Court Opinion

ID: 35653
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:31:14+00
Date Added: 2024-06-11T12:18:38.335372
License: Public Domain

United States Court of Appeals
                                                                          Fifth Circuit
                                                                         F I L E D
                     UNITED STATES COURT OF APPEALS
                          For the Fifth Circuit                            July 7, 2004

                                                                      Charles R. Fulbruge III
                                No. 03-10179                                  Clerk

                       AMERICAN REALTY TRUST, INC.,
                     BASIC CAPITAL MANAGEMENT, INC.,

                         Plaintiffs - Appellants,

                                     VERSUS

   HAMILTON LANE ADVISORS, INC., LESLIE A. BRUN, PAUL BAGLEY,

                          Defendants - Appellees.

          Appeal from the United States District Court
               For the Northern District of Texas
                              (3:02-CV-00641)

Before DUHE’, BARKSDALE, and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:*

     American    Realty     Trust,    Inc.      (“ART”)   and   Basic      Capital

Management,   Inc.    (“BCM”)    brought      suit   against    Hamilton       Lane

Advisors, Inc. (“HLA”), Leslie A. Brun, and Paul Bagley, alleging

claims   of     fraud,     conspiracy      to     defraud,      and     negligent

misrepresentation.        The district court granted HLA and Brun’s

     *
     Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

                                       1
motion to dismiss for lack of personal jurisdiction and Bagley’s

motion to dismiss for failure to satisfy the pleading requirements

of Federal Rule of Civil Procedure 9(b).1                 The district court

dismissed all claims with prejudice.             For the reasons described

herein,   we   AFFIRM   in   part,    REVERSE    in   part,   and   REMAND   for

proceedings consistent with this opinion.

                                       I.

     Plaintiff ART is a Georgia corporation with its principal

place of business in Texas.          Plaintiff BCM is a Texas corporation

with its principal place of business in Texas.                ART and BCM are

affiliated companies engaged in the business of buying and selling

real estate.     In the fall of 1999, they began negotiations with

defendant   Paul   Bagley,    a   resident     of   New   Jersey,   to   discuss

obtaining refinancing assistance from Mattise Capital Partners, a

company affiliated with Bagley.             By early 2000, plaintiffs still

     1
      In addition to his claims involving Rule 9(b), Bagley also
argues that plaintiffs’ claims in this case should be barred by
the res judicata effect of another district court decision in
which plaintiffs were involved, American Realty Trust, Inc. v.
Matisse, 2002 U.S. Dist. LEXIS 17472 (N.D. Tex., Sept. 16, 2002).
We decline to address that issue now because it is premature.
Res judicata is an affirmative defense that should not be raised
as part of a 12(b)(6) motion, but should instead be addressed at
summary judgment or at trial. See Moch v. East Baton Rouge
Parish School Bd., 548 F.2d 594, 596 n.3 (5th Cir. 1977)
(“Generally, a party cannot base a 12(b)(6) motion on res
judicata.”); see also Clark v. Amoco Prod. Co., 794 F.2d 967, 970
(5th Cir. 1986) (noting that Rule 12(b)(6) only applies to
affirmative defenses that appear on the face of the plaintiffs’
complaint).

                                        2
had not reached an agreement with Bagley, and questioned whether a

relationship with Bagley and his associates made business sense.

     In April 2000, Bagley set up a meeting in New York with ART,

BCM, and defendant Leslie Brun, an individual residing in the state

of New York, and HLA, a Pennsylvania corporation owned by Brun with

its principal place of business in New York.             Plaintiffs had one

meeting with HLA and Brun in New York on April 5, 2000, in which

plaintiffs allege that they were led to believe that HLA would

provide them   with      financing    if    they   entered   into   a   separate

consulting agreement with Mattise.

     Less   than   two     weeks     later,    plaintiffs    entered     into   a

consulting agreement with Mattise.            Later, plaintiffs learned that

HLA was not in a position to help them with financing.              Plaintiffs

then filed suit in March 2002 in federal district court in Texas

against defendants alleging fraud, conspiracy to defraud, and

negligent misrepresentation.         Plaintiffs asserted that HLA, Brun,

and Bagley all conspired to fraudulently convince plaintiffs to

enter into a contract with Matisse by promising financing from HLA

if plaintiffs entered into such a contract and that they would not

have entered into the consulting agreement but for the fraudulent

representations of defendants. In response, defendants HLA and Brun

moved to dismiss for lack of personal jurisdiction, which the

district court granted.       All of the claims against HLA and Brun

were dismissed with prejudice.

                                        3
     Bagley moved to dismiss plaintiffs’ fraud complaint because

plaintiffs did not plead fraud with particularity as required by

Rule 9(b). The district court agreed, granted Bagley’s motion, and

dismissed all claims against Bagley with prejudice, including

plaintiffs’ negligent misrepresentation claims which had not been

previously discussed by the district court.       Plaintiffs timely

appealed.

                                 II.

                                  A.

     Plaintiffs initially argue that the district court erred in

holding that the court lacked personal jurisdiction over HLA and

Brun.    Alternatively, plaintiffs contend that even if the court

lacked personal jurisdiction over those defendants, the district

court erred in dismissing the claims with prejudice.

     The plaintiff bears the burden of establishing the district

court’s personal jurisdiction over a nonresident who moves for

dismissal.1   When, as here, the district court does not hold a full

evidentiary hearing on personal jurisdiction, the district court

can consider affidavits and other properly obtained evidentiary

materials when making its determination.2       The district court

     1
Wilson v. Belin, 20 F.3d 644, 648 (5th Cir. 1994).
     2
     Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1165 (5th
Cir. 1985).

                                  4
shall,   however,     accept   the    uncontroverted       allegations     in   the

complaint as true and shall resolve all factual conflicts in favor

of the plaintiff.3

     The federal court sitting in diversity in Texas has personal

jurisdiction over a defendant to the same extent as the Texas state

courts.4 “[I]t is well-established that the Texas long-arm statute

authorizes the exercise of personal jurisdiction to the full extent

allowed by the Due Process Clause of the Fourteenth Amendment,” so

our inquiry collapses into whether Texas can exercise personal

jurisdiction over HLA and Brun consistent with Due Process.5

     According to the long-established Due Process standard, a

court can constitutionally exercise personal jurisdiction over a

defendant if (1) the defendant has “minimum contacts” with the

forum state and (2) the exercise of such jurisdiction does not

“offend traditional notions of fair play and substantial justice.”6

“The ‘minimum    contacts’     prong    of    the    inquiry   may   be    further

subdivided into contacts that give rise to ‘specific’ personal

jurisdiction    and    those   that    give   rise    to   ‘general’      personal

     3
      Wilson, 20 F.3d at 648.
     4
     Central Freight Lines Inc. v. APA Transp. Corp., 322 F.3d
376, 380 (5th Cir. 2003).
     5
      Id.
     6
      Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

                                        5
jurisdiction.”7       When the cause of action is related to or arises

from the defendant’s contacts with the forum state, then the court

has specific jurisdiction over the defendant for that cause of

action.8       If   the   defendant   has      “continuious     and    systematic”

contacts     with   the   forum   state,      then   the    court     can    exercise

jurisdiction over the defendant generally.9 The parties in this

case concede that Texas does not have general jurisdiction over HLA

or Brun, so our inquiry narrows into whether Texas has specific

jurisdiction over HLA and Brun for this cause of action.

     For     specific     jurisdiction       purposes,     “whether    the    minimum

contacts are sufficient to justify subjection of the non-resident

to suit      in the forum is determined not on a mechanical and

quantitative test, but rather under the particular facts upon the

quality and nature of the activity with relation to the forum

state.”10     In making this case-by-case determination, courts focus

on whether the defendant’s contacts with the forum state should

cause the defendant to “reasonably anticipate” being subject to

jurisdiction in that state.11         In addition, courts examine whether

     7
      Wilson, 20 F.3d at 647.
     8
      Id.
     9
      Id.
     10
      Mississippi Interstate Express, Inc. v. Transpo, Inc., 681
F.2d 1003, 1006 (5th Cir. 1982).
     11
          Wilson, 20 F.3d at 648-49.

                                         6
the defendant has “purposefully directed” its activities toward the

forum state or whether, in contrast, the defendant’s contacts with

the forum state are simply “random” or “fortuitous.”12                    “[M]erely

contracting with a resident of the forum state is insufficient to

subject      the    nonresident    to   the      forum’s      jurisdiction.”13     In

addition, communications or contractual payments directed to a

forum, standing alone, do not constitute purposeful availment of

the   forum,       but   simply   reflect       “the   mere    fortuity   that   [the

plaintiff] happens to be a resident of the forum.”14

      The district court found that HLA and Brun did not have

sufficient minimum contacts with Texas to subject them to personal

jurisdiction there.         We agree.    HLA and Brun’s sole connection to

this case involves the April 5, 2000, meeting in New York in which

Brun, on behalf of HLA, allegedly made fraudulent statements to

plaintiffs on which plaintiffs allegedly relied.                   HLA and Brun did

not sign a contract with plaintiffs nor did they enter into any

other sort of business relationship with plaintiffs.                   HLA and Brun

also did not direct any communications toward Texas or even lead

plaintiffs to believe that they would direct any communications

      12
      Id.; see also Stuart v. Spademan, 772 F.2d 1185, 1190 (5th
Cir. 1985).
      13
      Hold Oil & Gas Corporation v. Harvey, 801 F.2d 773, 778
(5th Cir 1986) (citing Burger King Corp. v. Rudzewicz, 471 U.S.
462 (1985)).
      14
           Id. (internal citations and quotations omitted.).

                                            7
toward Texas.            One meeting in New York City between Brun and

plaintiffs does not create minimum contacts sufficient to cause HLA

and Brun to “reasonably anticipate” being subject to suit in Texas.

To the extent this case relates to Texas at all, it does so only

through “the mere fortuity that [the plaintiffs] happen to be []

resident[s] of [Texas].”15

       The district court, however, erred in dismissing HLA and Brun

with        prejudice.      The   district   court’s   ruling   on   personal

jurisdiction did not address the merits of plaintiff’s allegations

as to HLA and Brun, and, as a result, the claim against them should

have been dismissed without prejudice for filing in an appropriate

forum.16        Rule 41(b) of the Federal Rules of Civil Procedure

       15
      Plaintiffs also argue that Texas should have personal
jurisdiction over HLA and Brun because Bagley was in a conspiracy
with HLA and Brun to defraud plaintiffs and, therefore, that
Bagley’s actions can be imputed to HLA and Brun for personal
jurisdiction purposes. We disagree. Plaintiffs have presented
no facts supporting a conspiracy among the defendants, alleging
only that Brun and HLA made false statements to plaintiffs “only
to induce [plaintiffs] to enter into the contract that Bagley
desired,” without any factual support for the assertion. As the
district court correctly noted, bare allegations of conspiracy
without factual support do not suffice to establish minimum
contacts for personal jurisdiction purposes. See
Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th
Cir. 1993) (“[C]onclusory allegations or legal conclusions
masquerading as factual conclusions will not suffice to prevent a
motion to dismiss.”); Guidry v. United States Tobacco Co., 188
F.3d 619, 631-32 (5th Cir. 1999) (“[A] general allegation of
conspiracy without a statement of the facts constituting that
conspiracy is only an allegation of a legal conclusion.”).
       16
      Hollander v. Sandoz Pharmaceuticals Corp., 289 F.3d 1193,
1216-17 (10th Cir. 2002); see also Posner v. Essex Ins. Co., 178
F.3d 1209, 1221 (11th Cir. 1999); Arrowsmith v. United Press,

                                        8
“specifically exempts dismissals for lack of jurisdiction . . .

from the presumption that the dismissal is with prejudice.”17

     Accordingly, we AFFIRM the district court’s dismissal of HLA

and Brun for lack of personal jurisdiction.              However, we REVERSE

the district court’s judgment to the extent that the dismissal is

with prejudice.

                                        B.

     Plaintiffs        also   argue   that   the   district   court   erred   by

dismissing     their    fraud   and   negligent    misrepresentation    claims

against defendant Bagley.             The district court dismissed these

claims because plaintiffs did not plead fraud with particularity as

required by Federal Rule of Civil Procedure 9(b).

     Rule 9(b) states that “[i]n all averments of fraud or mistake,

the circumstances constituting fraud or mistake shall be stated

with particularity.”18 Rule 9(b) serves several purposes, including

protecting a defendant’s reputation from the harm that general,

unsubstantiated fraud accusations will cause,19 and preventing a

Int’l, 320 F.2d 219 (2nd Cir. 1963).
     17
      8 Moore’s Federal Practice § 41.50[7][c] (Matthew Bender 3d
ed.) (citing Costello v. United States, 365 U.S. 265, 285 (1961)
(discussing “lack of jurisdiction over the person or subject
matter” as examples of dismissals that should be without
prejudice pursuant to Rule 41)); Fed R. Civ. P. 41.
     18
          Fed. R. Civ. P. 9(b).
     19
      Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir.
1992).

                                        9
claimant from searching for a valid particular claim after filing

suit.20

     What constitutes particularity for purposes of Rule 9(b)

“necessarily differ[s] with the facts of each case and hence the

5th Circuit has never articulated the requirements of Rule 9(b) in

great detail.”21       However, this Court has established that “Rule

9(b) requires the plaintiff to allege the particulars of time,

place, and contents of the false representations, as well as the

identity of the person making the misrepresentation and what that

person obtained thereby."22       In addition, “[a]lthough scienter may

be averred generally, case law amply demonstrates that pleading

scienter requires more than a simple allegation that a defendant

had fraudulent intent. To plead scienter adequately, a plaintiff

must set forth specific facts that support an inference of fraud.”23

This Court reviews a district court’s Rule 9(b) dismissal de novo.24

     On      October   24th,   2002,   the   district      court    held    that

plaintiffs’     original   complaint   did   not   plead    fraud    with   the

     20
      2 Moore’s Federal Practice § 9.03[1][a] (Matthew Bender 3d
ed.) (citing Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985).
     21
            Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir.
1992).
     22
      Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068
(5th Cir. 1994).
     23
          Id. (emphasis added).
     24
      See Melder v. Morris, 27 F.3d 1097, 1099, n. 4 (5th Cir.
1994).
                                10
particularity required by Rule 9(b) but allowed plaintiffs “leave

to replead their claims against Bagley” because it was “mindful of

the well-settled principle that dismissal should be avoided until

the plaintiffs have been afforded an opportunity to file an amended

complaint.”25 Plaintiffs filed an amended complaint on November 14,

2002. Bagley again moved for dismissal of the complaint under Rule

9(b).       On January 16th, 2003, the district court granted Bagley’s

motion and dismissed all of plaintiffs’ claims with prejudice.

       Reviewing plaintiffs’ amended complaint de novo, we agree with

the    district      court       that   plaintiffs’     fraud    claims    should   be

dismissed         under   Rule     9(b)    for   failure    to   plead    fraud   with

particularity. With regards to defendant Bagley, plaintiffs allege

that “[i]n the negotiations leading up to the signing of the

Consulting Agreement on April 13, 2002, Bagley represented that he

had contacts and business relationships with individual financing

institutions that would assist [plaintiffs] . . . Bagley made

the[se] statements for the sole purpose of inducing [plaintiffs]

into signing a contract with him and his company.”                    This statement

does        not   meet    Rule    9(b)’s     enhanced      pleading   requirements.

Specifically, alleging that a defendant made false statements

during “negotiations leading up to” an event for the purpose of

inducing someone to enter into a contract with him–without any

additional factual support–does not allege the particular time and

       25
      October 24, 2002 Memorandum Order (Civil Action 3:02-CV-
0641-G) (N.D. Tx.).
                                11
place of the false representations, nor does it set forth any

“specific facts” to support the inference of fraud.                 In short, it

does not satisfy Rule 9(b), and we affirm the district court’s

decision dismissing it.26

                                         C.

     However, in addition to dismissing the fraud claim, the

district     court,       without    analysis    or     discussion,    dismissed

plaintiffs’ claims of negligent misrepresentation against Bagley

sua sponte for failure to plead the claims with particularity.

This dismissal was in error and we reverse.                   Rule 9(b) is an

exception    to    the    liberal    federal    court    pleading   requirements

embodied     in    Rule    8(a).27      Rule     9(b)’s    stringent    pleading

requirements should not be extended to causes of actions not

enumerated        therein.28         Accordingly,       plaintiffs’    negligent

     26
      All of plaintiffs’ other allegations of fraud involve
allegations of conspiracy among Bagley and Brun and HLA to
defraud plaintiffs. As explained above, vague allegations of
conspiracy, without factual support do not suffice to overcome a
motion to dismiss. See footnote 15, supra, and the cases cited
therein.
     27
      See Fed. R. Civ. P. 8(a) (requiring “a short and plain
statement of the claim showing that the pleader is entitled to
relief”).
     28
      Swierkiewicz v. Sorema N.A, 534 U.S. 506, 513 (2002) (“This
Court, however, has declined to extend [Rule 9(b)’s] exceptions
to other contexts.); Leatherman v. Tarrant County, 507 U.S. 163,
168 (1993) (indicating that the doctrine of expressio unius est
exclusio alterius operates to prevent courts from expanding Rule
9(b)’s stringent pleading requirements to other causes of
action); see also Wright & Miller, Federal Practice and
Procedure: Civil 2d § 1297 (“Since [Rule 9(b)] is a special
pleading requirement and contrary to the general approach of
                                12
misrepresentation claims are only subject to the liberal pleading

requirements of Rule 8(a), which Bagley does not contest that they

satisfy. Therefore, it was error for the district court to dismiss

plaintiffs’ negligent misrepresentation claims for failure to plead

with particularity.

                                 III.

     We REVERSE in part the district court’s dismissal of HLA and

Brun for lack of personal jurisdiction with prejudice.     We AFFIRM

the dismissal of plaintiffs’ fraud claims against Bagley.          We

VACATE the district court’s dismissal of plaintiffs’ negligent

misrepresentation     claims   with   prejudice.   We   REMAND   with

instructions to convert the dismissal of HLA and Brun into a

dismissal without prejudice, to consider plaintiffs’ negligent

misrepresentation claims against defendant Bagley, and for any

other proceedings consistent with this opinion.

AFFIRMED IN PART; REVERSED IN PART; REMANDED.

simplified pleading adopted by the federal rules, its scope of
application should be construed narrowly and not extended to
other legal theories or defenses.”).
                                13