516 U.S.
1075, 116 S. Ct. 779, 133 L. Ed. 2d 731 (1996).
40 A-0963-12T1
the Legislature has instructed that our RICO law must be
"liberally construed to effect [its] remedial purposes,"
N.J.S.A. 2C:41-6.
The required "racketeering activity," also known as a
predicate act, must itself be a criminal offense. N.J.S.A.
2C:41-1(a)(1), (2); Ball, supra, 141 N.J. at 162; Karo Mktg.
Corp. v. Playdrome Am., 331 N.J. Super. 430, 438 (App. Div.),
certif. denied, 165 N.J. 603 (2000). In fact, the predicate act
may not only be one of the crimes the Legislature has identified
but also an "equivalent crime" under the law of "any other
jurisdiction," N.J.S.A. 2C:41-1(a).
A "pattern of racketeering activity" requires two predicate
acts, N.J.S.A. 2C:41-1(d)(1), that have "either the same or
similar purposes, results, participants or victims or methods of
commission or are otherwise interrelated by distinguishing
characteristics and are not isolated incidents," N.J.S.A. 2C:41-
1(d)(2). Participation in a conspiracy to commit prohibited RICO
activity is also prohibited activity. N.J.S.A. 2C:41-2(d). The
designation of conspiracy as racketeering activity under federal
law means that the conspiracy itself may be one of the required
predicate acts. State v. Bisaccia, 319 N.J. Super. 1, 20-21
(App. Div. 1999). In a private civil RICO action, the predicate
act must be the proximate cause of the plaintiff's injury.
41 A-0963-12T1
Interchange State Bank v. Veglia, 286 N.J. Super. 164, 178 (App.
Div. 1995) (citing Holmes v. Sec. Inv'r Prot. Corp., 503 U.S.
258, 265, 112 S. Ct. 1311, 1316-18, 117 L. Ed. 2d 532, 543
(1992)), certif. denied, 144 N.J. 377 (1996).
The prohibited RICO activity relevant here is participation
in an "enterprise" which engages in "a pattern of racketeering
activity." N.J.S.A. 2C:41-2(c). The Legislature did not intend
"to punish mere repeated offenses," so the term "pattern" also
requires "relatedness," which means "some temporal connection or
continuity over time," but nonetheless encompasses "short-term
criminal activity" of the proscribed kind as well as "long-term
criminal activity." Ball, supra, 141 N.J. at 167-69.
"Enterprise" is broadly defined to include all kinds of
entities, as well as "any individual" and any "group of
individuals" who are "associated in fact although not a legal
entity." N.J.S.A. 2C:41-1(c). The enterprise may be "licit" or
"illicit." Ibid.
The enterprise is a statutory element "distinct from the
incidents constituting the pattern of activity." Ball, supra,
141 N.J. at 162. Because it is distinct, the enterprise must
have an "organization" but the organization need not have "a
structure with a particular configuration." Ibid.; accord Cagno,
supra, 211 N.J. at 494. "[A]n informal organization functioning
42 A-0963-12T1
as a continuing unit" is sufficient to facilitate "those kinds
of interactions that become necessary when a group, to
accomplish its goal, divides among its members the tasks that
are necessary to achieve a common purpose." Ball, supra, 141
N.J. at 161-62.
Although evidence establishing the enterprise must "focus"
on "how the participants associated with each other" and on the
extent and nature of the planning, id. at 162-63, it "need not
be distinct or different from the proof that establishes the
pattern of racketeering activity," id. at 162, and a defendant
only needs to possess "some minimal knowledge" of "'the general
nature of the enterprise . . . beyond his individual role.'" Id.
at 176 (quoting United States v. Eufrasio, 935 F.2d 553, 577 (3d
Cir. 1991)). In this regard, our Supreme Court has declined to
endorse a definition of enterprise. Id. at 177. An enterprise
may be as little as "the sum of the racketeering acts," with
neither a "definable structure" nor any "purpose . . . greater
than the predicate acts," as we held in Ball, supra, 268 N.J.
Super. at 143-44.
For an enterprise's pattern of racketeering to constitute a
RICO violation, it must "affect trade or commerce," N.J.S.A.
2C:41-2, which is defined as including "all economic activity
involving or relating to any commodity or service," N.J.S.A.
43 A-0963-12T1
2C:41-1(h). That definition of "trade or commerce" does not
specify that the trade or commerce occur within this State,
N.J.S.A. 2C:41-1(h), but the Legislature declared the
enactment's purpose to be the protection of "the legitimate
trade or commerce of this State" and "the general health,
welfare and prosperity of the State and its inhabitants" from
"the infiltration" of the prohibited kinds of activity.
N.J.S.A. 2C:41-1.1(c).
We have held that those declarations, along with the
Legislature's finding of harm to "this State's economy" from
racketeering, N.J.S.A. 2C:41-1.1(b), require that a plaintiff
show the prohibited conduct has affected the trade or commerce
of this State." State v. Casilla, 362 N.J. Super. 554, 563-64
(App. Div.) (quoting N.J.S.A. 2C:41-1.1(c); emphasis omitted),
certif. denied, 178 N.J. 251 (2003). We have also observed that
the Legislature would have had no reason to address the effects
of racketeering in other states, many of which have their own
RICO statutes, or in interstate commerce, as to which federal
legislation applies. Id. at 564-65.
In a criminal prosecution, in addition to subject matter
and personal jurisdiction, a New Jersey court must have
"territoriality," meaning territorial jurisdiction pursuant to
N.J.S.A. 2C:1-3. State v. Denofa, 187 N.J. 24, 36 (2006). That
44 A-0963-12T1
statute recognizes various ways in which an offense may have "a
direct nexus to New Jersey" that would justify its prosecution
as a criminal offense here. State v. Sumulikoski, 221 N.J. 93,
102 (2015).
The plainest examples of territoriality are when the
"result" of the offense "occurs within this State," or when the
"conduct which is an element of the offense" occurs here.
N.J.S.A. 2C:1-3(a)(1). Conduct committed outside the State has a
nexus to New Jersey if New Jersey law would view such acts as
"constitut[ing] an attempt to commit a crime within the State,"
N.J.S.A. 2C:1-3(a)(2), meaning an attempt to cause a result
within the State that would be an offense if caused by in-state
conduct. See State v. Bragg, 295 N.J. Super. 459, 464-65 (App.
Div. 1996). Outside conduct is also sufficient if New Jersey law
would deem it "a conspiracy to commit an offense within the
State," as long as there is also an "overt act in furtherance
of" the conspiracy that is committed here. N.J.S.A. 2C:1-
3(a)(3). Conversely, our courts have jurisdiction over conduct
occurring within the State that causes a result in another
state, or is part of an attempt or conspiracy to do so, as long
as that conduct would be an offense under both New Jersey law
and the other state's law. N.J.S.A. 2C:1-3(a)(4).
45 A-0963-12T1
(d) New York's
Racketeering Laws
Turning to New York's Organized Crime Control Act (OCCA),
1986 N.Y. Laws, c. 516, § 2; N.Y. Penal Law §§ 460.00 to 460.80
(Consol. 2014), we first observe that a violation is called the
crime of "enterprise corruption," N.Y. Penal Law § 460.20.
Unlike New Jersey's law, OCCA is not modeled on federal
statutes. It "is far more restrictive than" federal RICO,
because New York "calculatedly narrowed the definition of the
requisite pattern of criminal activity" to avoid conflating an
ordinary "criminal offense or criminal transaction" with the
ongoing "pattern" that characterizes organized crime. Simpson
Elec. Corp. v. Leucadia, Inc., 515 N.Y.S.2d 794, 799 (App. Div.
1987), aff’d, 530 N.E.2d 860 (N.Y. 1988); N.Y. Penal Law
§ 460.10.
OCCA allows designated county and state officials to
prosecute charges of enterprise corruption. N.Y. Penal Law
§ 460.50. Although the New York Legislature's findings declare
OCCA's purposes to include "making both criminal and civil
remedies available," N.Y. Penal Law § 460.00, the only penalties
it provides, beyond incarceration, are criminal forfeiture and
fines allocated primarily to victim restitution. N.Y. Penal Law
§ 460.30. Those penalties may only be imposed on persons
convicted of enterprise corruption. Ibid.
46 A-0963-12T1
Unlike our Legislature's approach, the New York Legislature
rejected a policy of either liberal or strict construction in
order to preserve a role for "discretion." N.Y. Penal Law
§ 460.00. Even when "the letter of the law" defining an OCCA
violation is satisfied, "the question whether to prosecute"
under OCCA "is essentially one of fairness." Ibid. Such
"fairness" was preserved by leaving the decision to label
alleged criminal conduct as "enterprise corruption" to "those
institutions of government which have traditionally exercised
that function: the grand jury, the public prosecutor, and an
independent judiciary." Ibid. OCCA accordingly does not provide
for a private civil cause of action, see, e.g., Simpson, supra,
515 N.Y.S.2d at 807 (Spatt, J., dissenting), as the parties
concede.
OCCA liability requires the personal commission of "a
pattern of criminal activity" comprising two felonies: a
conspiracy to engage in a "criminal enterprise" and a knowing
participation in the activity or finances of the criminal
enterprise, or of any other enterprise. N.Y. Penal Law § 460.20.
OCCA also specifies that the pattern of criminal activity may
not serve as the "criminal enterprise." N.Y. Penal Law
§ 460.10(1). Instead, the criminal enterprise must consist of "a
group of persons sharing a common purpose of engaging in
47 A-0963-12T1
criminal conduct, associated in an ascertainable structure
distinct from a pattern of criminal activity, and with a
continuity of existence, structure and criminal purpose beyond
the scope of individual criminal incidents." Ibid. In Ball,
supra, 141 N.J. at 159, our Supreme Court observed that OCCA was
unique among the federal and other state RICO enactments because
it explicitly required an ascertainable structure, separate from
the underlying crimes that constituted the pattern of
racketeering activity.
Unlike New Jersey law, OCCA does not specify that a
violation must affect trade or commerce, or indeed, that any
particular effect must have occurred or be deemed to have
occurred within New York's borders.
Consequently, in light of the vastly different approaches
engaged by New Jersey and New York to combat racketeering, there
is no doubt that a true conflict exists for choice-of-law
purposes.
(e) The Choice
In examining the trial court's choice, we start with our
Supreme Court's observation that, "[a]lthough we have
traditionally denominated our conflicts approach as a flexible
'governmental interest' analysis, we have continuously resorted
to the [Second Restatement] in resolving conflict disputes
48 A-0963-12T1
arising out of tort." P.V., supra, 197 N.J. at 135-36. The
Second Restatement's approach focuses on the state with "the
'most significant relationship'" to the parties and issues. Id.
at 136.
"Probably the most important function of choice-of-law
rules" is to foster comity by promoting "harmonious relations"
and facilitating "commercial intercourse" between and among
states. Restatement (Second), supra, § 6 cmt. d. The first step
is to establish that "an actual conflict exists" between the
laws of the involved states. P.V., supra, 197 N.J. at 143. A
conflict arises, like here, when one state provides a cause of
action but the other does not, especially when that provision or
denial reflects an intent to regulate conduct rather than
allocate losses. Id. at 143-44, 148-51 (observing that a
conflict existed between New Jersey law, which maintained
statutory immunity from tort liability for charitable
corporations, and Pennsylvania law, which "definitively
abrogated its charitable immunity laws").
A conflict, however, does not always lead to a choice-of-
law analysis. The analysis is preempted when our Legislature has
determined that New Jersey public policy requires the
application of our substantive law whenever our courts have
jurisdiction over the kind of claim at issue, regardless of the
49 A-0963-12T1
interest of another state. See id. at 140 (citing Restatement
(Second), supra, § 6(1)).
(i) Legislative Directive
Because a choice-of-law analysis may be precluded or
preempted by law, our first task, in light of the arguments
posed, requires that we ascertain whether there is a legislative
direction regarding the application of substantive law. For the
reasons that follow, we conclude that our Legislature has not
made such a declaration for cases like this, either (a)
expressly, or (b) by implication.
a. Is There an
Express Directive?
Plaintiffs are mistaken in arguing that our Legislature has
expressly required the application of our RICO laws to out-of-
state conduct. In this respect, plaintiffs rely on provisions in
our Criminal Code that express its territorial parameters. The
Code recognizes its application to conduct occurring "outside
the State" so long as it "constitute[s] an attempt to commit a
crime within the State," N.J.S.A. 2C:1-3(a)(2), or to "conduct
occurring outside the State" so long as it "is sufficient under
the law of this State to constitute a conspiracy to commit an
offense within the State and an overt act in furtherance of such
conspiracy occurs within the State," N.J.S.A. 2C:1-3(a)(3).
50 A-0963-12T1
Because the criminal racketeering laws are also included
within the Criminal Code, plaintiffs argue that the territorial
reach applicable to a criminal prosecution under those
racketeering laws also applies to a private RICO action brought
under those same laws and principles. We disagree. The
territorial parameters delineated in N.J.S.A. 2C:1-3(a), by
their very terms, apply to criminal prosecutions, not private
civil causes of action that may be based on provisions of the
Criminal Code. N.J.S.A. 2C:1-3(a) unmistakably states that its
six territorial rules apply to "a person [who] may be convicted
under the law of this State of an offense . . . for which he is
legally accountable" (emphasis added).
Consequently, despite plaintiffs' forceful argument, this
provision does not contain the "preemptive legislative
expression," State Farm Mut. Auto. Ins. Co. v. Estate of
Simmons, 84 N.J. 28, 39 (1980), necessary to support the
imposition of our substantive law to conduct occurring outside
the State. Because such an extensive reach would likely
constitute "an impermissible intrusion into the affairs of other
states," O'Connor v. Busch Gardens, 255 N.J. Super. 545, 549-50
(App. Div. 1992), we reject the contention that N.J.S.A. 2C:1-
3(a) constitutes a legislative directive as to the reach of New
Jersey substantive law in a private RICO cause of action.
51 A-0963-12T1
b. Is There an
Implied Directive?
We also reject any contention that such a legislative
directive may be found by implication here.
The preeminent expression of New Jersey public policy is
the Legislature's enactments. State Farm, supra, 84 N.J. at 39.
If a statute declares that a substantive rule applies in a
situation that would otherwise pose a choice-of-law question,
"New Jersey courts would follow that directive even when the law
of other jurisdictions dictated a contrary result." Ibid. That
understanding conforms with the Second Restatement's instruction
that, "subject to constitutional restrictions," a court "will
follow a statutory directive of its own state on choice of law."
Restatement (Second), supra, § 6(1). Examples include the
Uniform Commercial Code provisions that direct courts to choose
the law "of a particular state" or of the state that the parties
specified. Id. at § 6 cmt. a.
But, because statutes are usually not so "explicit," a
court may determine whether the issue presented "falls within
the intended range of application of a particular statute." Id.
at § 6 cmt. b & cmt. c. The Legislature's intended "range of
application" should be enforced "when these intentions can be
ascertained and can constitutionally be given effect," even if
52 A-0963-12T1
another state's substantive law "would be applicable under usual
choice-of-law principles." Id. at § 6 cmt. b. Thus, if the
forum's legislature "intended that the statute should be applied
to the out-of-state facts involved, the court should so apply
it[.]" Ibid. "On the other hand, if the legislature intended
that the statute should be applied only to acts taking place
within the state, the statute should not be given a wider range
of application." Ibid.
The absence of such a declaration in an enactment implies
the Legislature intended application only to conduct or results
that occur within the State, and that it did not have an
interest in facilitating or preventing developments occurring
elsewhere. Van Slyke v. Worthington, 265 N.J. Super. 603, 613-14
(Law Div. 1992). The Second Restatement similarly recognizes
that laws are commonly "formulated solely with the intrastate
situation in mind," with no suggestion they are "intended to
have extraterritorial application." Restatement (Second), supra,
§ 6 cmt. e. That would explain the absence in P.V., supra, 197
N.J. at 148-49, of a suggestion that the Charitable Immunity Act
could be understood as containing such a declaration,
notwithstanding the "importance" of that enactment's remedial
53 A-0963-12T1
policy and the Legislature's mandate to construe the enactment
liberally.29
The higher standards for criminal liability in New York's
OCCA, when compared to those in New Jersey's RICO statutes,
meant that a defendant would be exposed to liability under New
Jersey's local law for conduct that would not be illegal under
New York's law. The New York Legislature made its enactment
narrower than federal RICO, instead of broader as did our
Legislature. See Ball, supra, 268 N.J. Super. at 107. New York
29Plaintiffs emphasize two decisions from other jurisdictions in
support of their position. We do not find they suggest a
contrary view than that which we have reached. In Marshall v.
Fenstermacher, 388 F. Supp. 2d 536, 547 (E.D. Pa. 2005), the
court was required to apply "the conflicts regime of the forum
state," Pennsylvania. The plaintiff had asserted common law
torts under both Pennsylvania and New Jersey law but asserted
RICO claims only under New Jersey and federal law, id. at 546,
presumably because Pennsylvania's statute, like New York's, did
not afford a private civil cause of action. See 18 Pa. Cons.
Stat. § 911. The court simply stated that it would consider the
New Jersey RICO claims under the New Jersey statute, with no
mention of choice-of-law doctrine and without citation to New
Jersey's RICO or general territoriality statutes. Marshall,
supra, 388 F. Supp. 2d at 562 n.29. In the other case urged by
plaintiffs, Houston v. Whittier, 216 P.3d 1272, 1278-80 (Idaho
2009), it was explained that Idaho courts were not automatically
compelled to let a plaintiff assert Oregon causes of action
simply because they were statutory. Instead, the court had to
find the absence of a conflict with "the public policy of the
forum," and allowed the maintenance of the causes of action only
after finding that Oregon statutes were "virtually identical" to
Idaho's. Id. at 1279-80. Thus, plaintiffs are mistaken in
suggesting that Houston presents an instance in which the
existence of a statutory cause of action precluded a court from
conducting a choice-of-law analysis.
54 A-0963-12T1
also precluded private litigants from pursuing cases that
prosecutors with limited resources might decline, as opposed to
New Jersey's decision to encourage private litigants with the
prospect of treble damages and counsel fee awards. Cf. Lindsey
v. Allstate Ins. Co., 34 F. Supp. 2d 636, 646 (W.D. Tenn. 1999)
(observing that Congress included a private cause of action in
federal RICO "[t]o facilitate the enforcement of its
provisions"); Metro Int'l, Inc. v. Alco Standard Corp., 657 F.
Supp. 627, 634 (M.D. Pa. 1986) (recognizing that, "[t]o
facilitate and strengthen enforcement," Congress created RICO
with a private right of action for treble damages).
As in P.V., supra, 197 N.J. at 148-49, the difference in
approaches reflected a difference in policy and not a reflection
of mere variations in the procedural rules to be followed in
establishing a liability that both states recognized in
principle for the alleged conduct, as was the case in both State
Farm, supra, 84 N.J. at 42-43, and Cornett, supra, 211 N.J. at
377-78. We, thus, recognize that it is immaterial whether the
New York Legislature's motivation was to protect individuals or
the preeminence of its financial marketplace by limiting the
vehicles that private litigants could use to inhibit incidental
activity. It only matters that New York and New Jersey reached
"conflicting resolutions of a particular policy issue." See
55 A-0963-12T1
Boyes v. Greenwich Boat Works, Inc., 27 F. Supp. 2d 543, 548
(D.N.J. 1998). In other words, New York did not intend, by
enacting OCCA, to regulate all the conduct New Jersey intended
to reach in enacting its RICO laws; consequently, we reject
plaintiffs' characterization of the New Jersey private right of
action as simply a stronger remedy to advance an out-of-state
policy that is otherwise the same as the in-state policy.
(ii) Application of
The Second Restatement
Having found no legislative directive that would govern the
choice-of-law problem, we turn to the Second Restatement and
examine its: (a) section 6 factors; (b) section 145 principles;
and (c) specific tort principles.
a. Section 6
In the absence of an explicit statutory directive or a
directive that can "be ascertained by a process of
interpretation and construction," Restatement (Second), supra,
§ 6 cmt. b, there is a nonexclusive list of seven factors to be
considered in choosing the applicable law:
(a) the needs of the interstate and inter-
national systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other
interested states and the relative interests
56 A-0963-12T1
of those states in the determination of the
particular issue,
(d) the protection of justified expecta-
tions,
(e) the basic policies underlying the
particular field of law,
(f) certainty, predictability and uniform-
ity of result, and
(g) ease in the determination and applica-
tion of the law to be applied.
[Id. at § 6(2).]
The factor that deserves the greatest emphasis in a
particular case is that which furthers the most relevant policy
interest, such as "protecting the justified expectations of the
parties" or "favoring uniformity of result." Id. at § 6 cmt. c.
"Generally speaking, it would be unfair and improper to hold a
person liable under a local law of one state when he had
justifiably molded his conduct to conform to the requirements of
another state," as opposed to acting "without giving thought to
the legal consequences of [his] conduct or to the law that may
be applied." Id. at § 6 cmt. g. When "the purposes sought to be
achieved by a local statute or common law rule would be
furthered by its application to out-of-state facts, however,
this is a weighty reason why such application should be made."
Id. at § 6 cmt. e.
57 A-0963-12T1
The proper choice often "represents an accommodation of
conflicting values" that requires the forum court to name the
"general principle" that deserves the most weight and then
analyze the circumstances of the case in that regard. Id. at § 6
cmt. c. Without a statutory mandate to apply its own local law,
a court "must decide for itself whether the purposes sought to
[be] achieved by a local statute or rule should be furthered at
the expense of" other relevant factors. Id. at § 6 cmt. e. Those
include "the relevant policies of all other interested states"
and their "relative interest" in regulating the underlying
conduct that gave rise to the litigation, or in providing a
remedy for a particular plaintiff against a particular
defendant. Id. at § 6 cmt. f. "[W]here the policies of the
interested states are largely the same but where there are
nevertheless minor differences between their relevant local law
rules," there is "good reason for the court to apply the local
law of that state which will best achieve the basic policy, or
policies, underlying the particular field of law involved." Id.
at § 6 cmt. h.
In applying section 6 of the Second Restatement in P.V.,
supra, 197 N.J. at 152-53, the Court noted that interstate
comity additionally counsels that the forum state should defer
to the other state's local law if: (1) applying the forum
58 A-0963-12T1
state's local law would "substantially impair" the other state's
ability "to regulate the conduct of those who chose to operate
within its borders," and (2) applying the other state's local
law would not inhibit the forum's ability to regulate conduct
that occurs within its own borders. For example, the plaintiff
in P.V. was a New Jersey resident pursuing a tort claim against
a Pennsylvania charity for conduct that occurred in
Pennsylvania. Id. at 135. The Court found both of the conditions
that it noted for affording comity: (1) applying New Jersey's
broad charitable immunity to the activity in Pennsylvania would
"substantially impair[]" Pennsylvania's "ability to regulate the
conduct of those who chose to operate within its borders," and
(2) applying Pennsylvania law would not prevent New Jersey from
applying its law of charitable immunity to activities within New
Jersey. Id. at 153.
The parallel of this case to P.V. rests on the fact that
the alleged RICO activity predominantly occurred in New York
rather than New Jersey, and was primarily aimed at harming
plaintiffs indirectly by damaging their reputation by
influencing the mostly New York-based financial markets and
financial news media. In those circumstances, the application of
New York law would not set a precedent that inhibits New Jersey
from providing a civil cause of action for in-state activities
59 A-0963-12T1
that qualify as racketeering under New Jersey's statute; New
Jersey could still protect its domiciliaries and New Jersey
commerce from harm that is felt mostly within its borders.
In contrast, applying New Jersey's civil cause of action
would nullify New York's policy of protecting analogous activity
from being prosecuted as "racketeering" by private litigants,
who lack the institutional constraints of prosecutors and grand
juries. These distinctions in the two neighboring state's laws
created differing expectations about what conduct each would
allow or prohibit.
This case is, thus, distinguishable from those in which
courts declined to dismiss claims recognized under New Jersey
local law, even though out-of-state plaintiffs might have been
unable to pursue such causes of action under their own state's
local law. In those matters, the plaintiffs were allowed to
pursue their claims on the ground that their home states had no
reason to deny them the fortuity of a remedy for what both
states recognized as "the same evil," even if they did not
recognize it to the same degree. See Boyes, supra, 27 F. Supp.
2d at 547-48 (recognizing that Pennsylvania had no interest in
denying its residents the greater damages available under New
Jersey consumer fraud statutes for claims against a New Jersey
seller); Smith v. Alza Corp., 400 N.J. Super. 529, 542-51 (App.
60 A-0963-12T1
Div. 2008) (recognizing that Alabama had no interest in denying
its residents the procedural and substantive advantages afforded
under New Jersey's product liability and consumer fraud
statutes, but not Alabama's, for claims against a New Jersey
manufacturer); Almog v. Isr. Travel Advisory Serv., Inc., 298
N.J. Super. 145, 159 (App. Div. 1997) (recognizing Israel had no
interest in denying its citizens the substantive advantages of
New Jersey defamation law in New Jersey residents' claims for
defamation published in New Jersey), appeal dismissed, 152 N.J.
361, cert. denied, 525 U.S. 817, 119 S. Ct. 55, 142 L. Ed. 2d 42
(1998).
That, however, is not what's before us. As we have
observed, New Jersey and New York local law do not just differ
in the degree to which they deal with an otherwise common policy
of allowing a private civil RICO cause of action. They share no
such interest, as demonstrated by the fact that New Jersey law
permits, and New York law categorically disallows, such private
claims. Thus, we conclude that the section 6 factors favor
choosing New York as the state providing the applicable law.
b. Section 145
In addition, when a cause of action sounds in tort, the
general choice-of-law rule is to ascertain the state with "the
most significant relationship to the occurrence and the parties
61 A-0963-12T1
under the principles stated in [section] 6." Restatement
(Second), supra, § 145(1). That determination is to be made for
each "issue in tort," ibid., meaning each element needed to
establish the tort or a defense to it. Id. at § 145 cmt. d. In
making that determination, certain contacts are "to be taken
into account," including:
(a) the place where the injury occurred,
(b) the place where the conduct causing the
injury occurred,
(c) the domicil, residence, nationality,
place of incorporation and place of business
of the parties, and
(d) the place where the relationship, if
any, between the parties is centered.
[Id. at § 145(2).]
Accord P.V., supra, 197 N.J. at 141. Plaintiffs and defendants
have not asserted or alleged a prior relationship that preceded
the alleged events in this dispute.
The contacts analysis is "not merely quantitative." Id. at
147. Its purpose is to assess the contacts in terms of the
guiding touchstones of the Second Restatement's section 6,
which, "[r]educed to their essence," are: "(1) the interests of
interstate comity; (2) the interests of the parties; (3) the
interests underlying the field of tort law; (4) the interests of
judicial administration; and (5) the competing interests of the
62 A-0963-12T1
states." Ibid. (citations omitted). The "relative importance"
of the matter's contacts with a state may vary according to "the
nature of the tort involved." Restatement (Second), supra, § 145
cmt. f. Furthermore, for each tort issue, the contacts "are to
be evaluated according to their relative importance with respect
to the particular issue." Id. at § 145 & cmt. d.
If the primary purpose of the local "tort rule" is to deter
or punish misconduct, then the most important contact will be
the conduct's location. Id. at § 145 cmt. c. "[T]he same is true
when the conduct was required or privileged by the local law of
the state where it took place," id. at § 145 cmt. e, so "[a]
rule [of tort] which exempts the actor from liability for
harmful conduct is entitled to the same consideration in the
choice-of-law process as is a rule which imposes liability," id.
at § 145 cmt. c. In that way, the tort policies behind New
Jersey's local law and New York's local law on private civil
causes of action for racketeering are entitled to equal
consideration, even if the purpose of New York's "tort rule" was
to prevent private civil liability for certain conduct that
would create such liability in New Jersey. In short, were we to
apply section 145's general rule for torts, we would choose New
York as providing the applicable law because it has the most
significant relationship under section 6.
63 A-0963-12T1
c. Specific Tort Principles
In addition to section 145's general factors for torts, the
Second Restatement also provides more specific choice-of-law
rules for particular torts. P.V., supra, 197 N.J. at 141. There
are rules for personal injuries, injuries to tangible things,
injuries resulting from a plaintiff's reliance on fraud or
misrepresentations, and injuries resulting from defamation or
injurious falsehood. Restatement (Second), supra, §§ 146-51.
Only injurious falsehood is germane to plaintiffs' RICO claim.
For Second Restatement purposes, an "injurious falsehood"
is any false statement that causes pecuniary loss. Id. at § 151
cmt. a; see also Restatement (Second) of Torts § 623A (1976)
(declaring that an injurious falsehood creates liability for one
who publishes it with knowledge or reckless disregard of its
falsity and with intent "to result in harm to interests of the
other having a pecuniary value"). An injurious falsehood "need
not cast any reflection upon the plaintiff's personal reputation
in order to be actionable." Restatement (Second), supra, § 151
cmt. a. It is enough that the false statement "disparage[s] the
plaintiff's title to his property, or its quality or the
character or conduct of the plaintiff's business." Ibid. This
description encompasses defendants' alleged RICO scheme.
64 A-0963-12T1
The Second Restatement does not have another tort rule that
might cover plaintiffs' RICO claims. Plaintiffs' alleged RICO
injuries are not a form of defamation, nor do they constitute a
form of "personal injury" for choice-of-law purposes, because
"personal injury" is limited to "physical harm or mental
disturbance," which means that "injuries to a person's
reputation . . . are not 'personal injuries' in the sense here
used." Id. at § 146 cmt. b. Plaintiffs' RICO injuries are not
"Injuries to Tangible Things" as used in section 147 of the
Second Restatement. Plaintiffs' alleged injuries do not arise
from "Fraud and Misrepresentation" for choice-of-law purposes
because plaintiffs do not allege that they "suffered pecuniary
harm on account of [their own] reliance on the defendant[s']
false representations." Id. at § 148(1). Rather, plaintiffs
allege reliance by others. Plaintiffs do not assert a defamation
claim, but the rules for "Defamation" and "Multistate
Defamation" in sections 149 and 150 of the Second Restatement
are incorporated into section 151, which covers "Injurious
Falsehood." Thus, the only rules for specific torts relevant to
plaintiffs' RICO claim are sections 149 through 151 of the
Second Restatement.
65 A-0963-12T1
For defamation,30 "the local law of the state where the
publication occurs determines the rights and liabilities of the
parties, except as stated in [section] 150, unless, with respect
to the particular issue, some other state has a more significant
relationship under the principles stated in [section] 6 to the
occurrence and the parties." Id. at § 149. That same rule
governs the choice of law analysis for injurious falsehood. Id.
at § 151 & cmt. b. Here, the state where the publications
primarily occurred was the state with the most significant
relationship – New York.
Next, we must consider whether section 150 calls for a
different result. For multistate defamation, an "aggregate
communication" is "any one edition of a book or newspaper, or
any one broadcast over radio or television, exhibition of a
motion picture," or a similar act of publication, id. at
§ 150(1), meaning "a single aggregate communication to a large
number of persons at one time." Id. at § 150 cmt. c. Multiple
publications of a defamatory statement to numerous individuals
30To be clear, plaintiffs did not assert a defamation claim nor
complained in this appeal that their allegations should have
been interpreted as if they had sought damages based on a claim
of defamation. Nevertheless, their disparagement claims may –
for these purposes – be viewed similarly due to their
theoretical kinship. Cf. Dairy Stores, Inc. v. Sentinel Pub.
Co., 104 N.J. 125, 133 (1986) (recognizing that the torts of
product disparagement and defamation "sometimes overlap").
66 A-0963-12T1
are not necessarily "aggregate communications" subject to
section 150, as they can be separate acts that require an
individual choice-of-law analysis that may lead to differing
results. Id. at § 149 cmt. a. Although plaintiffs have alleged
multiple publications of certain defamatory statements, which
might not qualify as section 150 multistate defamations, they
primarily allege aggregate communications published in a manner
intended to influence all persons and entities who follow or
participate in the financial marketplace and financial news
media.
The "single publication rule" applies to section 150
aggregate communications, so the matter may be determined as if
plaintiff has only one cause of action, regardless of the number
of jurisdictions in which the aggregate communication was
published. Id. at § 150 cmt. c; Restatement (Second) of Torts,
supra, § 577A cmts. e & f.
In addition, we must consider that, in this context, a
corporation is a legal person and therefore without domicile in
the choice-of-law sense. Restatement (Second), supra, § 150
cmt. f; see also id. at § 11 cmt. 1. Thus, when a corporation
claims multistate defamation, the state with the most
significant relationship to the matter "will usually be the
state where the corporation . . . had its principal place of
67 A-0963-12T1
business" as long as that state was one in which the multistate
defamation was published. Id. at § 150(3). This is because it is
assumed that a corporation sustains its greatest injury from
defamation there. Id. at § 150 cmt. f. Another state, however,
may have the "most significant relationship with respect to the
particular issue if it is the state where the defamatory
communication caused plaintiff the greatest injury to its
reputation." Ibid. That can occur if "the matter claimed to be
defamatory related to an activity of the plaintiff that is
principally located in this state," id. at § 150 cmt. f(b), or
"the plaintiff suffered greater special damages in this state
than in the state of its principal place of business," id. at §
150 cmt. f(c), or "the place of principal circulation of the
matter claimed to be defamatory was in this state," id. at § 150
cmt. f(d).
As alleged by plaintiffs, defendants' RICO scheme targeted
plaintiffs' use of the New York financial markets for securities
offerings and for third-party trading of their securities, which
was an "activity" of plaintiffs that was "principally located
in" New York. Ibid. As a result, New York was the state where
defendants' false communications caused plaintiffs "the greatest
injury to [their] reputation" because the main injury from the
alleged RICO scheme was the decrease in offering and market
68 A-0963-12T1
share prices due to the reputational harm that plaintiffs
suffered in the markets where plaintiffs conducted such
"activity." That is bolstered because, although defendants'
publications were multistate, "the place of principal
circulation of the matter claimed to be defamatory was in" New
York. Ibid. Thus, New York is the state with the most
significant relationship under section 150 as well as sections 6
and 145.
That conclusion remains undisturbed when considering
"special damages." If the injury was the loss of particular
customers or of market share in particular locations, those
would also be important contacts in determining which state's
law to apply. See Pony Comput., Inc. v. Equus Comput. Sys. of
Miss., Inc., 162 F.3d 991, 996 (8th Cir. 1998); Jelec USA, Inc.
v. Safety Controls, Inc., 498 F. Supp. 2d 945, 952-53 (S.D. Tex.
2007). As we discuss elsewhere, plaintiffs' cognizable special
damages are the alleged loss of 180 customers throughout the
country. There was no evidence that any loss of customers or
market share occurred to a greater degree in New Jersey than in
New York or elsewhere.
We also are presented with no ground upon which to conclude
that defamation or disparagement of a parent company generally
amounts to defamation or disparagement of a subsidiary, or vice
69 A-0963-12T1
versa. The issue of entity separation for corporate parents and
subsidiaries raises additional questions concerning the locus of
the injury. For example, in a case that concerned the looting of
a corporation rather than its defamation, we favored application
of Delaware's equitable principles to pierce the corporate veil,
and gave the parent standing to protect financial interests
against the adverse party, because the parent's interests were
not as distinct from its subsidiary's contractual rights as the
doctrine of "entity separateness" generally presumes. Bondi,
supra, 423 N.J. Super. at 437-39. Although such recognition
implies that the subsidiary's injury is also an injury to the
parent, we intended no implication that the locus of the injury
necessarily moved from where the subsidiary as a separate entity
would have felt it to where the parent as a separate entity
would feel it.
Plaintiffs have alleged and argued that C&F's finances were
inextricably intertwined with Fairfax's. And they have argued
that the market viewed Fairfax and its subsidiaries as so
inseparable that some defendants bought shares of the
subsidiaries and affiliates as proxies for Fairfax shares, which
had become too costly to borrow due to demand from those
shorting Fairfax. Plaintiffs have further argued that
defendants' defamation of C&F served the main goal of destroying
70 A-0963-12T1
the entirety of Fairfax itself, and defendants rarely bothered
to distinguish among its subsidiaries. According to plaintiffs,
the RICO enterprise operated by spreading false information in
the financial markets and the financial news media, and by
encouraging federal law enforcement and securities officials
outside New Jersey to investigate Fairfax's use of reinsurance.
The goal was to damage Fairfax's reputation in order to reduce
the market share price, and the proceeds of securities
offerings, of all Fairfax entities.
In responding, defendants mostly view Fairfax as an
integrated company whose general financial instability reached
every branch of the Fairfax family tree.31 And defendants'
criticisms of C&F served more as criticism of the Fairfax
edifice than criticisms of C&F individually. Indeed, some
defendants expressly articulated an intent for their criticisms
of a subsidiary, or their short positions in a subsidiary, to
harm plaintiff Fairfax Financial Holdings. In addition, we
observe that the parent corporation of the financially-
intertwined Fairfax entities was located in Toronto, and all
share-trading occurred on the New York Stock Exchange or the
Toronto Stock Exchange.
31 We have appended to this opinion a graph setting forth the
relationship of the various Fairfax entities.
71 A-0963-12T1
In summary, the weight of the conduct in this alleged
enterprise of multistate disparagement was in New York, not New
Jersey. The financial markets and financial news media were
predominantly located in New York, making New York central to
defendants' publications. New York is "the state where the
[harmful] communication[s] caused the greatest injury to
[plaintiffs'] reputation." Restatement (Second), supra, § 150
cmt. f. For all these reasons, New York has "a more significant
relationship to the occurrences and the parties." Ibid.
(iii) Conclusion
For these reasons, we conclude that the trial judge
correctly gave C&F's direct alleged losses little weight in
balancing the state contacts and interests for the RICO claims.
We, thus, affirm the determination that New York law applied and
that, in applying New York law, plaintiffs' racketeering claim
could not stand.
72 A-0963-12T1
B
THE MAINTAINABILITY OF
THE COMMON LAW CLAIMS
Plaintiffs contend the trial judge erroneously dismissed
two of their common law claims.32 They first argue the trial
judge mistakenly applied New York's statute of limitations
rather than New Jersey's more generous time-bar to their
disparagement claim,33 and, second, they argue the judge
erroneously excluded evidence of damages on their claims of
disparagement and tortious interference with prospective
economic advantage.
(1) Statute of Limitations
Applicable to Plaintiffs'
Disparagement Claim
Plaintiffs argue the trial judge erred in ascertaining the
appropriate statute of limitations to be applied to their
disparagement claim. They argued in the trial court that New
32 Plaintiffs do not address in their appeal the trial court's
disposition of their tortious interference with contractual
relations claim.
33Morgan Keegan has not only responded to plaintiffs' arguments
about the applicable time-bar, but has also cross-appealed and
argues, among other things, that the trial judge erred in
applying New York's three-year statute of limitations instead of
New York's one-year limitation period.
73 A-0963-12T1
Jersey's six-year statute of limitations34 applied, Morgan Keegan
argued for application of New York's one-year statute of
limitations,35 and the trial judge found controlling the three-
year New York statute of limitations.36
After this appeal was argued the Supreme Court decided
McCarrell v. Hoffmann-LaRoche, Inc., supra, 227 N.J. at 574-75,37
which illuminates our way by holding that section 142 of the
Second Restatement "is now the operative choice-of-law rule for
resolving statute-of-limitations conflicts because it . . .
channel[s] judicial discretion and lead[s] to more predictable
and uniform results that are consistent with the just
expectations of the parties." The Court described its holding as
"a natural progression in [its] conversion from the
governmental-interest test to the Second Restatement [which
34N.J.S.A. 2A:14-1 (declaring that "[e]very action at law for .
. . any tortious injury to real or personal property . . . shall
be commenced within 6 years next after the cause of any such
action shall have accrued").
35N.Y. C.P.L.R. § 215(3) (declaring that "an action to recover
damages for," among other things, "libel, slander, [and] false
words causing special damages" "shall be commenced within one
year").
36N.Y. C.P.L.R. § 214(4) (declaring that "an action to recover
damages for an injury to property" "must be commenced within
three years").
37We invited and recently received and considered the parties'
supplemental briefs on McCarrell's impact on the issues in this
case.
74 A-0963-12T1
began] in P.V.[, supra,] 197 N.J. 132," and which adopted the
methodology described earlier in this opinion for resolving
conflicts concerning substantive tort law. McCarrell, supra, 227
N.J. at 574-75. McCarrell's approach has certainly simplified
the disposition of most conflicts concerning a choice between
two or more states' statutes of limitations.
The process starts with an understanding that when an
action is commenced here, "New Jersey's choice-of-law rules
[apply] in deciding whether this State's or another state's
statute of limitations governs the matter." Id. at 583. In
defining New Jersey choice-of-law rules, the McCarrell Court
instructed that the first matter of interest is whether there is
a "true conflict." Id. at 584. "When application of the forum
state's or another state's statute of limitations results in the
same outcome, no conflict exists, and the law of the forum state
governs." Ibid. (citing Rowe v. Hoffmann-La Roche, Inc., 189
N.J. 615, 621 (2007)). A true conflict occurs "when a complaint
is timely filed within one state's statute of limitations but is
filed outside another state's." Ibid. (citing Schmelze v. ALZA
Corp., 561 F. Supp. 2d 1046, 1048 (D. Minn. 2008)).
We can perceive a circumstance – perhaps applicable here –
where a complaint is filed within time regardless of which
competing state's statute of limitations is applied, but the
75 A-0963-12T1
scope of the claim is limited or enhanced depending on the
statute of limitations applied. For example, a plaintiff may sue
on a series of defamatory statements occurring over the course
of two years. If one state has a one-year statute of limitations
and the other has a two-year statute of limitations, the
plaintiff's suit – if filed within one year of the last
defamatory statement – would be timely filed pursuant to either
state's statute of limitations. But, if the one-year statute of
limitations is found applicable, the allegations or resulting
damages would be limited by that choice of law because
allegations of defamatory statements made more than a year
before the suit's commencement would not be cognizable. That
particular problem was not likely contemplated in McCarrell
because the facts didn't warrant its consideration; that product
liability action was either timely if our statute of limitations
applied or entirely barred if Alabama's applied.
In any event, other than referring to a "true conflict" as
one which makes a difference as to the timeliness of the suit,
the Court also emphasized that the test is whether the choice of
"statute of limitations is outcome determinative." Id. at 584
(emphasis added). In the example we have provided, the outcome
would be impacted if a suit would be timely under either statute
of limitations because, if the shorter limitations period was
76 A-0963-12T1
applied, only the defamatory statements asserted within one year
of the filing would be actionable. In ascertaining the existence
of a true conflict, we assume the McCarrell Court intended the
broader view suggested by its "outcome determinative" language.
Indeed, later in the opinion, the Court again emphasized that
whether the conflict is "outcome determinative" is the question,
and, in that regard, the Court quoted with approval a federal
judge who stated, in a different way, that there is no conflict
if "'there is no divergence between the potentially applicable
laws.'" Id. at 591 n.9 (quoting Spence-Parker v. Del. River &
Bay Auth., 656 F. Supp. 2d 488, 497 (D.N.J. 2009)). Because some
or most of defendants' allegedly disparaging statements from
2002 to 2006 would cease to be actionable if a shorter New York
statute – either New York's one-year or its three-year statute
of limitations – were to be applied to this 2006 complaint
rather than New Jersey's six-year statute of limitations,
N.J.S.A. 2A:14-1, we conclude that the choice-of-law decision
here is "outcome determinative" and requires a resolution.
There being a true conflict, McCarrell instructs, 227 N.J.
at 592-93, that we must apply the Second Restatement's section
142, which states that, "barring exceptional circumstances
[that] make such a result unreasonable":
(1) The forum will apply its own statute of
limitations barring the claim.
77 A-0963-12T1
(2) The forum will apply its own statute of
limitations permitting the claim unless:
(a) maintenance of the claim would
serve no substantial interest of
the forum; and
(b) the claim would be barred
under the statute of limitations
of a state having a more
significant relationship to the
parties and the occurrence.
Because application of N.J.S.A. 2A:14-1 permits the maintenance
of the claim, subsection (1) of section 142 has no application.
We, thus, gaze toward section 142's subsection (2). And, as the
Court held, under section 142(2)(a), "the statute of limitations
of the forum state generally applies whenever that state has a
substantial interest in the maintenance of the claim."
McCarrell, supra, 227 N.J. at 593. If that is so, then "the
inquiry ends." Ibid. It is "[o]nly when the forum state has 'no
substantial interest' in the maintenance of the claim [that] a
court [would] consider [s]ection 142(2)(b) – whether 'the claim
would be barred under the statute of limitations of a state
having a more significant relationship to the parties and the
occurrence.'" Ibid.
In this case, section 142 is easily applied, as anticipated
by McCarrell's description of the test. Ibid. (observing that
section 142: "benefits from an ease of application; places both
78 A-0963-12T1
this State's and out-of-state's citizens on an equal playing
field, thus promoting principles of comity; advances
predictability and uniformity in decision-making; and allows for
greater certainty in the expectations of the parties"). Section
142 "makes clear that when New Jersey has a substantial interest
in the litigation and is the forum state, it will generally
apply its statute of limitations." Ibid. Stated another way,
under section 142, the forum state "presumptively applies its
own statute of limitations unless . . . [it] has no significant
interest in the maintenance of the claim and the other state,
whose statute has expired, has 'a more significant relationship
to the parties and the occurrence,' . . . or . . . given 'the
exceptional circumstances of the case,' following the Second
Restatement rule would lead to an unreasonable result."
McCarrell, supra, 227 N.J. at 597.
There is no doubt that New Jersey has a substantial
interest in this litigation. One of the plaintiffs – C&F – has
its principal place of business in New Jersey and claims
injuries to its business caused by the alleged disparagement of
it and its products. Because New Jersey has a significant
interest, it is irrelevant under section 142 that New York has a
"more significant relationship to the parties and the
occurrence." Ibid. Absent "exceptional circumstances," not
79 A-0963-12T1
remotely suggested here, that this would "lead to an
unreasonable result," the test described in McCarrell requires
application of our own statute of limitations. Ibid.
Consequently, the timeliness of plaintiffs' disparagement
cause of action – the only claim as to which plaintiffs argue
the judge erred in applying a shorter, New York statute of
limitations – is governed by our six-year statute of
limitations. N.J.S.A. 2A:14-1.38 See Patel v. Soriano, 369 N.J.
Super. 192, 247 (App. Div.), certif. denied, 182 N.J. 141
(2004). Although New Jersey has a one-year statute of
limitations for libel and slander of a person, N.J.S.A. 2A:14-3,
plaintiffs claim commercial disparagement of their business and
products, sometimes referred to as trade libel. Patel, supra,
369 N.J. Super. at 246-47. In New Jersey, "a claim for trade
libel is subject to the general six-year statute of limitations
applicable to malicious interference claims." Id. at 247.
Moreover, that statute of limitations applies to disparagement
whether "the aspersion reflects only on the quality of
plaintiff's products, or on the character of plaintiff's
38For these same reasons, we reject the argument Morgan Keegan
asserted in its cross-appeal that the trial judge erred in
applying New York's three-year statute of limitations, instead
of New York's one-year statute of limitations.
80 A-0963-12T1
business as such." Ibid.39 Therefore, "the more restricted
statute of limitations for slander does not apply" here. Id. at
249.
The six-year statute of limitations applies to plaintiffs'
disparagement claims, as well as their other common law causes
of action. The trial judge erred in applying a shorter statute
of limitations.
39 As the trial judge recognized, a statement that attacks an
insurance company as a fraud or a Ponzi scheme, or an assertion
that it is insolvent or bankrupt, among other similar things,
may constitute an attack on its products. Here, statements
disparaging the financial condition of plaintiffs may have a
direct link to its products; plaintiffs are in the business,
through the sale of insurance policies, of making promises to
clients to pay them money in the future in the event of certain
occurrences. Statements that question plaintiffs' ability to
make those payments strike at both the heart of their reputation
and the products they sell – a view that can be seen in the
assertions of Fairfax's chairman and chief executive officer:
When you're in the insurance business and
you are selling a promise to pay a claim in
a year or two or three or four, when you
have all of this noise . . . when there
[are] statements made that the company is
bankrupt, of course, you have clients who
would not do business with you. Why would a
client do business with a property casualty
insurance company that's going bankrupt?
81 A-0963-12T1
2. Dismissal of Plaintiffs'
Disparagement and Tortious Interference
With Prospective Economic Advantage Claims
Based on the Absence of Special Damages
Plaintiffs also argue the trial court erred in excluding
evidence of damages allegedly incurred because of both
disparagement and tortious interference with prospective
economic advantage. This involves not only a determination of
which state's substantive law applies in assessing the
maintainability of those common law actions but also the content
of that substantive law.
(a) Choice of Law
We need not discuss at length our determination that New
York provides the substantive law applicable to plaintiffs'
common law causes of action. Although the choice-of-law
principles discussed in Section IV(B)(1), supra, required
application of this State's statute of limitations, other
choice-of-law principles – already discussed in Section IV(A),
supra, which led to our affirmance of the dismissal of the
racketeering claim – compel the adoption of New York's common
law in assessing the sufficiency of plaintiffs' claims of
82 A-0963-12T1
disparagement and tortious interference with prospective
economic advantages.40
(b) Common Law
Requirements
The parties' chief bone of contention concerns the types of
damages plaintiffs were required to assert and prove to sustain
their claims of disparagement and tortious inference with
prospective economic advantage. We discuss these separately.
(i) Disparagement
We initially observe that, in New York, defamation claims,
which are akin to disparagement claims, require "special
damages," meaning an economic loss resulting from the harm to
the plaintiff's reputation. Liberman v. Gelstein, 605 N.E.2d
344, 347 (N.Y. 1992); Matherson v. Marchello, 473 N.Y.S.2d 998,
1000 (App. Div. 1984). This requires the identification of
customers who would have dealt with the plaintiff but for the
reputational harm. Squire Records, Inc. v. Vanguard Recording
Soc'y, Inc., 226 N.E.2d 542, 543 (N.Y. 1967); Drug Research
Corp. v. Curtis Publ'g Co., 166 N.E.2d 319, 322 (N.Y. 1960);
DiSanto v. Forsyth, 684 N.Y.S.2d 628, 629 (App. Div. 1999);
40We will not conduct an individualized choice-of-law assessment
regarding plaintiffs' common-law claims for reasons expressed
earlier. See Section IV(A)(3)(b), supra.
83 A-0963-12T1
Waste Distillation Tech., Inc. v. Blasland & Bouck Eng'rs, P.C.,
523 N.Y.S.2d 875, 877 (App. Div. 1988).
This principle seems to have emanated from New York state
courts' disagreements with one federal case in New York that had
allowed a substitute measure of damages for a plaintiff that
sold its product only by mail order. Charles Atlas, Ltd. v.
Time-Life Books, Inc., 570 F. Supp. 150, 156 (S.D.N.Y. 1983).
The district judge in Charles Atlas held that it was "virtually
impossible to identify those who did not order the plaintiff's
product because of the" product disparagement, and allowed the
plaintiff "to prove lost sales by other means" as long as
"'other factors [are] satisfactorily excluded by sufficient
evidence[.]'" Ibid. (quoting William L. Prosser, Handbook of the
Law of Torts § 128, at 923-24 (4th ed. 1971)).41 In rejecting
41 Dean Prosser observed:
[T]he whole modern tendency is away from any
such arbitrary rule. Starting with a few
cases involving goods offered for sale at an
auction, and extending to others in which
there has been obvious impossibility of any
identification of the lost customers, a more
liberal rule has been applied, requiring the
plaintiff to be particular only where it is
reasonable to expect him to do so. It is
probably still the law everywhere that he
must either offer the names of those who
have failed to purchase or explain why it is
impossible for him to do so; but where he
cannot, the matter is dealt with by analogy
(continued)
84 A-0963-12T1
Charles Atlas, New York's Appellate Division held that a
disparagement claim is dependent on "evidence of particular
persons who ceased to be or refused to become customers." De
Marco-Stone Funeral Home Inc. v. WEBG Broadcasting Inc., 610
N.Y.S.2d 666, 668 (App. Div. 1994); see also Prince v. Fox
Television Stations, Inc., 941 N.Y.S.2d 488, 488 (App. Div.
2012).
(ii) Tortious Interference With
Prospective Economic Advantage
To sustain a claim for tortious interference with
prospective economic advantage pursuant to New York substantive
law: there must be a prospective business relationship between
the plaintiff and a third party; the defendant must know of that
relationship and intentionally interfere with it; the
defendant's means of interference must amount to a crime, an
independent tort, or conduct that arose solely out of malice;
and the result must be some injury to the relationship with the
third party. Posner v. Lewis, 965 N.E.2d 949, 952 n.2 (N.Y.
(continued)
to the proof of lost profits resulting from
breach of contract. If the possibility that
other factors have caused the loss of the
general business is satisfactorily excluded
by sufficient evidence, this seems entirely
justified by the necessities of the
situation.
85 A-0963-12T1
2012); Carvel Corp. v. Noonan, 818 N.E.2d 1100, 1102-03 (N.Y.
2004); Amaranth LLC v. J.P. Morgan Chase & Co., 888 N.Y.S.2d
489, 494-96 (App. Div. 2009). The requirement to specifically
identify the business lost is the same as noted above with
regard to disparagement claims.
The business prospect must be identifiable, and the
plaintiff must show that it would have obtained that prospect's
business but for the interference. Learning Annex Holdings, LLC
v. Gittelman, 850 N.Y.S.2d 422, 423 (App. Div. 2008). The
defendant must know of the specific third party and the
prospective business relationship. See GS Plasticos Limitada v.
Bureau Veritas Consumer Prods. Servs., Inc., 931 N.Y.S.2d 567,
568 (App. Div.), appeal denied, 957 N.E.2d 1159 (N.Y. 2011).
(c) Damages Asserted
To maintain its common law claims, C&F's marketing
department developed a list of 180 specifically-identified
customers or potential customers whose business it claims C&F
would have maintained or secured but for defendants' wrongful
acts. C&F employees developed a model of the lost revenue and
profits for each such customer. For the period between 2003 and
2009, they estimated the lost revenue at $102 million and lost
profits at $19 million; the total volume of business "quoted but
not written" by C&F during that period was approximated at $14
86 A-0963-12T1
billion, of which the revenue lost on those 180 accounts
represented less than one percent.
Jorge Echemendia, a corporate representative of United
States Fire Insurance Company, a wholly-owned subsidiary of C&F,
testified at a deposition that he and another C&F employee
developed the list from C&F's records, which included the
customer call report system that was used to archive notes on
existing and potential accounts, and from communications with
brokers and other producers. C&F recognized in 2004 that
customers were paying greater attention to an insurer's ratings
and financial capacity, and it accordingly added those concerns
to the list of reasons that could be cited in a call report as a
cause for losing a particular customer. Approximately 170 of
the 180 accounts in the list were identified due to the
selection of such a reason in the call report, while the rest
were identified from emails that attributed the loss of an
account to those reasons.
The trial court found no proof the 180 customers relied on
defendants' statements. But plaintiffs proffered that
defendants' scheme was designed to disparage and interfere by
lowering C&F's ratings and to cast doubt on the financial
soundness of C&F and its parent. Plaintiffs' proofs that these
180 customers relied on the resulting reduced ratings and
87 A-0963-12T1
financial reputation indicated these customers relied on
defendants' statements indirectly, as defendants allegedly
intended. For example, plaintiffs cited a March 2005 email,
which followed a March 2005 rating agency report. Echemendia
also asserted that "a few" of "the articles distributed by the
defendants" were named in a call report or in an email.
The question before us is not whether these assertions of
lost business are persuasive or even whether they must be
presented through expert opinion. The question as we understand
it, in light of the trial court's disposition and in light of
New York law, requires a determination of whether plaintiffs
asserted a loss of business sufficient to withstand summary
disposition. We find plaintiffs' allegations regarding the 180
lost customers were sufficiently specific to meet the
requirements of New York law.42
3. Summary
For these reasons, our review of the trial judge's
disposition of the two common law causes of action referred to
in plaintiffs' appeal – disparagement and the tortious
42 Because plaintiffs' disparagement and tortious interference
with prospective economic advantage claims survive, their claim
of a civil conspiracy may also be further maintained. Corris v.
White, 289 N.Y.S.2d 371, 374 (App. Div. 1968); see also Banco
Popular N. Am. v. Gandi, 184 N.J. 161, 177-78 (2005).
88 A-0963-12T1
interference with prospective economic advantage – leads us to
conclude that: New Jersey's six-year statute of limitations
applies to those claims; New York law imposes a requirement that
plaintiffs allege special damages; and summary judgment was
erroneously granted because the claim of 180 lost business
prospects was sufficient to meet the requirements of New York
law.
C
THE PERSONAL JURISDICTION RULINGS
Plaintiffs argue that the trial judge erred in dismissing
the Kynikos and Third Point defendants for lack of personal
jurisdiction. Plaintiffs assert that those defendants ought to
be held subject to suit in New Jersey because they participated
in the overarching conspiracy to harm them. In response, these
defendants argue that our courts do not recognize conspiracy-
based jurisdiction and, alternatively, that plaintiffs have not
presented any competent evidence to show they were part of a
conspiracy. As required by Brill, supra, 142 N.J. at 540, we
assume plaintiffs' allegations regarding these defendants are
true for purposes of determining whether the trial court
properly granted summary judgment on personal jurisdiction
grounds.
89 A-0963-12T1
Before examining the relationship of these defendants to
New Jersey, we first observe that the due process clause permits
the assertion of personal jurisdiction over a nonresident in two
ways – general and specific jurisdiction. Waste Mgmt., Inc. v.
Admiral Ins. Co., 138 N.J. 106, 119 (1994), cert. denied, 513
U.S. 1183, 115 S. Ct. 1175, 130 L. Ed. 2d 1128 (1995). A
nonresident's continuous and systematic contacts that
approximate an actual presence give rise to general
jurisdiction. Ibid. Specific or "case-linked" jurisdiction
"depends on an 'affiliatio[n] between the forum and the
underlying controversy,' principally, activity or an occurrence
that takes place in the forum State and is therefore subject to
the State's regulation." Goodyear Dunlop Tires Operations, S.A.
v. Brown, 564 U.S. 915, 919, 131 S. Ct. 2846, 2851, 180 L. Ed.
2d 796, 803 (2011) (quoting Arthur T. von Mehren & Donald T.
Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79
Harv. L. Rev. 1121, 1136 (1966)).
We, thus, turn to the relationship between these two groups
of defendants – the Kynikos and Third Point defendants – and
this State, and examine whether there is jurisdiction in this
State over these defendants through a consideration of the
concepts of (1) general, (2) specific, and (3) conspiracy-based
jurisdiction.
90 A-0963-12T1
1. General Jurisdiction
(a) Kynikos
Kynikos – formed in 1985 as a limited partnership organized
in Delaware with its principal place of business in New York –
is an investment advisor and management company that specializes
in short-selling and has managed over $1 billion for its
clients. During the relevant period, Kynikos purchased services
and products from New Jersey vendors; it did not, however, have
any property, an office, a mailing address, a phone number, or a
bank account in this State. Kynikos was not registered to
conduct business in New Jersey, and any employees who were
residents of New Jersey reported to Kynikos's offices in New
York or London.
Kynikos did not advertise its services in New Jersey. It
operated a password-protected website, which only its existing
or prospective clients could access. Kynikos had seven New
Jersey clients between 2002 and 2007; those relationships were
client-initiated and comprised less than one-half of one percent
of Kynikos's total investment assets. Kynikos filed partnership
tax returns in New Jersey only because some of its related
entities shared partial ownership of airplanes that were
occasionally hangared at Teterboro Airport in Bergen County.
91 A-0963-12T1
Defendant James S. Chanos, Kynikos's founder and president,
was a New York resident; he did not have a New Jersey mailing
address, phone number or bank account. Chanos did not own
property in New Jersey, and he was not obligated to file a
personal income tax return in New Jersey. Like Kynikos, Chanos
only filed partnership returns in connection with the airplanes
in Bergen County.
In September 2000, defendant Jeffrey Perry, formerly of
SAC, joined Kynikos as a co-manager. After an alleged "falling
out" with Chanos, Perry left Kynikos in 2005 and joined Third
Point as a senior analyst. He was a New York resident and had
no New Jersey mailing address, phone number or bank account.
Perry did not own property in, and did not regularly travel to,
New Jersey. Although he paid New Jersey taxes in 2005 for
earnings from an unrelated investment, he otherwise has not been
obligated to file a personal income tax return in New Jersey.
Kynikos traded in Fairfax stock between March 2002 and June
2007, and in Odyssey stock between January 2006 and March 2007.
Kynikos never held stock in, nor traded any interest in, C&F.
(b) Third Point
Third Point – a Delaware limited liability company with its
principal office in New York and a satellite office in
California – was an employee-owned hedge fund that serviced
92 A-0963-12T1
pooled investments and institutional investors and had an
investment relationship with the Exis defendants.
During the relevant period, Third Point provided management
services to a number of funds that traded the securities of
Fairfax and related entities. Those funds paid Third Point
management fees; the funds themselves, however, are not parties
to this suit and, in any event, had no New Jersey presence. The
brokers who executed those trades were not located in New Jersey
and no Third Point member resided in New Jersey.
Between 2002 and 2006, New Jersey residents comprised only
four percent of the investors in Third Point's funds, and less
than two percent of the cash Third Point managed belonged to New
Jersey investors. Third Point paid New Jersey taxes on behalf of
its investors, but the Third Point funds reimbursed those
outlays; Third Point itself did not pay New Jersey taxes.
Third Point purchased services and products from New Jersey
vendors, but those payments were minimal, representing less than
one percent of Third Point's operating budgets between 2002 and
2007. Third Point was not registered to conduct business in New
Jersey, did not own or lease property here, and did not have any
New Jersey-based offices, mailing addresses, phone numbers or
bank accounts. Third Point did not send general solicitations to
New Jersey residents unless such information was requested.
93 A-0963-12T1
Defendant Daniel S. Loeb was the managing member and
founder of Third Point and, as noted previously, Perry was a
senior analyst. Both Loeb and Perry had their primary residences
in New York and did not travel to New Jersey on a regular basis.
Neither owned nor leased property in New Jersey or maintained a
New Jersey mailing address or phone number.
Loeb had personal accounts with various New Jersey savings
banks, but he was not required to pay New Jersey income taxes.
Plaintiffs alleged that Loeb directed Perry to help Contogouris
develop and disseminate false information about Fairfax's
health.
Third Point traded extensively in the following entities
and at the following times: (1) Fairfax, between June 2002 and
February 2007; (2) Odyssey, between November 2005 and December
2006; (3) Northbridge Financial Corporation, a Fairfax
subsidiary located in Canada, between June 2002 and November
2006; and (4) C&F, between July 2006 and April 2007. Third
Point's trading of C&F-related interests amounted to only three
percent of its overall Fairfax-related transactions. Those
interests, however, consisted of bonds that were not issued by
C&F; they were instead originally issued by non-party Crum &
Forster Funding Corp., a Delaware corporation. C&F assumed those
94 A-0963-12T1
bonds on June 30, 2003, through a transaction conducted in New
York purportedly in accordance with New York law.
Considering the contacts of the Kynikos and Third Point
defendants, we conclude they are insufficient to give our courts
general jurisdiction over them because the contacts do not
constitute "continuous and systematic activities in the forum."
Waste Mgmt., supra, 138 N.J. at 119.
2. Specific Jurisdiction
There being no basis upon which to assert general
jurisdiction over these defendants, we consider whether they had
specific contacts with persons or entities in New Jersey that
relate to the alleged enterprise or conspiracy. Although we do
not have the benefit of the trial judge's view of plaintiffs'
specific allegations of communications by these defendants
toward entities or persons in New Jersey, we have closely
examined the record in light of the parties' arguments. We find
any such communications to be so inconsequential as to justify
rejection of the argument that the court was authorized to
exercise specific jurisdiction over these defendants.
95 A-0963-12T1
As for Kynikos, plaintiffs allude to a handful of
communications it had with A.M. Best,43 CNBC,44 and "a New Jersey-
based" Dow Jones reporter, Carol Redmond.45 And, as for Third
Point, other than what has already been discussed, plaintiffs
refer to communications – a few days before plaintiffs commenced
this suit between Third Point and A.M. Best, as well as a number
of other individuals, only a few of whom may have been located
in New Jersey – that attached an article from The New York Post
concerning Fairfax.
These few communications are far too inconsequential to
warrant the assertion of jurisdiction over these defendants.
3. Conspiracy-Based
Jurisdiction
Plaintiffs also contend that the court was authorized to
assert jurisdiction over these defendants because of the actions
of other alleged co-conspirators.
43As for A.M. Best, the allegations seem to relate to a single
email, which appears to have little significance to the issues
at hand, since it appears to only pose questions about Fairfax
subsidiaries other than C&F.
44Plaintiffs do not claim Kynikos had direct contact with CNBC
in New Jersey. Rather, plaintiffs referred in their opposing
papers in the trial court to communications with a financial
journalist located outside New Jersey who occasionally appeared
on a show on CNBC, which broadcasts from Englewood Cliffs.
45These communications related only to Kynikos's inclusion as a
party to this lawsuit.
96 A-0963-12T1
The trial judge determined, as he explained in his December
23, 2011 written decision, that plaintiffs had to show
defendants affirmatively injected themselves into New Jersey and
that mere allegations of a conspiracy were insufficient to
establish the requisite minimum contacts. The court also
rejected plaintiffs' contention that Fairfax's injuries could be
attributed to C&F for the purpose of analyzing minimum contacts
and concluded that a "comment made as to a Canadian company
cannot by inference be applied to any and all subsidiaries of
Fairfax. That [w]ould unknowingly impose jurisdiction upon
defendants anywhere throughout the world."
We review these summary determinations de novo. Spring
Creek Holding Co. v. Shinnihon U.S.A. Co., 399 N.J. Super. 158,
180 (App. Div.), certif. denied, 196 N.J. 85 (2008); YA Global
Invs., L.P. v. Cliff, 419 N.J. Super. 1, 8 (App. Div. 2011). To
survive these motions, plaintiffs were required to identify
genuine disputes of material fact that could lead a rational
factfinder to resolve the dispute in their favor. Brill, supra,
142 N.J. at 540; Turner v. Wong, 363 N.J. Super. 186, 198-99
(App. Div. 2003). Bare opposing conclusions and speculation are
insufficient. Brill, supra, 142 N.J. at 541.
In applying this standard, we return to the legal
principles that govern a court's exercise of personal
97 A-0963-12T1
jurisdiction. To start, it is of course self-evident that a
court lacking personal jurisdiction has no authority over the
nonresident. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-
72, 105 S. Ct. 2174, 2181, 85 L. Ed. 2d 528, 540 (1985);
McKesson Corp. v. Hackensack Med. Imaging, 197 N.J. 262, 275
(2009). Although New Jersey's long-arm provision permits our
courts to assert jurisdiction over nonresidents, the use of that
authority must comply with the due process limits imposed by the
United States Constitution. Avdel Corp. v. Mecure, 58 N.J. 264,
268 (1971); Reliance Nat'l Ins. Co. in Liquidation v. Dana
Transp., Inc., 376 N.J. Super. 537, 543 (App. Div. 2005).
As we have already observed, those limits recognize two
types of personal jurisdiction, specific and general. Waste
Mgmt., Inc., supra, 138 N.J. at 119. A nonresident's direct
contacts with the forum may vest the court with specific
jurisdiction; suits premised on a nonresident's continuous and
systematic contacts give rise to general jurisdiction when they
approximate an actual presence in the forum. Ibid.; Lebel v.
Everglades Marina, Inc., 115 N.J. 317, 322-23 (1989).
In assessing the sufficiency of the relationship between
the forum and the nonresident, the initial step examines two
factors: whether minimum contacts exist at all and whether those
contacts provide adequate grounds for asserting jurisdiction. If
98 A-0963-12T1
a plaintiff demonstrates the existence of minimum contacts, the
inquiry shifts to verifying that "the maintenance of the suit
[would] not offend 'traditional notions of fair play and
substantial justice.'" Int'l Shoe Co. v. Washington, 326 U.S.
310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95, 102 (1945) (quoting
Milliken v. Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 343, 85 L.
Ed. 278, 283 (1940)); accord Blakey v. Cont'l Airlines, Inc.,
164 N.J. 38, 71 (2000). Relevant factors in the "fair play"
evaluation include "the burden on [the] defendant, the interests
of the forum state, the plaintiff's interest in obtaining
relief, the interstate judicial system's interest in efficient
resolution of disputes, and the shared interest of the states in
furthering fundamental substantive social policies." Waste
Mgmt., supra, 138 N.J. at 124-25.
With respect to intentional torts, as alleged here, the
question is whether an intentional act was "calculated to create
an actionable event in a forum state." Blakey, supra, 164 N.J.
at 67 (quoting Waste Mgmt., supra, 138 N.J. at 126). The Court
recently reinforced in Walden v. Fiore, 571 U.S. 12, 14-15, 134
S. Ct. 1115, 1125, 188 L. Ed. 2d 12, 23 (2014), that the focus
is on whether the nonresident "directed his conduct" at the
plaintiff whom he knew had connections with the forum. The
plaintiff "cannot be the only link between the defendant and the
99 A-0963-12T1
forum." Id. at 14, 134 S. Ct. at 1122, 188 L. Ed. 2d at 21. It
is "the defendant's conduct that must form the necessary
connection with the forum State that is the basis for its
jurisdiction over him." Ibid. As stated in Burger King, supra,
471 U.S. at 478, 105 S. Ct. at 2185, 85 L. Ed. 2d at 544-45,
"[i]f the question is whether an individual's contact with an
out-of-state party alone can automatically establish sufficient
minimum contacts in the other party's home forum, we believe the
answer clearly is that it cannot."
In Walden, supra, 571 U.S. at 15, 134 S. Ct. at 1122, 188
L. Ed. 2d at 21, the Court found, in searching for the
"necessary connection" between the nonresident's conduct and the
forum, no such link even though the defendant in Georgia might
have known that the plaintiffs could have felt the impact of his
conduct in the forum. On the other hand, in an earlier case, the
Court found a sufficient nexus when Florida defendants published
an allegedly libelous article about a California plaintiff
knowing their publication had a subscription base of
approximately 600,000 readers in California. Calder v. Jones,
465 U.S. 783, 785, 104 S. Ct. 1482, 1485, 79 L. Ed. 2d 804, 809-
10 (1984). The principles emanating from these cases, and
others, direct that we first determine whether those defendants
seeking to justify the dismissal based on personal jurisdiction
100 A-0963-12T1
had minimum contacts with New Jersey and, if so, whether those
contacts represented deliberate attempts by those defendants to
avail themselves of the forum. Lebel, supra, 115 N.J. at 322-24.
With respect to the first question – whether these
defendants had minimum contact with New Jersey — plaintiffs rely
heavily on their position that the in-forum contacts of a
co-defendant can, as a matter of law, be imputed to other
purported enterprise members by applying conspiracy or agency
theories of liability. Although accepted in some courts, see
Compania Brasileira Carbureto De Calicio v. Applied Indus.
Materials Corp., 640 F.3d 369, 372 (D.C. Cir. 2011); Melea, Ltd.
v. Jawer Sa, 511 F.3d 1060, 1069 (10th Cir. 2007); Lolavar v. De
Santibanes, 430 F.3d 221, 229 (4th Cir. 2005); Textor v. Board
of Regents of N. Ill. Univ., 711 F.2d 1387, 1392-93 (7th Cir.
1983), even those jurisdictions recognize that the theory might,
at times, "subvert the due process principles that govern
personal jurisdiction," Newsome v. Gallacher, 722 F.3d 1257,
1265 (10th Cir. 2013). Other courts have rejected the theory.
See Ploense v. Electrolux Home Prods., 882 N.E.2d 653, 665-67
(Ill. App. 2007); OpenRisk, LLC v. Roston, 59 N.E.3d 456 (Mass.
App. 2016); Nat'l Indus. Sand Ass'n v. Gibson, 897 S.W.2d 769,
773 (Tex. 1995). One commentator has argued that its use is
unconstitutional:
101 A-0963-12T1
[B]efore [a court] may properly assert
jurisdiction, [it] must find actual or
constructive knowledge on the part of each
defendant that the conspiracy could lead to
the kind of significant contact with the
state that would support jurisdiction. It
cannot rely on a conspiracy "theory" to hold
every individual defendant to the
expectation of a particular forum simply
because one of the alleged co-conspirators
happened to choose that state as the place
to perform an act.
. . . .
[I]nsofar as conspiracy theory becomes a
device to bypass due process analysis, it is
plainly unconstitutional.
[Ann Althouse, The Use of Conspiracy Theory
to Establish In Personam Jurisdiction: A Due
Process Analysis, 52 Fordham L. Rev. 234,
253-54 (1983).]
See also Rhett Traband, The Case Against Applying the Co-
Conspiracy Venue Theory in Private Securities Actions, 52
Rutgers L. Rev. 227, 262 (1999) (criticizing this conspiracy
approach because of its tendency to rely on "self-serving and
often conclusory allegations," and because it can result in
subjecting a nonresident to "expedited and broad discovery," and
the expenditure of funds "to defend in a forum with which the
defendant had no contact"); Stuart Riback, Note, The Long Arm
and Multiple Defendants: The Conspiracy Theory of In Personam
Jurisdiction, 84 Colum. L. Rev. 506, 521 (1984) (concluding that
"the conspiracy theory does not take into proper account the
102 A-0963-12T1
International Shoe requirements [and] leads to undesirable and
often unconstitutional results").
Plaintiffs mistakenly rely on State, Department of Treasury
v. Qwest Communications International, Inc., 387 N.J. Super. 487
(App. Div. 2006), in support of this theory. There, the
plaintiff sued Qwest and its executive officers for damages
incurred when they allegedly conspired to inflate the price of
Qwest's stock. Id. at 493-94. The plaintiff accused the
individual defendants, who were executive officers responsible
for approving defendant's financial statements for filing with
the SEC, of intentionally disseminating false financial
statements through the company's investor relations division as
an inducement to invest. Id. at 501-02. Those nonresidents
disputed personal jurisdiction on the ground that they had not
known the company's investor relations division would transmit
the disputed information to New Jersey investors. Ibid. We
rejected the nonresidents' "individual protestations of
ignorance," recognizing "that a 'conspiracy theory' of personal
jurisdiction is based on the 'time[-]honored notion that the
acts of [a] conspirator in furtherance of a conspiracy may be
attributed to the other members of the conspiracy.'" Id. at 503
(quoting Textor, supra, 711 F.2d at 1392-93).
103 A-0963-12T1
Even assuming this language was an endorsement of
conspiracy-based personal jurisdiction, Qwest is
distinguishable. There, "[t]he crux of the cause of action [was]
the dissemination of fraudulent statements into this State that
caused harm to NJT," a division of New Jersey's Department of
Treasury. Id. at 499. The three individual defendants "all
signed filings with the SEC that included allegedly false
statements that induced NJT to purchase and hold Qwest stock.
NJT received in New Jersey specific notice of those filings and
accompanying press releases from Qwest's investor relations
division that included statements from all three defendants."
Id. at 501. We found it reasonable to infer that the defendants
were aware of this system of dissemination to major investors
such as NJT. Id. at 502. Thus, it was a reasonable "inference
and imputation of knowledge that the investor relations division
would transmit the false statements to" NJT in New Jersey. Id.
at 504.
Here, by contrast, the crux of this alleged conspiracy was
the dissemination of false statements to affect the financial
markets in New York in order to cause harm to a Canadian
corporation. These defendants did not make statements their
alleged co-conspirators distributed into New Jersey.
Importantly, there is no basis for an inference that these
104 A-0963-12T1
defendants were aware of any particular actions taken by their
alleged co-conspirators in New Jersey. See Glaros v. Perse, 628
F.2d 679, 682 (1st Cir. 1980) (holding that the conspiracy
theory of personal jurisdiction requires that "the out-of-state
co-conspirator was or should have been aware" of the acts
performed in the forum state in furtherance of the conspiracy);
Althouse, supra, 52 Fordham L. Rev. at 253 (observing that "a
court must find actual or constructive knowledge on the part of
each defendant that the conspiracy could lead to the kind of
significant contact with the state that would support
jurisdiction").
Absent such evidence, we reject the blanket rule urged by
plaintiffs in favor of a defendant-by-defendant approach.
Blakey, supra, 164 N.J. at 66; see also Lebel, supra, 115 N.J.
at 321-22 (rejecting a "'stream-of-commerce' theory of
jurisdiction" and opting to "stay with the basics"). Indeed, in
other cases involving multiple defendants, our Supreme Court has
warned that
if a suit contains multiple defendants,
their individual contacts to the forum state
cannot be aggregated to find minimum
contacts for a single defendant. Similarly,
jurisdiction over one defendant may not be
based on the activities of another
defendant, nor on the plaintiff's connection
to the forum state. The requirements of
minimum contacts analysis "must be met as to
105 A-0963-12T1
each defendant over whom a state court
exercises jurisdiction."
[Waste Mgmt., supra, 138 N.J. at 127
(quoting Rush v. Savchuk, 444 U.S. 320, 332,
100 S. Ct. 571, 579, 62 L. Ed. 2d 516, 527
(1980)).]
In applying this standard, we must reject plaintiffs' claims
that courts may assert personal jurisdiction over these
defendants based solely on actions that other defendants
allegedly committed within New Jersey absent evidence these
defendants knew or should have known their alleged co-
conspirators would take action in this State.
Plaintiffs have referred to a variety of emails and text
messages exchanged between the defendants who obtained dismissal
for lack of personal jurisdiction and other defendants.
"[C]ommunications with individuals and entities located in New
Jersey alone," however, constitute "insufficient minimum
contacts to establish personal jurisdiction over a defendant."
Baanyan Software Servs., Inc. v. Kuncha, 433 N.J. Super. 466,
477 (App. Div. 2013). More importantly, the communications that
plaintiffs highlight consist of information-sharing and
speculation about the profitability of Fairfax's securities
exchanges. There was nothing objectively actionable in the
substance of the communications in which these defendants
participated. Plaintiffs' claims otherwise are based entirely on
106 A-0963-12T1
speculation and innuendo and are wholly distinct from Qwest,
supra, 387 N.J. Super. at 500, where the "gravamen of the
conduct alleged [was] the communication" itself. At best, any
discussions among these defendants were "peripheral to the
conspiracy alleged" and do not form grounds for exercising
personal jurisdiction. Id. at 503.
Apart from plaintiffs' inability to show that the Kynikos
and Third Point defendants had significant contacts with New
Jersey, plaintiffs have not shown that whatever limited contacts
these defendants may have had with New Jersey were sufficiently
"purposeful" to impose jurisdiction. Plaintiffs were required to
demonstrate that the contacts of these nonresidents with New
Jersey resulted from deliberate conduct. Lebel, supra, 115 N.J.
at 322-24 (citing World-Wide Volkswagen Corp. v. Woodson, 444
U.S. 286, 297-98, 100 S. Ct. 559, 567-68, 62 L. Ed. 2d 490, 501-
02 (1980)). The goal of that requirement is to ensure
predictability and to shield parties from being "haled into
court in a foreign jurisdiction solely on the basis of random,
fortuitous, or attenuated contacts or as a result of the
unilateral activity of some other party." Waste Mgmt., supra,
138 N.J. at 121.
Plaintiffs claim that these defendants purposely availed
themselves of New Jersey's benefits because, in their view,
107 A-0963-12T1
defendants knew any harm to Fairfax would have a "cascading
effect" that would extend to its subsidiaries, including the New
Jersey-based C&F. Kynikos and Third Point's respective trading
activities, however, belie plaintiffs' allegation that they
specifically targeted C&F. In fact, Kynikos never held any
investments in C&F. Third Point extensively traded securities
related to Fairfax and many Fairfax's subsidiaries, but trades
specific to C&F amounted to only three percent of those
transactions.
Further, the bonds underlying those C&F trades were issued
by Crum & Forster Funding Corp., a Delaware corporation, and
then assumed by C&F. These facts are significant when viewed
through the lens of the generally-accepted principle that the
situs of intangible interests, like stock, is usually the state
in which the entity is incorporated. State v. Garford Trucking,
Inc., 4 N.J. 346, 351-53 (1950). Because the bonds in this
matter were issued by out-of-state entities, they arguably never
found themselves within New Jersey's borders. Thus, Third Point
could not have "reasonably anticipate[d] being haled into court"
in New Jersey based on C&F's assumption of the bonds. World-Wide
Volkswagen, supra, 444 U.S. at 297, 100 S. Ct. at 567, 62 L. Ed.
2d at 501. Although relevant, even if those bonds could be
deemed to have entered New Jersey, the mere presence of Third
108 A-0963-12T1
Point's property in New Jersey, standing alone, does not
establish jurisdiction; plaintiff was required to identify other
facts to show minimum contacts. Shaffer v. Heitner, 433 U.S.
186, 209, 97 S. Ct. 2569, 2582, 53 L. Ed. 2d 683, 701 (1977);
Appaloosa Inv., L.P.I. v. J.P. Morgan Sec., Inc., 398 N.J.
Super. 52, 58 (App. Div. 2008). Given the number of Fairfax-
related entities in which Third Point traded, the transactions
involving C&F are not significant; that Third Point's trading of
C&F-related interests represented only three percent of its
overall Fairfax holdings, and that those trades involved bonds
that at the time of purchase were issued outside the state,
defeat plaintiff's claim that Third Point set out to harm C&F.
Focusing on C&F's lost customers does not alter the result.
There is no more evidence that those relationships were targeted
through specific conduct in New Jersey or that defendants'
conduct was geared toward causing an effect in New Jersey than
there was in Walden, where the defendant's conduct in Georgia
interfered with the plaintiffs' possession of money they brought
with them on a flight from Puerto Rico to Georgia, with an
intention to travel on to either of their residences in
California and Nevada:
[Plaintiffs'] claimed injury does not evince
a connection between [defendant] and Nevada.
Even if we consider the continuation of the
seizure in Georgia to be a distinct injury,
109 A-0963-12T1
it is not the sort of effect that is
tethered to Nevada in any meaningful way.
[Plaintiffs] and only [plaintiffs] lacked
access to their funds in Nevada not because
anything independently occurred there, but
because Nevada is where respondents chose to
be at a time when they desired to use the
funds seized by [defendant]. . . . Unlike
the broad publication of the forum-focused
story in Calder, the effects of
[defendant's] conduct on [plaintiffs] are
not connected to the forum State in a way
that makes those effects a proper basis for
jurisdiction.
[Walden, supra, 571 U.S. at 23, 134 S. Ct.
at 1125, 188 L. Ed. 2d at 23-24.]
Mere "random" and "attenuated contacts" with New Jersey are
insufficient. Waste Mgmt., supra, 138 N.J. at 121; Baanyan,
supra, 433 N.J. Super. at 475. Plaintiffs rely on the fact that
C&F was a facet of Fairfax's consolidated financial statements
in arguing that an attack on one entity was an attack on another
or all. But they also recognize that harm to C&F was a byproduct
and "cascading effect" of Fairfax's injuries. Therefore, unlike
Qwest, supra, 387 N.J. Super. at 503, where there was a direct
link between the defendants' financial misrepresentations and
the impact to the New Jersey plaintiff, the harm to C&F, and
thus to New Jersey, was largely derivative of that to Fairfax.
Plaintiffs cite to authorities which are inapposite because in
those cases the defendants knew their conduct would have a New
Jersey impact. See Blakey, supra, 164 N.J. at 46 (finding "that
110 A-0963-12T1
defendants who published defamatory electronic messages, with
knowledge that the messages would be published in New Jersey and
could influence a claimant's efforts to seek a remedy under New
Jersey's Law Against Discrimination, may properly be subject to
the State's jurisdiction"); Lebel, supra, 115 N.J. at 320
(considering that the defendant actively solicited the business
of a New Jersey plaintiff); Goldhaber v. Kohlenberg, 395 N.J.
Super. 380, 389-90 (App. Div. 2007) (recognizing that the
defendant "not only knew that plaintiffs resided in New Jersey,
he knew the municipality in which they resided and made specific
disparaging references to that municipality in many of his
postings"); cf. Matsumoto v. Matsumoto, 335 N.J. Super. 174,
180-85 (App. Div.) (holding there was no personal jurisdiction
over a foreign national who helped her son in an out-of-state
conspiracy to violate his former wife's custody rights under
their New Jersey divorce decree, even if she had retained title
to the New Jersey marital home), aff'd in part, mod. in part on
other grounds, 171 N.J. 110 (2000).
In many ways, plaintiffs seek to base jurisdiction for
their claims against these defendants on the in-forum contacts
of plaintiff's own subsidiary, C&F. By this logic, defendants
would be subject to jurisdiction in any forum in which plaintiff
had a subsidiary. Imposing jurisdiction on such "random" and
111 A-0963-12T1
"fortuitous" grounds would undermine the due process
considerations on which the minimum contacts analysis is based.
See Waste Mgmt., supra, 138 N.J. at 121; see also Kulko v.
Superior Ct. of Cal., 436 U.S. 84, 93-94, 98 S. Ct. 1690, 1698,
56 L. Ed. 2d 132, 142 (1978). Indeed, such an exercise of
personal jurisdiction is precluded by well-established due
process principles. Walden, supra, 571 U.S. at 15, 134 S. Ct. at
1122, 188 L. Ed. 2d at 21 (holding that "plaintiff cannot be the
only link between the defendant and the forum").
4. Summary
There being no grounds for the assertion of general
jurisdiction, plaintiffs were required to demonstrate, in
support of the exercise of specific jurisdiction or in support
of their conspiracy-based theory of jurisdiction, that these
defendants "purposefully availed [them]sel[ves] of the privilege
of engaging in activities within the forum state, thereby
gaining the benefits and protections of its laws." Waste Mgmt.,
supra, 138 N.J. at 120-21. For the reasons we have discussed, we
conclude that these defendants could not have reasonably
anticipated "being haled into court in a foreign jurisdiction
solely on the basis of [the] random, fortuitous, or attenunated
contacts" asserted here. Id. at 121.
112 A-0963-12T1
We affirm the dismissal of the Kynikos and Third Point
defendants on personal jurisdiction grounds.
D
THE SUMMARY JUDGMENTS
IN FAVOR OF THE SAC DEFENDANTS
AND THE ROCKER DEFENDANTS
Plaintiffs also contend that the trial court erred in
granting summary judgment to the SAC defendants and the Rocker
defendants. We view these matters separately.
1. The SAC Defendants
(a) The Parties' Arguments
In granting summary judgment in favor of the SAC
defendants, the trial court concluded that SAC had not engaged
in short-selling Fairfax equity securities and would actually
"stand to lose" money if the alleged scheme succeeded.
Plaintiffs, however, rely on evidence that suggests the SAC
defendants worked with enterprise members to try to find a
negative catalyst to drive Fairfax's stock price down, and,
after receiving non-public information of the anticipated
adverse report by Morgan Keegan, Cohen and Sigma Capital
Management, L.L.C., maintained or added to their short positions
in Fairfax so they could profitably cover the stock price drop
that would result when that report became public. Plaintiffs
113 A-0963-12T1
assert the record further shows the SAC defendants continued
participation in the conspiracy in 2003 to 2006, well beyond the
initial acts, by increased investments in Exis. In general,
plaintiffs claim the trial judge erred in failing to give them
the benefit of all favorable inferences regarding these facts,
and, in that way, assumed or usurped the jury's fact-finding
role.
The SAC defendants argue that, unlike the other defendants
that conceded trading in or communicating about Fairfax, they
denied "any significant trading in Fairfax securities or having
worked with or even communicated with the other [d]efendants
regarding Fairfax." They reject plaintiffs' characterization
that Contogouris admitted a relationship with the SAC
defendants, noting that Contogouris's testimony, in context,
constituted a denial that he spoke with defendant Cohen about
Fairfax.
The SAC defendants also argue that, for the entirety of the
alleged conspiracy, its economic interests in Fairfax were
"either neutral or aligned with Fairfax's," a circumstance that
would conclusively demonstrate they "had no economic interest in
seeing the so-called conspiracy succeed." SAC invested in
Fairfax prior in time to when plaintiffs allege the conspiracy
began; SAC was closing that short position in early 2003, and by
114 A-0963-12T1
mid-September 2003 had "completely closed" its short position in
Fairfax. A long-position purchase in 2004 aligned SAC's
interests with Fairfax and, therefore, contrary to the purposes
of the alleged conspiracy. SAC had no position in Fairfax in
2005, and considered its subsequent short positions
inconsequential. And, to the extent SAC invested in outside
entities, such as Exis and Bridger Capital Management, which
both had invested in Fairfax, the SAC defendants assert these
were inconsequential, and they denied control of or
communications about them with anyone relevant to the alleged
conspiracy. The SAC defendants therefore contend plaintiffs
failed to meet their burden of showing that they "purposefully
and knowingly" engaged in a conspiracy, supported by permissible
inferences in plaintiffs' favor that were not "inherently
implausible," and that the trial judge was correct in dismissing
the claims asserted against the SAC defendants.
(b) The Trial Judge's Ruling
The trial judge agreed with the SAC defendants' view. In
September 2011, the judge determined that although over 200
"disputed facts" were presented, "there really appears to be
nothing more than broad speculation based on circumstantial
evidence" and plaintiffs failed to suggest "any inferences based
upon reasonable facts and evidence" that would suggest
115 A-0963-12T1
otherwise. The judge, instead, believed plaintiffs had "tr[ied]
to distort the record in an attempt to create their speculative
assertions," and concluded that "the evidence on record is not
enough to support a rational finding that whatever disputed
issues are alleged by plaintiffs, can be found in favor of
Fairfax." The court recognized that New Jersey's RICO and civil
conspiracy laws can be viewed with leniency, allowing for some
inferences because activities may have taken place "behind
closed doors," but basing a case entirely "on pure speculation
is too big of a leap to take." The trial judge added:
Plaintiffs have pointed to no direct
evidence which establishes a conspiracy of
which SAC was a part. . . . Most tellingly,
is SAC's trading reports in Fairfax
securities. The fact that at no time did SAC
trade similarly to its alleged [e]nterprise
[m]embers is baffling, and without
explanation by plaintiffs. It does not make
sense that the alleged leader of the
conspiracy would not only NOT act as its
alleged cohorts did, but in fact, stand to
lose money as a result of the allege[d]
conspiracy.
Finding "no direct evidence of any sort of conspiracy
involving SAC to take down Fairfax, and any allegation of such,"
viewing plaintiffs' allegations as "too much speculation based
on circumstantial evidence to get past summary judgment," and
concluding "[t]here is simply no evidence of motivation of [the]
116 A-0963-12T1
SAC [defendants] to participate, much less coordinate the
'conspiracy,'" the judge granted summary judgment.
(c) Our Holding
We disagree. The judge was presented with a forty-eight
page list of the statement of items relevant to the motion. To
be sure, mere quantity will not tilt the scale, but summary
judgment is "too fragile a foundation," Grow Co. v. Chokshi, 403
N.J. Super. 443, 470 (App. Div. 2008) (quoting Petition of
Bloomfield S.S. Co., 298 F. Supp. 1239, 1242 (S.D.N.Y. 1969),
aff’d, 422 F.2d 728 (2d Cir. 1970)), for a disposition on the
merits here. Indeed, there are assertions in the factual record
that raise genuine issues regarding the claim of the SAC
defendants' participation in the scheme as to preclude summary
judgment regardless of the extraordinary size of the record.
The expert opinion submitted by plaintiffs could support a
factfinder's determination that SAC took certain short positions
that gave it financial goals aligned with the alleged
conspiracy. In a certification submitted in response to the SAC
defendants' motion, plaintiffs' expert, Stanley Fortgang,46
opined that SAC had a "substantial known short interest in
46Fortgang was a consultant with approximately twenty-five years
experience trading equities, bonds, and other securities for
securities firms and hedge funds.
117 A-0963-12T1
Fairfax throughout the duration of the conspiracy and a
significant financial incentive to have acted in concert with
other defendants and enterprise members in furtherance of the
conspiracy." He also explained that the SAC defendants
"collaborated with other defendants and enterprise members with
respect to their trading in Fairfax in order to depress the
price of Fairfax stock, and profit from its short positions."
These bald assertions were not enough to defeat summary
judgment, but Fortgang observed that, in moving for summary
judgment, the SAC defendants
conveniently ignore[] trading in Fairfax's
related entities, specifically Odyssey . . .
under the ticker symbol ORH. However, the
ledger of ORH trades shows that [SAC] held a
short position in ORH during April 2002,
from June 2002 through February 23, 2004
(excepting for 2 distinct periods totaling
approximately 30 days) and from July 2005 to
September 2006 (except for a 15 day period
from late July through early August 2006).
Fortgang explained that the "stock price of Fairfax and
Odyssey are directly related such that a conspiracy to
manipulate the price of Fairfax could certainly include trading
in ORH." He further found it "significant enough to justify its
conduct" in the alleged conspiracy that SAC held a significant
interest in outside funds including Exis and Bridger. SAC was
Exis's largest investor and, through Exis, indirectly possessed
short positions in Fairfax. And, according to Contogouris,
118 A-0963-12T1
Exis's "head analyst," defendant Steven Cohen had frequent
communications with him.
Fortgang explained how this could be significant even where
SAC's actual trading activity differed from the activity of
other defendants:
[SAC] is well known in the marketplace for
having a unique and distinct trading
strategy more focused on short term gains
than other [d]efendants. It is therefore
reasonable to conclude that while pursuing
its own trading strategy, [SAC] traded in
collaboration with the enterprise despite
the fact that their trading records are not
identical to other enterprise members[].
He added that the trading records showed that SAC "was
certainly involved in trading on specific days and in the same
direction as other defendants" and that the record further shows
that many of those trades occurred "at times when significant
communication occurred among the enterprise members." Fortgang
further alluded to the fact that the SAC defendants' expert
focused only on whether there was coordination with other
defendants and enterprise members "over long periods of time,"
noting that instead SAC could have chosen to "coordinate[] its
trading at specific critical time periods." SAC's trading
approach was, nevertheless, "consistent with a stock
manipulation scheme designed to profit from the artificially
depressed price of [Fairfax] and [Odyssey] stock . . . ." Even
119 A-0963-12T1
SAC's trading expert, Denise Martin, "concedes that a possible
short strategy to take advantage of an anticipated negative
event could be . . . to cover a short position in advance of
that event after the anticipation of that event has already had
an effect on the stock price."
These contentions are further illuminated by SAC's guilty
plea to a 2013 federal indictment, in which SAC admitted
widespread solicitation and use of illegal inside information
and insider trading, for which it agreed to pay an aggregate
financial penalty of $1.8 billion and agreed to terminate the
investment advisory businesses of several named SAC entities.47
Although this settlement occurred in November 2013, the
stipulation and order of settlement recites that the period
during which insider trading took place was between 1999 through
at least in or about 2010, thus including the period relevant to
plaintiffs' allegations.
Plaintiffs' statement of material facts submitted in
response to the SAC defendants' motion, includes numerous pages
citing to and quoting documents describing SAC's early shorting
of Fairfax in late 2002, its coordination with other alleged
47 United States v. S.A.C. Capital Advisors, L.P., 13 Cr. 541
(LTS), 13 Civ. 5182 (RJS) (S.D.N.Y. Nov. 2013), available at
https://www.justice.gov/usao-sdny/pr/sac-capital-management-
companies-plead-guilty-insider-trading-charges-manhattan-
federal?print=1.
120 A-0963-12T1
enterprise members regarding Fairfax and the need for a
"catalyst" for short sellers, and its involvement in contacting
analysts and reporters with an intent to trade ahead of negative
articles. Citing to emails and SAC trading ledgers, plaintiffs
claimed that SAC and its Bridger Capital account shorted in
advance of an expected Canadian Imperial Bank of Commerce report
by Quentin Broad on Fairfax, and SAC's Sigma account began
covering when it appeared that Broad's report would be delayed,
but it then began "reshorting those covered shares after
learning about the imminent publication of the Gwynn report,"
covering at least 500 shares "at a drastically lower price –
near the low of the day – after Gwynn published his report."
Plaintiffs further described various contacts between SAC
representatives and Morgan Keegan, including a request in
September 2003 for a reminder of what Gwynn had said about
Fairfax's use of finite insurance. Plaintiffs also cited to
SAC's $48 million interest as of May 2004 in Exis's Walrus Fund,
Exis's employment of Contogouris in March 2005 to work on
Fairfax, and the fact that Steven Cohen knew Contogouris from
his prior experience with him on the Hanover Compressor
investment as to which defendant Cohen took a short position
based on insider information from Contogouris. Accordingly,
plaintiffs relied on Contogouris's assertion that in the spring
121 A-0963-12T1
of 2006, SAC "called Sender and wanted some of . . .
[Contogouris's] research." Based on the information gleaned
through Contogouris's work on behalf of the alleged enterprise,
plaintiffs were entitled to an inference that the SAC defendants
were able to reap "substantial profitable returns from massive
short positions that S.A.C.-related funds had assumed in Fairfax
. . . ."
Plaintiffs also asserted that, although the SAC defendants
"attempt[] to narrowly interpret the relevant trading activity
in an effort to minimize the extent of its involvement in
trading Fairfax securities, the trading records produced by the
[SAC] [d]efendants show thousands of trades in Fairfax,
including short trades that are not individually reflected in
the [Fairfax] Ledger." Additional extensive trading was seen in
Odyssey shares, and in options trades with Fairfax's stock – a
lower cost way to "synthetically short Fairfax." Plaintiffs
asserted that although SAC at times "took smaller and more
short-term positions than other defendants, it often traded on
the same days and in the same directions as those defendants,"
citing a March 2006 SAC short position taken in Fairfax.
Consequently, plaintiffs contend the trading records
"demonstrate the opposite of what they have stated" in moving
for summary judgment.
122 A-0963-12T1
Considering that the matter was disposed of by way of
summary judgment, and considering that we, too, are obligated to
apply the Brill standard, see, e.g., Murray v. Plainfield Rescue
Squad, 210 N.J. 581, 584 (2012), we conclude there are genuine
factual disputes that precluded summary judgment. We agree with
plaintiffs that the trial judge overlooked or otherwise resolved
material factual disputes about SAC's trading during the period
of the alleged enterprise. To be sure, at the conclusion of a
trial, the factfinder could choose to reject Fortgang's
conclusions and find plaintiffs' interpretations of the facts
less credible than others it may hear, Poliseno v. General
Motors Corp., 328 N.J. Super. 41, 59 (App. Div.), certif.
denied, 165 N.J. 138 (2000), but for purposes of summary
judgment, plaintiffs were entitled to the benefit of the doubt
on those matters.
2. The Rocker Defendants
(a) The Parties' Arguments
Plaintiffs contend that, in granting summary judgment to
the Rocker defendants, the judge erred because judgment was
granted years before discovery was completed – indeed, before
any depositions were taken – and because the judge relied on the
opinion of a discovery master, who, in plaintiffs' view,
improperly resolved disputed factual issues and incorporated his
123 A-0963-12T1
personal view of how securities markets operate in concluding
that "Rocker's quick reaction to the negative report it received
about Fairfax is hardly out of the ordinary." That conclusion
purported to resolve disputed questions about when the Morgan
Keegan report was officially published, when Rocker traded, and
what inferences could be drawn from the "speed and
aggressiveness" of Rocker's trades at and around the time of the
report's publication.
A discovery master found that Rocker began trading ten
minutes after receiving word about the report, and without
having seen the report. Plaintiffs contend these facts supported
an inference that the Rocker defendants had prior knowledge of
the report and the further inference that they were engaged in
the conspiracy. Moreover, plaintiffs assert that the discovery
master relied upon an in camera review of Rocker's detailed
trading records, which plaintiffs were not permitted to see and
thus could not test. Plaintiffs additionally argue that the
trial judge erred by improperly limiting the relevant issues for
Rocker's participation in the conspiracy to just two events: (1)
paying Contogouris, and (2) trading in advance of Morgan
Keegan's initial January 2003 report.
124 A-0963-12T1
(b) The Trial Judge's Ruling
To be sure, the resolution of the claims against the Rocker
defendants was unusual. In considering dispositive motions in
2007, the trial judge stated a number of times: "I still don't
know what the Rocker defendants did." She asked plaintiffs'
counsel how quickly he could depose David Rocker if the motion
to dismiss were to be denied, and counsel responded he could
perhaps address the issue with more specific pleading, which was
to be accomplished within two weeks, if needed. In clarifying
and restating what would occur next, the trial judge stated that
she would deny Rocker's motion, without prejudice, and that
plaintiffs' and Rocker's counsel should talk. The judge added:
If you haven't been able to work it out,
he's going to amend the complaint. Yours is
going to be the first deposition, and you
can re[-]move . . . and . . . incorporate
the papers that you've already submitted,
with just . . . a summary brief on what
happened as far as the new pleading, and –
I'm trying to make it as inexpensive as
possible.
The Rocker defendants again moved for dismissal because
plaintiffs did not avail themselves of the opportunity to depose
Rocker. At the beginning of the argument, the court set forth
the procedural background for the motion, specifically regarding
the assertion by plaintiffs' counsel that plaintiffs "haven't
had a chance to take the Rocker depositions." The trial judge
125 A-0963-12T1
stated "that's not accurate[,] . . . just simply not accurate";
she explained that, on September 7, 2007, "over a year ago, I
told the plaintiffs to take Mr. Rocker's deposition."
The trial judge recalled having been "ready to dismiss them
on their motion to dismiss a year ago," but plaintiffs were
given the time they requested to get together documents which
would show a good faith basis for Rocker's continued inclusion
as defendants. The judge recalled having told plaintiffs'
counsel "to share the evidence that they had with counsel for
that particular defendant and if they didn't have a good faith
basis for having them in the suit they should be dismissed." And
she added, that she "didn't expect them to have to come in here
and make another motion." More specifically, with regard to the
Rocker defendants, the judge expressed that she "was assured
that plaintiffs had a good faith basis, that somebody had given
them the information." And she then recounted that she "said, .
. . show them what it is, get it in the complaint, . . . and
take a deposition" so that only individuals and entities that
rightly belonged in the case would remain.
At the motion's conclusion, the judge ruled that: "The
Rocker defendants are going to be dismissed from the suit
without prejudice to an amended complaint being filed that comes
forth with some specific conduct." The judge relied on her
126 A-0963-12T1
conclusion that the proofs of any wrongdoing by the Rocker
defendants in December 2002 were "too slippery and too tenuous,"
and were further attenuated by the Rocker defendants'
contentions that they engaged in no trading as to Fairfax in
December 2002 and had no Fairfax position until January 17,
2003. The trial judge was further troubled by plaintiffs'
failure to provide clear evidence as to when the Morgan Keegan
report was published, even though their arguments as to the
Rocker defendants assumed an afternoon publication on January
17, 2003.
The judge's decision also acknowledged "there may very well
be reason[s] for bringing Rocker back into the complaint," if
the discovery master's review showed some culpability. At the
time, however, the judge found "there's really nothing" that
implicated the Rocker defendants and rejected an inference of
culpability just because Rocker and Chanos had a longtime
friendship. As to plaintiffs' allegation that Rocker paid
Contogouris to do the things he did to hurt Fairfax, "if that is
so, there has to be something before March of 2007 to link
them," and the judge was shown no evidence of any such link.
In December 2011, after the conclusion of discovery, the
trial judge converted the summary judgment to a dismissal with
prejudice, explaining that plaintiffs had failed to develop any
127 A-0963-12T1
evidence to support the claims asserted against the Rocker
defendants.
(c) Our Holding
The manner in which the action against the Rocker
defendants was disposed of is foreign to us. The problem is that
the judge's "dismissal without prejudice" put the claims against
the Rocker defendants in the unusual position of being neither
in nor out, neither fish nor fowl. For these reasons, plaintiffs
have argued that summary judgment was prematurely granted and,
with no support, contend the Rocker defendants stonewalled them
on discovery before a discovery master could look into the
issues they raised.
It is clear to us that the trial judge dismissed with
prejudice only after plaintiffs had a full and fair opportunity
to obtain further discovery from the Rocker defendants and as to
their alleged involvement. Plaintiffs also have presented very
little about what they expected to find, so it all truly does
seem more like a fishing expedition. With the vast amount of
discovery available as it came from other parties, the trial
judge was not unreasonable in believing plaintiffs had not
sufficiently shown there was a sound basis for keeping the
Rocker defendants in the case. With the completion of discovery
128 A-0963-12T1
years later, there is nothing to suggest any substance to
plaintiffs' claims against the Rocker defendants.
Consequently, we conclude that the trial judge did not err
in granting summary judgment to the Rocker defendants, and we
find plaintiffs' arguments to be without sufficient merit to
warrant further discussion in this opinion. R. 2:11-3(e)(1)(E).
E
LOST PROFITS AND
THE ELSON REPORTS
In September 2012, the last judge to preside over the
matter addressed the maintainability of plaintiffs'
disparagement claim. The judge found sufficient evidence for a
jury to find that defendants had intended to harm plaintiffs'
interests; he further found those interests consisted of
plaintiffs' "ability to sell their insurance policies," which
involved their "actual business dealings" rather than just their
reputations. Product disparagement, however, as we have held,
required proof of "special damages," and the trial judge ruled
that only one alleged kind of loss could satisfy it, namely,
C&F's injury from "products that were not sold." He concluded
that plaintiffs' general financial losses, such as losses
arising from plaintiffs' offering of securities or the market
trading in their securities, were the indirect results of
129 A-0963-12T1
defendants' disparagement rather than the "direct and immediate"
results of more targeted misconduct, and therefore could not be
included in the disparagement claim. The judge found the same
was true of plaintiffs' increased auditing costs and D&O
insurance premiums, plaintiffs' inability to finance strategic
acquisitions, and any legal costs. As a general matter, we agree
with this conceptualization.
These rulings narrowed the alleged cognizable "special
damages" to C&F's lost customers. Plaintiffs proffered
Echemendia's in-house report that named approximately 180 lost
customers from whom C&F would have earned profits of $19
million. Earlier, we concluded that plaintiffs' assertions as to
the 180 alleged lost customers were sufficient to survive
summary judgment. See Section IV(B)(3), supra.
But plaintiffs also offered Craig Elson's expert report on
the value of the share of the insurance market that C&F would
have secured but for defendants' alleged misconduct. The trial
judge found Elson's expert report to be a net opinion, which
failed to show the special damages required by law, leaving only
the 180 lost customers named in Echemendia's report. As to those
customers, the judge found "a complete absence of proof that any
of the brokers in question actually made the decision . . . not
to sell [C&F] insurance" products "based on the alleged
130 A-0963-12T1
statements," i.e., a failure of proof on proximate cause, which
compelled dismissal of what remained of plaintiffs' entire case.
We reject the judge's determination that plaintiffs could
not continue to pursue its claim to the 180 alleged lost
customers for reasons already expressed, but we agree with the
argument that Elson's theory of recovery as to a lost market
share cannot constitute damages permitted by way of plaintiffs'
New York common law claims because New York law requires proof
of the specific customers whose present or future relationship
with plaintiffs was impinged, frustrated or precluded. It is for
this reason alone that we affirm the judge's determination to
bar the testimony Elson would have provided had the case gone to
trial.
Although not necessary for our disposition of the appeal
concerning Elson's report, we nevertheless consider and address
other concerns about that report and Elson's proposed expert
testimony. The judge, as we have noted, barred Elson's expert
testimony because he found it to be a net opinion. Plaintiffs
additionally argue the trial judge erred in failing to conduct a
hearing pursuant to N.J.R.E. 104. We agree the judge erred in
finding Elson's proposed testimony constituted a net opinion but
we find no error in the judge's decision not to conduct a
N.J.R.E. 104 hearing.
131 A-0963-12T1
1. General Principles
N.J.R.E. 702 provides that when "scientific, technical or
other specialized knowledge will assist the trier of fact to
understand the evidence or to determine a fact in issue, a
witness qualified as an expert by knowledge, skill, experience,
training or education may testify thereto in the form of an
opinion or otherwise." Although the facts upon which a qualified
expert's testimony is based need not be admissible, those facts
must be "of a type reasonably relied upon by experts in the
particular field in forming opinions or inferences upon the
subject." N.J.R.E. 703. Consequently, expert opinions must
satisfy three requirements:
(1) the intended testimony must concern a
subject matter that is beyond the ken of the
average juror;
(2) the field testified to must be at a
state of the art such that an expert's
testimony could be sufficiently reliable;
and
(3) the witness must have sufficient
expertise to offer the intended testimony.
[Landrigan v. Celotex Corp., 127 N.J. 404,
413 (1992).]
A corollary of these principles — the net opinion rule —
forbids the admission of an expert's conclusions when
unsupported by factual evidence or other data. State v.
132 A-0963-12T1
Townsend, 186 N.J. 473, 494 (2006). An expert witness is
required "to give the why and wherefore of [an] expert opinion,
not just a mere conclusion." Jimenez v. GNOC, Corp., 286 N.J.
Super. 533, 540 (App. Div.), certif. denied, 145 N.J. 374
(1996). The "key to admission" is the validity of the expert's
"reasoning and methodology," and in that regard, a court's
function "is to distinguish scientifically sound reasoning from
that of the self-validating expert, who uses scientific
terminology to present unsubstantiated personal beliefs."
Landrigan, supra, 127 N.J. at 414.
2. The Judge's Disposition
Of the In Limine Motion Regarding
Elson's Expert Testimony
Even in relatively simple cases, determining whether a
proffered expert opinion passes the "why and wherefore" test
described above often proves difficult. On appeal, a dispute
about admissibility – even considering an appellate court's
reticence in intervening absent an abuse of discretion, Hisenaj
v. Kuehner, 194 N.J. 6, 16 (2008) – can prove perplexing. See,
e.g., Townsend, supra, 221 N.J. at 53-57. And it doesn't get any
better when a trial judge has failed to fully explain the
grounds for exclusion; such is the case here.
The trial judge found Elson lacked the requisite expertise
because, although highly educated, he did not possess experience
133 A-0963-12T1
in the insurance industry. The judge also deemed Elson's
methodology to be unreliable by highlighting the lack of any
objective data or evidence to demonstrate a causal link between
an insurance company's rating and its market share growth. The
trial judge, however, did little more than express this view in
a conclusory fashion.
On the return date of an in limine motion, the judge
provided only the following to guide us in determining whether
he soundly exercised his discretion. First, the judge stated
that "Mr. Elson is an MBA with no experience in the insurance
business or anything relating to the insurance business at
all[,] as is clear from his report and perfectly clear from his
testimony." The judge then referred to an obligation "in cases
of this kind" for a plaintiff – whether applying New York or New
Jersey law – to prove "actual loss of business." The judge
followed that with an acknowledgement that "New Jersey law
allows for an alternative approach when you can't prove . . .
actual lost business." But, because, as the judge observed,
"plaintiff was capable of proving actual loss of business
involving approximately 180 producers of business, who it claims
chose not to place insurance with [C&F] subsidiaries because of
the so-called noise or negativity in the market," he apparently
concluded that plaintiffs could not take an alternative approach
134 A-0963-12T1
when actual lost business cannot be proven. And the judge
lastly, through citation to some brief excerpts from Elson's
deposition testimony, found Elson's methodology – viewed as
being based on a "proposition that because companies are
similarly rated by rating agencies and are similar in various
respects, that, therefore, they would have grown at the same
rate" – to constitute a theory that is "counterintuitive" and
"simply . . . not supported by any standard."
The judge's brief oral decision provides little that
demonstrates to us how – in this particularly complex aspect of
the case – the expert's opinion should be barred for theoretical
reasons. The judge's opinion does not demonstrate how Elson's
opinion is "counterintuitive" or unsupported by known standards.
The judge stated at the outset of his oral decision that he
would "expand" on his reasoning by way of "a written opinion to
follow," but that written opinion never issued. If Elson's
testimony was not barred because of the application of New York
law, and if admissibility turned on the net-opinion
determination, we would simply remand for further amplification
from the trial judge on this question. But, in light of the
considerable time, expense and energy devoted to bringing the
case to this point, we instead have analyzed the parties'
arguments about the sufficiency of Elson's credentials and
135 A-0963-12T1
methodology. Based upon our review of the record, we conclude
his expert testimony did not constitute one or more net
opinions, although, as we have already mentioned, the damages
claimed by way of the Elson report are not recoverable.
3. Our Ruling
Elson provided two detailed expert reports that were
explored at a lengthy deposition. In essence, he compared C&F's
sales and growth rates to comparable competitors. Except in
certain respects not relevant here, the admissibility of
evidence is governed by the law of the forum. See Restatement
(Second), supra, § 138.
Elson may not have previously provided an opinion of this
nature in the insurance setting – a fact greatly relied upon by
the trial judge48 – but that is not dispositive. See Quinlan v.
Curtiss-Wright Corp., 425 N.J. Super. 335, 372 (App. Div. 2012)
(observing that it "was not necessary for . . . a well-qualified
economist quantifying plaintiff's alleged losses [to also] be an
expert on employability"); see also Hammond v. Int'l Harvester
Co., 691 F.2d 646, 652-53 (3d Cir. 1982) (holding that an
engineer, whose only qualifications were sales experience in the
48The trial judge held: "In order to give expert testimony . . .
you have to have knowledge, experience, training, something in
the area about which you're testifying. He has nothing with
respect to insurance, nothing at all."
136 A-0963-12T1
field of automatic and agricultural equipment and teaching high
school automobile repair, could testify in a products liability
action involving tractors); Knight v. Otis Elevator Co., 596
F.2d 84, 87-88 (3d Cir. 1979) (holding that an expert could
testify that unguarded elevator buttons constituted a design
defect despite the expert's lack of a specific background in
design and manufacture of elevators). Although the determination
as to whether our evidence rules permit admission of a
particular expert's testimony lies within the sound exercise of
the trial judge's discretion, see Hisenaj, supra, 194 N.J. at
16, we agree the trial judge mistakenly rested his order
excluding Elson's testimony on Elson's lack of expertise in the
insurance industry. Any gaps in his conclusions about the damage
caused to C&F that were dependent on the jury's understanding of
the insurance industry could be supplied by other witnesses or
evidence, as N.J.R.E. 703 clearly permits. See, e.g., Indus.
Dev. Assocs. v. Commercial Union Surplus Lines Ins. Co., 222
N.J. Super. 281, 296-97 (App. Div. 1988). Consequently, we
conclude the trial judge mistakenly exercised his discretion in
excluding Elson's testimony solely on the basis of his lack of
expertise in the insurance industry.
The judge also excluded Elson's testimony on another
premise. The judge recognized that a plaintiff may prove damages
137 A-0963-12T1
in this context without showing an "actual loss of business"
but, because plaintiffs were able to show the loss of business
from approximately 180 producers of business, they could no
longer take advantage of a looser standard for damages when the
claim is a loss of prospective business. We agree, as we have
already held, that a looser standard for damages is barred by
the application of New York substantive law to this claim.
The trial judge lastly based his determination on Elson's
methodology. He said: "[t]here is nothing in his first report or
his reply report that supports the proposition that because
companies are similarly related by rating agencies and are
similar in various respects, that, therefore, they would have
grown at the same rate." Our review of the lengthy and detailed
reports reveals that Elson compared C&F's actual performance
with the actual weighted average performance of peer companies
that were sufficiently similar to provide a meaningful
comparison for the benefit of the factfinder. Although
significantly more complex than other cases routinely heard and
considered by our courts, we see nothing more disqualifying
about Elson's methodology than we would with an appraiser
quantifying an injury to real estate through comparison to
another similar parcel of property, or in quantifying an injury
to a restaurant by comparing it to another similar restaurant.
138 A-0963-12T1
See, e.g., RSB Lab. Servs., Inc. v. BSI, Corp., 368 N.J. Super.
540, 551-53 (App. Div. 2004).
Elson identified those business lines most susceptible to
the information disseminated by defendants and then ascertained
a similar group of businesses – what he referred to as a cohort
group – that compete with C&F in those areas. He then drew
conclusions based on the performances of the cohort group in
those areas and through consideration of numerous other factors,
including historical performance, the ratings provided by
entities whose opinions are of a type relied upon in the
industry, as well as underwriting strategy, appetite for risk,
and product pricing. In calculating the results of these
comparisons, Elson determined the weighted average of these
cohorts in the specific markets identified and compared that to
C&F's performance in those markets to calculate damages. We find
nothing disqualifying about Elson's approach.
For the reasons we have outlined, we draw the following
conclusions. First, Elson's expert testimony is barred by the
application of New York law. But, second, if New Jersey
substantive law governed plaintiffs' common law claims, a
different conclusion may have been warranted49 because it has not
49As a matter of New Jersey law, a plaintiff's inability to fix
"with precision" its lost-profits damages may not always
(continued)
139 A-0963-12T1
been shown that Elson lacked the necessary qualifications or
that he provided only net opinions.50
(continued)
preclude a recovery of damages, as we have held in different
settings. See V.A.L. Floors, Inc. v. Westminster Communities,
Inc., 355 N.J. Super. 416, 424 (App. Div. 2002) (quoting Inter
Med. Supplies v. EBI Med. Sys., 181 F.3d 446, 463 (3d Cir.
1999)). That is, our courts have held at times that "mere
uncertainty as to the amount [of damages] will not preclude the
right of recovery." Tessmar v. Grosner, 23 N.J. 193, 203 (1957);
see also Am. Sanitary Sales Co. v. State, Dep't of Treas., Div.
of Purchase & Prop., 178 N.J. Super. 429, 435 (App. Div.),
certif. denied, 87 N.J. 420 (1981). These authorities do not
expressly hold that this looser standard would apply to a
tortious interference with prospective economic advantage, and
we need not determine here whether it should.
50Although not necessary for our disposition of this aspect of
the appeal, we would further observe in the interest of
completeness that we see no error in the judge's refusal to
conduct a hearing regarding the admissibility of Elson's expert
testimony. We agree that ordinarily the best practice would be
for a trial judge to permit the examination of the scope of an
expert's opinion – when its admissibility is challenged – at a
pretrial N.J.R.E. 104(a) hearing. See Kemp ex rel. Wright v.
State, 174 N.J. 412, 432 (2002). We see no error in the failure
to conduct such a hearing here because Elson was examined at
great length at his deposition about his methodology and that
deposition testimony was available to and considered by the
trial judge at the time of his ruling. We have no reason to
believe – in light of the voluminous record on appeal – that a
N.J.R.E. 104(a) hearing would have better amplified the disputes
about his expert testimony; indeed, it seems to us that in this
particular instance the efficient administration of justice
would have been disserved if such a hearing were conducted.
140 A-0963-12T1
V
THE CROSS-APPEALS
We turn to the cross-appeals filed by Morgan Keegan and the
Exis defendants. Morgan Keegan argues that the trial judge erred
in allowing plaintiffs to seek damages allegedly incurred by
non-party subsidiaries and that the trial judge erred in denying
Morgan Keegan's motion for summary judgment on First Amendment
grounds.51 We reject both these arguments.
A. Standing
Morgan Keegan argues the trial judge erred in declining to
dismiss plaintiffs' claims to the extent plaintiffs sought
damages incurred by nonparty subsidiaries. Morgan Keegan asserts
that three categories of damages were sustained not by Fairfax
and C&F – the only named plaintiffs – but instead represent
damages sustained by subsidiaries. Specifically, the argument
focuses on plaintiffs' claim to: (1) $545 million in alleged
lost profits related to insurance that would have been written
by C&F's subsidiaries; (2) $805 million in alleged losses
relating to the sale of stock held in the ICICI Bank and sold by
51The Exis defendants also filed a cross-appeal and have argued
that the trial judge erred in denying their motion for summary
judgment on the disparagement claim based on standing and
statute of limitations grounds. The Exis defendants rely on the
arguments thoroughly posed by Morgan Keegan on these issues.
141 A-0963-12T1
Fairfax's subsidiary Hamblin Watsa Investment Counsel, Ltd.; and
(3) $42 million in allegedly increased D&O liability insurance
costs paid by Fairfax but reimbursed by its subsidiaries.
As we have already ruled, New York law applies and limits
the damages available on the disparagement and tortious
interference with prospective economic advantage claims to
profits emanating from the alleged lost 180 customers. New York
law does not permit recovery for collateral damages, such as the
losses related to the sale of the ICICI stock or the increased
cost of D&O insurance. We consider, therefore, the argument
insofar as Morgan Keegan alleges the 180 customers were lost not
by C&F but by its subsidiaries.
In this regard, Morgan Keegan argues that a parent
corporation lacks standing to bring the claims of a subsidiary –
regardless of whether New York or New Jersey law applies 52 – and
that the trial judge erred in holding that material factual
issues existed without identifying them, as Rule 4:46-3
requires. Morgan Keegan further argues that even if, as the
trial judge stated, plaintiffs might have been entitled to other
damages properly asserted, the trial court still should have
52There is no doubt, and no party has argued otherwise, that the
law of the forum governs this question of standing. See
Restatement (Second), supra, § 125.
142 A-0963-12T1
granted partial summary judgment as to any damages sought on
behalf of subsidiaries.
Plaintiffs respond that courts broadly construe standing
and allow a plaintiff to assert a third party's rights if the
plaintiff states a "sufficient personal stake and adverseness
[to the defendant]." Jersey Shore Med. Ctr.-Fitkin Hosp. v.
Estate of Baum, 84 N.J. 137, 144 (1980); Assocs. Commercial
Corp. v. Langston, 236 N.J. Super. 236, 242 (App. Div.), certif.
denied, 118 N.J. 225 (1989). Parent corporations have been held
to meet that standard. Bondi, supra, 423 N.J. Super. at 436-37.
The judge explained the motion was denied in this regard
because, in pertinent part, plaintiffs argued that C&F's
subsidiaries' "losses are incorporated into C&F's consolidated
financial statements, and moreover, C&F writes its insurance
policies through its subsidiaries[,] [which] are wholly-owned by
plaintiffs." The judge concluded:
[E]ven if defendants' allegations are
assumed to be accurate, there are still
genuine issues of material fact with regard
to whether plaintiffs have standing to
pursue those actions on behalf of their
subsidiaries . . . . Defendants' motion for
summary judgment is not granted based on
this rationale.
The denial of the summary judgment motion was warranted, based
on the trial judge's sound reasoning and reliance on Bondi,
which we discussed earlier. See Section IV(A)(3), supra.
143 A-0963-12T1
Briefly, the plaintiff Bondi was an administrator appointed by
the Italian government to oversee the collapse of the Italian
company Parmalat. The defendant Citigroup (Citi) asserted a
counterclaim as to which Bondi claimed it lacked standing to
pursue because the claims belonged to Citi's subsidiaries.
Bondi, supra, 423 N.J. Super. at 436. We rejected that argument,
finding Citi "was the operating agent for the transactions," the
subsidiaries' business on the matter at issue "appeared on Citi
consolidated financial statements, and all profits and losses
flowed through Citi books. In short, any losses incurred by even
one subsidiary was considered a loss of Citi funds." Ibid. We
held "the evidence established that the funds loaned or extended
to Parmalat all originated from Citi." Id. at 438. Citi had
standing, therefore, because in New Jersey, "[a] financial
interest in the outcome of litigation is ordinarily sufficient
to confer standing." Ibid. (quoting Assocs. Commercial Corp.,
supra, 236 N.J. Super. at 242).
We agree this reasoning requires a rejection of Morgan
Keegan's argument. We conclude, as to the alleged lost insurance
profits suffered by C&F's insurance subsidiaries, there is merit
to the trial judge's view that the effect on C&F's consolidated
financial statements gave C&F a sufficient "financial interest
in the outcome of litigation" to preclude a dismissal on
144 A-0963-12T1
standing grounds. We find insufficient merit in Morgan Keegan's
arguments on standing to warrant further discussion in a written
opinion. R. 2:11-3(e)(1)(E).
B. First Amendment Grounds
1. The Parties' Arguments
Morgan Keegan also argues that the trial judge erroneously
applied First Amendment principles because "no reasonable jury
could find by clear and convincing evidence that Morgan Keegan
published any false factual assertion with actual malice – that
is, with knowledge that it was false." Morgan Keegan argues that
the actual-malice standard applies because "large corporations
active in the public arena" like Fairfax and C&F are considered
public figures, and the law affords greater protection for
speech concerning public figures. It claims that despite more
than 150 depositions and the production of more than 15,000,000
pages of documents, plaintiffs were unable to identify a single
piece of evidence to support a contention that Morgan Keegan or
its analyst, Gwynn, did not believe the statements they made
were true. Morgan Keegan additionally argues that whether
advance tipping was provided about their reporting is not
probative as to whether they believed the information in the
report was false. Morgan Keegan contends there was no evidence
of an incentive to report falsely, and asserts that the fact
145 A-0963-12T1
Gwynn's reporting contained an error in calculating Fairfax's
reserve deficiency, which was promptly corrected, does not raise
a fact issue as to the malice requirement.
In addition, Morgan Keegan contends the First Amendment
provides absolute protection to "opinions that do not imply
false facts" or that are "pure opinions" for which the factual
basis is disclosed. It argues that because estimates about
insurance company reserves are not verifiable, First Amendment
analysis mandates a presumption that statements about reserves
are protected because they are mere opinions. Morgan Keegan
contends further that the trial judge misconstrued the nature of
"context" in the First Amendment analysis; it claims that rather
than referring to what was happening at the time of the
statement, context refers only to how a reader would have
interpreted the statement's content in view of the information
disclosed. Based on the disclaimers in Morgan Keegan analyst
reports, and with the underlying factual basis set forth, Morgan
Keegan contends the context reinforced its position that Gwynn's
statements were not actionable – that they were inherently
subjective, completely protected "pure" opinions.
Plaintiffs respond that the trial judge's denial of the
motion was entirely correct because genuine issues of material
fact precluded summary judgment. Plaintiffs point out that
146 A-0963-12T1
Morgan Keegan's collaboration and coordination in furtherance of
the conspiracy went well beyond the statements in its reports,
so the possibility of First Amendment protection for a limited
number of statements provides no basis for dismissing Morgan
Keegan as a defendant. Plaintiffs further set out several
statements from the reports to support their contention that
Morgan Keegan either knew or recklessly disregarded the truth.
For example, plaintiffs contend Morgan Keegan admitted violating
its own policies, and those of the New York Stock Exchange,
because "it did not 'do a single thing' to determine whether its
claims were true and/or [sic] reasonable" and its supervisory
analyst provided no meaningful oversight. The First Amendment,
they contend, does not protect such knowingly or recklessly
false and misleading statements and, therefore, the trial judge
properly denied Morgan Keegan's motion.
2. The Trial Judge's Decision
Relying on Romaine v. Kallinger, 109 N.J. 282 (1988), the
trial judge held that where a statement is capable of more than
one meaning, with only one being defamatory, "the question of
whether its content is defamatory is one that must be resolved
by the trier of fact." Although the judge acknowledged that the
dispute presented a difficult question as to whether a
statement's defamatory nature must be viewed solely within the
147 A-0963-12T1
four corners of the report, or whether it could be considered
within the broader context of the alleged conspiracy, the judge
was satisfied that there were material issues of fact that
required the motion's denial. For example, the judge determined
that a fact issue remained whether Morgan Keegan disclosed to
hedge fund investors the information contained in Gwynn's report
prior to its actual release; in that case, even if the
information was true, the release "probably [constituted] an
illegal insider trading act," in which case, according to the
judge, "maybe that's not protected."
The trial judge also relied on DeAngelis v. Hill, 180 N.J.
1 (2004), and Ward v. Zelikovsky, 136 N.J. 516 (1994), as
support for the view that courts do consider context and "do not
automatically decide a case on the literal meaning of a
challenged statement." Consequently, the judge observed that
"[c]ontext to me is also not just simply words on the paper but
when it was said, how it was said, to whom it was said."
Questions of fact, according to the trial judge, remained about
whether Gwynn or Lawless correctly represented certain facts
about Fairfax's financial condition, and the verifiability of
those facts. The judge recognized that "[d]efendants want to
have their reports characterized as pure opinion," but he
148 A-0963-12T1
determined that "even pure opinion requires me to analyze the
context of the matter and that's most troubling."
Ultimately, however, the judge never applied these
principles to the parties' assertions. He recognized the
questions posed were fact-sensitive but believed the process of
determining whether the First Amendment afforded protection to
Morgan Keegan was so "daunting" as to preclude the painstaking,
statement-by-statement analysis, which the law requires, through
what the judge referred to as "38 boxes" of materials.53
3. Our Holding
To be sure, our courts have held that the "summary judgment
practice is particularly well-suited for the determination of
libel [and defamation] actions" because those actions "tend to
'inhibit comment on matters of public concern.'" DeAngelis,
supra, 180 N.J. at 12 (quoting Dairy Stores, supra, 104 N.J. at
157). This lion of a case, however, mocks those beliefs. Indeed,
although the summary judgment procedure is favored in such
53In his March 16, 2012 oral decision, the trial judge observed
that "everybody agrees that the statement-by-statement analysis
the [c]ourt must go through is an extremely-daunting task and I
think it's an unreasonable – let me not say that, I think it's
the kind of task – I don't want to put it that way either. I did
go through the statements, I did – I did go through the reports,
but for me to conclude that there's no[t] one element of lack of
truth in those – in that record is, I don't think that's
inappropriate – well, it's not that it's inappropriate, I can't
do that, I can't make that finding."
149 A-0963-12T1
instances, that is chiefly so because putting a speaker or
publisher through the discovery process could have a chilling
effect on free speech. See Armstrong v. Simon & Schuster, Inc.,
649 N.E.2d 825, 828 (N.Y. 1995). Considering the amount of
discovery already taken here, it seems a little late in the day
– maybe ten years late – to express concern for the chilling
effect of litigation and discovery.
Moreover, the question is particularly elusive on appeal
because the judge failed to engage in the process required by
law. The statement-by-statement analysis that is required should
not occur for the first time on appeal, and we decline to make
an exception here.
We remand on this point for the trial judge to consider
further the application of First Amendment principles to the
disparagement claims asserted against Morgan Keegan and the Exis
defendants.54 Applied to a claim of disparagement, New York law
would require a determination of whether any of the statements
in question were "susceptible of a defamatory connotation,"
54These same First Amendment principles apply even if the claim
does not sound in defamation but in some other theory of
recovery. See, e.g., Hustler Magazine v. Falwell, 485 U.S. 46,
56, 108 S. Ct. 876, 882, 99 L. Ed. 2d 41, 52 (1988); Food Lion,
Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505, 522 (4th Cir.
1999); Hornberger v. Am. Broad. Cos., Inc., 351 N.J. Super. 577,
628-30 (App. Div. 2002); LoBiondo v. Schwartz, 323 N.J. Super.
391, 415-17 (App. Div.), certif. denied, 162 N.J. 488 (1999).
150 A-0963-12T1
Davis v. Boeheim, 22 N.E.3d 999, 1003-04 (N.Y. 2014), as
outlined in cases such as Thomas H. v. Paul B., 965 N.E.2d 939,
942 (N.Y. 2012) (for example, false statements "that tend[] to
expose a person to public contempt, hatred, ridicule, aversion
or disgrace"), and that the statements do not constitute "pure
opinion," which would not be actionable because "[e]xpressions
of opinion, as opposed to assertions of fact, are deemed
privileged . . . no matter how offensive," Mann v. Abel, 885
N.E.2d 884, 885-86 (N.Y. 2008). Stated another way, no matter
"how[] pernicious an opinion may seem, we depend for its
correction not on the conscience of judges and juries but on the
competition of other ideas." Steinhilber v. Alphonse, 501 N.E.2d
550, 552 (N.Y. 1986) (quoting Gertz v. Robert Welch, Inc., 418
U.S. 323, 339-40, 94 S. Ct. 2997, 3007, 41 L. Ed. 2d 789, 805
(1974)). And, "[w]hile a pure opinion cannot be the subject" of
an actionable claim, Davis, supra, 22 N.E.3d at 1004, an opinion
that "implies that it is based upon facts which justify the
opinion but are unknown to those reading or hearing it, . . . is
a 'mixed opinion' and is actionable." Steinhilber, supra, 501
N.E.2d at 552-53.
"What differentiates an actionable mixed opinion from a
privileged, pure opinion is 'the implication that the speaker
knows certain facts, unknown to [the] audience, which support
151 A-0963-12T1
[the speaker's] opinion and are detrimental to the person' being
discussed." Davis, supra, 22 N.E.3d at 1004 (quoting
Steinhilber, supra, 501 N.E.2d at 553). For guidance in
determining whether a reasonable reader would consider a
statement as connoting facts or nonactionable opinions, New York
law provides three factors: "(1) whether the specific language
in issue has a precise meaning which is readily understood; (2)
whether the statements are capable of being proven true or
false; and (3) whether either the full context of the
communication in which the statement appears or the broader
social context and surrounding circumstances are such as to
signal . . . readers or listeners that what is being read or
heard is likely to be opinion, not fact." Brian v. Richardson,
660 N.E.2d 1126, 1129 (N.Y. 1995). The third factor "lends both
depth and difficulty to the analysis," ibid., and requires a
consideration of "the content of the communication as a whole,
its tone and apparent purpose." Davis, supra, 22 N.E.3d at 1005.
We would also add that Morgan Keegan's claim to summary
judgment is impacted by whether plaintiffs can show that any
false statements of fact were made with "malice," which would
require evidence of actual knowledge or reckless disregard of a
statement's falsity. Gertz, supra, 418 U.S. at 334, 94 S. Ct. at
2997, 41 L. Ed. 2d at 802. Whether a finding of actual malice
152 A-0963-12T1
requires clear and convincing evidence or only a preponderance
of the evidence depends upon whether plaintiffs are public
figures, see Weldy v. Piedmont Airlines, 985 F.2d 57, 63-65 (2d
Cir. 1993) (applying New York law); see also Masson v. New
Yorker Magazine, 501 U.S. 496, 610, 111 S. Ct. 2419, 2429, 115
L. Ed. 2d 447, 468 (1991) (observing that "[w]hen . . . the
plaintiff is a public figure, he cannot recover unless he proves
by clear and convincing evidence that the defendant published
the defamatory statement with actual malice"). Plaintiffs have
not been clear about their position on this point; Morgan Keegan
asserts that plaintiffs did not contest in the trial court that
they are public figures.
The particular question of whether a business entity may be
characterized as a public figure has proved vexing. See Dairy
Stores, supra, 104 N.J. at 139. Courts have held that a
corporation becomes a public figure when inviting reviews and by
advertising extensively, Bose Corp. v. Consumers Union of U.S.,
Inc., 508 F. Supp. 1249, 1273 (D. Mass. 1981), rev’d on other
grounds, 692 F.2d 189 (1st Cir. 1982), aff’d on other grounds,
466 U.S. 485, 104 S. Ct. 1949, 80 L. Ed. 2d 502 (1984), or when
the corporation has "considerable access to the media" or
"voluntar[il]y ent[ers] into a [public] controversy," United
States Healthcare, Inc. v. Blue Cross of Greater Phila., 898
153 A-0963-12T1
F.2d 914, 938 & n.29 (3d Cir. 1990). By way of example, in
Reliance Ins. Co. v. Barron's, 442 F. Supp. 1341, 1348 (S.D.N.Y.
1977), the court held that an insurance company – regulated by
state insurance law and required to file reports with the SEC –
whose "shares [we]re traded on the New York Stock Exchange,"
possessed "more than a billion dollars in assets," and "offered
to sell its stock to the public," had "voluntarily thrust[ed]
itself into the public arena, at least as to all issues
affecting that proposed stock sale," and was, therefore, to be
treated as a public figure "with respect to issues involving its
offering of securities to the public."55
There remains a lack of clarity since our Supreme Court
expressed uncertainty about this thirty years ago. Dairy Stores,
supra, 104 N.J. at 139 (recognizing "that the constitutional
concepts do not comfortably fit the activities or products of a
corporation"). But we need not delve further into this area. As
noted above, plaintiffs may not have disputed the point.
Moreover, the questions whether plaintiffs are public figures
are not presently reviewable. Although we apply the same summary
judgment standards that governed the trial judge, Townsend,
55 Whether a corporation possesses fame and notoriety or seeks
out attention raises questions as to whether it should be viewed
as a general-purpose public figure or a limited-purpose public
figure. See Steaks Unlimited v. Deaner, 623 F.2d 264, 273 (3d
Cir. 1980).
154 A-0963-12T1
supra, 221 N.J. at 59, and are required to examine the same
materials that were presented to the trial judge, Lombardi v.
Masso, 207 N.J. 517, 542 (2011); Noren v. Heartland Payment
Sys., __ N.J. Super. __, __ (App. Div. 2017) (slip op. at 3), we
are not expected, in applying those principles, to canvass the
record to determine whether plaintiffs' claims may be maintained
against Morgan Keegan and the Exis defendants when the trial
judge has not first undertaken this task. We certainly
appreciate the size of the record and the burdensome nature of
the task, but our procedures require that the effort first be
exerted in the trial court.
VI
CONCLUSION
For these reasons, we affirm: the May 11, 2012 order which
dismissed the RICO claims (counts one and two56); the December
23, 2011 order which dismissed in all respects as to defendants
Kynikos, Third Point, Chanos, Perry and Loeb on personal
jurisdiction grounds; the September 25, 2008 order which granted
summary judgment in all respects in favor of Copper River
Partners, David Rocker, and Rocker Partners, L.P.; that part of
56We refer in this paragraph to the counts as they appear in the
third amended complaint.
155 A-0963-12T1
the September 12, 2012 order that precluded Elson's expert
testimony; and the August 14, 2012 order57 that denied Morgan
Keegan's motion for summary judgment. We reverse: the August 21,
2012 order, which determined that the disparagement claim (count
three) and the tortious inference with prospective economic
advantage claim (count five) were governed by New York's three-
year statute of limitations; the September 12, 2011 order
granting summary judgment in the SAC defendants' favor; and that
part of the September 12, 2012 order that found the allegations
concerning 180 lost customers to be inadequate.
Affirmed in part, reversed in part, and remanded for
further proceedings, in conformity with this opinion, on the
claims set forth in counts three, five, and six,58 as they
pertain to Morgan Keegan, S.A.C. Capital Management, S.A.C.
Capital Advisors, S.A.C. Capital Associates, Sigma Capital
Management, Steven A. Cohen, Exis Capital, Exis Capital
Management, Exis Differential Partners, and Exis Integrated
Partners.
We do not retain jurisdiction.
57 This order was mistakenly dated October 12, 2012.
58 Count six alleges a civil conspiracy by all defendants.
Because there are other maintainable tort causes of action, this
civil conspiracy claim may also be maintained.
156 A-0963-12T1
1
FAIRFAX SIMPLIFIED ORGANIZATIONAL CHART
A-1
A-0963-12T1
Sources include: JA178259; JA152968-JA152974 charts as of December 31, 2001