Opinion ID: 4425534
Heading Depth: 2
Heading Rank: 3

Heading: Specific Jurisdiction over Defendants

Text: ¶ 53 With these principles in mind, we turn to the district court’s ruling. Plaintiffs argue that the district court erred by concluding that Plaintiffs failed to meet their threshold burden of establishing specific personal jurisdiction. Defendants counter that the district court correctly dismissed Plaintiffs’ claims for lack of personal jurisdiction because Plaintiffs did not show that any defendant engaged in any conduct in Utah that gives rise to the claims at issue. Specifically, Defendants argue that Plaintiffs cannot establish jurisdiction under the effects test because Plaintiffs “did not show that a conspiracy to manipulate Raser’s stock price was . 18 Cite as: 2019 UT 44 Opinion of the Court ‘expressly aimed’ at Utah” and “cannot show that Defendants caused harm that they knew was likely to be suffered in Utah.” ¶ 54 Using the ClearOne framework, Plaintiffs contend that they have made a prima facie showing of specific personal jurisdiction. According to Plaintiffs, “[t]here is no question that the three predicate elements of the ‘effects’ test are met” because Defendants are alleged to have “(1) committed intentional acts (stock manipulation and communications fraud which are, inter alia, predicate acts under the UPUAA); (2) expressly aimed at Utah (Raser and the other [Plaintiffs]); (3) causing harm, the brunt of which is suffered—and which the [Defendants] knew was likely to be suffered—in Utah.” ¶ 55 The district court rejected this argument and concluded that Plaintiffs “ha[d] not shown that [D]efendant’s conduct was expressly aimed at Utah,” and that they therefore failed to satisfy the second-prong of the effects test. We therefore focus our discussion to whether the district court correctly concluded that Plaintiffs had not pled that Defendants expressly aimed their conduct at Utah. ¶ 56 Plaintiffs appear to argue that Defendants’ conduct satisfied the “express aiming” prong because the “conduct was intended to manipulate the price of Raser’s stock which trades on a national stock exchange in every state, including Utah.” Plaintiffs also argue that Defendants “knew that Raser’s headquarters was in Utah, and, accordingly, that a large number of insiders were located in Utah and any buy-back of Raser’s stock would originate from this State.” And Plaintiffs allege that “the scheme was intended to drive [Raser] into bankruptcy so that [Defendants] could realize the full benefit and avoid detection of their illegal short-selling activities.” Plaintiffs also attempt to connect Defendants’ actions to Utah by describing impacts that they allege occurred more broadly—“More than 250 Utah shareholders had millions in equity destroyed,” “More than 40 Utah residents lost their jobs,” “At least 499 Utah creditors lost money from Raser’s bankruptcy,” “The State of Utah lost more than $1.7 million and Beaver County lost nearly $2 million,” “Six other Utah counties . . . lost money,” and “Dozens of Utah companies lost millions of dollars.” ¶ 57 Although this type of showing might have been sufficient to establish jurisdiction under the effects test we envisioned in Pohl, see Pohl, Inc. of Am. V. Webelhuth, 2008 UT 89, ¶¶ 32, 35, 201 P.3d 944; see also ClearOne, Inc. v. Revolabs, Inc., 2016 UT 16, ¶ 15 & n.34, 369 19 RASER v. MORGAN STANLEY Opinion of the Court P.3d 1269, 16 it does not meet the standard the Supreme Court outlined in Walden. ClearOne, in accordance with Walden, instructs that the defendant’s conduct must connect him to the forum in some meaningful way. 2016 UT 16, ¶¶ 21–26. Allegations of price manipulation on a national exchange do not, standing alone, describe conduct that connects any individual defendant to Utah in a meaningful way. General allegations of out-of-state conduct whose effects ripple into Utah cannot, by themselves, establish specific jurisdiction. ¶ 58 Walden illustrates that these kinds of ripple effects, divorced from conduct aimed at a plaintiff in the forum state, are insufficient. There, it was “undisputed that no part of petitioner’s course of conduct occurred in Nevada.” Walden v. Fiore, 571 U.S. 277, 288 (2014). “Petitioner never traveled to, conducted activities within, contacted anyone in, or sent anything or anyone to Nevada.” Id. at 289. The Supreme Court rebuked the Ninth Circuit’s conclusion that the “petitioner’s knowledge of respondents’ ‘strong forum connections’” and that “respondents suffered foreseeable harm in Nevada, satisfied the ‘minimum contacts’ inquiry.” Id. (citation omitted). The Supreme Court explained that “[s]uch reasoning improperly attributes a plaintiff’s forum connections to the defendant and makes those connections ‘decisive’ in the jurisdictional analysis.” Id. ¶ 59 Walden therefore makes clear that a defendant’s knowledge of a plaintiff’s connections to the forum state coupled with the defendant’s suffering a foreseeable harm, cannot, by themselves, satisfy the minimum contacts analysis. Plaintiffs’ allegations that Defendants “knew that Raser’s headquarters was in Utah, and, accordingly, that a large number of insiders were located in Utah,” and that “the scheme was intended to drive [Raser] into bankruptcy,” which resulted in injuries suffered in Utah, without more, is insufficient. ¶ 60 Indeed, it is difficult to distinguish Plaintiffs’ allegations from those the Supreme Court found wanting in Walden. In Walden, the defendant’s seizure of the plaintiffs’ cash in Georgia did not give _____________________________________________________________ 16 In ClearOne we noted that Pohl “suggests that there is no need to examine whether the defendant had any contacts with the forum state besides the injury felt by the plaintiff, because any intentional tort committed against a resident of a forum state can be of itself a sufficient minimum contact.” ClearOne, 2016 UT 16, ¶ 15. . 20 Cite as: 2019 UT 44 Opinion of the Court rise to jurisdiction in Nevada, even though the Drug Enforcement Administration agent knew that the plaintiffs lived in Nevada and would suffer the consequences of that seizure in Nevada. Walden, 571 U.S. at 288–91. Plaintiffs similarly allege that the effects of the short sales, which are not alleged to have taken place in Utah, would be felt by Raser in Utah. ¶ 61 Walden requires more. And Walden lists some of the kinds of contacts that might suffice: “physical entry into the State—either by the defendant in person, or through an agent, goods, mail, or some other means—is certainly a relevant contact.” Id. at 285. To establish specific jurisdiction, each plaintiff must establish an adequate link between themselves and each defendant, and an adequate link between Utah and their claims. ¶ 62 Our ability to assess whether Utah can assert jurisdiction over any of Defendants is compromised by the fact that the district court analyzed Plaintiffs’ claims and Defendants’ contacts with Plaintiffs collectively. Six plaintiffs—Raser, Kelly Trimble, Mark Sansom, Ocean Fund, Warner Investments, and Maasai—brought claims against Merrill, Merrill Clearing, Merrill International, Goldman, Goldman Clearing, and Goldman International. ¶ 63 To test jurisdiction, the district court should have separately analyzed each plaintiff, its claims, its claims’ connections to the forum, and each defendant’s connections to the forum in relation to those claims. The district court’s failure to analyze jurisdiction with that specificity means that we do not have the record before us that would allow us to review with any confidence the district court’s conclusion that jurisdiction is improper. ¶ 64 Our insistence on this type of analysis assumes importance here, because it appears, based upon what we do have in front of us, that Plaintiffs may have put forward a prima facie case for the assertion of jurisdiction over Merrill with respect to the claims Ocean Fund advances. Although not entirely clear from what is in the appellate record, it appears that Ned Warner, as 100 percent owner and managing member of Ocean Fund, contacted Merrill after Raser’s CEO approached him about releasing two million of his shares for the CBO. Merrill “represented to [Warner] that [his] shares would only be used by participants in the CBO,” and Warner stated in an affidavit that “[i]n reliance upon [Merrill’s] representations, I opened an account at Merrill[’s] . . . Provo, Utah office and had my shares delivered for deposit into my newly opened account.” ¶ 65 Warner explained that he “signed various documents to open the account, including the Master Securities Loan 21 RASER v. MORGAN STANLEY Opinion of the Court Agreement. . . .” And Warner had the stock certificates delivered to a Merrill office located in Provo, Utah. Warner exchanged several emails and telephone calls with Merrill in the months following the release of his stock, and entered into a written agreement regarding the limited use of his stock. After repeatedly reaching out to Merrill to confirm that his stocks were not being used in a short sale, Warner received written-confirmation from Merrill that his stock would not be used to short Raser. ¶ 66 Because of the lack of factual development in the record before us—for example, the record is unclear as to the extent to which Merrill initiated any of the contacts with Ocean Fund as well as the volume of the emails and telephone calls—we do not opine on whether jurisdiction over Merrill is proper. But we emphasize that this highlights that individualized examination of the contacts and claims might yield disparate results for different defendants. We remand to permit the district court to determine whether sufficient minimum contacts exist to permit the exercise of specific jurisdiction over any defendant on any of plaintiff’s claim. ¶ 67 We also flag one aspect of the district court’s order to provide guidance on remand. In its order, the district court hinted at the potential exercise of jurisdiction over Merrill: [Merrill] had stock loan agreements with Raser shareholders, one of which is Plaintiff Ocean Fund, LLC, and plaintiffs contend that [Merrill] breached those agreements by using borrowed Raser shares to support short sales rather than hedging. If Ocean Fund were asserting a claim for breach of those agreements, or any claim that could fairly be said to arise out of a breach of those agreements, the court would have personal jurisdiction over [Merrill] to entertain a claim by Ocean Fund. But plaintiffs do not allege a breach of those agreements. Their [Utah Pattern of Unlawful Activity Act] claim is considerably more involved and, by necessity, requires participation by other defendants over whom the court cannot exercise personal jurisdiction . . . . ¶ 68 To the extent the district court intended to suggest that contacts associated with contract formation can never be used as a basis to exercise specific jurisdiction over a tort claim related to that contract, we note that courts have expressed different views on the topic and that we appear to have not explicitly offered our opinion. . 22 Cite as: 2019 UT 44 Opinion of the Court ¶ 69 In Toussant v. Williams, the United States District Court for the Eastern District of Pennsylvania acknowledged that contacts arising out of a contractual relationship may be sufficient contacts to establish personal jurisdiction over a tort claim. 62 F. Supp. 3d 417, 425–27 (E.D. Pa. 2014). In Toussant, the plaintiff entered into several contracts for health related services with the defendant. Id. at 420. The plaintiff brought several contract and tort claims against the defendant after allegedly suffering racial antagonism, unwanted touching, and harassment at the hands of the defendant, among other things. Id. at 420–21. The defendant moved to dismiss for lack of personal jurisdiction, but the plaintiff responded that “her injuries relate directly to the contracts she had entered [into] with [d]efendant and that these injuries would not have occurred but for the . . . contractual relationship.” Id. at 425. The court analyzed each of the tort claims, and concluded that some of the tort claims were not sufficiently related to the contracts and therefore the plaintiff could not rely on the defendant’s contacts with respect to the contracts to establish specific jurisdiction. Id. at 425–26. However, the court concluded that the plaintiff’s fraud and fraudulent inducement claims did relate to the contracts, because plaintiff “allege[d] that she entered the contracts in reliance upon [d]efendant’s fraudulent representations.” Id. at 426. ¶ 70 The Third Circuit has concluded that “[i]t is enough [to establish the existence of minimum contacts] that a meaningful link exists between a legal obligation that arose in the forum and the substance of the plaintiffs’ claims.” O’Connor v. Sandy Lane Hotel Co., 496 F.3d 312, 324 (3d Cir. 2007). In O’Connor, the court examined contacts arising out of a contractual relationship and concluded that although the “claims sound in tort, not contract,” because the plaintiffs claimed a breach of duty identical to a duty assumed in a contract between plaintiffs and the defendant, such an “intimate . . . link justifies the exercise of specific jurisdiction as a quid pro quo” for the defendants’ “right to form binding contracts in [the forum state].” Id. at 323–24. However, the Third Circuit has also cautioned that “[i]n analyzing jurisdictional contacts on a claim-by-claim basis, [the court] ha[s] been careful to note that forum contacts supporting a contract claim are not necessarily relevant to establishing jurisdiction over a tort claim.” Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 104 (3d Cir. 2004). ¶ 71 Because the parties have not briefed the issue, we do not tackle it in this opinion, but to the extent the district court intended to apply a rule that contacts arising out of a contract may never support specific jurisdiction over a tort action, we emphasize that we have never decided that question. 23 RASER v. MORGAN STANLEY Opinion of the Court